Housing Authority of Union City v. Commonwealth Trust Co.

Decision Date25 November 1957
Docket NumberNo. A--36,A--36
Citation136 A.2d 401,25 N.J. 330
PartiesThe HOUSING AUTHORITY OF UNION CITY, New Jersey, a corporation of New Jersey, Plaintiff-Appellant, v. COMMONWEALTH TRUST COMPANY, a banking corporation of New Jersey, Defendant-Respondent. The HOUSING AUTHORITY OF UNION CITY, New Jersey, a corporation of New Jersey, Plaintiff-Appellant, v. TRUST COMPANY OF NEW JERSEY, a banking corporation of New Jersey, Defendant-Respondent.
CourtNew Jersey Supreme Court

Louis Auerbacher, Jr., Newark, argued the cause for appellant (Victor S. Kilkenny, West New York, attorney).

Edmund B. Hourigan, Union City, argued the cause for respondent Commonwealth Trust Co. (Burke, Sheridan & Hourigan, Union City, attorneys).

Benjamin Gross, Jersey City, argued the cause for respondent Trust Co. of New Jersey (George R. Milstein, Jersey City, on the brief; Lynch, Lora & Milstein, Jersey City, attorneys).

The opinion of the court was delivered by

WACHENFELD, J.

The Housing Authority of the City of Union City is a public corporation organized by Union City under the authority of the Local Housing Authorities Law, N.J.S.A. 55:14A--1 et seq., to supply safe and sanitary housing for persons of low income. In 1950 and 1951 the authority maintained checking accounts in its corporate name with two banks, the Commonwealth Trust Company and The Trust Company of New Jersey. During 1950 the Commonwealth Trust Company charged the authority's account with $1,716, representing the total amount paid by the bank on three checks issued by the authority which were cashed by means of forging the designated payee's endorsement. The Trust Company of New Jersey honored a similar forged check for $5,000 in 1951 and debited the authority's account. In the usual course of business, both banks returned the canceled checks with the forged endorsements thereon to the authority and presumably enclosed the customary statement of account showing the charges which had been made.

The officials of the housing authority did not become aware of these forgeries until 1956, when they demanded that the banks recredit the respective accounts in the full amounts of the wrongful payments. The Commonwealth Trust Company and The Trust Company of New Jersey refused to comply with these demands, which resulted in separate actions against them, seeking judgment against Commonwealth Trust in the sum of $1,716 and against The Trust Company of New Jersey for $5,000.

Each of the defendant banks moved for summary judgment in its favor, principally upon the basis of N.J.S.A. 17:9A--226(B) which provides:

'No banking institution shall be liable to a depositor for an amount charged to * * * him because of the payment by the banking institution of a check * * * upon which the signature of any party, other than that of the depositor, was forged * * * unless, within two years after the return of such instrument to the depositor, he shall notify the banking institution in writing that the signature of a party to the instrument, other than that of the depositor, was forged * * *.'

The trial judge granted defendants' motions and the authority took a consolidated appeal. We awarded certification on our own motion before argument could take place in the Appellate Division.

The appellant concedes N.J.S.A. 17:9A--226(B) would be dispositive if it were a private corporation. It urges, however, that the statute in question is one of limitation and contends that as a public corporation performing a governmental function it possesses the attribute of severeign immunity which prevents the statute from running against it.

The fundamental premise underlying appellant's principal argument concerns the nature of N.J.S.A. 17:9A--226(B). If this provisions is a statement of substantive law rather than a statute of limitations which controls procedure and affects only the availability of a remedy, Eureka Printing Co. v. Division of Employment Security, 21 N.J. 383, 122 A.2d 345 (1956), appellant's conclusion is invalid and there is no need to precisely define its status and the character of its function since the Authority cannot claim that, unlike ordinary private corporations, it is immune from the effect of general provisions of substantive law. In our view, N.J.S.A. 17:9A--226(B) does not establish a period of limitation. In wording, intention and effect it is essentially dissimilar.

A true statute of limitations prescribes a period within which suits must be brought upon claims or rights must be enforced. 1 Wood, Limitations (4th ed. 1916), § 1. The limitation is frequently defined as being the time at the end of which no action can be maintained. 34 Am.Jur., Limitation of Actions, § 3. Thus, our general statute, N.J.S. 2A:14--1 et seq., N.J.S.A. provides that various causes 'shall be commenced' within a designated period 'after the cause of any such action shall have accrued.'

These statutes create repose. They are 'practical and pragmatic devices to spare the courts from litigation of stale claims, and the citizen from being put to his defense after memories have faded, witnesses have died or disappeared, and evidence has been lost.' Chase Securities Corp. v. Donaldson, 325 U.S. 304, 314, 65 S.Ct. 1137, 1142, 89 L.Ed. 1628 (1945), quoted in State by Parsons v. Standard Oil Co., 5 N.J. 281, 295, 74 A.2d 565 (1950). Their primary purpose is to compel the exercise of a right of action within a reasonable time so that the opposing party has a fair opportunity to defend. History shows the first statutes of limitations were passed by the English Parliament when 'abuses from stale demands became unendurable.' 1 Wood, supra, at § 2.

N.J.S.A. 17:9A--226(B) has nothing in common with these enactments. It does not attempt to fix a period whose expiration will bar a depositor from maintaining an action to have his account recredited. Instead, the section under consideration goes to the very essence of the right by establishing a condition precedent to liability on the part of the bank. A bank is not liable when it pays on a forged endorsement, contrary to the contract with its depositor, unless it is informed of such forgery within two years from the return of the forged instrument to the depositor. Thus, the purpose and effect of N.J.S.A. 17:9A--226(B) are vastly different from a limiting statute which merely prevents the obtention of a remedy after a stated period of time. N.J.S.A. 17:9A--226(B) does not attempt to designated when the action must be brought to retain its freshness.

Obviously, this provision of the Banking Act does not create repose. If the vouchers are never returned by the bank and received by the depositor, the statute is inapplicable. When notice is given within the allotted two-year period, the plaintiff-depositor still has the period of the general statute of limitations in which to sue. From this result, it is evident that N.J.S.A. 17:9A--226(B) was not designed 'to prevent undue delay in bringing suit on claims and to suppress fraudulent and stale claims from being asserted, to the surprise of the parties or their representatives, when all the proper vouchers and evidence are lost, or the facts have become obscure from the lapse of time or the defective memory or death or removal of witnesses.' 34 Am.Jur., supra, at § 10. It is completely alien to any limitation of the time in which suit may be brought.

An analysis of N.J.S.A. 17:9A--226(A) and (B) in conjunction with the common-law rules which preceded their passage is instructive.

N.J.S.A. 17:9A--226(A) relates to the situation where the depositor's own signature is forged or his instrument materially altered, in contrast with N.J.S.A. 17:9A--226(B) which is concerned with forged endorsements. The former section specifies that no 'banking institution shall be liable to a depositor for an amount charged to or collected from him because of the payment by the banking institution of a check * * * upon which the signature of * * * the depositor, was forged * * * unless, within two years after the return of such instrument to the depositor, he shall notify the banking institution in writing that his signature * * * was forged * * *.'

At common law, a depositor could not hold his bank liable for honoring an instrument upon which his signature had been forged, or which had been materially altered, unless he examined his canceled checks within a reasonable time after their return and gave the bank notice of what had occurred. 7 Am.Jur., Banks, § 510. See also Sprague v. West Hudson Cty. Trust Co., 92 N.J.Eq. 639, 114 A. 344, 17 A.L.R. 952 (E. & A. 1921); Harter v. Mechanics National Bank, 63 N.J.L. 578, 44 A. 715 (E. & A. 1899). Generally speaking, N.J.S.A. 17:9A--226(A) is a codification of this common-law duty, which conditioned the responsibility of the bank, with the modification that the Legislature has specifically defined a 'reasonable time' as being two years. Certainly, the fact that a definite time for giving notice was set forth does not make N.J.S.A. 17:9A--226(A) a statute of limitations any more than the rule preceding it was a common-law limitation. In each instance, limiting the time for bringing an action was not involved. Both the common law and the statute express substantive rules of law placing an obligation upon the plaintiff which must be fulfilled before his cause of action can accrue and the defendant bank become liable.

Unlike the situation where the depositor's own signature was forged, at common law he usually had no duty to examine his vouchers within a reasonable time in order to determine whether any endorsements had been forged, since ordinarily they were not discoverable by such means, and it was only necessary for him to notify the bank within a reasonable time after such forgeries were actually discovered. 7 Am.Jur., supra, at § 512. See also Sprague v. West Hudson Cty. Trust Co., supra; Harter v. Mechanics' National Bank, supra. Now, N.J.S.A....

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