August 9, 2010
NEW JERSEY HIGHER EDUCATION STUDENT ASSISTANCE AUTHORITY, PLAINTIFF-APPELLANT,
MICHELLE L. COLGAN AND LAUREL A. COLGAN, DEFENDANTS-RESPONDENTS.
On appeal from the Superior Court of New Jersey, Law Division, Mercer County, Docket No. L-2089-07.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted March 9, 2010
Before Judges Skillman and Gilroy.
Plaintiff, the New Jersey Higher Education Student Assistant Authority (the Authority), appeals from the August 25, 2008 order that denied its motion for summary judgment and dismissed its complaint as time barred pursuant to N.J.S.A. 2A:14-1.2a. We reverse and remand for further proceedings consistent with this opinion.
The Authority was created pursuant to the Higher Education Student Assistant Authority Law, N.J.S.A. 18A:71A-1 to -34. One of its functions is to oversee various post-secondary education assistance programs, including the New Jersey College Loans to Assist State Students (NJCLASS) Loan Program. N.J.S.A. 18A:71C-21. Under the NJCLASS program, the Authority is authorized to "make loans available in such amounts as necessary to ensure that student loans remain generally available to, or for the benefit of, eligible students who are not eligible for, or have additional financial need beyond, a federally insured student loan and who meet the eligibility criteria set forth in [N.J.S.A.] 18A:71C-27." Ibid. Interest on the loans accrues "from the date of the making of the loan; however, the payment of the principal or the interest or both may be deferred until a time or times determined by the [A]uthority." N.J.S.A. 18A:71C-26. Pursuant to N.J.S.A. 18A:71A-8, the Authority adopted rules and regulations governing loans under the NJCLASS program. N.J.A.C. 9A:10-6.1 to -6.19.
In 1994, 1995, and 1996, defendant Michelle Colgan borrowed funds from the Authority through the NJCLASS program. In consideration of the loans, Michelle Colgan executed four promissory notes dated June 5, 1994, June 14, 1995, July 10, 1996, and November 20, 1996, in the amounts of $7,000; $3,500; $2,000; and $2,000, respectively. Defendant Laurel Colgan, Michelle Colgan's mother, cosigned each note.
Michelle Colgan's declared graduation date in the June 1994, and July and November 1996 notes was May 1998. The declared graduation date in the June 1995 note was May 1999.
On August 17, 2007, the Authority filed a complaint seeking to recover principal and interest owed on the four notes. On April 24, 1998, the Authority filed a motion for summary judgment. Defendants opposed, contending that the complaint was time barred by the ten-year statute of limitations governing State civil actions, N.J.S.A. 2A:14-1.2a. However, defendants did not file a cross-motion for summary judgment on that basis. Nonetheless, on August 25, 2008, the trial court entered an order, supported by an oral decision of August 15, 2008, granting summary judgment to defendants, determining that the Authority's complaint was time barred by the statute. In so doing, the court reasoned that the notes were "demand notes, and, as such, the causes of action accrued on the dates that the notes were issued." Concluding that the complaint was filed more than ten years after the issuance of all four notes, the court denied the Authority's motion for summary judgment and dismissed the complaint with prejudice.
On appeal, the Authority argues that the trial court erroneously: determined the accrual date of the notes by failing to consider the effect of administrative regulations governing NJCLASS loans; failed to consider the effect of N.J.S.A. 12A:3-118(b) in determining the accrual date for the purpose of applying the ten-year statute of limitations; failed to consider that Michelle Colgan's 1998 Chapter 13 Bankruptcy proceeding tolled the statute of limitations; and failed to determine that Michelle Colgan's Chapter 13 Bankruptcy proceeding extended the statute of limitations by thirty days.
We observe at the outset that the copies of the four notes contained in the Authority's appendix are extremely difficult to read, and do not reflect the terms and conditions of the loans on the second page as referenced on the first page. It appears that the copies produced to the trial court only reflected the amounts owed and the promises to pay without referencing a date certain. With that said, we conclude that the trial court failed to consider the effect of the Administrative Code regulations in determining the appropriate accrual date for the filing of the complaint.
N.J.S.A. 2A:14-1.2a provides that the limitations period for an action brought by the State is ten years after the "cause of action shall have accrued." The four notes indicate on their faces that they are promissory notes under the NJCLASS program. Accordingly, by law, they are subject to the Administrative Code regulations governing such loans.
Each note provided defendants with three options to repay principal and interest. On the notes dated June 5, 1994, June 14, 1995, and July 10, 1996, defendants selected repayment Option No. 2. That option required defendants to pay interest quarterly but permitted them to defer repayment of principal "until graduation, withdrawal or notification of less than half-time enrollment." N.J.A.C. 9A:10-6.11(b)(2). On the note dated November 20, 1996, defendants selected repayment Option No. 3. That option permitted defendants to defer repayment of principal and interest until sixty days after graduation at which time defendants were obligated to repay principal and interest on a monthly basis. N.J.A.C. 9A:10-6.11(b)(3). Because the declared graduation date on that note was May 1998, defendants' first payments were scheduled to commence on approximately July 31, 1998.*fn1
Default is governed by N.J.A.C. 9A:10-6.16 (Default and consequences of default). That regulation provides:
(a) Default occurs when a borrower fails to make an installment payment when due, or to meet other terms of the Promissory Note under circumstances where the Authority finds it reasonable to conclude that the borrower no longer intends to honor the obligation to repay, provided failure to repay persists for:
1. At least 180 days when payments are due monthly; or
2. At least 240 days during the student's in-school period when payments are due less frequently than monthly.
(b) Upon default, the borrower and/or cosigner, if any, are liable for the entire balance of the loan. Upon default, the Authority shall notify credit bureaus of this negative information. Default may result in any or all of the following: loss of State income tax refunds or State tax rebates, legal action, assessment of collection charges including attorney fees, loss of eligibility for other student aid, negative credit reports, administrative wage garnishment, offset of lottery prize winnings, and suspension of New Jersey occupational and professional license.
Accordingly, depending upon the repayment option selected, the Authority could have only declared default on the loans after 180 or 240 days of defendants' continuous non-payment of monies owed under the notes.
With regard to the three Option 2 loans, the Authority's records indicate that defendants last made quarterly interest payments on October 31, 1997. The next quarterly interest payments were not due until January 31, 1998. On defendants' failure to make the January 1998 interest payments, the Authority was required by regulation to wait 240 days before placing the loans into default. N.J.A.C. 9A:10-6.16(a)(2). Thus, the Authority's right to institute suit on the notes dated June 5, 1994, June 14, 1995, and July 10, 1996 did not accrue until September 30, 1998.
For the Option 3 loan, defendants' first payment date for monies owed was due on or about July 31, 1998. Although the Authority's records indicate that defendants failed to make any payments against the loan, the Authority could not have declared default until 180 days after defendants failed to make the first installment payment, December 30, 1998. N.J.A.C. 9A:10-6.16(a)(1).
Because the Authority's August 17, 2007 complaint was filed "within ten years next after the cause of action shall have accrued" on each of the four notes, we conclude that the complaint was timely filed. N.J.S.A. 2A:14-1.2a.
Reversed and remanded for further proceedings consistent with this opinion.