SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
A-421-99T5
SARASOTA-COOLIDGE EQUITIES II,
L.L.C., assignee of FEDERAL
DEPOSIT INSURANCE CORPORATION,
receiver for SUBURBAN
NATIONAL BANK,
Plaintiff-Appellant,
v.
S. ROTONDI AND SONS, INC.,
Defendant- Respondent,
and
ANGELO J. ROTONDI,
Defendant.
Argued November 28, 2000 - Decided April 12, 2001
Before Judges Stern, A. A. Rodríguez and Fall.
On appeal from the Superior Court of New
Jersey, Law Division, Morris County, Docket No.
MRS-L-2405-97.
John A. Craner argued the cause for appellant
(Craner, Nelson, Satkin & Scheer, attorneys;
Mr. Craner, on the brief).
Nabil N. Kassem argued the cause for respondent
(Carella, Byrne, Bain, Gilfillan, Cecchi,
Stewart & Olstein, attorneys; Carl R. Woodward, III,
Brian H. Fenlon and Mr. Kassem, on the brief).
The opinion of the court was delivered by
STERN, P.J.A.D.
Plaintiff appeals from an order entered on August 20, 1999,
granting summary judgment in favor of defendant S. Rotondi and
Sons, Inc. (defendant) and dismissing the complaint.
The issues on this appeal relate to the applicable statute
of limitations with respect to the timeliness of plaintiff's
complaint seeking judgment on defendant's $140,000 demand note
executed in favor of Suburban National Bank on March 11, 1991,
and whether the assignor Federal Deposit Insurance Corporation's
letter of July 28, 1991 to defendant (and deceased co-defendant
guarantor Angelo Rotondi (Rotondi)) constituted a "demand" for
payment.
Defendant claims that the suit was barred by the applicable
six-year statute of limitations under N.J.S.A. 2A:14-1 and
12 U.S.C. §1821. Plaintiff asserts that it is a holder in due
course and that the 1995 amendment to the Uniform Commercial Code
(UCC), N.J.S.A. 12A:3-118(b), governs the timeliness of its
action. Defendant contends that since N.J.S.A. 12A:3-118(b) was
not enacted until 1995 it should not be given retroactive effect.
The motion judge held that the six-year statute of
limitations embodied in N.J.S.A. 2A:14-1 "applie[d]" and ran from
the date the note was executed; that
12 U.S.C. §1821 (which
incorporated that New Jersey statute of limitations) applied
"because the FDIC took over the bank's assets [on July 26, 1991,]
subsequent to the making of the note"; and that the action was
time barred. The judge further concluded that the 1995 revision
to N.J.S.A. 12A:3-118(b) was not to be given "retroactive"
effect, but that even if it were, a July 28, 1991 letter from the
FDIC to defendant "constituted a demand" for payment and,
therefore, the six-year bar of N.J.S.A. 12A:3-118(b) had run.
Before us, plaintiff argues that the Legislature had the
authority "to extend the statute of limitations on a demand
promissory note"; that N.J.S.A. 12A:3-118 "was part of a curative
revision" of the UCC and that the Legislature intended to give it
"retroactive effect"; that the July 28, 1991 letter "was not a
demand for payment"; and that as a "holder in due course," it is
"entitled to payment from defendant corporation as a matter of
law."See footnote 11
We conclude that the 1995 revision of the UCC and the
provisions of N.J.S.A. 12A:3-118 do not apply in this case. As
that amendment does not apply to demand promissory notes already
in existence on its effective date, we affirm the judgment.
On March 11, 1991, Rotondi executed and delivered on defendant's behalf a "PROMISSORY NOTE (Demand)," payable to Suburban National Bank ("Suburban") in the principal sum of $140,000. While the note provided for monthly payments of interest only, beginning on April 11, 1991, it specifically stated "[t]his [o]bligation . . . is payable on demand." The parties agree that this constituted a "demand note."See footnote 22
On July 26, 1991, Suburban was declared insolvent. The FDIC was appointed its receiver and, as a result, holder of defendant's note and Rotondi's guaranty. On July 28, 1991, FDIC sent a letter to defendant and Rotondi so advising them. The letter stated:
On July 26, 1991, Suburban National Bank, Somerville, New Jersey, was declared insolvent and was closed by the Office of the Comptroller of the Currency. The Federal Deposit Insurance Corporation (FDIC) was appointed Receiver and is now the holder of your obligation(s) owed to the failed bank.
If your payments are current, adhere to the original contractual terms of your indebtedness by making payments as described below:
Pay to: FDIC as Receiver of Suburban National Bank
Care of: Provident Savings Bank
32 New Amwell Road
Somerville, New Jersey 08876
If your payments are past due, you should
contact this office immediately to arrange
for prompt payment of the amount due.
If your loan is secured by real estate,
equipment or vehicles, advise your insurance
agent to name the FDIC as "Loss Payee" and
provide proof of insurance to this office.
Consult with the undersigned before selling
or otherwise disposing of any property
(including crops and livestock) pledged to
secure your indebtedness.
Please follow the above correspondence
instructions until further notice.
[Emphasis added.]
As of July 28, 1991, no payments had been made on the note.
On February 18, 1997, the FDIC assigned the note and
guaranty to plaintiff "effective December 12, 1996." The
assignment was made "without recourse and without representation
or warranty." Apparently as a result of a communication with
plaintiff, on January 30, 1997 defendant "made an interest
payment of $2,000.00 toward the Note." In the letter sent with
its check, defendant stated that this was a "good faith payment,"
and "made without prejudice to any rights, defenses or claims
which S. Rotondi & Sons, Inc. may have."
It is uncontested that on May 7, 1997, plaintiff "made a
demand for full payment upon defendant," and that on June 25,
1997, plaintiff "made a second demand upon the defendant for
payment in full of the Note." Defendant "failed to pay the
Note."
On August 7, 1997, plaintiff filed this complaint.See footnote 33 In its
answer, defendant asserted that plaintiff's action was "barred by
the Statute of Limitations."
In granting defendant's motion for summary judgment, the
trial judge stated:
The Court has reviewed the moving and
opposing papers, and the Court finds that the
Statute of Limitations is an absolute bar to
the prosecution of this action. [N.J.S.A.
2A:14-1] applies. The case law is clear that
it runs from the making of the note.
. . . the Court finds that the Statute
of Limitations runs from the execution of the
note. As a result, the six-year statute [of
limitations] under the Federal Statute [12
U.S.C.A. § 1821(d)(14)(A)] applies because
the FDIC took over the bank's assets
subsequent to the making of the note.
That statute, too, has expired and I'm
satisfied that [the 1995 version of] N.J.S.A.
12A:3-118(b) alters the terms of the
agreement between the defendant and the
original holder of the note by extending the
maximum exposure under the note from a period
of six years to a period of ten years with no
demand for interest or no payment having been
made. That's certainly significant change in
the exposure of the defendant on the note.
But even if it's error to hold that
12A:3-118(b) cannot be applied retroactively,
the Court finds that the demand from the FDIC
for payment, after the FDIC took over the
loan, constituted a demand that started the
running of the Statute of Limitations under
Title 12A. And thus the action would be
barred under that statute, as well.
The Court finds that the making of a
$2,000 payment in good faith, without
prejudice to the right to dispute the
efficacy of the note or its legal effect
. . . [,] has no effect on the tolling of the
Statute of Limitations and the . . . cross-
motion of Plaintiff for money due and owing
on the note is denied.
Plaintiff contends that because the "[L]egislature had the constitutional authority to extend the statute of limitations on a demand promissory note," the motion judge "erred in concluding that the passage of N.J.S.A. 12A:3-118(b) impermissibly altered the terms of the note by extending the statute of limitations from six to ten years in 1995, a time prior to the running of the six-year statute of limitations in effect prior to the enactment of N.J.S.A. 12A:3-118." The critical question before us is whether the enlarged statute of limitations governs with respect to a "demand" note executed before the 1995 revision of the UCC.
N.J.S.A. 2A:14-1 provides, in relevant part, that "[e]very action at law . . . for recovery upon a contractual claim or liability, express or implied, . . . shall be commenced within 6 years next after the cause of any such action shall have accrued." Thus, under that statute it had been established prior to adoption of the UCC that "[o]n a promissory note payable on demand, the statute of limitations begins to run in favor of the maker from the date of execution and delivery of the note." Rickenbach v. Noecker Shipbuilding Co., 66 N.J. Super. 580, 583 (Ch. Div. 1961). At the time that this note was executed, the UCC in effect in New Jersey, adopted in 1961, see L. 1961, c. 120, § 3-122, provided that the "cause of action against a maker or an acceptor accrues . . . (b) in the case of a demand instrument upon its date or, if no date is stated, on the date of issue." N.J.S.A. 12A:3-122(l). Hence, while the statute detailed when a cause of action "accrued," the UCC had no independent statute of limitations governing commencement of the action.See footnote 44
In 1989, Congress enacted the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). See, generally, Annot. "Special Commentary: Limitation of Actions under § 2(d)(14) of Federal Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) (12 USCS § 1821(d)(14)) in Actions Brought by Federal Deposit Insurance Corporation as Receiver," 126 A.L.R. Fed. 1, § 2[a] at 12 (1995). In material part, the statute provides:
Notwithstanding any provision of any contract, the applicable statute of limitations with regard to any action brought by the Corporation [FDIC] as conservator or receiver shall be-(i) in the case of any contract claim, the longer of-(I) the 6-year period beginning on the date the claim accrues; or (II) the period applicable under State law[.]
[ 12 U.S.C.A. §1821(d)(14)(A).] The statute provides further that:
For purposes of subparagraph (A), the date on which the statute of limitation begins to run on any claim described in such subparagraph shall be the later of -
(i) the date of the appointment of the Corporation as conservator or receiver; or
(ii) the date on which the cause of action accrues.
[ 12 U.S.C.A. §1821(d)(14)(B).]
Because most courts "have held that assignees [of FDIC] obtain the benefit of the longer federal statute of limitations," 126 A.L.R. Fed., supra, at 39-40, plaintiff has been treated as the FDIC. See, e.g., F.D.I.C. v. Bledsoe, 989 F.2d 805, 810-11 (5th Cir. 1993); Remington Investments, Inc. v. Kadenacy, 930 F. Supp. 446, 450-51 (C.D. Cal. 1996); Mountain States Financial Resources Corp. v. Agrawal, 777 F. Supp. 1550, 1552 (W.D. Okla. 1991). That principle is not at issue here. The interesting legal issue before us relates to "the applicable" State law for purposes of 12 U.S.C.A. §1812(d)(14). Stated differently, the question is whether the six-year statute of limitations embodied in N.J.S.A. 2A:14-1 was enlarged by the 1995 revision of the UCC.
As already noted, prior to June 1, 1995, N.J.S.A. 12A:3-122 provided that "a cause of action against a maker or an acceptor accrues . . . in the case of a demand instrument upon its date or, if no date is stated, on the date of issue." That statute was repealed effective June 1, 1995, see L. 1995, c. 28, § 1, and replaced in material part by N.J.S.A. 12A:3-118 which provides:
b. Except as provided in subsection d. or e. of this section, if demand for payment is made to the maker of a note payable on demand, an action to enforce the obligation of a party to pay the note must be commenced within six years after the demand. If no demand for payment is made to the maker, an action to enforce the note is barred if neither principal nor interest on the note has been paid for a continuous period of 10 years.
. . . .
d. An action to enforce the obligation of
the acceptor of a certified check or the
issuer of a teller's check, cashier's check,
or traveler's check must be commenced within
three years after demand for payment is made
to the acceptor or issuer, as the case may
be.
e. An action to enforce the obligation of
a party to a certificate of deposit to pay
the instrument must be commenced within six
years after demand for payment is made to the
maker, but if the instrument states a due
date and the maker is not required to pay
before that date, the six-year period begins
when a demand for payment is in effect and
the due date has passed.
[Emphasis added.]
If the 1995 version of N.J.S.A. 12A:3-118(b) is applicable
here, plaintiff's action might not be time-barred. As noted,
under 12 U.S.C.A. § 1821(d)(14)(A), "the applicable statute of
limitations" in the case of any contract claim is "the longer" of
"the 6-year period beginning on the date the claim accrues,"See footnote 55 or
"the period applicable under State law." Thus, if the 1995
version of N.J.S.A. 12A:3-118(b) is applicable, plaintiff's cause
of action would not be barred unless the 1991 letter from the
FDIC constituted a "demand" and the complaint was filed more than
six years "after the demand." See N.J.S.A. 12A:3-118(b).
As previously noted, the trial judge held "that 12A:3-
11[(b)] cannot be applied retroactively" because she was:
satisfied that N.J.S.A. 12A:3-118[(b)] alters
the terms of the agreement between the
defendant and the original holder of the note
by extending the maximum exposure under the
note from a period of six years to a period
of ten years with no demand for interest or
no payment having been made. That's certainly
significant change in the exposure of the
defendant on the note.
In State v. Standard Oil Co.,
5 N.J. 281, 293 (1950), aff'd
sub nom Standard Oil Co. v. New Jersey,
341 U.S. 428,
71 S. Ct. 822,
95 L. Ed. 1078 (1951), our Supreme Court made clear "that
where a right of action has become barred under existing law, the
statutory defense constitutes a vested right which is proof
against legislative impairment." See also State v. United States
Steel Corp.,
22 N.J. 341, 346 (1956) ("under New Jersey law the
expiration of a time limitation upon a right of action not only
bars the remedy but bestows upon the debtor a vested property
right immune from legislative impairment"). Accord State v.
Short,
131 N.J. 47, 54 (1993).
However, with respect to an "ordinary statute of
limitations, dealing only with the remedy given to the
plaintiff[]," it is well settled that, "until the period fixed by
such a statute has arrived, the statute is a mere regulation of
the limitation, and, like other such regulations, subject to
legislative control." Bretthauer v. Jacobson,
79 N.J.L. 223, 225
(Sup. Ct. 1910). Thus, the statute of limitations may be
extended "prior to the falling of the bar created by the
statute." Vincent, Inc. v. Lambek,
9 N.J. Super. 522, 527 (Ch.
Div. 1950). See, generally,
51 Am. Jur. 2d Limitation of Actions
§ 49 at 482-83 (2000) which states:
A legislature validly may enlarge the
period of limitation of a procedural statute
of limitations and make it applicable to
existing causes of action, provided that this
does not revive a cause of action that
already has become barred. There is no
vested right in the running of a statute of
limitations if it has not completely run and
barred the action. However, once an action
has become barred, in some jurisdictions a
defendant may have a vested interest in the
running of the statute of limitations and a
statute that would impair such an interest is
unconstitutional.
Here, under N.J.S.A. 2A:14-1 and N.J.S.A. 12A:3-122(1)(b),
defendant's right to rely upon the statute of limitations defense
did not become a vested right until March 12, 1997, that is, six
years after the note's execution and delivery to Suburban on
March 11, 1991. However, before March 12, 1997, the Legislature
effective June 1, 1995 changed the applicable statute of
limitations for a "note payable upon demand" by its adoption of
N.J.S.A. 12A:3-118(b).
New Jersey courts have "long followed a general rule of
statutory construction that favors prospective application of
statutes." Gibbons v. Gibbons,
86 N.J. 515, 521 (1981). See
also Skulski v. Nolan,
68 N.J. 179, 202 (1975) ("Our decisions
reflect the general principle that[,] in construing legislation,
statutes should not be given retrospective application unless
such an intention is manifested by the Legislature in clear
terms"); Kopczynski v. County of Camden,
2 N.J. 419, 424 (1949)
("A cardinal rule in the interpretation of statutes is that words
in a statute ought not to have a retrospective operation unless
they are so clear, strong and imperative that no other meaning
can be annexed to them, or unless the intent of the [L]egislature
cannot otherwise be satisfied"); Woodbury Heights Bd. of
Education v. Starr,
319 N.J. Super. 528, 543 (App. Div. 1999) ("A
conclusion that the legislature intended retroactive application
requires a compelling showing of such intention").
This rule of statutory construction is subject to several
exceptions. Gibbons, supra, 86 N.J. at 522-23. For example, as
plaintiff argues, a statute may be given retroactive application
if it is "curative." Id. at 523. Under the "curative
exception," an amendment to a statute may be given retroactive
effect, "if it is designed merely to carry out or explain the
intent of the original statute." Kendall v. Snedeker,
219 N.J.
Super. 283, 287 (App. Div. 1987). As Judge (now Justice) Long
has explained, "[i]n essence, an amendment [to a statute] which
falls within the curative exception can be retroactively applied
consistent with the general rule of prospective application
because its purpose is to remedy a perceived imperfection in or
misapplication of a statute and not to alter the intended scope
or purposes of the original act." Id. at 288. A "curative
amendment" to a statute would be one that "brought the law into
harmony with what the Legislature originally intended," in that
such an amendment is "meant only to clarify what was originally
intended." Ibid. Accord Schiavo v. John F. Kennedy Hospital,
258 N.J. Super. 380, 386 (App. Div. 1992), aff'd o.b.,
131 N.J. 400 (1993) (increase in charitable immunity limitation
prospective only); see also Matter of D.C.,
146 N.J. 31, 51
(1996); Carnegie Bank v. Shalleck,
256 N.J. Super. 23, 40 (App.
Div. 1992).
Plaintiff notes that L. 1995, c. 28, repealed and replaced
"Chapters 3 [and] 4 of the Uniform Commercial Code" as part of a
"total overhaul and revision of the UCC." Plaintiff also notes
that, "[p]rior to the 1995 amendments, there was no provision in
the UCC for a statute of limitations under Chapter 3." Finally,
plaintiff notes that N.J.S.A. 12A:3-122, which dealt with the
accrual of causes of action on various forms of instruments
including demand notes, "was repealed in 1995 and replaced by
N.J.S.A. 12A:3-118." As plaintiff states it, the new statute,
for the first time in the UCC with regard to demand notes, "set
forth the applicable periods within which to sue . . . , making
the period of limitation to sue on a [demand] promissory note ten
years from the date of issue or the date of the note [if neither
principal nor interest on the note has been paid for a continuous
period of ten years], if no demand for payment was made, and six
years from the date of a demand, if a demand for payment was in
fact made."
Even under plaintiff's phraseology, the 1995 revision
cannot be deemed merely curative. Rather, it constituted a
significant change in the statute of limitations for demand
notes. As stated in New Jersey Study Comment No. 1 to the pre-
1
995 N.J.S.A. 12A:3-122, "[i]n the case of a demand instrument,
the statute of limitations starts to run in favor of the primary
parties at the moment of issue, for it is clear that no demand
for payment is needed to charge the maker on a demand note, or
the acceptor of a demand draft or check." See also Ligran, Inc.
v. Medlawtel, Inc.,
86 N.J. 583, 588 (1981) ("we affirm the
principle that[,] where a maker also signs a demand note as a
guarantor of payment, the statute of limitations begins to run
from the date of issue, not from the date of demand for payment
following dishonor"). As a result of the 1995 revision, the
statute of limitations runs from the demand and has been
elongated to ten years from the last payment of principal or
interest if no demand is made. The revision is substantive and
not merely "curative." Cf. Hudson Neurological Clinic , Inc. v.
PNC Bank,
336 N.J. Super. 373, 375-76 (App. Div. 2000) (declining
to apply another provision of the 1995 UCC revision to a claim
against a bank for conversion); Leeds v. Chase Manhattan Bank,
331 N.J. Super. 416, 421 n.6 (App. Div. 2000) (noting that L.
1995, c. 28, constituted an "overall revision of Article 3 of the
UCC").
We conclude that N.J.S.A. 12A:3-118 has prospective
application only. While enacted on February 15, 1995, the 1995
revision of the UCC, L. 1995, c. 28, did not take effect until
June 1, 1995, see L. 1995, c. 28, § 15 ("[t]his act shall take
effect on the first day of the first calendar month which follows
the 90th day after enactment"), and an indicia of legislative
intent that an "entire statute should apply prospectively" is a
"postponed effective date." Twiss v. State, Dept. of Treasury,
124 N.J. 461, 468 (1991). See Norman J. Singer, 2 Sutherland on
Statutes and Statutory Construction § 41.04 at 410 (5th ed. 2001)
("Postponement of an effective date for an act indicates that it
should have only prospective application"). See also Handy &
Harman v. Park Ridge,
302 N.J. Super. 558, 565-66 (App. Div.),
certif. denied,
152 N.J. 10 (1997) ("the fact that the effective
date of the [Spill] Act was postponed for more than three months
weighs in favor of prospective application of the entire original
Act"); Thomas v. Romeis,
234 N.J. Super. 364, 374 (App. Div.
1989) ("[m]aking the statute effective on a date certain . . . ,
rather than on the date it was signed into law, is an indication
that only prospective effect was intended").
In Interchange State Bank v. Veglia,
286 N.J. Super. 164
(App. Div. 1995), certif. denied,
144 N.J. 377 (1996), we noted
that L. 1995, c. 28, "[e]ssentially . . . repealed and replaced
N.J.S.A. 12A:3-101 through 3-805." 286 N.J. Super. at 184.
Referring to N.J.S.A. 12A:3-420 (which in 1995 replaced the
repealed N.J.S.A. 12A:3-419), "[w]e decline[d] to apply the
statute retroactively inasmuch as there is no indication that the
Legislature intended that effect." Id. at 185.See footnote 66 Similarly, in
Hudson Neurological Clinic, we recently concluded that the 1995
revision to the UCC could not save the grant of summary judgment
to plaintiffs. Speaking through Judge Alley, we declined to
apply N.J.S.A. 12A:3-420, which replaced N.J.S.A. 12A:3-419,
effective June 1, 1995, "because it had not been adopted at the
time of the events complained of by plaintiffs and is
inapplicable." Hudson Neurological Clinic, supra, 336 N.J.
Super. at 375, citing Interchange State Bank; see also Ingram v.
Earthman,
993 S.W.2d 611 (Tenn. Ct. App. 1998), cert. denied,
528 U.S. 986,
120 S. Ct. 445,
145 L. Ed.2d 362 (1999); Johnson v.
Johnson,
614 N.E.2d 348 (Ill. App. Ct. 1993). It has, therefore,
become part of our consistent State court jurisprudence that the
1995 revision of the UCC should be considered a wholesale
revision of the Code to apply prospectively to transactions
occurring after its effective date, irrespective of whether a
particular revised provision is beneficial or detrimental to
plaintiff's cause of action.
Our disposition makes it unnecessary to decide whether the
FDIC letter of July 28, 1991 constituted a "demand," as a matter
of law, which would commence the six-year statute of limitations
under the 1995 revision to N.J.S.A. 12A:3-118(b). To the
contrary, we decline to decide what constitutes a "demand" under
N.J.S.A. 12A:3-118. Suffice it to say that our interpretation of
the statute's prospectivity is supported by the belief that what
may constitute a "demand" in 1991 should not turn on the
interpretation of a statute adopted four years later. Commercial
transactions require more stability.See footnote 77
The judgment dismissing the complaint is affirmed.
Footnote: 1 1Plaintiff had filed a cross-motion for summary judgment, and although no order was entered denying it, plaintiff seems to press its position on this appeal. While defendant contends we cannot consider that issue in the absence of a cross-appeal, our disposition renders the question academic. Footnote: 2 2On March 11, 1991, Rotondi also executed and delivered a "Guaranty" to Suburban. Under this document, Suburban could demand payment from Rotondi of "every kind of debt" owed by defendant to Suburban if defendant failed to pay Suburban what it owed, "no matter what may happen." After failing to answer the complaint in this case, Rotondi filed a "petition under Chapter 11 of the Bankruptcy Act" and the complaint was dismissed against him. He subsequently died. Footnote: 3 3The briefs before us agree as to the filing date even though it is not so indicated on the copy in the appendix. The complaint was dated July 30, 1997. Footnote: 4 4For an interesting discussion regarding the difference between statute of limitations which deal with the undefined term "accrual" and those which run from fixed dates or events, see, e.g., LaFage v. Jani, 166 N.J. 412 (2001); Caravaggio v. D'Auostini, 166 N.J. 237 (2001). Footnote: 5 5The complaint was filed more than six years after the FDIC was appointed receiver. Footnote: 6 6Neither party cites Motley v. Motley, 60 F. Supp.2d 380 (D.N.J. 1999), which did not cite Interchange Bank. Footnote: 7 7While plaintiff has argued that it is "a holder in due course and is entitled to payment from defendant corporation as a matter of law," it does not argue that, if it is wrong with respect to the applicable statute of limitations, the statutory defense is not applicable. See N.J.S.A. 12A:3-305 (pre-1995 and as amended).
Rutgers School of Law - Camden.