text:
    SWIFT & COMPANY, A CORPORATION, PLAINTIFF-APPELLANT, v. ERWIN SMIGEL, EXECUTOR OF THE ESTATE OF JOSEPH OSCAR SMIGEL, ALSO KNOWN AS JOSEPH ASHER SMIGEL, DEFENDANT-RESPONDENT.
    Superior Court of New Jersey Appellate Division
    Argued March 25, 1971
    Decided July 15, 1971.

      Before Judges Conford, Kolovsky and Carton.

      Mr. Sidney Krieger argued the cause for appellant.

      Mr. John J. Baldino argued the cause for respondent (Messrs. Calissi, Gelman, Cuccio & Klinger, attorneys).
   The opinion of the court was delivered by

Conford, P. J. A. D.

Plaintiff Swift & Company instituted an action in the Superior Court against Erwin Smigel, executor of the estate of Joseph 0. Smigel, for $8,509.60, the amount of merchandise it supplied the Pine Haven Nursing Home & Sanitarium, Inc. (“Pine Haven”) upon credit. Plaintiff held continuing guaranties by decedent Smigel and third-party defendant Abe Kraig for payment of the indebtedness. The trial court granted defendant Erwin Smigel’s motion for summary judgment, and entered judgment dismissing Swift’s complaint and Smigel’s third-party complaint against Kraig. Swift appeals from that judgment.

The action of the trial court was predicated upon Joseph Smigel’s adjudication as an incompetent prior to the delivery of any of the merchandise for which claim is here made, and upon the authority of the supposed rule that mental incompetency of an offeror prior to acceptance by the offeree terminates the offer whether or not the offeree had notice of the incompeteney at the time of the acceptance. Restatement, Contracts, § 48 at 56 (1932). The justification for any such rule, which has not heretofore been passed upon in any reported New Jersey ease, is the main question before us for resolution.

The undisputed facts which emerge from the pleadings, motion papers, briefs and oral argument are these. To induce plaintiff to sell provisions to Pine Haven, the two equal owners of its stock, decedent Smigel and one Abe Kraig, on November 11, 1962 each entered into a written agreement of “continuing guaranty” with plaintiff undertaking to pay at maturity all indebtedness of Pine Haven for goods to be sold and delivered to it by plaintiff. Among other provisions, the agreement signed by Smigel purported to cover all liabilities the buyer might incur until ten days after receipt of notice from the guarantor or his legal representatives of withdrawal of the guaranty. No notice of withdrawal was ever given by Smigel or his representatives. Plaintiff asserts, and for the purpose of this appeal it must be accepted as a fact, that it never had knowledge of Smigel’s incompetency during the period of delivery of the merchandise giving rise to the present claims, or previously.

We are without information on the basis of which it could be determined whether plaintiff reasonably should have known or been put on inquiry of facts which would have disclosed Smigel’s incompetence. Smigel was adjudicated incompetent January 16, 1966, and letters of guardianship were issued to his son, the present defendant, on February 1, 1966. The unpaid-for merchandise was delivered during the period from January 4, 1967 to October 12, 1967. What the course of deliveries and payments therefor previously may have been is not disclosed by the record.

Smigel died November 19, 1967. Pine Haven filed a petition under Chapter XI of the Bankruptcy Act on December 20, 1967. Plaintiff made a claim against the decedent’s estate, which was rejected, whereupon this action was instituted.

Defendant’s third-party complaint against Kraig and one defense to the complaint are based on the allegation that the goods in question were not delivered to Pine Haven but to a newly organized enterprise owned by Kraig. The merits of this claim were not involved in the decision of the court to enter the summary judgment.

Neither of the parties to this appeal disputes that the agreement upon which this action was brought was a continuing guaranty of the kind “which is not limited to a particular transaction * * * but which is intended to cover future transactions.” See Fidelity Union Trust Co. v. Galm, 109 N. J. L. 111, 116 (E. & A. 1932). A continuing guaranty is at its inception an offer from the guarantor and is accepted by the creditor each time the latter does a specified act (e. g., extending credit to the debtor). Typically, as here, such a guaranty reserves in the guarantor the power to revoke it unilaterally prior to action by way of acceptance by the creditor. 38 Am. Jur. 2d, Guaranty, § 63 at 1064.

The specific question which concerns us here — whether an adjudication of mental incompetency of a guarantor operates automatically to revoke a continuing guaranty — has not been decided in any American case disclosed by research of the parties or our own. An English trial court decided that the continuing efficacy of the guaranty ceased only when the creditor became aware of the guarantor’s insanity. The issue, however, was not involved in the reported appeal. Bradford Old Bank v. Sutcliffe, 2 K. B. 833 (Ct. App. 1918).

The treatment of the question in the texts has been subsumed under the assumed analogy of death of the guarantor. Most of the few decided cases on the latter point have held that death terminates the guaranty without regard to knowledge by the creditor, on the purported general principle that the death of an offeror destroys one of the two essential assenting entities to a contract. See 10 Williston, Contracts (Jaeger-3d ed. 1967) § 1253 at 809-810; 1 id. § 62 at 20G-207 (1957); Restatement, Contracts, § 48 at 56 (1932); Restatement, Security, § 87 at 250-252 (1941). A New Jersey trial court followed the general rule. Teplitz Thrown Silk Co. v. Rich, 13 N. J. Misc. 494, 179 A. 305 (Cir. Ct. 1935). Other typical such cases are Jordan v. Dobbins, 122 Mass. 168 (Sup. Jud. Ct. 1877); Aitken v. Lang, 106 Ky. 652, 51 S. W. 154 (Ct. App. 1899). The leading case to the contrary is Gay v. Ward, 67 Conn. 147, 34 A. 1025 (Sup. Ct. Err. 1895), which stressed the diminished business utility of continuing guaranties if terminable without notice on death. Professor Corbin treats that ease as representative of the preferred rule. 1 Corbin, Contracts (1963) § 54 at 229. See infra.

The conceptual underpinning of the notion that an offer should be deemed automatically revoked upon death or insanity of the offeror despite good-faith action by way of acceptance thereof by an unknowing offeree has been criticized by the leading writers on the subject.

Corbin comments:

It is very generally said that the death of the offeror terminates the offeree’s power of acceptance even though the offeree has no knowledge of such death. Such general statements arose out of the earlier notion that a contract cannot be made without an actual meeting of minds at a single moment of time, a notion that has long been abandoned. The rule has also been supposed to follow by some logical necessity from the dictum that it takes two persons to make a contract. It is not contrary to that dictum to deny that death terminates power to accept; the offer was made by a living man and is accepted by another living man.
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It has even been held, and justly, that the doing of the requested acts after the death of the offeror, but in ignorance thereof, consummates a contract. Thus, where through an agent an offeror orders the shipment of goods to the agent, and the offeree ships the goods in ignorance that the offeror has died, the offeree can collect the price from the offeror’s estate. So, also, where one has given his promise to guarantee payment for goods to be sold, money to be lent, or service to be rendered to another, the sale or loan or service in ignorance of the promisor’s death has been held to enable the promisee to enforce the promise of guaranty against the guarantor’s estate. Some cases have held the contrary, however; and also it has been held that the offeree can not accept after he has knowledge that the offeror is dead. [1 Corbin, op. cit., § 54 at 227-228, 229; emphasis added]

The ease for terminating the offer on subsequent insanity of the offeror without knowledge of the offeree is found by Corbin “even more doubtful than the rule as to the offeror’s death” as “[i]nsanity is far less easily determinable as a fact than is death, either by the contracting parties themselves or by a court.” Id. at 231.

Williston observes:

Strong arguments have been advanced that, under the modern view of the formation of contracts which makes the expression of mutual assent the determining factor, notice of death should be required to end the offer, since until notice the apparent effect of the offer continues. A statute, however, would undoubtedly be necessary to bring about this result. [1 Williston, op. cit., § 62 at 207]

and also:

In all probability, insanity of either party would, more than a century ago, having been treated in the same way as death; but since the middle of the nineteenth century there has been a growing recognition of the capacity of insane persons to make contracts, at least under some circumstances, based on the apparent effect of the insane person’s conduct and on the ignorance of any impropriety in the transaction by the other party. [Id., § 62A, at 208]

It is noteworthy, in the same vein, that the American Law Institute, although retaining in proposed Restatement, Contracts 2d (Tent. Dr. No. 1, 1964) the substance of section 48 of the Restatement, terminating an offeree’s power of acceptance when the offeror (or offeree) dies or is deprived of legal capacity to enter into the proposed contract, apparently does so reluctantly and critically. Comment (a) to section 48 in Restatement 2d, reads:

Death of offeror. The offeror’s death terminates the power of the offeree without notice to him. This rule seems to he a relic of the obsolete view that a contract requires a “meeting of minds,” and it is out of harmony with the modern doctrine that a manifestation of assent is effective without regard to actual mental assent. See § 21. Some inroads have been made on the rule by statutes and decisions with respect to bank deposits and collections, and by legislation with respect to powers of attorney given by servicemen. See Uniform Commercial Code § 4-405; Restatement of Agency Second § 120 and Comment a. In the absence of legislation, the rule remains in effect. [Emphasis added]

See the comparable criticism of the rationale of the principle of automatic revocation of offers on death or insanity of the offeror in Oliphant, “Duration and Termination of on Offer,” 18 Mich. L. Rev. 201, 209-211 (1919), and in Note, 24 Colum. L. Rev. 294 (1924), in both of which that rule is found to violate the reasonable expectations of an offeree without knowledge of the offeror’s death ox other disability. In the latter the observation is made:

Contract and tort liabilities pass to personal representatives. Why not liability under an offer? If we adopt a test objective as to the offeror and ask, “What is the scope of the offeree’s reasonable expectation?,” it would seem that notice of the death should be required to terminate the offer, [at 295]

In view of the foregoing criticisms of the conventional approach, which strike us as persuasive, we are not disposed, in determination of this first-instance litigation on the point, routinely to follow existing standard formulations on the subject. The search should be for the rule which will accord with the reasonable expectations of persons in the business community involved in transactions of this kind. In that regard, moreover, we bear no responsibility in this case for determining the rule in the ease of death of the guarantor but only in that of his adjudication of incompeteney. There may be material differences in the respective situations, as noted in the excerpt quoted from Corbin, supra. Furthermore, our New Jersey eases on the effect of insanity on contract liability, as will be seen infra, also call for a special approach to the guaranty question in the insanity context.

In broad terms, the law of contracts has been said to “attempt [s] the realization of reasonable expectations that have been induced by the making of a promise.” 1 Corbin, op. oil., § 1 at 2. In the present instance decedent promised plaintiff to make good any bills for provisions incurred by a corporate business enterprise in which he had a one-half stock interest. Had he not done so plaintiff presumably would not have taken on the business risk of selling to the corporation. It would seem to us that if plaintiff neither knew nor had an3r reason to know of decedent’s later adjudication as an incompetent during any portion of the time it was making the deliveries which gave rise to the debts here sued on, plaintiff’s reasonable expectations based on decedent’s original continuing promise would be unjustifiably defeated by denial of recovery.

If the situation is judged in terms of relative convenience, it would seem easier and more expectable for the guardian of the incompetent to notify at least those people with whom the incompetent had been doing business of the fact of adjudication than for the holder of a guaranty such as here to have to make a specific inquiry as to competency of the guarantor on each occasion of an advance of credit to the principal debtor. Cf. Gay v. Ward, supra, 34 A., at 1026.

We have thus far been considering the problem presented on the theory that decedent’s accountability should soundly be appraised on the basis of reasonable expectations and xelianee of others stemming from his act of execution of the guaranty. On that approach, his subsequent incompetency would be irrelevant, for he was competent When he acted. The theoretical basis for the conventional view of automatic termination of the continuing guaranty on insanity, however, is that there is a renewal of the offer on each occasion of acceptance thereof by the offeree, and that renewal cannot be effected by one without legal capacity at the time. See Note, 24 Colum. Law Rev., op. cit., at p. 295. But even if we adhered to that concept of the jural conduct of the guarantor in a continuing guaranty, immunity of defendant in the present situation as a matter of law would not square with existing New Jersey cases as to the liability of persons who, lacking mental capacity, contract with others having no knowledge of that fact and parting with valuable consideration.

In Manufacturers Trust Co. v. Podvin, 10 N. J. 199, 207-208 (1952), the court approved the rule declared in the early case of Drake v. Crowell, 40 N. J. L. 58, 59 (Sup. Ct. 1878) to the effect that

The law in this state is settled, that contracts with lunatics and insane persons are invalid, subject to the qualification that a contract made in good faith with a lunatic, for a full consideration, which has been executed without knowledge of the insanity, or such information as would lead a prudent person to the belief of the incapacity, will be sustained.

The qualification stated was applied by the court in the Drake ease in favor of an unknowing party dealing with the alleged incompetent. In accord, South Orange Trust Co. v. Hartley, 29 N. J. Super. 58, 60 (Ch. Div. 1953).

It is thus clear that whatever view is taken as to the appropriate theoretical basis for determining the decedent’s liability in this fact pattern, the decisive consideration should be the presence or absence of knowledge by plaintiff, actual or reasonably to be imputed, of decedent’s ineompetency at the time of each advance of credit pursuant to the guaranty.

Moreover, if at the trial plaintiff’s knowledge is established by defendant, the issue of decedent’s ineompetency would not necessarily be concluded by proof of the fact of adjudication of incompetency. The decisions in this State leave no doubt that that fact is not conclusive but only prima facie evidence of legal incompetency. Eckman v. Wood, 108 N. J. L. 105, 108 (E. & A. 1931); American National Red Cross v. Lester, 129 N. J. Eq. 28 (E. & A. 1941); Coombs v. Witte, 104 N. J. L. 519 (E. & A. 1928).

The entire judgment, including the dismissal of the third-party complaint, is reversed and the cause is remanded to the Law Division for further proceedings consonant with this opinion.


source: Caselaw Access Project

author: Conford, P. J. A. D.

license: Public Domain

text:
    STATE OF NEW JERSEY, PLAINTIFF-RESPONDENT, v. JOHN B. J. BRENNAN, DEFENDANT-APPELLANT.
    Superior Court of New Jersey Appellate Division
    Argued May 10, 1971
    Decided July 15, 1971.

      Before Judges Conford, Kolovsky and Carton.

      Mr. M. Gene Haeberle argued the cause for appellant.

      Mr. Rudolph J. Rosetti, designated attorney, argued the cause for respondent (Mr. A. Donald Bigley, Camden County Prosecutor, attorney).
   The opinion of the court was delivered by

Conford, P. J. A. D.

Defendant appeals from his conviction on two counts of an indictment for possessing and selling marijuana to an undercover state trooper on July 12, 1968. He was sentenced to concurrent terms to the State Reformatory for from two to five years and fines of $2.00 which were suspended. The grounds of appeal are: (a) violation of Sixth Amendment rights of defendant arising from the 11 months’ delay between date of offense and arrest; (b) excessiveness of sentence, and (c) error in sentencing by a judge other than the trial judge.

Defendant was 18 years of age at the time of the alleged offenses, a recent high school graduate. After summer working hours he frequented an apartment which was a social gathering place for young men and women. State Trooper Perozzi was assigned to undercover narcotics investigation of the apartment. Disguised in mustache and beard he became a frequent attendant at the apartment over a period of two months and purchased marijuana there, but never from defendant before July 12, 1968, although they were present at the same time on a number of occasions.

Perozzi testified that on July 12, 1968 he had an appointment to meet another habitué of the apartment there to buy marijuana; that when he arrived there that evening and asked for the other person, explaining what he wanted, one William Green, who apparently lived there, said “we have some,” motioning to defendant; that Green and defendant went to a bedroom and returned with an envelope which defendant handed to Perozzi in return for five one-dollar bills, and that Green then took one of the bills from defendant, saying “I’ll take my share now.”

Defendant denied the occurrence. He said ho was sleeping in the apartment on the occasion in question when Green opened the bedroom door and asked, “Have you any grass?” He replied he did not and went back to sleep. A defense witness who had also been in the apartment gave testimony tending to support defendant’s version and contradict that of Perozzi. Green was not called as a witness, having apparently been confined in jail in Florida at the time of this trial.

There was proof at the trial that the envelope purchased by Perozzi contained marijuana.

Perozzi continued to frequent the apartment for a time after the occurrences of July 12, 1968. Defendant was not arrested until June 5, 1969, having in the interim completed one year of attendance at Oglethorpe College in Atlanta, Georgia. He was released on bail pending trial, and also after sentencing, which took place May 4, 1970, pending this appeal.

I

Prior to trial defendant unsuccessfully moved to dismiss the indictment because of the 11-month delay between the alleged offense and the arrest, on the ground that his defense of the charge was impaired by the delay. His reliance is on Ross v. United States, 121 U. S. App. D. C. 233, 349 F. 2d 210 (1965); see the discussion of Boss and later-qualifying decisions of the same federal circuit court in State v. Rountree, 106 N. J. Super. 135 (Cty. Ct. 1969). In Ross there was a reversal of a narcotics conviction for lack of due process where the complaint against the defendant was not sworn out until seven months after the alleged offense; apart from the narcotics, the prosecution’s case consisted solely of the testimony of a policeman purchaser who had to refresh his recollection of the event from a notebook, and defendant was unable to recall events of the day of the offense. The present case is obviously distinguishable. Both Perozzi and defendant had independent recollection of the day’s events. Moreover, some delay (perhaps not as much as, here) is usual in informer eases of this kind to permit the police to complete their investigations.

In any event, the basically controlling law in this State is that ordinarily an indictment may be returned at any time within the statute of limitations and that a speedy trial is not denied unless the State fails to try defendant on a date fixed by the court upon the defendant’s application to have such date specified. State v. Masselli, 43 N. J. 1 (1964). See also Dickey v. Florida, 398 U. S. 30, 90 S. Ct. 1564, 26 L, Ed. 2d 26 (1970). Yo decision of the United States Supreme Court or of our own appellate courts has yet held that delay between the time of the State’s knowledge of a defendant’s involvement in a crime and the time of his indictment or arrest impairs a constitutional right. Of. the concurring opinion of Justice Brennan in Dickey v. Florida, supra (398 U. S. at 46), 90 S. Ct. at 1573 suggesting that “[deliberate governmental delay designed to harm the accused” may be a denial of due process even as to the period prior to indictment.

II

Defendant has challenged the procedure in sentencing in that the sentencing was by the assignment judge of the county rather than the trial judge. Defendant’s brief asserts unconstitutionality, but that question was settled adversely to the contention in State v. De Stasio, 49 N. J. 247 (1967), cert. den. 389 U. S. 830, 88 S. Ct. 96, 19 L. Ed. 2d 89 (1967). Our attention was. drawn to the matter of appropriateness of the procedure, apart from the question of constitutionality, in view of the consideration that sentencing should ordinarily be done by the trial judge. See State v. De Stasio 49 N. J., at 261-262 (concurring opinion). However, inquiry by us of the sentencing judge reveals that the trial judge disqualified himself from sentencing for reasons arising after the trial which need not concern us here. The assignment judge consequently possessed jurisdiction to sentence. R. 1:12-3(a).

Ill

Defendant asserts that as a first-time marijuana offender he should not, in the reasonable exercise of the sentencing judge’s discretion, have heen sentenced to a reformatory term, but should have been placed on probation. He particularly invokes the decision and philosophy of State v. Ward, 57 N. J. 75 (1970), decided several months after sentence was pronounced in this case. The court there stated:

We think that generally a suspended sentence with an appropriate term of probation is sufficient penalty for a person who is convicted for the first time of possessing marihuana for his own use. Tat 82]

The present case is, of course, distinguishable, in that defendant was convicted of a sale as well as of possession. Moreover, the possession for which defendant was convicted cannot unequivocally be characterized as “for his own use,” under the version of the facts here apparently credited by the jury.

In sentencing, the judge laid stress upon defendant’s violation of probation in relation to offenses occurring subsequent to the instant offense but prior to trial and conviction therefor. While on his way back to college in October 1968 with other students in a car owned by one of them, after a visit home, according to an affidavit of defendant supplied us at our request, defendant was stopped by Georgia police who found an envelope of marijuana in the glove compartment and two marijuana cigarettes on the owner of the car. Although the drugs were not his, defendant was advised as a matter of convenience to plead guilty to possession and did so. He was sentenced to two years probation in December 1968. In March 1969 he was arrested on a charge of illegal nse of narcotics to which he pleaded guilty and was fined $200 and costs in the Municipal Court of Medford, FT. J. in August 1969 under circumstances which he explains in the affidavit as follows.

Because of finances he transferred to Camden County College in February 1969. In March he was riding with and in the car of a former fellow student and a third person. The ear was stopped by Medford police who found under a seat two pipes and some hashish (a variant of marijuana) which defendant asserts was the property of the third person. He accepted an attorney’s advice to plead guilty of disorderly conduct.

Were it not for the opinion in State v. Ward, supra, we would affirm the sentence without regard to what our own predilections might indicate as an appropriate sentence of this first-time offender, who presents a strong case for application of the rehabilitative aspect of the sentencing function. Viewed as of prior to Ward, the principle of strong deference on appeal to the discretion of the sentencing judge would control, particularly because of the subsequent violation of record of the Georgia probation — a factor which the court could properly consider notwithstanding the events involved postdated the instant offense.

There is nothing suggestive of criminality about this young man or his background apart from the troubles the use of marijuana has led him into. The record does not suggest he is a professional purveyor of drugs. According to the presentence report, he comes from a comfortable, middle-class home and has had good upbringing. His high school record was above average. He has always had after-school and summer employment at remunerative positions. He regularly attends at his church. His involvement in the matters discussed herein has been a source of deep distress to his parents and younger brother.

The presentence report in this matter concludes:

It is felt at this time subject should receive a fine, a suspended sentence and a period of probation as opposed to incarceration. Since it does appear that the subject is attempting to become a useful adult, being gainfully employed and attempting to expand his education, it is felt that he should be given a chance to prove himself. It is hoped that probation supervision will enable and educate the subject to become aware of the consequences which often result with drug associations.

At the sentencing the prosecutor said he had no recommendation but would rely on the presentence report. In the affidavit to this court defendant avers that since March 7, 1969 he has not used nor sold to anyone else nor been associated with anyone who in his presence partook of any narcotics or marijuana and that he will never do so again in the future. He has applied for and been accepted to return to Oglethorpe College for the 1971 summer session and intends to complete his education there. He already has five semesters of college to his credit. He has been engaged to be married since August 30, 1970, but education and marriage plans are entirely contingent on the outcome of this case. Penal incarceration would destroy his prospects. Because of the unfortunate delays attendant on prosecution and review since the offense and the consequent three-year lapse, a two-year incarceration commencing now could be argued to be ill-designed to serve any useful purpose and to be unusually punitive in effect.

It is true that in Ward the Supreme Court confined its holding to a first-offender possessor of marijuana, while here we have a sale. But the pronouncement there was a fixed, no-jail rule for initial possessors of marijuana. The question here is the exercise of discretion in favor of a seller-user of that drug under favorable rehabilitative prospects where no aspect of commercialism is presented. Moreover, the court in Ward cited (at 83) from a 1952 Legislative Commission Report which quoted an eminent authority as saying:

“There is little defense for the predatory, non-addict drug sellers who exploit our youth for profit. However, laws providing severe mandatory penalties for all who are technically guilty of selling drugs would prevent the rehabilitation of many of the younger addicts. This is true because drug users frequently sell small quantities of drugs to friends or acquaintances to obtain money to supply themselves with enough narcotics to prevent withdrawal suffering.” [57 N. J. at 83; emphasis added]

The following observations in Ward as to youthful offenders are not inherently inapplicable to the case of the young man before us here. The court said:

We cannot escape the unhappy fact that our youth have been involved with marihuana in disturbing numbers. That this is so does not palliate the wrong. Nor should we be thought to encourage or condone such conduct. The statute should and will be enforced. But it remains the policy of the law to reform the youthful offender. Sentencing judges should direct the punishments they impose to the goal of reformation. Too severe a punishment will do little towards advancing this goal. Incarceration is a traumatic experience for anyone. The effect must be particularly devastating upon young persons such as the defendant here. A sentence of two to three years in State Prison in a case like this will probably be more detrimental to both the offender and society than some other discipline. Even a sentence to a reformatory as suggested by the Appellate Division may be more punitive than is required, [at 82; emphasis added]

In all fairness both to defendant and the sentencing judge who was without the benefit of Ward, and the additional facts bearing upon considerations favorable to rehabilitative treatment of defendant emerging since sentencing, we remand for reconsideration of sentence. A supplemental presentence report bringing the investigation down to date should be made available to the sentencing judge.

Remanded.

      A considerable number of changes have been made in the narcotics laws by L. 1970, c. 226 (N. J. S. A. 24:21-1 et sect-).

      Under the criminal narcotics laws, as of the time of this offense, while a first offender could be given probation, N. J. S. 2A: 168-1, if he was not given probation, the minimum prison term was two years. N. J. S. A. 24:18~47. One is a “first offender” under the statute if the offense is committed prior to any conviction for a different offense, even if the latter is committed first. State v. Johnson, 109 N. J. Super. 69 (App. Div. 1970).

      The presentenee report indicates he was a user of marijuana at the time of the offense.


author: Trautwein, J. S. C.

text:
    EDWARD J. SOSANIE AND MARY SOSANIE, HIS WIFE, PLAINTIFFS, v. PERNETTI HOLDING CORP. AND JOSEPH E. PERNETTI, DEFENDANTS.
    Superior Court of New Jersey Chancery Division
    Decided June 22, 1971.

      Mr. Harold Friedman for Plaintiffs (Mr. William A. Kaufmann, attorneys).

      Mr. Leo I. McGough for defendants (Messrs. Moser, Roveto & McGough, attorneys).
   Trautwein, J. S. C.

Plaintiffs brought this action for a declaration of the validity of an exercise of a renewal option in a lease and to specifically enforce said renewal. This matter came on under R. 4:67-l(b) on a motion for an order to proceed summarily. On the return date it was shown palpably that there was no genuine issue as to any material fact pleaded and the parties agreed to try the action to final judgment on the pleadings, affidavits and briefs theretofore submitted. The following has been found by the court:

Plaintiffs Sosanie have owned and operated a stationery-luncheonette business in leased premises at 27 West Hudson Avenue, Englewood, N. J. since October of 1955. The building in which plaintiffs’ business is located is also occupied by a pharmacy. The pharmacy was previously operated by a Murray Selvin, -who owned the building. He was plaintiffs’ landlord under the lease here involved. Plaintiffs’ business is what is best described as a “neighborhood” business. As such its success is dependent not only on the goodwill and reputation developed over the years by plaintiffs but also upon its location. Plaintiffs contend, and the court finds, that if the store were forced to relocate even a few blocks away, their business would suffer immediate and substantial harm.

On May 27, 1966 plaintiffs and Selvin, the aforesaid owner of the premises, entered into a lease agreement. The leasehold was to terminate on May 31, 1971 unless under paragraph Thirty-Seventh plaintiffs exercised their option to renew for an additional five-year period. That paragraph Thirty-Seventh provides in pertinent part:

The privilege is extended to the tenants to extend the term of this lease for an additional period of five (5) years from June 1, 1971 upon the same terms and conditions as herein set forth except that the rent during the renewal term shall be * * *. The tenants shall give written notice to the landlord of their intention to exercise the option to renew by certified mail, return receipt requested, no later than December 1, 1970. In the event such notice is not received by the landlord on or before such date, the option to renew shall be considered to have been waived.

On January 8, 1970 Selvin conveyed the subject premises to defendant Joseph Pernetti Holding Corporation, along with an assignment of the Sosanie lease. The corporation is apparently the “alter ego” of Joseph Pernetti, who also took over the operation of the pharmacy which is located on the subject premises. Plaintiffs do not deny that they had knowledge of the lease assignment. The December 1, 1970 deadline passed without their giving any outward indication of an intent to exercise their option to renew. On January 8, 1971 defendant Pernetti, personally informed plaintiffs of his intention to physically expand his own business and therefore plaintiffs were to vacate the premises by June 1, 1971. One or two days later (approximately January 10, 1971) defendant received a letter by certified mail dated November 29, 1970 and postmarked January 8, 1971 which purported to exercise the option to renew. Defendant refuses to honor this notification of intent to renew. At the hearing it was admitted by counsel for plaintiffs that the option to exercise was not, in fact, mailed until January 8, 1971.

While it is clear that the notice requirement for renewal of the lease is for the benefit of the lessor and thus can be waived or extended by the lessor, Wallworth v. Johnson, 25 N. J. Misc. 449, 55 A. 2d 305 (Sup. Ct. 1947); Wolf v. Tastee Freeze Corp. of America, 172 Neb. 430, 109 N. W. 2d 733 (Sup. Ct. 1961); Dries v. Trenton Oil Co., Inc., 17 N. J. Super. 591 (App. Div. 1953); Kearney v. Hare, 265 N. C. 570, 144 S. E. 2d 636 (Sup. Ct. 1965), such is not urged by plaintiffs here. In fact, their fundamental argument is that if defendant is permitted to terminate the leasehold at this point, an unjust and inequitable forfeiture will be permitted to occur.

The only other theory urged is that defendant sat back and surreptitiously waited until the notice deadline had passed, whereupon he pounced upon the unsuspecting plaintiffs and administered the coup de grace with a notice to vacate. This theory 'seemingly implies that a lessor has the affirmative duty of reminding a forgetful lessee that lessee’s time to exercise an option to renew is running out. Such argument is without merit. Rounds v. Owensboro Ferry Co., 253 Ky. 301, 69 S. W. 2d 350 (Ct. App., 1934).

As a general rule, the law of contracts holds that in an option contract, time is of the essence. 1A Corbin, Contracts (1963), § 273, at 593; Socony-Vacuum Oil Co. v. Pabian, 32 N. J. Super. 390 (Ch. Div. 1954); Monmouth Cty. Elec. Co. v. Consolidated Gas Co. of N. J., 83 N. J. L. 531 (E. & A. 1912). However, in regard to renewal options, at least as they apply to a landlord-tenant relationship, the general rule in New Jersey is modified so that failure to give timely notice may be relieved against if fraud} accident, surprise or mistake are shown, or where there are other special circumstances which warrant a court of equity to grant relief against the consequences of the lessee’s failure to notify the lessor within the stipulated time or in the specific form or manner prescribed. Marjer v. Layfmen, 140 N. J. Eq. 68 (Ch. 1947); Koch v. H. & S. Development Co., 249 Miss. 590, 163 So. 2d 710 (Sup. Ct. 1964). It is also the general rule that equity will not relieve against mere forgetfulness. 50 Am. Jur. 2d, Landlord and Tenant § 1187, at 75; Koch v. H. & S. Development Co., supra.

In defining the bounds of equity jurisprudence, former Justice Heher had this to say:

The field of equity jurisprudence is not like unto an unchartered sea, with no compass to guide save the conscience of the Chancellor, unrestrained by principle, precept or rule. Its jurisdiction rests upon and is limited by well-established principles; otherwise, there could be no certainty or fixity of right and remedy — its functioning would be attended wtih uncertainty and consequent confusion. A court of equity is not vested vith arbitrary power; it does not rise above all law; nor can it substitute terms for those made by the parties to a contract. [Goerke Kirch Co. v. Goerke Kirch Holding Co., 118 N. J. Eq. 1 (E. & A. 1934) ]

While the court is sensitive to the limitations inherent in its powers, as detailed by Justice Heher, the court also notes that in Sears, Roebuck & Co. v. Camp, 124 N. J. Eq. 403 (E. & A. 1938), Justice Heher said:

Equitable remedies “are distinguished for their flexibility, their unlimited variety their adaptability to circumstances, and the natural rules which govern their use. There is in fact no limit to their variety and application; the court of equity has the power of devising its remedy and shaping it so as to fit the changing circumstances of every case and the complex relations of all the parties.” Pomeroy’s, Equity Jurisprudence, Sec. 109 (Sth Ed. 1941). A lack of precedent, or mere novelty in incident, is no obstacle to the award of equitable relief, if the case presented is referable to an established head of equity jurisprudence —■ either of primary right or of remedy merely, [at 411]

Thus, it is clear that under current practice, hard and fast rules should be neither promulgated nor blindly followed. Instead, the court should apply pre-existing principles in an equitable and fair manner. 213 So. Harrison St. Corp. v. Ogust, 113 N. J. Super. 74 (Cty. Ct. 1971).

There is ample and well-reasoned authority for demanding exact compliance wtih the terms of the option. See United States v. 70.39 Acres of Land, 164 F. Supp. 451, 468 (D. C. Cal., 1958); McClellan v. Ashley, 200 Va. 38, 104 S. E. 2d 55 (Sup. Ct. App. 1958); Cicinelli v. Iwasaki, 110 Cal. App. 2d 58, 338 P. 2d 1005 (D. Ct. App. 1959). The reasoning behind such theory is a recognition that the optionor is bound while the optionee is free to accept or reject; thus, courts will not hold the optionor any longer than he has agreed to be held.

Plaintiffs cite a number of cases, among them American Houses, Inc. v. Schneider, 211 F. 2d 881 (3 Cir. 1954). These cases are factually distinguishable from the case at bar. Plaintiffs cite several New Jersey cases dealing with the exercise of an option to renew. These eases, however, deal exclusively with the problem of actual notice of the exercise rather than with exercise after the expiration of the date of option deadline. Such an element is not present in the instant case. Plaintiffs place great reliance on the holding in F. B. Fountain Co. v. Stein, 97 Conn. 619, 118 A. 47 (Sup. Ct. Err. 1922), wherein it was held that where the delay in giving timely notice was slight, the loss to the lessor small, and not to grant relief would be unconscionable, relief will be granted. This rule was stated with even greater clarity and insight in Application of Topp, 81 N. Y. S. 2d 344 (Sup. Ct. 1948) wherein it was said:

A court of equity will, however, grant relief to a tenant who has failed to give the required notice if his delay has not been so great as to constitute laches, and the failure to give due notice was attributable to an honest mistake where the tenant has a valuable interest in the property and the delay has caused no injury to the lessor.

While the Supreme Court of Hew Jersey has not specifically adopted the rule laid down in Topp and Fountain, this court views such rule as providing fundamental guidelines for determining whether or not those “special circumstances,” as stated in Marjer, 'Supra exist to such extent as to justify relieving plaintiffs against the consequences of their failure to give timely notice. The court has already found that substantial harm would be done to plaintiffs if they were forced to relocate. At the same time it is clear that defendant did not change its position in reliance on plaintiffs’ delay. Therefore, plaintiffs are not in laches. It can hardly be disputed that their failure to give timely notice was based upon an honest mistake of fact in that they had forgotten the date of the deadline. In any event, the delay was slight and the loss to defendant insignificant. Defendant, when he purchased the property, had no vested right to expand his pharmacy business by taking over the area devoted to plaintiff’s luncheonette. There is nothing in the record demonstrating an expectation on defendant’s part that plaintiffs did not exercise their right to renew. Indeed, it can be safely assumed that defendant expected the renewal and made no plans to expand: It is also abundantly clear that to permit defendant to enforce this forfeiture under all of the circumstances attendant would indeed be inequitable and unconscionable.

In view of the foregoing discussion, the court finds that such special circumstances exist as permit it to enforce the exercise of the renewal option even though said option was not exercised precisely according to governing terms.

Judgment is awarded in favor of the plaintiffs and against the defendants.

      Plaintiffs make much of the fact that the lease was prepared by the landlord. However it is not refuted that the renewal option was inserted at their unilateral insistence. In any event, the court is not called upon to construe the renewal option, and therefore the question of who prepared the lease is immaterial.


author: Marzulli, J. C. C.

text:
    STATE OF NEW JERSEY v. ROBERT V. HAYNIE. STATE OF NEW JERSEY v. EDGAR ACOSTA.
    Essex County Court Law Division (Criminal)
    Decided July 8, 1971.

      Mr. Louis Berman, Assistant Prosecutor, for State (Mr. Joseph P. Lordi, Prosecutor of Essex County, attorney).

      Mr. Benjamin A. Stanziale for defendant, Robert V. Haynie.

      Mr. Malcolm Colton for defendant Edgar Acosta (Mr. Leonard D. Ronco, Deputy Public Defender of Essex County, attorney).
   Marzulli, J. C. C.

Defendant Robert V. Haynie was arrested on September 22, 1970 for illegally possessing .03 grams of marihuana. He was subsequently indicted under N. J. S. A. 24:18-4 for the illegal possession of a narcotic drug. On May 24, 1971 he pleaded guilty to the downgraded offense of using a narcotic drug under N. J. S. A. 2A:170-8.

On May 27, 1971 defendant Edgar Acosta pleaded guilty to the illegal use of a narcotic drug on February 28, 1970, contrary to the provisions of N. J. S. A. 2A.170-8.

Under N. J. S. A. 2A :170-8, which has now been repealed, such violations as disorderly person offenses were punishable under N. J. S. A. 2A :169-4, which provides:

Except as otherwise expressly provided, a person adjudged a disorderly person shall be deemed to have been guilty of a petty offense and shall be punished by imprisonment in the county workhouse, penitentiary, or jail for not more than 6 months, or by a fine of not more than $500.00 or both.

In addition to this general penalty, N. J. S. A. 2A:170-8 also provided for the mandatory forfeiture of the offender’s right to operate a motor vehicle in this State for a period of one year.

The issue presented by this case is whether a judge is required to sentence under N. J. S. A. 2A:169-4 or has the discretion to prescribe sentence under the newly adopted Controlled Dangerous Substances Act, L. 1970, c. 226, which repealed N. J. S. A. 2A:170-8.

Defendants have no prior convictions for any narcotic offenses. Under section 27 of the new act (N. J. S. A. 24:21-27) the sentencing judge has the discretion of placing a defendant, with his consent and upon notice to the prosecutor, on probation without ever entering a judgment of conviction against him. This section further provides:

Upon fulfillment of the terms and conditions of probation, the court shall discharge such person and dismiss the proceedings against him. Discharge and dismissal under this section shall be without court adjudication of guilt and shall not be deemed a conviction for purposes of disqualifications or disabilities, if any, imposed by law upon conviction of a crime or disorderly person offense, but shall be reported by the clerk of the court pursuant to the Controlled Dangerous Substances Registry Act. Discharge and dismissal under this section may occur only once with respect to any person.

The new act in section 28 (N. J. S. A. 24:21-28), also provides a procedure by which a young offender may apply to the court for an order to expunge all recordations of his arrest, trial and conviction except those required under the Controlled Dangerous Substances Registry Act of 1970, L. 1970, c. 226. Section 28 continues:

The effect of sucli order shall be to restore such person, in the contemplation of the law, to the status he occupied prior to such arrest and trial. No person as to whom such order has been entered shall be held thereafter under any provision of any law to be guilty of perjury or otherwise giving a false statement by reason of his failures to recite or acknowledge such arrest or trial in response to any inquiry made of him.

As one can see from the above portions of the new act, the Legislature, presumably aware of the increased experimentation with marihuana among our younger generation, provided procedures by which a one-time experimenter may he freed of the stigma and burdens which a conviction of a disorderly person offense would entail.

While it is true that the general disorderly person provisions allow a person who has been adjudged a disorderly person to have the record of his conviction expunged, this will not occur until after a lapse of five years from the date of such conviction. See N. J. S. A. 2A :169-11. However, in the ease of youthful offenders the period of age 17 through 25 is a critical juncture in their lives, for .in this period many of them will he applying for admission to colleges and uni-varsities and others will he attempting to secure permanent employment. The court is well aware that these applications usually inquire as to whether a person has a record.

Bearing this in mind, we will examine how the law regards the “user” of marihuana. As our Supreme Court noted in the recent case of State v. Smith, 58 N. J. 202 (1971), the New Jersey Legislature, even under the old narcotics laws, treated the narcotic user less severely than the “possessor” and the “seller.” This is evident from the greater penalties prescribed for possessors and sellers, as compared to the penalty for users. See N. J. S. A. 24:18-47 and now 24:21-19, 20; and N. J. S. A. 2A:170-8, 2A:169-4 and now 24:21-20. As the court supra stated in Smith,

With regard to the user, the lawmaker saw him as a less culpable offender than the trafficker and concluded that although he should be punished and the public protected against dangers that might arise from his use of narcotics, less severe sanctions were justified in order to pursue the aim of rehabilitating him. [at 209]

And in State v. Ward, 57 N. J. 75 (1970), our Supreme Court granted certification to establish guidelines for the sentencing of first offenders whose possession was incidental to their own use. The court, stressing the goal of reformation, stated:

We cannot escape the unhappy fact that our youth have been involved with marihuana in disturbing numbers. That this is so does not palliate the wrong. Nor should we be thought to encourage or condone such conduct. The statute should and will be enforced. But it remains the policy of the law to reform the youthful offender. Sentencing judges should direct the punishments they impose to the goal of reformation. * * * We think that generally a suspended sentence with an appropriate term of probation is sufficient penalty for a person who is convicted for the first time of possessing marihuana for his own use. Probation is designed to aid both society and the offender by affording opportunity for correction under suitable supervision. It is hoped that during the probation the offender will establish liim- ■ self as a law-abiding member of the public and thus avoid .the need for confinement with its possibly adverse consequences, [at 82-83]

In a special message to the Legislature, “Drug Abuse— Problem of the Decade” (April 37, 1970), Governor Cahill addressed himself to the proposed New Jersey Controlled Dangerous Substances Act thusly:

Thirdly, the proposed Act takes a first legislative step at recognizing that use of drugs is a social or medical illness. Thus, with respect to persons charged with use or possession of any dangerous drug for the first time, the Act confers upon the court, new discretionary authority to defer criminal proceedings and to impose a special term of probation. If the conditions of this probation are met, the court may then dismiss the proceedings. In order that youthful first offenders are not saddled with a lifetime arrest record, the Act provides for an immediate expungement of records with respect to arrest.

Under the new act the Legislature, also presumably aware of the increased use of marihuana, especially among the younger generation, and of the important need of rehabilitating these offenders, has given sentencing judges more discretion in the treatment of marihuana offenders. Eor example, upon conviction of illegal use of marihuana under the Controlled Dangerous Substance Act the forfeiture of a defendant driver’s license is no longer mandatory but rests within the discretion of the judge. In Smith, supra, our Supreme Court gave judicial recognition to the marked changes in the legislative direction, by permitting the cause to be remanded to the county district court to determine whether a defendant driver’s license should be forfeited even though the conviction for violating N. J. S. A. 3A:170-8 remained- — a conviction which meant mandatory forfeiture under the old law. As the court said;

Since the Legislature has now indicated that the circumstances of each ease should play an important role in the exercise of the trial court’s discretionary decision, respecting forfeiture of a driver’s license for drug use, the automatic visitation of such a penalty upon this defendant at this late date would seem to be unjust, [at 216]

It would seem unfair to these defendants, in view of the executive, legislative, and judicial pronouncements concerning the reformation of such narcotic offenders, not to treat their offenses under the provisions of the new act. The Supreme Court of California, in In re Estrada, 63 Cal. 2d 740, 48 Cal. Rptr. 172, 408 P. 2d 948 (1966), facing the same issue, held that where a criminal statute is amended which mitigates the punishment for a prohibited act after the act is committed but before final judgment, the punishment provided by the amendatory act should be imposed. The court went on to say:

The problem, of course, is one of trying to ascertain the legislative intent — did the Legislature intend the old or new statute to apply? Had the Legislature expressly stated which statute should apply, its determination, either way, would have been legal and constitutional. It has not done so. We must, therefore, attempt to determine the legislative intent from other factors. [48 Cal. Rptr. at 175, 408 P. 2d at 951]

The court then discussed the effect of a saving clause, such as contained in section 40 of the new act, saying:

The fact that the offender can be punished under the old law when the new law increases the punishment where there is an express ox-implied saving clause, certainly is not conclusive on the legislative intent where the new statute mitigates the punishment. If there is no saving clause he can and should be punished under the new law. (Sekt v. Justice’s Court, Supra [26 Cal. 2d 297], at p. 305, 159 P. 2d 17.) In such a situation the rule of construction that statutes are nox-mally to be interpreted to operate prospectively and retroactively (a rule embodied in Section 3 of the Penal Code) has been rebutted. The existence of a saving clause does not invalidate this conclusion. As already pointed out, if the saving clause expressly provided that the old law should continue to operate as to past acts, so far as punishment is concerned that would be the end of the matter. But that is not what the Legislatxxre has done in Section 9608. A reading of that section demonstrates that the Legislature, while it positively expressed its intent that an offender of a law that has been repealed or amended should be punished, did not directly or indirectly indicate whether he should be punished under the old law or the new one. As has already been pointed out, where the amendatory statute mitigates punishment and there is no saving clause, the rule is that the amendment will operate retroactively so that the lighter punishment is imposed. [48 Cal. Rptr. at 77, 408 P. 2d at 953]

Section 40 of the new act states that prosecutions shall not be affected or abated by the repealers of the new act. However, like the California saving clause, it does not direct under which statute punishment is to be imposed.

As noted above, our Supreme Court in Smith took recognition of the legislative direction and remanded the case to the county district court so that court could use its discretion respecting the driver’s license forfeiture, which, in effect, was allowing that court to apply a provision of the new act. Based on the reasoning of that decision, it would seem that a sentencing judge, depending on the circumstances of a particular case, would have the discretion to sentence under the new act.

As mentioned above, the Legislature has in the new act provided a procedure by which the court may place certain first offenders on probation without entering a judgment of conviction. N. J. S. A. 24:21-27. Therefore, taking notice of the marked change in the legislative direction in the treatment of marihuana first offenders, and being aware of the adverse effects of a judgment of conviction, and based on the circumstances of these cases, after notice to prosecutor and with the consent of the defendants, this court will use its discretionary power and not enter a judgment of conviction and will place defendant on probation for two years, to pay $1 a week, with the complaints to be dismissed upon proper motion upon fulfillment of the terms and conditions of probation.


author: Labrecque, J. A. D.

text:
    WILLIAM M. LAMBERT, PLAINTIFF-RESPONDENT, v. FISHERMAN’S DOCK COOPERATIVE, INC., DEFENDANT-APPELLANT.
    Superior Court of New Jersey Appellate Division
    Argued April 5, 1971
    Decided July 9, 1971.

      Before Judges Sullivan, Collester and Labrecque.

      Mr. Robert F. Novins argued the cause for appellant (Messrs. Novins & Novins, attorneys).

      Mr. Thomas J. Gunning argued the cause for respondent (Messrs. Rogers, Sim, Sinn, Gunning & Serpentelli, attorneys).
   The opinion of the court was delivered by

Labrecque, J. A. D.

Defendant Eisherman’s Dock Cooperative, Inc. (the association) appeals from a judgment in favor of plaintiff for $18,498.86 following a trial before the court without a jury.

Defendant is a fishermen’s cooperative organized July 1, 1953 pursuant to N. J. S. A. 34:17-1 et seq. governing cooperative societies of working men. Briefly, its purposes were to provide a ready market for the sale of aquatic products (as defined in 15 U. S. G. A. § 521 (1963)) produced by its members, provide docking and other facilities for members and patrons, and generally to benefit its members through a more efficient and economical method of marketing their produce. Its capital stock was divided into 2,000 shares, each with a par value of $50. Each member could east but one vote, regardless of Ms share holdings. The certificate of association provided, in pertinent part:

d. Stock may be acquired by producers of aquatic products; and in exceptional eases by other persons having connection with the fishery trades, but not exceeding 5% of the total membership and after approval by the Board of Directors.

The certificate of association recited that it and the bylaws could be amended, altered or repealed “in any manner not inconsistent with the statutes of New Jersey by tbe written consent of a majority of the stockholders * * * given at any regular or special meeting of the stockholders.”

The bylaws provided that tbe findings of the board of directors as to the original or continued eligibility of a shareholder were to be final and conclusive, and stock in tbe association was to be transferred only, with the consent of sneh board, to those eligible to hold the same. The board was vested with power to cancel permanently the membership of a stockholder for good and sufficient cause upon tender to him of the fair book value of the shares held by him, as determined by the board, together with any other sums due and unpaid and less any amount due the association. In the event of the proposed cancellation of membership or expulsion of a member he was to be informed in writing of the charges against him at least ten days before the meeting at which the board was to pass upon his proposed cancellation or expulsion, at which time he was to be afforded an opportunity to be beard.

Under article II of the bylaws the association’s stock certificates were to contain the foregoing restrictions on membership and transfer of stock, and a further provision that:

When the board of directors of the association is of the opinion that the association has sufficient working capital to enable the association to do so, certificates of stock shall be retired at their cost to the holder, in the order in which issued, except that each member shall continue to hold at least two shares of the stock. This association shall have the right to purchase any of its stock at its par or book value, whichever is less, in the event the owner thereof is not engaged in the production of fishery products. This stock, is. also subject to all the other terms and conditions stated in the articles of incorporar tion and the by-laws of this association. [Emphasis added]

The articles of association andTTylaws were subject to amendment.

Plaintiff William M. Lambert had been in the real estate and insurance business for 22 years. He became a shareholder in the association when he purchased two shares of its stock, allegedly for $125, in 1957. During the next two years he was engaged in commercial fishing and sold his catch through the cooperative. For these years he received patronage dividends (more accurately described as patronage refunds) representing his share of the profit derived from the operations of the association, based upon the dollar amount of fish products which it handled for him during those years.

In 1959 plaintiff gave up the fishing business and began to engage in clamming. At first he sought to sell his clams through the association, but the volume was too great for the latter to handle and it was then agreed that plaintiff would market his catch himself, but would use the association’s docking, processing and storage facilities, upon payment of a fee. This fee was originally 15 cents a (bushel) basket of clams; it was later reduced to ten, then to eight cents, then increased to ten. 'An .additional $65 per month was paid as rental for space used for maintenance and storage. Besides this plaintiff purchased fuel and supplies for his boats from the association at what was less than the general retail price. This practice continued until plaintiff withdrew from the clamming business and sold his boats sometime in 1964. Thereafter he no longer patronized the association, and in July 1965, after notice, his membership was terminated.

During the period plaintiff engaged in clamming he received no patronage dividends even though the dividends paid to others included profits derived from goods and services bought by him from the association. The court found that between the years 1960 and 1963 defendant had reduced its charges to plaintiff from ten cents to eight cents a basket after pressure by plaintiff to pay him a patronage dividend based on the amount of business he was doing with defendant. It found that a majority of the members had decided upon an informal policy of pooling all income from all sources and dividing it only among those members who sold their fish through the association.

The original bylaws in effect when plaintiff became a member provided, as noted, that a shareholder upon the termination of his membership for cause by the board of directors, was entitled to the “fair book value * * * as determined by the board of directors” of shares held by him. One such cause was ceasing to patronize the association. An amendment to the bylaws, adopted July 15, 1962, provided that upon such termination a shareholder was to receive the price paid for his stock. At the same time the clause authorizing repurchase of his stock at par ox book value (whichever was less) when a shareholder ceased to be engaged in fishing was amended to the same effect.

In 1965, after plaintiff had sold his boats and ceased all maritime operations, he received ten days notice of a meeting to consider the proposed cancellation of his membership because (1) he was a nonprodueer and (2) for cause as outlined in the bylaws. The letter recited that he would be tendered the “fair book value” of his shares upon termination. Plaintiff answered that he would agree to give up his membership “provided the fair book value of the stock shares is determined fairly.” The court below found that in all probability the tender of “fair book value” was a clerical error not authorized by the board of directors. At the subsequent meeting — which plaintiff did not attend — the board terminated his membership. It later tendered him a check purporting to represent the amount due him less charges currently owing for goods and services. Plaintiff rejected the check and thereafter instituted the present suit to recover the fair book value of his shares plus the amount of patronage dividends claimed to be due covering the period from 1961 to the date of termination.

Briefly stated, plaintiff’s theory of recovery was that when he purchased his two shares of the association’s stock he was purchasing a “growth” stock; since the net worth of the association increased substantially in value thereafter, his interest had increased in proportion; thus he should be paid an amount equal to the net worth of the association, regardless of its liquidity. He argued that by changing the bylaws the association destroyed the “growth potential” of his shares, and thus breached its contract with him as a shareholder.

The court below appears to have accepted plaintiff’s theory as to the nature of his relationship with the association. It held that the provision in the bylaws fixing the amount to be paid an expelled member for his stock constituted a contract between plaintiff and defendant and vested in plaintiff certain rights which could not be altered without his assent, even though all of the other shareholders, acting in concert, agreed. He ruled that it made no difference whether the corporation was one formed under Title 34 of the Revised Statutes or one formed under Title 14; that the association’s stock bore all of the essential characteristics of stock issued by corporations formed primarily for profit. We find ourselves in disagreement.

A cooperative association is a unique institution, differing in many of its essentials from a corporation organized for profit. The relationship between such an association and one of its members is in many respects the antithesis of that which exists between a corporation organized under the General Corporation Act and its stockholders. The latter exists for the purpose of making a profit for its stockholders and its activities are geared to the accomplishment of that end. The amount of dividends paid each stockholder, as well as the number of votes he may cast, depend upon the number of shares held by him. One may be a stockholder though he has never purchased the corporation’s product or availed himself of its services — and never intends to. With certain exceptions not here relevant, the stock of such a corporation may be purchased, held and transferred without restriction and without the necessity of corporate approval.

A cooperative association, on the other hand, has been defined as a democratic association of persons organized to furnish themselves an economic service under a plan that eliminates entrepreneur profit and that provides for substantial equality of ownership and control. Packel, The Organization and Operation of Cooperatives (4 ed. 1970), § 2 at 4, o. See also 18 Am. Jur. 2d, Cooperative Associations, § 1 (1965); Patterson, The Tax Exemption of Cooperatives, 13-18 (1958); 16A Fletcher, Cyclopedia Corporations, § 8285 (1962). In general, each shareholder has equal ownership and exercises an equal share in the control of the association, regardless of the number of shares of stock he holds. N. J. S. A. 34:17-10; 15 U. S. C. A. § 521 (1963). By its very nature a cooperative is not designed to make a profit, and the return on capital, if authorized, is limited. 18 Am. Jur. 2d, Cooperative Associations, § 2 (1965); 15 U. S. C. A., supra. Usually, such profits as may be realized from the association’s activities are proportionately divided among the shareholders on the basis of the amount of their patronage during the period the profit was earned. 18 Am. Jur. 2d, Cooperative Associations § 2, § 14 (1965).

A significant characteristic of a cooperative is the right of the association to restrict ownership of its shares to those availing themselves of its services, to restrict the number of shares held by a member and to prohibit or limit transfers of stock. To this end N. J. S. A. 34:17 — 2 requires that the certificate of association set forth the terms of admission of members, the mode of application of profits and the requirements for alteration or amendment of the certificate of association and the bylaws. See also, N. J. S. A. 34:17-10.

A cooperative may also specify how members may withdraw or otherwise be separated from membership, and the amount to be paid them upon such withdrawal or separation. 18 Am. Jur. 2d, Cooperative Associations § 17 (1965). N. J. S. A. 34:17-6 specifically requires that the bylaws provide how members may withdraw from the society and also:

d. Whether the shares, or any number of them, shall be transferable, and if it is determined that they shall be transferable, provision for their transfer and registration, and the consent of the board of directors to the same, and if it is determined that the shares shall not be transferable, provision for paying to members the balance due to them on withdrawal * * *.

Prom the foregoing it is clear that a cooperative association exists primarily for the purpose of furnishing services for its members. It is intended to continue to function, notwithstanding the withdrawal or expulsion of individual members. Unless and until liquidation takes place, individual members have no present possessory interest in the association’s assets and may be required to surrender their shares to the association upon receipt of such consideration as may be fixed by the bylaws. A growth stock would be a rank misnomer for such a security.

With these principles in mind we proceed to consideration of the merits. It appears clear that ample justification existed for the termination of plaintiff’s membership and that the procedure laid down in the bylaws was followed in bringing it to an end. The sole questions remaining are (1) the amount to be paid plaintiff upon surrender of his stock, and (2) whether he was entitled to patronage dividends.

Plaintiff contends that upon the cancellation of his stock he was entitled to receive its fair book value as prescribed by the appropriate section of the bylaws in effect at the time the stock was issued to him. Defendant contends that the section of the bylaws which was in effect at the time plaintiff’s membership was terminated governs; hence he is entitled to receive no more than the cost of acquisition of his stock. Plaintiff counters that the amended bylaws could not affect his rights under the original bylaws in the absence of his assent to the new bylaws.

We hold that the amended bylaws controlled the redemption of defendant’s shares in 1965, and that he thereby became entitled to receive only the price he had paid for his shares. Defendant had no vested right to his proportionate share of the “full book value” of the assets of the cooperative, regardless of how that term might be defined. To permit a member who voluntarily withdraws or who is no longer eligible to membership, to take with him a share of the association’s assets based upon Ms stock holdings, would not only pose the possibility of financial ruin to such an association but would run contrary to the very principles which govern its existence. The termination of plaintiff’s membership did not mandate the dissolution or liquidation of the association. Unless the bylaws provided otherwise, its assets were to continue to be devoted to the accomplishment of its purposes. In determining the extent of the “rights” which plaintiff now claims, all of the bylaws bearing on the subject are to be considered.

Plaintiff was chargeable with knowledge that the bylaws authorized the repurchase of Ms stock if he ceased to be engaged in the fishing industry, as well as his expulsion if he ceased patronizing the association, even though he was still so engaged. His stock certificate contained a provision, as directed by the bylaws, that “this stock is also subject to all the other terms and conditions stated in the articles of incorporation and the bylaws of this association.” The latter fixed the amount to be paid a terminated member in exchange for his stock — and provided they could be amended at the will of the membership. The reserved right to amend the bylaws and thus change the amount to be paid for its shares was neither arbitrary nor unreasonable in view of the nature of the association. The amount to be paid a shareholder upon withdrawal could well depend upon a number of variable factors, including the financial condition of the association and its current monetary requirements. Where, as here, the association had shares available for sale to eligible members at $125 a share both prior to and following the amendment of the bylaws, there was nothing incongruous in limiting the recapture value of its shares to the cost of acquisition. Here the trial judge’s opinion negates any finding that there was any fraud or overreaching involved in such action.

We are further convinced that plaintiff is estopped from denying the applicability of the amended bylaws to his stock holdings. He was elected a director of the association in 1962 and continued to serve through 1963 and 1964. Approximately one month later the bylaws were amended he participated in a meeting of the board of directors at which it was unanimously voted to buy up the shares of some 16 members of the association, who either were no longer engaged in fishing, or had ceased to patronize the association. All of them had acquired their shares prior to the amendment of the bylaws. For their shares eight of such members received $57 a share, four members $50 a share, and one member received $81 per share. Still later, at the director’s meeting of March 31, 1963, plaintiff himself made the motion to buy back the two shares of a deceased member from his widow at $125 per share. In participating during his directorship in buying up the stock of other shareholders for the cost of their acquisition, he enhanced the value on liquidation of his own shares and those of the remaining members, while inducing the shareholders whose membership was being terminated to rely upon the applicability of the new bylaws in accepting the reduced price they received. Upon such a state of facts plaintiff was estopped from maintaining that the amendments to the bylaws were not applicable to his shares. See McSweeney v. Equitable Trust Co., 127 N. J. L. 299 (E. & A. 1941), 139 A. L. R. 653 (1942), app. dism. 315 U. S. 785, 62 S. Ct. 805, 86 L. Ed. 1191 (1942); Reilly v. Hamilton Trust Co., 133 N. J. Eq. 282, 238 (Ch. 1943); Montclair Trust Co. v. Russell Co., 135 N. J. Eq. 570, 573 (Ch. 1944). See also 3 Pomeroy, Equity Jurisprudence (5 Ed. 1941), § 802 at 180; Thomas v. Camden Trust Co., 59 N. J. Super. 142, 150 (Law Div. 1959); Stretch v. Watson, 6 N. J. Super. 456, 469-470 (Ch. Div. 1949), mod. 5 N. J. 268 (1950). To hold otherwise would be unconscionable in the extreme.

Wholly aside from the foregoing, we fail to see how plaintiff could have been prejudiced by the application of the amended bylaws. Under one of the original bylaws, and as set out in the stock certificate delivered to plaintiff, the association had the right to purchase any of its shares at par ($50) or book value, whichever was less, in the event the owner thereof was not engaged in the production of fishery products. This bylaw was one of those amended in July 1962. If the words “fishery products” be construed to mean aquatic products, as plaintiff contends, it would appear clear that the association would have had the right to purchase plaintiff’s stock at its par value ($50) had the bylaws not been amended.

While by reason of the foregoing it becomes unnecessary to construe the words “fair book value” as used in the original bylaws, we note from the testimony of defendant’s accountant that fair book value was construed from the very beginning of the association’s existence as the net value of the association’s capital assets as taken from its books of account, as distinguished from their market value, after the deduction of liabilities. In line with this definition the book value of shares appears to have been determined more or less regularly by the accountant by dividing the total number of shares of capital stock outstanding into the capital structure as set up in his annual report. The application of this formula would have resulted in a value of not more than $455 per share for plaintiff’s two shares, as contrasted with the $7,775 per share claimed by him. In addition, the price at which its stock was available for sale to eligible buyers, and at which stock was to be redeemed, was fixed from time to time by the association. The price thus fixed appears to have been uniformly utilized in paying off shareholders whose memberships were terminated or shares redeemed prior to the 1962 amendment to the bylaws.

Section 2(2) of article X of the bylaws provides that the balance of the net earnings, or savings of the association, after allowing for cash dividends and sinking fund, was to be distributed to “members” on a “patronage basis,” in proportion to the “amount of business” each contributed to the association during the year. During the period between 1957 and 1959, while plaintiff was engaged in fishing, he received such patronage dividends. In 1959, when he began clamming, the payment of patronage dividends to him was discontinued. He contends, and we agree, that he continued to be entitled to such dividends notwithstanding that he was thereafter engaged in clamming rather than fishing. He was a member in good standing of the association. It was incorporated for the purpose of “doing business as a cooperative association in all things relating directly or indirectly to the catching, processing, storage, transportation, marketing and distribution of fish and other aquatic products for its members and patrons, and the buying and selling of fishery equipment and other general supplies required by its members and patrons in their business of commercial fishing; to provide and maintain a market site wherein the products of its members and patrons may be offered for sale; [and] to supply docking and other facilities for the benefit of its members and patrons” (emphasis added) and had but one type of membership. The bylaws adopted the definition of aquatic products contained in the Act of Congress, approved June 25, 1934, entitled “An act authorizing associations of producers of aquatic products,” 15 U. S. C. A. § 521 (1963), to the effect that the term included all commercial products of aquatic life in both fresh and salt water. Thus, whether plaintiff was engaged in fishing or clamming, as a member in good standing lie was entitled to be treated on the same basis as other members.

It is suggested that the distribution of patronage dividends was a matter committed to the discretion of the board of directors, and that they properly excluded plaintiff from participation because he was no longer marketing his products through the association. Not so. The directors could not exclude a member in good standing from participation in such dividends as were declared by the association unless authorized to do so by the bylaws. We need not pass on the question of whether the association could lawfully restrict the payment of patronage dividends to those of its members actually engaged in fishing. The fact is that it never officially did so. We find no action by the board of directors excluding plaintiff and others similarly situated from participating in such disbursements, and no provision in the bylaws authorizing such exclusion. Further, the evidence is plenary that plaintiff attempted to market his clams through the association but it declined to handle them after the first week. He nevertheless paid the association a fee for each bushel of clams unloaded, purchased all of his gas, oil and other supplies there, and, in addition, rented space there for use of his business. The income from his patronage appears to have been substantial. We hold he was entitled to share in patronage dividends on the basis of the business done by him. We find the sum due as arrived at by the trial judge, $3,406.76, to be supported by substantial evidence.

The question remains whether the reduction in the fee for docking privileges which was granted plaintiff dispensed with defendant’s obligation to pay him patronage dividends. There was testimony that the fee was reduced from ten cents to eight cents a bushel from April 23, 1960 to April 7, 1963. It was contended by defendant, and denied by plaintiff, that this reduction in fees was adopted in lieu of dividends.

The trial judge found, and we agree, that between the years 1960 and 1963 defendant reduced its charges to plaintiff from ten cents to eight cents a bushel after pressure by plaintiff to pay him a patronage dividend, and that the association’s secretary testified that it was in lieu of such a dividend. There was uncontradieted testimony that plaintiff benefited to the extent of $8,657.66 from the reduction.

The trial judge made no finding as to whether the reduction was intended to be in lieu of patronage dividends. We are satisfied and find that it was, and that defendant as a member, and later as a director, was chargeable with knowledge that it was so intended. In this manner defendant’s informal policy of paying patronage dividends only to those who sold their fish through the association was maintained, while giving due consideration to the business derived from plaintiff. Plaintiff could have rejected the reduction and demanded his due, but elected to do otherwise. It would be grossly inequitable to permit him both to retain the benefits he received during the three-year period mentioned, and recover the amount to which he would otherwise have been entitled during that period. He may not now “have his cake and eat it too.” Cf. Knight v. Electric Household Utilities Corp., 133 N. J. Eq. 87, 90-91 (Ch. 1943), aff’d 134 N. J. Eq. 542 (E. & A. 1944). However, upon the termination of the two cent discount and for the remaining time he did business with the association, he would have been entitled to receive patronage dividends. We calculate the amount due, based upon the trial judge’s findings, as follows:

1963 (2/3 year) $ 786.08

1964 1,424.08

1965 98.88

$2,309.04

Plaintiff is accordingly entitled to judgment against defendant on the first count for the sum of $2,309.04, and to ■ judgment on the second count for the cost of acquisition of his stock. We are in accord with the trial judge that no interest should be allowed.

Reversed and remanded for further proceedings in accordance with this opinion. No costs.

      DefencLant offered proof that the price paid was $57 a share.

      Sinee the association had 272 shares outstanding in June 1962 and their number had been reduced to 66 by June 30, 1965, plaintiff’s share of the outstanding stock was quadrupled over that period.


author: Per Curiam.

text:
    STATE OF NEW JERSEY, PLAINTIFF-RESPONDENT, v. STANLEY ROYAL, DEFENDANT-APPELLANT.
    Superior Court of New Jersey Appellate Division
    Argued October 27, 1970 — Remanded February 4, 1971— Supplemental material filed February 22, April 4, June 11 and June 16, 1971
    Decided July 12, 1971.

      Before Judges Lewis, Matthews and Mintz.

      Ms. Susan T. Sinins, Assistant Deputy Public Defender, argued the cause for appellant (Mr. Stanley C. Van Ness, Public Defender, attorney).

      Mr. David S. Baime, Assistant Prosecutor, argued the cause for respondent (Mr. Joseph P. Lordi, Essex County Prosecutor, attorney; Mr. William F. Bolan, Jr., on the brief).
   Per Curiam.

Defendant was convicted of possessing heroin, in violation of N. J. S. A. 24:18-4. He was sentenced to State Prison, Trenton, for a term of three to five years and fined $25. The arguments advanced on appeal are that the trial court erred in denying his motion to suppress evidence seized by the police and in denying his motion for judgment of acquittal at the close of the State’s ease. After hearing argument, we remanded the matter to the Essex County Court at the request of the State for the taking of additional testimony with respect to the information in. the possession of the police at the time they went to the premises in. question and thereafter arrested defendant. Additional testimony was taken and supplemental briefs filed.

The facts surrounding the arrest of defendant are as follows : Sergeant Bimbo of the Narcotics Squad of the Newark Police testified that he was on duty on the date in question and that he received an anonymous telephone call informing him that narcotics were being used at premises known as 51 Howard Street, Newark. Since there were no members of the narcotics squad immediately available, the sergeant transmitted the contents of the anonymous call to the regular patrol ear dispatcher who directed two cars to the address to investigate. When the two cars arrived at the premises, two officers went to the front of the house and two to the side to observe the rear exit and alley. One of the officers knocked on the front door of No. 51 and, in response to a question, informed the occupant that it was the police. When the front door was opened by an individual named Christian, two or three individuals ran out of the back of the house and fled over a fence in the rear yard. Defendant, who was partially clad, ran through the front hallway and upstairs. One of the patrolmen observing defendant chased him up the stairs into a bedroom, and the officer discovered glassine bags of heroin which defendant was apparently trying to destroy. Defendant was arrested and subsequently indicted.

Defendant argues that the searching and arresting officers lacked probabLe cause at the time they knocked on the door of No. 51 Howard Street, and subsequent evidence, he maintains, did not add to the knowledge that the officers had with respect to criminal activity and, therefore, the evidence seized should have been suppressed. We disagree.

The facts adduced here disclose that the police responded to an address based upon an anonymous complaint. We believe they were under an obligation to investigate the complaint despite the fact that the knowledge they possessed was not sufficient to give them probable cause to believe that criminal activity was being carried on at the premises in question. When the officers sought to speak to someone at the premises, ostensibly to inform the occupants of the nature of the complaint made, the reaction of the occupants of the house was sufficient, in our judgment, to give the police probable cause to believe that illicit activity was taking place in the house. The events precipitated by the officers’ approach to the house and their knock on the front door is not like that precipitated by the federal narcotics agents in Wong Sun v. United States, 371 U. S. 471, 83 S. Ct. 407, 9 L. Ed. 2d 441 (1963). Here, the occupant who answered the front door was aware that police officers were on his doorstep. The obvious inference to be drawn is that defendant also knew that police officers were standing in the doorway. Defendant’s flight from the officers’ presence, as well as the wholesale flight of others from the premises, was sufficient to have the officers believe that defendant was engaged in illegal activity. They were justified in following him. In following him, the officers were led directly to the contraband. The motion to suppress was properly denied.

Our review of the record satisfied us that there was more than ample evidence shown from which the jury could conclude beyond a reasonable doubt that defendant was in possession of the heroin. The trial court did not err in denying defendant’s motion for acquittal.

The judgment of conviction is affirmed.