Pagano v. United Jersey Bank

• Decision Date: 11 October 1994
• Citation: 276 N.J.Super. 489,648 A.2d 269
• Parties: Linda PAGANO, Administratrix of the Estate of Rose Guarino, Plaintiff-Respondent, v. UNITED JERSEY BANK (formerly Peoples Trust of New Jersey), Defendant-Appellant.
• Court: New Jersey Superior Court — Appellate Division

Page 489

276 N.J.Super. 489

648 A.2d 269

Linda PAGANO, Administratrix of the Estate of Rose Guarino Plaintiff-Respondent, v. UNITED JERSEY BANK (formerly Peoples Trust of New Jersey) Defendant-Appellant.

Superior Court of New Jersey Appellate Division.

Submitted Sept. 13, 1994.

Decided Oct. 11, 1994.

Marian B. Copeland, Cranford, for appellant.

Louis Mangano, Elmwood Park, for respondent (Martin N. Crevina of Buckalew, Frizzell & Crevina, Mahwah, on the brief).

Before Judges PRESSLER, CONLEY and NEWMAN.

The opinion of the court was delivered by

PRESSLER, P.J.A.D.

This appeal requires us to consider whether a presumption of payment applies to a savings account deposit evidenced by an uncancelled passbook where the bank has no record of the account and the passbook is presented with a demand for payment by the depositor's heir twenty years and two months after the last transaction recorded in the passbook. In the circumstances here, we are satisfied that the bank is not entitled to such a presumption. Accordingly we affirm the judgment appealed from.

Rose Guarino, a lifelong resident of Lodi, New Jersey, died in June 1990 survived by her only child, plaintiff Linda Pagano. Mrs. Guarino had lived by herself after her husband's death in 1976, and in her later years supported herself exclusively by means of social security payments and a federal rent subsidy. Her estate consisted only of her personal effects. Several months after Mrs. Guarino's death, plaintiff, who later qualified as her administratrix, found the passbook which is the subject of this action in her mother's bureau drawer. The passbook showed that on July 10, 1970, Mrs. Guarino had deposited $4,400 in a pyramid savings account at a branch of Peoples Trust of New Jersey, a state-chartered commercial bank which later changed its name to United Jersey Bank (UJB). That was the only transaction noted in the passbook, which bore no stamp or other marking showing that the account had been closed or the book canceled. Nor was there any posting in the book of any interest paid by the bank on the account. Plaintiff, who had had no prior knowledge of the account despite her close relationship with her mother, presented the passbook at the branch office of UJB in August or September 1990. She demanded payment. Payment was refused.

This action ensued against defendant UJB. UJB, which had been unable to find any internal record corroborating the existence of the account, assumed that it must have been long since closed by the depositor and the proceeds paid to her. It therefore asserted the affirmative defense of payment, claiming its entitlement to a common-law presumption of payment of a debt after a lapse of twenty years. The trial judge held that no such presumption applied in the circumstances here and submitted the cause to the jury, which returned a verdict in plaintiff's favor in the amount of the deposit. The judge ordered that interest be added at the bank's passbook account rates. The gravamen of defendant's appeal is the court's rejection of its asserted right to a rebuttable presumption of payment as well its rejection of its asserted limitations defense.

According to defendant's proofs, a bank-wide search of its retained records, undertaken after plaintiff's presentation of the passbook, failed to disclose any indication of the account's existence. More specifically, defendant's employees testified that there was no extant record of any kind demonstrating that there was either an active or a closed account in Mrs. Guarino's name or identified by her social security number. Based on records still in existence, the bank determined that there was no record of an active account at least since 1983, no record of an escheat of the account at least since 1980, no record of a publication of notice of the account as inactive at least since 1975, and no indication of an interest notice sent by the bank to the depositor by way of a 1099 form at least since 1983. With respect to the uncancelled passbook in plaintiff's possession, bank personnel explained that ordinarily a depositor must fill out a withdrawal order and present the passbook for appropriate notation when either all or part of a passbook savings account is withdrawn. A depositor who claims to have lost the passbook is required to execute an affidavit of lost passbook and is accorded access to the funds thirty days later. Thus funds may not be withdrawn from a passbook savings account without both a withdrawal order and either presentation of the book for appropriate marking or execution of the affidavit. The bank did not, however, retain such affidavits executed prior to 1980, and its search of its file of affidavits executed thereafter did not turn up one by Mrs. Guarino. ¹ Defendant's speculation, therefore, was that Mrs. Guarino had either withdrawn the deposit some time prior to 1980 by executing a lost-passbook affidavit or that she had withdrawn it by presenting the passbook which the teller neglected to stamp.

The only other proofs consisted of expert testimony offered by both parties describing applicable state and federal regulation and internal bank policy regarding record retention. The substance of the testimony, not in the end particularly helpful, was that state regulation of minimum retention periods for various types of bank records applies only to state-chartered savings and loan associations, see N.J.S.A. 17:12B-48(21) implemented by N.J.A.C. 3:26-1.1(a), and that federal regulation of retention periods applies only to nationally-chartered banks, 12 U.S.C.A. 1829b implemented by 31 C.F.R. §§ 103.34(b), 103.38(d). Thus there is no prescribed regulatory period for retention by state-chartered commercial banks, which, however, generally choose as a matter of individual policy to follow the recommendation of the New Jersey State Bankers Association that federal regulation be complied with. In respect of savings and loan associations, the originally prescribed retention period of twenty years for withdrawal slips was reduced in December 1990 to ten years; the retention period for lost-passbook affidavits is seven years. In respect of national banks, the regulatory prescription is five years for all records required to be retained. The judge denied defendant's application to strike the evidence regarding the savings and loan periods, charging the jury that the time periods for both state savings and loans and nationally chartered banks were to be viewed by it as only illustrative of banking practice, there being no concomitant regulation applicable to defendant bank.

We first address defendant's claim of applicability of the six-year statute of limitations, N.J.S.A. 2A:14-1. We have no doubt that the transaction is indeed subject to that limitations period. The question is when the statutory period starts to run. We think it plain that the triggering event is hardly the making of the deposit itself. It is, rather, the depositor's demand for payment. Compare N.J.S.A. 12A:3-122(2), which states that "[a] cause of action against the obligor of a demand or time certificate of deposit accrues upon demand...." As explained by Uniform Commercial Code Comment 1 on N.J.S.A. 12A:3-122

An exception [to the rule that the cause accrues on a demand note on the date of issue] is made in the case of certificates of deposit for the reason that banking custom and expectation is that demand will be made before any liability is incurred by the bank, and the additional reason that such certificates are issued with the understanding that they will be held for a considerable length of time, which in many instances exceeds the period of the statute of limitations.

And as further amplified by New Jersey Study Comment 1:

The certificate of deposit is a negotiable instrument, usually taking the form of a demand note, issued by a bank to a depositor upon receipt of his deposit. While these instruments are in the form of a demand note, they resemble a pass book, and depositors inveterately think of them as mere receipts for money deposited in a savings account. Of course, a demand and refusal are conditions precedent to the right of a depositor to sue a bank upon a deposit account, and consequently, the statute of limitations does not start to run against a depositor until a demand has been made by him. Theoretically, however, the certificate of deposit is different. It is a demand note, and the statute of limitations starts to run the moment it is issued. Where this theory has been put into practice, it has had the unfortunate effect of barring a depositor's rights to his "savings account" simply because he did not withdraw it within six years. Nothing in the N.I.L. [Negotiable Instruments Law] dictates a contrary result.

Consequently, the statute of limitations did not start to run until plaintiff's demand for payment was made and refused. Her action was commenced shortly thereafter. There is consequently no bar to this action in limitations law.

The primary issue is, rather, defendant's claim of entitlement to a presumption of payment. To begin with, it is clear that the relationship between the depositor and bank is that of creditor and debtor and that the passbook constitutes both the instrument of obligation and prima facie evidence thereof. See, e.g., Bruno v. Collective Fed. Sav. and Loan Ass'n, 147 N.J.Super. 115, 121, 370 A.2d 874 (App.Div.1977); Forbes v. First Camden Nat'l Bank & Trust Co., 25 N.J.Super. 17, 21, 95 A.2d 416 (App.Div.1953). It is also well-settled that the creditor's possession of an uncancelled instrument of obligation shifts the burden of going forward as well as the burden of persuasion to the debtor to prove the affirmative defense of payment. See, e.g., Guerin v. Cassidy, 38 N.J.Super. 454, 460, 119 A.2d 780 (App.Div.1955); Kushinsky v. Samuelson, 142 N.J.Eq. 729, 731, 61 A.2d 287 (E. & A.1948); Conlon v. Hornstra, 82 N.J.L. 355, 357, 83 A. 183 (Sup.Ct...