Vigilant Ins. Co. of America v. Housing Authority of City of El Paso, 87 N.Y.2d 36 (1995)
The statute of limitations for a declaratory judgment action regarding rights to bearer bonds accrues when the right to sue on the bond’s principal debt arises, which is typically the day after the bond’s maturity date, not when the theft or initial dispute occurred.
Summary
Vigilant Insurance, as subrogee of Drexel Burnham Lambert, sought a declaration of superior right and title to stolen bearer bonds issued by the El Paso Housing Authority. The key issue was determining the applicable statute of limitations and accrual date for the declaratory judgment action. The Court of Appeals held that because the bonds are governed by UCC Article 8, not Article 3, the statute of limitations began to run the day after the bond’s maturity date, not when Drexel first discovered the bonds were stolen. However, causes of action for tortious conversion and breach of contract related to the bonds were time-barred, accruing when the actions occurred.
Facts
In 1983, Drexel Burnham Lambert purchased 41 El Paso Housing Authority bearer bonds. Drexel then sold the bonds to Irving Trust, which discovered the bonds had been reported stolen prior to Drexel’s purchase. Drexel, per NYSE rules, replaced the bonds for Irving and received an assignment of Irving’s rights. Drexel then sought indemnification from Vigilant Insurance, who paid the claim and received an assignment of Drexel’s rights to the bonds. In 1989, the FBI returned the seized bonds to Vigilant, who then presented interest coupons for payment, which was refused by Morgan Guaranty Trust, the transfer agent. A “stop” was placed on the bonds.
Procedural History
Vigilant sued the Housing Authority and Morgan Guaranty in 1990, seeking a declaration of rights, damages for conversion, and damages for breach of bond obligations. The Supreme Court dismissed the complaint based on the statute of limitations, holding that all claims accrued in 1983 when Drexel learned of the theft. The Appellate Division reversed, concluding the declaratory judgment claim accrued the day after the bond maturity in 1997. The Court of Appeals modified the Appellate Division’s order, affirming that the declaratory judgment action was timely but dismissing the tort and contract claims.
Issue(s)
1. What statute of limitations applies to a declaratory judgment action concerning rights to bearer bonds?
2. When does the cause of action accrue for a declaratory judgment action concerning rights to bearer bonds?
3. Are the causes of action for tortious conversion and breach of contract time-barred?
Holding
1. The applicable statute of limitations is the six-year catch-all period under CPLR 213(1) because no specific limitation period applies.
2. No, because the cause of action for the declaratory judgment accrued the day after the bonds matured, July 2, 1997.
3. Yes, because the statute of limitations for both tortious conversion and breach of contract had expired.
Court’s Reasoning
The Court determined the declaratory judgment action was timely because the claim did not accrue until the day after the bonds matured. The court reasoned that UCC Article 3, which governs negotiable instruments, does not apply to investment securities like bearer bonds; Article 8 of the UCC governs those. While UCC 3-122(1) states that a cause of action on a time instrument accrues the day after maturity, Article 3 explicitly excludes investment securities. The court then reasoned that, since there was no other specifically applicable statute of limitations, the general six-year period applied, running from the date the cause of action accrued. Quoting LaBello v Albany Med. Ctr. Hosp., 85 NY2d 701, 705, the Court stated, “a cause of action does not accrue until an injury is sustained…when all of the facts necessary to sustain the cause of action have occurred, so that a party could obtain relief in court.” Applying Phoenix Acquisition Corp. v Campcore, Inc., 81 NY2d 138, the court found that the right to sue on the bond’s principal debt only accrues when the debt is due and payable. Therefore, the statute of limitations would not begin to run until the maturity date of the bond. However, the causes of action for conversion and breach of contract accrued in 1983 when the “stops” were placed on the bonds, making those claims time-barred. The court cited Employers’ Fire Ins. Co. v Cotten, 245 NY 102, 105, for the definition of conversion as the “unauthorized assumption and exercise of the right of ownership over goods belonging to another to the exclusion of the owner’s rights.”