author: Stein, J. S. C.

text:
    FIDELITY UNION TRUST COMPANY, A NEW JERSEY CORPORATION, AND ARTHUR E. C. HELLER, AS TRUSTEES OF THE TRUST ESTABLISHED BY ARNAUD G. HELLER ON APRIL 5, 1935, PLAINTIFFS, v. TRINDA HELLER ANTHONY, ET AL„ DEFENDANTS.
    Superior Court of New Jersey Chancery Division
    Decided May 14, 1951.

      Mr. James G. Henry, Jr., attorney for plaintiffs.

      Messrs. Pitney, Hardin <& Ward (Mr. Frederich Frelinghuysen appearing), attorneys for defendants Arthur E. C. Heller, Ruth Heller Lowe, Wren Heller Tatlock, Gladys Heller Eenlin.

      Mr. Aaron Marder, attorney for defendant Elaine Heller Blount.

      Mr. George D. McLaughlin, attorney for defendant Constance Pauline Henry.

      Messrs. Martin Reiley, attorneys for defendants Cecile C. Lowe, Robert A. Lowe and Wren Lee.

      Mr. Michael J. Donlon, attorney for defendant Constance P. Henry, as administratrix of the estate of Prances Heller Blount, deceased.

      Messrs. McCarter, English \& Studer (Mr. Nicholas Conover English appearing), attorneys for defendants Trinda Heller Anthony and William P. Aigler, administrator de bonis non with the will annexed of the estate of Arnaud G. Heller, deceased.

      Mr. James W. Hart, guardian ad litem for defendant Martha Ellen Henry.

      Mr. William H. Corbin, guardian ad litem of infant defendants, pro se.

   Stein, J. S. C.

Fidelity Union Trust Company and Arthur E. C. Heller, trustees of the trust created by deed of trust made by Arnaud G. Heller on April 5, 1935, pray allowance of their account as submitted, which account is admitted to be correct by all parties in interest.

By the second count of the complaint the trustees pray instructions of the court: (a) whether the net accumulations as of the death of Paul E. Heller or any part thereof are income or corpus; (b) whether the estate of Arnaud G. Heller is entitled to have refunded to it by plaintiffs the money advanced by Arnaud G. Heller to pay premiums on said life insurance policy, together with sums advanced for other purposes; and whether any such repayments shall be made out of corpus or out of said accumulations; (c) whether the estate of Arnaud G. Heller is indebted to plaintiffs for the sum of $10,433.61 necessarily paid out for gift and inheritance taxes and expenses therewith, or any part thereof; (d) whether any part of said accumulation is payable to Constance P. Henry, administratrix of Prances Heller Blount.

The facts are stipulated to be as follows:

1. On April 5, 3935, Arnaud G. Heller, as donor, executed a deed of trust to the Fidelity Union Trust Company, as trustee, and deposited with and assigned to said trustee, as corpus, 1,000 shares of the Heller Brothers Company $100 par value common stock and policy No. 8308018 issued by the Prudential Insurance Company of America dated March 9, 1934, in the amount of $75,000 on the life of Paul II. Heller payable to the donor or his assigns, (which stock and life insurance policy the deed of trust provides “shall constitute the principal of this trust and is hereinafter referred to as the Trust Estate”), and the trustee was given authority to receive and collect the proceeds of the life insurance policy and hold, manage and apply said proceeds in accordance with the trust deed.
2. Paragraph 1 of the deed of trust provides as follows:
“The Trustee shall hold, manage, invest and reinvest the same and every part thereof in the manner hereinafter specified, and shall collect and receive the income therefrom, and after deducting the commissions of the Trustee and the proper and necessary expenses in connection with the administration of the Trust Estate, including all taxes legally assessed on account thereof, shall, during the lifetime of Paul E. Heller, apply the net income, or so much thereof as shall be necessary, to the payment of the net premiums on a certain policy of insurance totalling $75,000.00, which policy was issued by the Prudential Insurance Company of America on March 9, 1934, bearing Policy No. 8368048, on the life of Paul E. Heller and made payable to the Honor, and now assigned as part of this Trust Fund, and any balance of said net income remaining in any one year after the net premiums for said year shall have been fully paid, as aforesaid, shall be held and distributed in accordance with the terms of this agreement, as hereinafter stated, unless such balance is required in any future year or years to pay said premiums, or any part thereof if the said securities shall yield an amount insufficient to pay such premiums; further provided, that if such securities fail to yield sufficient income during any one year to pay such premiums, the said Honor, or his personal representatives, shall have the privilege of making a contribution to the Trustee of whatever amount is required in order to place the Trustee in sufficient funds to pay such premium, and any such advancements made by fhe Honor shall be repaid to him upon his request by the Trustee, and which repayments are to be made out of income or nrincipal of this Trust Estate. In the event the aforesaid income m any one year during the lifetime of said Paul E. Heller shall be insufficient 1o pay in full the net premiums for such year on the aforesaid policy of insurance, and said Honor, or his personal representatives, does not contribute the required amount to make up the difference, then and in that event the Trustee shall have authority to make up the deficiency by a payment from the principal of the Trust Estate.”
3. Paragraph 4 of the deed of trust provides as follows:
“Upon the death of said Paul E. Heller, the net income from the Trust Estate, until distribution of corpus, shall be divided among the following persons in the following proportion, to wit: . to the Donor’s nephew, Arthur E. C. Heller, forty per cent (40%) ; to the Donor’s nieces, Frances Heller Blount, Ruth Heller Lowe, Wren Heller Lee, Gladys Heller Fenlin and G. Pauline Heller, each ten per cent, (10%) and to the Donor’s daughter, Elaine Heller, ten per cent, (10%) thereof. Upon the death of any of the beneficiaries in this paragraph named, the share of income which the deceased would have taken if living shall go to his or her issue, per stirpes, and if there be no issue, then it shall be distributed among the survivors of the said beneficiaries ratably in the proportion in which the survivors share the income of this trust estate, prior to the death of such beneficiary.”
4. Paragraph 5 of the deed of trust provides as follows:
“Upon the death of the last survivor of the beneficiaries of this trust- fund and mentioned in Paragraph 4 hereof, the said Trustee shall distribute the corpus of the Trust property to the next of kin of Paul E. Heller, as they exist at the time of his death and according to the statute in such case made and provided for the distribution of personal property of persons dying intestate in the State of New Jersey.”
5. During the lifetime of Paul E. Heller from April 5, 1935, to February 26, 1948, part of the income from the corpus was applied to the payment of premiums on said insurance policy on the life of Paul E. Heller, taxes, administrative expenses and commissions of the trustee.
6. At the date of the death of Paul E. Heller on February 26, 1948, there remained an accumulation of income and other receipts over disbursements in the sum of $69,283.54. This accumulation arose from the increment on sales of certain United States Treasury bonds, moneys contributed by the donor, Arnaud G. Heller, to cover certain expenses of the trust, dividends on the 1,000 shares of Heller Brothers Company common stock, including special dividends paid in 6% debenture bonds of said company and interest on securities held in the accumulation account.
7. All dividends declared and paid on the 1,000 shares of Heller Brothers Company common stock, including special dividends paid in 6% Debenture Bonds of said company from April 5, 1935, to March 17, 1948, were paid out of earnings accumulated after April 5, 1935.
8. Arnaud G. Heller, the donor, pursuant to paragraph 1 of the deed of trust, during his lifetime made contributions to the trustee totaling $12,069.50.
9. The aforesaid $12,069.50 was contributed by Arnaud G. Heller, the donor, to the trustee during his lifetime by reason of the fact that the 1,000 shares of the Heller Brothers Company common stock had failed to yield sufficient income to enable the Trustee to pay the premiums on the insurance policy on the life of Paul 15. Heller and other expenses when the same became due-
10. Arnaud G. Heller, a resident of Newcomerstown, Ohio, died November 16, 1937. By his last will and testament probated before the Probate Court of Tuscarawas County in the State of Ohio, he devised and bequeathed his entire estate to his wife, Trinda Heller, now Trinda Heller Anthony, and appointed her executrix, and she duly qualified as such. On .Tune 23, 1939, said executrix filed in said Probate Court, a statement in lieu of and for an account, stating that she had received no assets and made no disbursements, and that there were no assets of the estate of which she had knowledge, except household goods. On the same day the probate judge accepted her statement and discharged said Trinda Heller as executrix. On June 27, 1949, "William F. Aigler was appointed by said Probate Court as administrator <le bonis non with the will annexed of said estate. From June 24, 1939, until June 27, 1949, there was no appointment of another personal representative of Arnaud G. Heller, deceased.
11. After the death of Paul E. Heller, plaintiff, Arthur E. C. Heller became co-trustee with the Fidelity Union Trust Company on March 18, 1948.
12. On March 1, 1936, there was no cash in the trust and on March 2, 1937, there was cash in the amount of $6,997.30 in the trust. The Fidelity Union Trust Company on March 1, 1936, and again on March 2, 1937, mailed statements of account of the cash transactions of the trust for the 12-month period ending March 1, 1936, and March 2, 1937, respectively, to Arnaud G. Heller, the donor. Thereafter no statemenls of account were ever furnished by the trustee to Arnaud G. Heller or to his personal representative or to Trinda Heller Anthony.
13. From April 5, 1935, to November 2, 1949, no demand was made upon the trustee for the repayment of the said sum of $12,069.50 or any part thereof, either by said Arnaud G. Heller in his lifetime, by Trinda Heller, individually or as such executrix, by William F. Aigler as such administrator, or by anyone else on behalf of Arnaud G. Heller or of his estate after his death. On November 2, 1919, such a demand was made by said administrator in his pleading served upon the plaintiffs in this cause.
14. At the date of the death of Arnaud G. Heller, November 16, 1937, there was a balance in the accumulation account of the trustee in the sum of $47,522.99, consisting of $35,000 principal amount Heller Brothers Company 6% debenture bonds due July 31, 1957, and cash in the sum of $12,522.99. As of June 23, 1939, there was a balance in the accumulation account of the trustee in the sum of $62,309.87 representing $62,000 of principal amount of Heller Brothers Company 6% debenture bonds due July 31, 1957, and $309.87 in cash.
15. The corpus account on November 16, 1937, consisted of 1,000 shares of Heller Brothers Company $100 par value common stock at the book value of $100,000 and policy No. 8368048 issued by the Prudential Insurance Company of America for $75,000 on the life of Paul E. Heller, carried at no value. The corpus account of the trustee on June 23, 1939, comprised 1,000 shares of Heller Brothers Company $100 par value common stock at the book value of $100,000 and policy No. 8368048 issued by the Prudential Insurance Company of America for $75,000 on the life of Paul E. Heller, carried at no value.
16. The trustee’s first intermediate accounting for the period April 5, 1935, to July 12, 1946, was by a decree of the Essex County Orphans’ Court allowed on March 25, 1947. The accounting showed a corpus account of $100,000 and an accumulation account of $72,997.20. No citation on the first intermediate accounting was sent to Arnaud G. Heller or his personal representative or executor or administrator. Such a citation was mailed to his daughter, Elaine Heller, 242 Elwood Avenue, Newark, New Jersey, on February 19, 1947. Except for Trinda Heller Anthony, William F. Aigler, as administrator aforesaid, and Constance H. Henry, as administratrix of the estate of Frances Heller Blount, deceased, all the defendants herein who were then in esse received notice of and were parties to the trustee’s first intermediate accounting.
17. Frances Heller Blount (also known as Frances Cecile Heller), one of the life beneficiaries, died on June 15, 1937, without issue, and Constance H. Henry (also known as Constance P. Heller, C. Pauline Heller and Constance P. Henry in this proceeding) was, on July 14, 1937, appointed administratrix of her estate.
18. On August 1, 1936, Arnaud G. Heller, as donor of said 1,000 shares of Heller Brothers Company common stock to said trustee, paid a federal gift tax of $5.46 pursuant to a federal gift tax return filed by him about 1935, based on the value of $45 per share for said stock transferred to said trustee by deed of trust dated April 5, 1935.
19. On April 27, 1938, the Commissioner of Internal Revenue addressed a letter to Mrs. Trinda Heller, referring to her as “fiduciary,” and sent the letter in care of Warner Pomerene, attorney of Coshocton, Ohio, and subsequently the letter came into the' possession of the accountant for Heller Brothers Company. In this letter it was stated that a deficiency of $10,830.10 had been tentatively determined against the estate of Arnaud G. Heller by reason of an appraisal made by the Commissioner of Internal Revenue as to the value of 1,000 shares of common stock held in the Arnaud G. Heller trust. Trinda Heller (Trinda Heller Anthony), on or about August 12, 1938, was requested by Paul 15. Heller to execute a power of attorney in favor of Joseph I. Schick, who was the accountant for Heller Brothers Company, and accordingly, under date of November 5, 1938, Trinda Heller, acting in her individual capacity, executed a written power of attorney to J. I. Schick to appear as her individual attorney at a hearing before the Internal Revenue agent in charge, in reference to a gift tax pertaining to the estate of Arnaud G. Heller of Newcomerstown, Ohio, which power of attorney was subsequently revoked on May 23, 1939. The notice and demand for gift tax was addressed to Mr. Arnaud G. Heller, donor, Fidelity Union Trust Co., trustee, 755 Broad St., Newark, N. J.
20. On December 13, 1938, a notice of levy and warrant of distraint was served on the trustee in the sum of $12,397.34 for deficiency tax against the trustee as transferee of said stock. The trustee, through its attorney, filed a jietition as transferee for re-determination of this deficiency with the Treasury Department, and subsequently on or about March 28, 1939, a petition to the United States Board of Tax Appeals was filed for review of the deficiency assessment. The deficiency assessment was settled for $3,366.21 plus interest in the sum of $830.08, or a total of $4,196.29, by stipulation between counsel, and on February 28, 1910, and pursuant to said stipulation, the United States Board of Tax Appeals ordered and decided that there was an unpaid liability on the part of the trustee as transferee for federal gift tax of $3,366.21 plus interest on account of said transfer from Arnaud G. Heller io said trustee.
21. The trustee’s expenditures in the federal gift tax proceedings were $5,006.29.
22. On October 14, 1941, the trustee received a notice that the Probate Court of Tuscarawas County, Ohio, in the matter of the estate of Arnaud G. Heller, deceased, had made an order determining the amount of the inheritance tax due to the State of Ohio to be $32,725 with interest from November 16, 1938, at 8%. Said tax was based upon the transfer by said Arnaud G. Heller of the .1,000 shares of Heller Brothers Oompanj1 common stock to said trustee as a transfer in contemplation of death. The trustee, through its attorneys, filed exceptions to such determination, under which proceedings were had which eventually resulted in an order filed on February 16, 1942, in said court, determining the said transfer of said 1,000 shares to the trustee on April 5, 1935, to have been a transfer in contemplation of death, and determining the amount of said inheritance tax due to the State of Ohio by reason of such transfer to the trustee to be $1,931 plus interest of $312.17, or a total of $2,243.17, which amount was paid by the trustee on February 13, 1942.
23. The trustee’s expenditures in the matter of said Ohio inheritance tax proceedings were $5,427.32.

Because of the similarity of the deed of trust in the case here under consideration to that in the case of Fidelity Union Trust Company v. Arthur E. C. Heller, docket (C-1066-48, both cases were tried together. The determination in Fidelity Union Trust Company v. Arthur E. C. Heller is dispositive of the questions raised under (a) and (d). It was there held that the fund described as net accumulations was income and such will be the determination in this case for the reasons there set forth. It was also there held that the death of Paul E. Heller was definitely fixed as the time for distribution of the income and that the gift to the beneficiaries was contingent upon their surviving Paul E. Heller. The reasons given for such decision are applicable to the deed of trust here. The death of Frances Heller Blount having occurred prior to the death of Paul E. Heller and she having left no issue surviving, the administratrix of her' estate has no interest in the fund. Her share, had she survived, is to be paid to the persons and in the amounts set forth in paragraph 4 of the deed of trust.

The trustees contend with reference to question (b) that the estate of the donor is not.entitled to reimbursement for advances made by him to the trustees for the payment of insurance premiums and for other purposes, because the donor did not request repayment in his lifetime, and further that such claim is barred by the statute of limitations.

The provisions of the trust indenture regarding advances made by the donor is as follows:

“* * * that if such securities fail to yield sufficient income during any one year to pay such premiums, the said Donor, or his personal representatives, shall have the privilege of making a contribution to the Trustee of whatever amount is required in order to place the Trustee in sufficient funds to pay such premium, and any such advancements made by the Donor shall be repaid to him upon his request by the Trustee, and which repayments are to be made out of income or principal of this Trust Estate.”

The important part of this language is, “any such advancements made by the Donor shall be repaid to him.” This is a clear expression of the donor’s intention that such advancements were to be repaid and not become part of the trust estate. The words “upon his request” merely refer to the time of repayment. These words cannot be held to mean that repayment was conditioned upon such request, for to do so, would necessarily require reading the word “only” into this phrase. The failure of the donor to request such repayment in his lifetime is of no significance. The provisions of the trust fix his right to such advances which right passed to his representatives upon his death.

It is contended by the trustees that the words “upon his request” are tantamount to “upon demand,” with the result that period of the statute of limitations commenced with each advance, so that after the lapse of six years any claim either by the donor or his representatives for such advances is barred by the statute of limitations. This contention is unsound. It was the duty of the trustees during the lifetime of the donor to repay advances upon his request no matter how long after the advance such request wras made. When the donor died, if the trustees entertained any doubt as to the disposition of such advances, it was their duty to seek instruction of the court with reference thereto. Further, the statute of limitations is inapplicable to express trusts. Williams v. McKay, 40 N. J. Eq. 189 (E. & A. 1885); Livingston v. Rein, 133 N. J. Eq. 585, 33 A. 2d 840 (Ch. 1943).

In Williams v. McKay, supra, at page 196, Chief Justice Beasley said:

“* * * a trust, to be exempt from the operation of the statute of limitations, must be of a nature to stand the triple test, viz.: first, it must be a direct trust; second, it must be of a kind belonging exclusively to the jurisdiction of a court of equity; and, third, the question must arise between the trustee and the cestui que trust.”

Defendants say that this trust does not meet the requirements of the third test for the reason that the claim for reimbursement is made by the donor’s representative as a creditor and not as a cestui que trust. This is not so. A donor of a trust may also be a cestui. Under this trust the donor was a cestui to the extent of the advances made by him. After his death his representative stands in his place, not as a creditor but as a cestui and it is the duty of the trustee to repay such advances.

The trust agreement provides that the repayment of the advances “are to be made out of income or principal of this Trust Estate.” This indicates that the donor intended that if there was income available the advances be repaid from such income and the trustees are instructed to pay the advances out of income.

Question (c) which deals with the liability of the estate of Arnaud G. Heller, the donor, to the trustees for gift and inheritance taxes and expenses therewith must be answered in the negative.

The statute 26 U. S. C. A., sec. 1008 provides that a gift tax shall be paid by the donor on ot before the fifteenth day of March following the close of the calendar year. Sec. 1009 provides that the tax shall be a lien upon all gifts for ten years from the time the gifts are made and if the tax is not paid when due, the donee of any gift shall be personally liable for such tax to the extent of the value of the gift.

The trustees urge that the donor is primarily liable for the tax and the donee secondarily liable, hence the trustees should be reimbursed by the estate of the donor for the tax and expenses in connection therewith. This argument is answered in Mississippi Valley Tr. Co. v. Commissioner of Int. Rev., 147 F. 2d 186, at page 187 (C. C. A. 8, 1945), where the court said:

“The argument is made here that the donor’s liability for the tax is primary and that of the donee secondary, and that no liability therefore should exist against a donee for any part of a tax which a solvent donor has not admitted in his return, until there has been a deficiency determination against the donor, in the manner and within the time provided by the statute. But the statute itself imposes the tax, fixes its amount, and prescribes the date when payment thereof is legally due. If the full amount of the tax thus imposed is not paid by ‘the 15th day of March following the close of the calendar year,’ the tax has not been paid ‘when due,’ and the unpaid portion bears interest from that date. And, ‘if the tax is not paid when due, the donee of -any gift shall be personally liable for such tax to the extent of the. value of such gift.’
Only in the sense that the tax is owing in the first instance from the donor, and that the liability of the donee does not arise unless the donor fails to make payment, of the tax by the 15th day of March following the dose of the calendar year, and that such liability on the part of the donee is limited to the extent of the value of the gift, can the donee’s liability be said to be secondary or qualified. If the donor fails to pay the automatically imposed tax when due, in accordance with the statute, no matter what the reason for his failure, there is an immediate and direct liability on the donee for the legally-owed tax, to the extent of the value of the gift.
Nowhere in its language does the statute make the liability of the donee contingent or dependent upon a formal determination of deficiency against the donor or upon any other steps to collect from him.”

Another reason, not raised by counsel in their briefs, is that the mere making of a gift does not carry with it any implied promise by the donor to pay the tax. The liability of the donee to pay the tax arises solely by virtue of the statute when the donor fails to pay it.

The applicable Ohio law by virtue of which the inheritance tax due the State of Ohio was assessed, was pleaded by the representative of the estate of Arnaud G. Heller, and this court is bound to take judicial notice thereof. R. S. 2:98-28, N. J. S. A. The pertinent provisions of that law provide for the imposition of a tax upon the succession to any property passing in trust or otherwise to a person in contemplation of the death of the donor. Ohio General Code, sec. 5332, (3) (a). Sec. 5336 makes such tax a lien upon the property passing until paid. It also provides that the successor and the executor or administrator of the general estate of the decedent and the trustees of such property shall be personally liable for such taxes. It further provides that the executor, administrator or trustee having in charge such property for distribution shall deduct the taxes therefrom or collect the same from the person entitled thereto.

Ohio decisions illustrating the interpretation given the pertinent provision of the statute by the courts of Ohio are the following:

Wellman v. Cleveland Trust Co., 107 Ohio St. 267; 140 N. E. 104 (Ohio Sup. Ct. 1938), where the Ohio Supreme Court had before it for consideration, among others, sec. 5336 of the Ohio General Code. Concerning these sections the court said:

“These various provisions would warrant the construction that both the primary and ultimate liability to pay the taxes was upon the respective beneficiaries, and that the liability imposed upon the administrator, executor, or trustee was imposed for the purpose of insuring his performance of his duty in the collection of the tax from the various beneficiaries.”

In re Reilly’s Estate, 138 Ohio St. 145; 33 N. E. 2d 987, at page 989 (Ohio Sup. Ct. 1941), the Supreme Court of Ohio held:

“* * * This court has repeatedly held that the incidence of the Ohio inheritance tax is upon the succession, that is, upon the right to receive property from the estate of a decedent.”

In Central Trust Co. of Cincinnati v. Lamb, 74 Ohio App. 299; 58 N. E. 2d 785 (Ohio Ct. of Apps. 1944), the Court of Appeals of Ohio had before it the question of liability for Ohio inheritance tax, with respect to property passing under a trust agreement upon the death of the donor. After reviewing the provisions of the statute including sec. 5336 of the Ohio General Code, the court said:

“It is apparent from the above-quoted sections that that law easts the tax burden upon the beneficiary of the trust, * * * unless testatrix, as she had the right to do, by appropriate language in her will, shifted that burden elsewhere * * *.”

The beneficiaries of the trust are responsible for the payment of both the federal gift tax and the Ohio inheritance tax and the expenses in connection therewith. The trustees are not entitled to reimbursement from the estate of Arnaud G. Heller.


source: Caselaw Access Project

author: Gruccio, J. S. C.

license: Public Domain

text:
    WILLIAM HEDGEBETH, AN INFANT, BY HIS GUARDIAN AD LITEM, BERTHA E. MEEK and BERTHA E. MEEK, INDIVIDUALLY, PLAINTIFFS, v. LEONARD E. MEDFORD, SR., DEFENDANT.
    Superior Court of New Jersey Law Division
    Decided July 31, 1974.

      Mr. Edward J. Brady for plaintiffs.
    No appearance for defendant.

      Mr. Robert E. Popkin, Deputy Attorney General, for Division of Medical Assistance and Health Services; (Mr. William F. Hyland, Attorney General of New Jersey, attorney) .
   Gruccio, J. S. C.

Plaintiff William Hedgebeth an infant by his guardian ad litem Bertha E. Meet, received a judgment in this court in the amount of $7500 against defendant Leonard E. Medford, Sr. for injuries received when plaintiff was struck by an automobile.

.This being an Unsatisfied Claim and Judgment Eund case, application was made to the Eund for payment of the judgment. At that time Mr. Lodge of the Unsatisfied Claim and Judgment Eund Board advised the Bureau of Medical Care Surveillance of the Division of Medical Assistance and Health Services of a recovery about to be paid to the minor and his guardian ad litem.

The State of New Jersey filed a notice of motion via the Attorney General seeking establishment of its right of subrogation for money advanced to the State of New Jersey Medicaid Program on behalf of the minor for medical expenses arising out of the accident in question. The State of New Jersey seeks to establish its right of subrogation (a) in the sum of $481.40 and (b) to said amount of money free and clear of any expenses whatsoever, including any attorneys’ fees.

There is no, question whatsoever that pursuant to N. J. 8. A. 80:4D-7(j) that the State of New Jersey is entitled to subrogation. The pertinent part of that statute provides that the Commissioner is authorized and empowered to be subrogated to the rights of a recipient against a third party-causing injury to that recipient resulting in Medicaid payments.

Of more concern is the question raised by the Attorney General in his memorandum brief that no attorneys’ fees or costs may be deducted from the state’s portion of recovery in this matter. It is his contention that the attorney for plaintiff is not performing any service for the State of New Jersey and that only the Attorney General can render legal representation to a state agency. The Attorney General cites the case of Keenan v. Essex Cty. Bd. of Chosen Freeholders, 101 N. J. Super. 495, 505-506 (Law Div. 1968), aff’d 106 N. J. Super. 312 (App. Div. 1969). I find that this case is neither applicable nor persuasive of the position taken by the State of New Jersey herein.

The right of plaintiff’s attorney to collect a fee in subrogation matters and the cases relating thereto are collected in an annotation at 2 A. L. R. 3d 1441 (1965).

Breslin v. Liberty Mut. Ins. Co., 125 N. J. Super. 320, 327 (Law Div. 1973), clearly decided, with regard to an insurance carrier, that “one who has derived a benefit from services rendered by attorney, whether he retained attorney or not, ought in good conscience and as a matter of fundamental fairness bear at least pro rata share of the costs of those services to extent of benefit derived.” See also, Klacik v. Kovacs, 111 N. J. Super. 307 (App. Div. 1970).

The Attorney General has not been able to call to our attention any cases in this State or in any other state which involve the novel question presented to us, i. e., whether the theory of Breslin and Klacik, supra should be extended to include the State of New Jersey.

In Klacik the court says,

To establish an artificial rule which would provide an insurer with the right to sit back and permit its insured to proceed with an action, expecting to share in the avails of that proceeding without the burden of any of the expense, occurs to us to be anomalous.

The theory behind the general rule as found in the above-cited authorities and also as found in 44 Am. Jur. 2d, Insurance Law, § 1846 at 773, and Appleman, Insurance Law and Practice, § 4096 at 286, is that general equitable principles required this result especially since the parties seeking the subrogated funds did not participate in an action against the third party which brought about a recovery. (Emphasis supplied).

While the Attorney General argues that Ms position as sole legal adviser for all state agencies requires that no other attorney can act in such a capacity and that any fee to be paid him cannot be paid by the state agency on whose behalf he has allegedly acted, we must, however, conclude that the State is likewise foreclosed from enriching itself to the extent of recovery without payment of its pro rata share.

There is nothing called to my attention by the State which would force me to overlook the result obtained in Klacik and Breslin, supra.

This court finds no compelling reason why the state agency stands in a different posture than a private carrier when the question of benefit and burden and the “general principles of equity” are considered. Absent any authority to be found in our State or in any of our sister states on the subject of state programs and their relationship to this general rule, it is clear to me that a rule ought to be followed as espoused by our own Appellate Division.

I decide that the State of New Jersey has a right of subrogation subject to its pro rata share of expenses to wit the attorneys’ fees on the amount recovered.


author: Van Tassel, J. C. C.,

text:
    ALBERT R. TUMBER, IND. & T/A AAA MACHINERY CO., PLAINTIFF, v. AUTOMATION DESIGN & MFG. CORP., DEFENDANT.
    Superior Court of New Jersey-Law Division
    Decided August 2, 1974.

      Mr. Joseph J. Solon, pro se.

      Mr. Leon S. Wolk for defendant.
   Van Tassel, J. C. C.,

Temporarily Assigned. This case concerns the sale of goods by a lessee of the owner to one who now claims good title by reason of the entrustment provisions of N. J. S. A. 12A:2-403(2) and the doctrine of estoppel. Plaintiff-owner relied on his original title to the goods and seeks their return. In the alternative, he sues for their reasonable value.

In 1967 Joseph J. Solon, the stipulated real party in interest, trading as AAA Machinery Co. (AAA) along with his brother-in-law Albert E. Tumber, purchased certain machinery from S. J. Dolce & Co., Inc., a Long Island corporation, which together with Dolce-IIelix, became a division of Roto American Corp. Payment for such equipment was made by Donlon Ventures, Inc., an investment company in which Solon and Tumber were partners. Title to these goods was placed in the name of AAA by an assignment from Solon.

As marketing and sales agent for AAA, Solon contracted to supply machinery to Roto American Corp. (R. A. C.), a corporation in the business of manufacturing and selling packaging equipment. R. A. C. owned its own building located at 560 Winters Avenue, Paramus, N. J., subject to New Jersey Bank & Trust Co.’s mortgage lien on this and all after-acquired assets. R. A. O. permitted Solon, S. J. Dolce & Co., Inc. and others to occupy and use its office facilities and leased plant facilities and machinery to Jyron Go-. It also leased a portion of the premises to defendant Automation Design & Mfg. in 1968, discussed hereinafter.

In May 1966 R. A. 0. began to experience financial difficulty which required refinancing and liquidation of assets. Roto American Sales Corp. (R. A. S. 0.) was formed and began to act as R. A. C.’s agent in this regard on January 18, 1967 when it took an assignment of all of R. A. O.’s rights, title and interests by an agreement procured through “Joseph J. Solon, Agent.” James Talcott, Inc. assumed the refinancing and received in return a security interest in R. A. C/s accounts receivable. This security interest was then assigned to Donlon Ventures, Inc., which became affiliated with R. A. S. C. in May 1967. By this time R. A. C. showed a negative net worth. AAA assisted by purchasing R. A; C. equipment and leasing it back to R. A. C. for one year at 71/2% of the purchase price, with an option in R. A. 0. to repurchase thereafter at its original selling price.

In June 1967 the subject equipment was entrusted to R. A. S. C. AAA through Solon leased a Sigma Radial Drilling Machine, Type UR-4, serial number 6616; a Le-Blond Regal Engine Lathe, serial number D-9041, and a Bridgeport Milling Machine, Model J, serial number J-26384, to R. A. S. C. The leasing arrangement was again one whereby AAA would receive 7 1/2% of the price, representing an annual rental fee with an option in R. A. S. C. to purchase after one year. Solon testified that the lease was never completed and that he left the equipment with R. A. S. 0. with the understanding that he would sell the equipment to a willing buyer some time in the future.

On September 26, 1967 R. A. C. filed a voluntary petition in bankruptcy which was confirmed on Oct. 31, 1967. Thereafter, pursuant to a court order, the January 18, 1967 asignment between R. A. 0. and R. A. S. G. was cancelled knd deemed void, the result of which was that R. A. S. 0., a closely held corporation (the stock of which was owned in equal parts by Herbert Frutkin and Louise M. Solon, wife of Joseph Solon) became owner of approximately two-thirds of the outstanding shares of Eoto American Corp.

The testimony disclosed that the formation of E. A. S. C. was an emergency measure designed to save the failing E. A. C. It would receive income from the sale of its stock, i. e., the Walton contract and Seigfried contract, and filter it back into E. A. C. to keep it afloat. In December 1967 and January 1968 it acquired two companies, Nordam, Inc. and S. J. Dolce & Co., Inc. which were charted to bo assigned to E. A. C. E. A. S. C. was also used as a vehicle to compromise claims of creditors. The testimony also reveals that Solon acted as a “free-lance” agent and was inextricably interwoven in these transactions.

In April 1968, through Solon’s promptings and assistance, Carl Frank, the president of Automation Design & Mfg. Corp. (Automation Design) arranged to lease a portion of E. A. C.’s building. Frank knew Solon when Frank was chief engineer of E. A. C. in charge of research and development. At that time he constantly sought Solon’s advice. Frank testified that he rented space from E. A. C. in April 1968, and that Automation Design took possession thereof in May 1968 and remained there until April 1970 when it moved to Norwood, N. J. He testified further that in November and December 1968 Dolce of S. J. Dolce & Co., Inc. and Billington, the president of E. A. S. C., offered to sell four machines to Automation Design. Frank had previously discussed with Solon the sale of various machines in August or September 1968 but failed to agree on a price. However, as a result of discussions with Dolce and Billington, he purchased the machines. A Leland Gifford Drill Press was purchased by check dated November 26, 1968, made payable to AAA. This piece of machinery is not in issue. Three other machines were purchased by two checks drawn “Pay to the order of cash” and endorsed with the notation “For payroll purposes” and “For payroll — cash.” The checks were deposited and honored the same day as issued.

The first of the two subject transactions occurred on December 6, 19,68 when Dolce and Billington offered to sell the Sigma Radial Drill. Prank called John Sweeney at New Jersey Bank, the lien holder of record, and discussed the releasing of the machine from its mortgage. (AAA had made no recording of its ownership.) As a result of this conversation Prank issued a $3,750 check payable to cash and purchased the equipment. In return he received an R. A. S. C. invoice which indicated:

Received payment in full Dec. 6, 1968
Check No. 235 —■ payable to Cash.
In accordance with direction of Mr. Herbert Frutkin, Chairman of the Board, the above item is certified to be free and clear of all encumbrances.
(signed)
Herbert Billington
President

In addition, Prank testified that “on the very same day of the purchase” he spoke to Prutkin, who at that time was the sole owner of all of R. A. S. C. stock, and as a result of this conversation he was convinced that Solon did not own the machine.

The second purchase occurred on December 13, 1968 when Dolce (and Billington) offered to sell a LeBlond Regal Lathe and a Bridgeport Milling Machine. Prank purchased this equipment with a $3,500 check, again payable to cash. He explained that this was the “same type of deal.” Dolce and Billington were pressed for money to meet Friday’s payroll expenses. To accommodate them he gave a cash check. This time he received AAA invoices as receipts.

Both invoices were received by Automation Design a week later on December 20, 1968. On invoice No. 102-R covering the Bridgeport Milling Machine there was typed “Payment received in full,” with a notation “Roto” in the lower left-hand corner. Invoice No. 502-D covering the LeBlond Ilegal Engine Latlie showed a “Balance due $200” with a notation “Dolce-Helix” typed in the lower left-hand corner of this receipt.

The court finds these notations on the AAA invoices significant since they acknowledge the seller of the respective pieces of equipment as associated with AAA. They are indicative of the agency relationship which existed in Solon throughout and aro entirely consistent with his wish that these pieces of equipment be sold at some time in the future.

In the latter part of 1968 the Internal Bevenue Service arrived at the B. A. C. building to tag all assets subject to its lien. Due to Frank’s insistence, all tags were removed from these pieces of equipment. On December 29, 1968 Albert Tumber wrote to the I. B. S. explaining that the goods were his but were being used by Dolce-Helix Corp. with the prospect of sale to B. A. C.

On November 2, 1970, almost two years later, Melvin A. Albert, attorney for AAA, wrote to Automation Design in Norwood, N. J. demanding the return of the Sigma Badial Drilling Machine. Significantly, although for some unexplained reason, the demand was addressed only to this machine. On November 9, 1970 Automation Design denied AAA’s claim of ownership. Thereafter AAA instituted suit for the return of the three pieces of equipment.

N. J. S. A. 12A:2-403, “Power to Transfer; Good Faith Purchase of Goods; ‘Entrusting,’ ” provides in pertinent part:

(2) Any entrusting of possession of goods to a merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to a buyer in ordinary course of business.
(3) “Entrusting” includes any delivery and any acquiescence in retention of possession regardless of any condition expressed between the parties to the delivery or acquiescence and regardless of whether the procurement of the entrusting or the possessor’s disposition of the goods have been such as to be larcenous under the criminal law.

The phrase, “merchant who deals in goods of the kind,” has been construed to mean one who is regularly engaged in selling goods of the kind. Toyomenka, Inc. v. Mount Hope, 432 F. 2d 722 (4 Cir. 1970). A “'Buyer in ordinary course of business’ means a person who in good faith and without knowledge that the sale to him is in violation of the ownership rights or security interest of a third party in the goods buys in ordinary course from a person in the business of selling goods of that kind but does not include a pawn broker. * * *” N. J. S. A. 12A:1-201(9).

In Mattek v. Malofsky, 42 Wis. 2d 16, 165 N. W. 2d 406 (Sup. Ct. 1969), the court found that a merchant buying from another merchant may be a buyer in the ordinary course of business if he meets the increased standards of good faith required in the case of a merchant. He must be “honest in fact” and must observe reasonable commercial standards of fair dealing in the trade. N. J. S. A. 12A:2-103(1) (b); cf. N. J. S. A. 12A:1-201(19). Additionally, he is charged with the knowledge and skill of merchants. N. J. S. A. 12A:2-104(3).

In Balon v. Cadillac Automobile Co. of Boston, N. H., 303 A. 2d 194, 196 (1973), the court said that good faith under the Uniform Commercial Code is tested subjectively, that is, by whether that particular purchaser believed he acted in good faith, and by whether he was honest in what he did. In this regard the court finds that Frank did act in good faith. He purchased the equipment only after reasonable assurances of title and in the belief that Solon did not own the equipment. However, his good faith alone is not sufficient to elevate him to the status of a buyer in the ordinary course. His seller, R. A. S. C., by reason of this isolated transaction, did not meet the standards of a “merchant dealing in goods of the kind,” nor was his failure to request additional proof of ownership a “commercially reasonable” approach to this .purchase. Thus he cannot invoke the protections of N. J. S. A. 12A:2-403(2). Mattek v. Malofsky, supra; compare Raymond Car Sales, Inc. v. Motor Wholesales, Inc., 28 Misc. 2d 1, 211 N. Y. S. 2d 286 (Sup. Ct. 1961); Independent News Co. v. Williams, 293 F. 2d 510 (3 Cir. 1961), and Weisel v. McBride, 191 Pa. Super. 411, 156 A. 2d 613 (Super. Ct. 1959).

Although one may not be a buyer in the ordinary course of business as defined in the Uniform Commercial Code, he may yet be a good faith purchaser for value, Sherman v. Roger Kresge, 67 Misc. 2d 178, 323 N. Y. S. 2d 804 (Cty. Ct. 1971) who may enjoy the protection of pre-Code common law estoppel. Toyomenka, Inc. v. Mount Hope Finishing Co., supra; N. J. S. A. 12A:1-103. See also 10 Boston College Indust. & Commerc. L. Rev. at 46, fn. 29. In this caso the operative facts suggest the universally adopted maxim that as between two innocent victims of fraud, the one who created the circumstances which made the wrongful act possible must suffer the loss. Zendman v. Harry Winston, Inc., 305 N. Y. 180, 111 N. E. 2d 871 (Ct. App. 1953); Harmony Homes, Inc. v. Zeit, 260 So. 2d 218 (Fla. D. Ct. App. 1972); Ballard v. McBryde, 275 So. 2d 464 (La. Ct. App. 1973); Jordon v. Butler, 182 Neb. 626, 156 N. W. 2d 778 (Sup. Ct. 1968).

AAA entrusted the machines to R. A. S. C. in 1967 under a lease arrangement which was never completed. It left them at the E. A. C. building anticipating their future sale, and acquiesced in Dolce’s and Billington’s use of the equipment. In 1968 Automation Design took occupancy in the same building and purchased the equipment after obtaining assurances of title from Dolce, Billington, Frutlrin and John Sweeney at New Jersey Bank. For over a year the equipment had remained with E. A. S. C. (who had an option to purchase). Thereafter for two more years they remained with Automation Design. It was not until November 1970, some seven months after the latter moved to Nor-wood Avith the equipment, that a demand for any of the equipment was made. Under these circumstances the court finds that Frank acted in good faith and without notice. He had had successful dealings with the sellers in the past and AA-as justified in altering his position in reliance on their apparent authority to act as sellers and agents for AAA (Avho acknowledged these sales). The court therefore concludes that as between Frank and Solon, the latter was the one who made the wrongful act possible, and accordingly he should bear the loss by being estopped to assert his title. Zendman v. Harry Winston, Inc., supra and cases cited, cf. Nelson v. Wolf, 4 N. J. 76 (1950), and Muir v. Jefferson Credit Corp., 108 N. J. Super. 586, 593-594 (Law Div. 1970) See also, Cambridge Acceptance Corp. v. American Nat. Motor Inns, Inc., 96 N. J. Super. 183 (Ch. Div. 1967) aff’d 102 N. J. Super. 435 (App. Div. 1968), and Arsen v. Director, Div. of Motor Vehicles, 61 N. J. Super. 131 (Law Div. I960).

There will be a judgment entered in favor of defendant for possession of the equipment on the main claim, and the relief requested in the counterclaim is denied.


author: King, J. C. C.

text:
    STATE OF NEW JERSEY, PLAINTIFF, v. CHARLES REDDY AND ROBERT REDDY, DEFENDANTS.
    Superior Court of New Jersey Law Division
    August 5, 1974.

      Mr. Richard L. Friedman for the State (Mr. Thomas F. Shusted, Prosecutor of Camden County, attorney).

      Mr. Andrew G. Gay admitted pro hac vice, for defendant Robert Reddy (Mr. Michael A. Ferrara, Jr., of counsel).

      Mr. John T. Grigsby, III, admitted pro hac vice, for defendant Charles Reddy (Mr. Michael A. Ferrara, Jr., of counsel).
   King, J. C. C.

Temporarily Assigned. This is a motion for a new trial following convictions of defendants Charles Reddy and Robert Reddy for murder in the first degree. On July 21, 1972, shortly before midnight, four men armed with a shot gun, two hand guns and assorted knives robbed the bartender of the Twilight Zone Cafe at Second and Beckett Streets in Camden, New Jersey. During the course of the robbery one of the patrons was shot and killed. About an hour after the robbery four men were apprehended by the police in North Philadelphia as a result of an all points bulletin. The vehicle being used by the four men at the time of arrest matched the description of the vehicle seen fleeing the scene of the crime by a patron of the bar. The cash proceeds of the armed robbery were found in the ear, as well as several distinctive receipts which vendors had given the operator of the cafe on the day of the crime. Weapons fitting the description of the arms used at the scene were also found in the car. One of these weapons, a .38 police special, was later identified as the murder weapon by ballistic testing at the State Police Crime Laboratory. At the time the car was stopped and the four men arrested, defendant Robert Reddy was the operator and defendant Charles Reddy was the occupant of the right-hand front seat. The back seat was occupied by Albert Locke and a fourth man. In this prosecution Charles Reddy and Robert Reddy were convicted of murder in the first degree and had been sentenced to life in prison prior to the return day of this motion. Approximately one year before the trial in this case on May 9, 1973 Locke pleaded guilty to the charge of murder and is presently serving a 20-30-year sentence in State Prison. The fourth man has not yet been tried and is still resisting extradition to this jurisdiction from the Commonwealth of Pennsylvania.

This trial commenced on Monday, May 20, 1974, with jury selection which lasted 1^ days. On Tuesday, May 21, 1974, the trial continued with openings and the presentation of evidence. The evidence included proof that Locke and the fourth man were arrested with the Reddys and were seated in the back of the car when it was stopped by the police. On Wednesday afternoon an article appeared in the Camden Courier Post. The Courier is the leading local newspaper in the Camden County and Southern New Jersey area, with an average daily circulation of about 125,000 copies. The article related essentially the facts stated in the prosecutor’s opening statement describing the offense and the manner of apprehension in Philadelphia shortly after the crime. Unfortunately, the article also disclosed that codefendant Locke, who was apprehended with the Reddy defendants while in the alleged “get away” car, had pleaded guilty to the murder charge on May 9, 1973:

In addition to the Reddy brothers, the policeman also arrested Albert Locke, 26, of the 500 block of S. 5th Street, and Robert Colclough, 27, of the 1700 block of Greene Street, both of Philadelphia.
Colclough is still in custody in Philadelphia, fighting extradition to New Jersey. Locke pleaded guilty to the murder on May 9, 1973. [Courier Post, May 22, 1974, page 71]

The jury had been cautioned about media exposure at the beginning of the trial, and the caution was periodically renewed. The jury was not sequestered and, of course, there was a reasonable possibility of their exposure to the article. On Thursday morning, May 23, 1974, defense counsel brought the article to the court’s attention in the form of a motion for a mistrial. The court heard the motion and reserved decision. At this point there was a very real possibility that Locke might testify for either the defendant or the State. If Locke did testify, the fact of his plea as well as the circumstances of his apprehension would have most likely been brought before the jury and the possible prejudicial effect of the article would have been obviated, with the safeguards of eonirontation and cross-examination. In State v. Gardner, 54 N. J. 37 (1969), the court stated:

Because Gilchrist [a codefendant] testified in the instant ease, and reiterated the evidence previously introduced through the testimony on his out-of-court oral admissions (including what the trial court had deleted), the Young [State v. Young, 46 N. J. 152] and Bruton [Bruton v. United States, 391 U. S. 123, 88 S. Ct. 1620, 20 L. Ed. 2d 476] cases are inapplicable. *’ * * Gilchrist’s decision to take the stand and testify on the subject matter of the oral admissions attributed to him subjected him to cross-examination by his co-defendants. It follows, therefore, that Gardner and Mason have been adequately afforded their Sixth Amendment right of confrontation, and any alleged error committed by the introduction of the oral admission was cured. * * [at 44]

State v. Wade. 114 N. J. Super. 388 (App. Div. 1971), cert, den. 59 N. J. 269 (1971); State v. Gullo, 112 N. J. Super. 476 (App. Div. 1970); Nelson v. O’Neil, 402 U. S. 622, 91 S. Ct. 1723, 29 L. Ed. 2d 222 (1971); United States v. Smith, 451 F. 2d 595 (9 Cir. 1971).

On Thursday, May 23, 1974, Locke was brought to the local County Jail from State’s prison. He was interviewed by the prosecutor who declined to call him as a witness. On Monday, May 27, 1974, the prosecutor rested. After some debate defendants also declined to call Locke as a witness and Locke was then returned to State Prison. Defendants also declined to take the stand, offered one alibi witness, and rested on Tuesday morning, May 28, 1974. Since Locke did not testify, the necessity for ruling on the mistrial motion made on Thursday, May 23, 1974, following the appearance of the offending article was impelling.

Courts previously faced with the publication of inadmissible material during the progress of the trial have consistently held that a refusal to poll the jury or to grant a motion for a mistrial was not error where the judge had instructed the jury during the trial to disregard media reports, had repeated the admonition in his charge, and particularly had found no evidence of any juror’s actual reading of the material. State v. Curcio, 23 N. J. 521 (1957); State v. Cottone, 52 N. J. Super. 316 (App. Div. 1958), cert. den. 28 N. J. 527 (1959); State v. Petrucelli, 37 N. J. Super. 1 (App. Div. 1955), cert. den. 350 U. S. 1000, 76 S. Ct. 556, 100 L. Ed. 864 (1956); State v. Bentley Bootery Inc., 128 N. J. L. 555 (1942), aff’d 129 N. J. L. 386 (E. & A. 1943). However, these cases arose before the Hew Jersey Supreme Court had expressed its serious concern for adverse pretrial publicity and its ability to deny an accused a fair and impartial trial. State v. Van Duyne, 43 N. J. 369 (1964) ; In re Bailey, 57 N. J. 451 (1971). When faced with this problem this court placed reliance upon ABA Project on Standards for Criminal Justice, Standards Relating to Fair Trial and Free Press, § 3.5(f) (approved draft 1958), which states as follows:

(f) Questioning jurors about exposure to potentially prejudicial material in the course of the trial; standard for excusing a juror.
If it is determined that material disseminated during the trial raises serious questions of possible prejudice, the court may on its own motion or shall on motion of either party question each juror, out of the presence of the others, about bis exposure to that material. The method of examination shall be the same as that recommended in section 3.4(a), above. The standard for excusing a juror who is challenged on the basis of such exposure shall be the same as the standard of acceptability recommended in section 3.4(b), above, except that a juror who has seen or beard reports of potentially prejudicial material shall be excused if the material in question would furnish grounds for a mistrial if referred to in the trial itself.

Section 3.4(a) contemplates examination of the jurors individually on the record, and section 3.4(b) sets forth the standard of acceptability of a juror who may have been exposed to the offending article. During the late morning of Tuesday, May 28, 1974, the court personally questioned all 14 jurors separately in chambers in the presence of all counsel about their exposure to the article of the preceding week. Twelve jurors denied any knowledge of the article, stating in essence that they had carefully avoided reading any newspaper reference to the ease. One juror whose next door neighbor knew he was serving on a murder case admitted having his attention called to the existence of the article by that neighbor. The juror asked his neighbor not to discuss the ease or the article with him and did not learn the contents of the article. One juror acknowledged that her husband mentioned the article to her. She refused to discuss it with him and asked him to put the paper aside so she could read the story when the case was over. The court was convinced after questioning each juror that their responses were sincere and honest. Following the interviews, summations and charge took place and the jury deliberated from 5 p.m. until 9 p.m. on Tuesday, May 28, 1974. The court then ordered the jury sequestered in the custody of the sheriff’s officers at a local hotel on Tuesday night. On Wednesday afternoon the jury returned the guilty verdicts. The court felt that once the jury was questioned about the article the better course was overnight sequestration in the event that the interviews aroused undue curiosity about the article in the minds of some jurors.

Unquestionably since Sheppard v. Maxwell, 384 U. S. 333, 86 S. Ct. 1507, 16 L. Ed. 2d 600 (1966), the courts have been extremely sensitive about pretrial and in trial publicity. Section 3.5(f) seemed an appropriate course to follow and was most pertinent to this problem. This approach was also used by Judge Wortendyke in United States v. Matale, 250 F. Supp. 381 (D. N. J. 1966), who stated on a motion for a new trial the procedure followed:

During the course of the trial, defense counsel, out of the presence of the jury, brought to the court’s attention press accounts of the progress of the trial, and contended that such accounts were prejudicial. The court thereupon interrogated each member of the jury, separately in open court, in the presence of the defendant's and their attorneys, for the purpose of acertaining whether the newspaper reportings complained of had been read by the juror and, if so, whether the reading thereof had created any prejudice in the juror’s mind. This interrogation completely satisfied the Court that nothing reported by the press respecting the trial was or could have been prejudicial to the defendants or any of them.

The fact of Locke’s guilty plea described in the article;, the proof at the trial that Locke was arrested in the alleged “get away car” with the Reddy defendants within an hour after the robbery, and the fact that both Reddy defendants exercised their Fifth Amendment right not to testify, certainly raised “serious questions of possible prejudice.” If Locke had testified for either side his plea would undoubtedly have come out as bearing on his credibility at least. With Locke not testifying the potential impact of the newspaper article remained speculative at best until the jurors were questioned. As a result of questioning the jurors the court can readily agree with the commentary accompanying the ABA Standards, supra, at 145: “Reported decisions indicate that jurors will often answer candidly when carefully questioned and when the atmosphere is not conducive to intimidation.”

Defendants’ motion for a new trial because of the newspaper article revealing codefendant Locke’s plea of guilty must be denied. The court is well satisfied from the interrogation of the jurors that none of them ever saw or read the article and the mere existence of the article does not in itself warrant a new trial, especially where the court is convinced factually that it played absolutely no part in the jury’s deliberation leading to the guilty verdicts. The remaining grounds urged for a new trial are denied. The evidence was adequate to support the conviction and these were sufficient evidence from which the jury could find that defendants participated in the crime.


author: Yanoff, J. C. C.

text:
    IN THE MATTER OF THE APPLICATION OF “S. S.” FOR PERMIT TO CARRY PISTOL OR REVOLVER.
    Essex County Court
    July 29, 1974.

      Mr. George S. Hochberg for applicant (Messrs. Shapiro, Berson, Hochberg & Reiken, attorneys).
   Yanoff, J. C. C.

Applicant applied for a permit to carry a pistol or revolver so that he might be employed as an armed guard for a payroll service. His application showed that he had been convicted in the United States District Court for the District of New Jersey in 1960 for a crime involving embezzlement, sentenced to a term of incarceration, served the term, and that under date of December 21, 1973 he had been granted “a full and unconditional pardon” by the President of the United States. The local chief of police approved his application. Under the provisions of N. J. S. A. 2A:151-44 a county judge is required to approve the application before a permit may issue. I denied in a letter-opinion, after which applicant requested a hearing pursuant to N. J. S. A. 2A:151-44.1. A brief was filed on applicant’s behalf and testimony was taken at which applicant produced persuasive evidence of his good character.

No notice of the hearing was given to the local chief of police, or the municipal attorney, and he was not represented at the hearing. A discussion of the procedural problem is necessary. There is a distinction between applications to purchase guns and applications to carry guns. The first is controlled by Article 4 of the Gun Control Law, L. 1966, c. 60; N. J. S. A. 2A:151-1 et seq. The second is controlled by Article 5 of the same statute. Section 34 of the statute controls issuance of permits to purchase a weapon. Under its provisions full power to issue the permit resides in the chief of police where there is an organized full-time police department in a municipality. If he denies, the aggrieved applicant may request a hearing in the County Court. Section 44 of the statute controls permits to carry firearms. In this case, the application is made in the first instance to the chief of police in the municipality in which the applicant resides. However, the ultimate issuing authority rests in the county judge. If the chief of police approves, the application is then presented to the county judge for action. Section 44.1 of the statute controls both the case where the chief of police recommends'approval and where he disapproves. It makes specific provision for a hearing if the chief of police disapproves. As to the situation in which the chief of police approves, but the County Court denies the application, it provides only: “* * * then the appeal from the denial of such application by the County Court shall be in accordance with law.” Weston v. State, 60 N. J. 36 (1972), dealt with the situation in which there was an appeal from a denial of a permit to purchase a gun. Its comprehensive discussion of the statutory scheme (at 43-44) needs no repetition. It made clear that at some point in the permit-issuing process a judicial hearing was necessary to afford the applicant due process. The problem here is that the statute does not specify the procedure by means of which the applicant’s constitutional rights are to be protected. Under the circumstances

The judicial task becomes one of resolving, within the framework of the appropriate canons of construction, the probable legislative intention, bearing in mind the admonition of Chief Justice Weintranb in New Capitol Bar & Grill Corp. v. Div. of Employment Sec. 25 N. J. 155, 160 (1957) that:
“It is frequently difficult for a draftsman of legislation to anticipate all situations and to measure his words against them. Hence cases inevitably arise in which a literal application of the language used would lead to results incompatible with the legislative design. It is the proper function, indeed the obligation, of the judiciary to give effect to the obvious purpose of the Legislature, and to that end ‘words used may be expanded or limited according to the manifest reason and obvious purpose of the law. The spirit of the legislative direction prevails over the literal sense of the terms.’ Alexander v. New Jersey Power & Light Co., 21 N. J. 373, 378 (1956) ; Wright v. Vogt, 7 N. J. 1, 6 (1951) ; Glick v. Trustees of Free Public Library, 2 N. J. 579, 584 (1949).” [Dvorkin v. Dover Tp., 29 N. J. 303, at 313 (1959)]

Conceivably, the hearing mandated by Weston could come on appeal to the Appellate Division under B. 2:2-3 (a) (2) “to review final decisions or actions of any state administrative agency or officer * * *.” In such case, the Appellate Division would be forced to pass on the matter with only the bare statements in the application for gun permit before it, without findings of fact or even a record upon which to find facts. Conceivably, also, a complaint in lieu of prerogative writs might be filed under B. 4:69. In such ease, a plenary action would ensue, whereas the Gun Control Law obviously contemplates summary action. Another possibility is that the assignment judge designate another county judge to hear the appeal. In such ease there might result a divergence of policy which the designation of a single “gun judge” is intended to preclude. I have, therefore, concluded that it was the legislative intent that the fact-finding procedure in the situation involved here must be the same as that in which the local chief of police refuses in the first instance to grant the permit. However, where, as here, the chief of police has recommended the grant of the permit, he is no longer an adversary party and need not be joined.

The substantive issue which must be determined for the first time in this State is whether by reason of the conviction applicant is barred from obtaining a permit to carry a firearm pursuant to N. J. S. A. 2A:151-44, despite the pardon. N. J. S. A. 2A:151-44 specifically provides that no permit shall be issued to a person who is precluded by N. J. S. A. 2A :151-33 from purchasing a firearm.

Section 33 provides in pertinent part:

No person of good character and who is of good repute in the community in which he lives, and who is not subject to any of the disabilities set forth in this section or other sections of this chapter, shall be denied a permit to purchase a pistol or revolver or a firearms purchaser identification card, except as hereinafter set forth:
a. No pistol or revolver purchase permit or firearms purchaser identification card shall be issued to any person who has ever been convicted of any crime, * * *.
d. To any person where the issuance would not be in the interest of the public health, safety or welfare.

The constitutionality of the statute was sustained in Burton v. Sills, 53 N. J. 86 (1968). General standards under which such permits may be issued were outlined in Reilly v. State, 59 N. J. 559 (1971); Siccardi v. State, 59 N. J. 545 (1971), and In re Application of “X.”, 59 N. J. 533 (1971). The conclusion to bo drawn from these cases is that broad discretionary powers are entrusted to the County Court in the administration of the statute.

The first substantive question is, whether the pardon removes the per se disability set forth in N. J. S. A. 2A:155-33. In United States v. Wilson, 7 Pet. 150, 32 U. S. 150, 160, 8 L. Ed. 640 (1833), Chief Justice Marshall defined a pardon as an act of grace which exempts the individual upon whom it is bestowed from the punishment which the law inflicts for a crime he has committed. In Ex parte Garland, 4 Wall. 333, 71 U. S. 333, 18 L. Ed. 366 (1866), the Supreme Court stated that,

A pardon reaches both the punishment prescribed for the offence and the guilt of the offender; and when the pardon is full, it releases the punishment and blots out the existence of guilt, so that in the eye of the law the offender is as innocent as if he had never committed the offence. *■ * * if granted after conviction it removes the penalties and disabilities and restores him to all his civil rights; it makes him, as it were, a new man, and gives Mm a new credit and capacity, [at 380; emphasis added]

On the other hand, in Knote v. United States, 96 U. S. 149, 156, 24 L. Ed. 442 (1877), the court stated that it is the "essence of a pardon that it relieves the offender from the consequences of his offence.” See also, Burdick v. United States, 236 U. S. 79, 35 S. Ct. 267, 59 L. Ed. 476 (1915). The distinction between the language of the earlier cases and of the later cases is that the earlier cases seem to view a pardon as completely wiping from the record all aspects of the offense, while the latter cases view it as relieving the offender only from the punishment attendant upon the offense.

It is stated in 67 C. J. S. Pardons § 6, at 571 (1950) :

The power of pardoning is founded on considerations of the public good, and is to be exercised on the ground that the public welfare, which is the legitimate object of all punishment will be as well promoted by a suspension as by an execution of the sentence. It may also be used to the end that justice be done. * * *

While this is a generalization, it supplies a background for determination of the issues involved here.

In Cook v. Freeholders of Middlesex, 26 N. J. L. 326 (Sup. Ct. 1857), aff’d 27 N. J. L. 637 (E. & A. 1858), the issue was whether the granting of a pardon entitled the party to restitution of the fine and costs paid. The court held that the fine could not be returned. The Chief Justice stated:

The principle universally propounded is, that pardon is an exercise of sovereign or executive clemency toward the guilty. It is a suspension of the just sentence of the law, induced by the facts and circumstances of the crime or by the character and condition of the criminal. The power of pardoning is founded on considerations of the public good, and is to be exercised on the ground that the public welfare, which is the legitimate object of all punishment, will be as well promoted by a suspension as by an execution of the sentence. If the party convicted be innocent, nothing short of an utter abrogation of the sentence, restitution of all that he has paid, and compensation for all that he has suffered, can fill the measure of justice. Nothing of this sort is contemplated or effected by a pardon, [at 333]

In In re Fitzpatrick, 9 N. J. Super. 511, 517 (Cty. Ct. 1950), aff'd 14 N. J. Super. 213 (App. Div. 1951), the court said, “Pardon is a remission of guilt and a declaration of record by the authorized authority that a particular individual is to be relieved of the legal consequence of a particular crime.”

In a full discussion of the pardoning power in New Jersey, Chancellor Walker said in Court of Pardons In re matter of creation, etc., 3 N. J. Misc. 585 (Ct. Pardons 1925) :

There is no question but that a pardon restores the right of suffrage to a person convicted of a crime, which at the time of the adoption of the Constitution of 1844 excluded the convict from being a witness, [at 592]

Thus, I conclude that a pardon removes both the punishment and the disabilities consequent upon the conviction, including the disability to receive a permit to carry a Aveapon. If a pardon restores the right to suffrage, it similarly restores the right to carry a weapon.

The question remaining is, whether applicant is disqualified under subsection (d) of N. J. S. A. 2A:151-33, Avhich requires that he be a person of “good character.”

While a pardon eliminates the consequences of a comietion, it does not blot out the fact of the conviction. Thus, in an article, 28 Harv. L. Rev. 647 (1915), “Does a Pardon Blot Out Guilt?”, Professor Williston wrote:

The true line of distinction seems to be this: The pardon removes all legal punishment for the offence. u Therefore, if the mere conviction involves certain disqualifications which would not follow from the commission of the crime without conviction, the pardon removes such disqualifications. On the other hand, if character is a necessary qualification and the commission of a crime would disqualify even though there had been no criminal prosecution for the crime, the fact that the criminal has been convicted and pardoned does not make him any more eligible, [at 653]

It is for that reason that a conviction may be used to impugn the credibility, of a witness who has been pardoned. State v. Tansimore, 3 N. J. 516 (1950). In re Spencer, 5 Sawy. U. S. 195, 22 Fed. Gas. (No. 13,234), P. 921 (D. Ore. 1878), supports the distinction made by Professor Williston. Spencer, an alien resident of Oregon, made an application for citizenship. He had been convicted of perjury and later pardoned by the Governor. Citizenship was denied on the ground that the pardon did not eliminate the fact of conviction, and that therefore Spencer had not behaved as a man of “good moral character” as required by the statute. The court (at 923) stated: “The offender is purged of his guilt, and thenceforth he is' an innocent man; but the past is not obliterated nor the fact that he had committed the crime wiped out.” See also, People ex rel. Prisament v. Brophy, 287 N. Y. 132, 38 NE 2d 468 (Ct. App. 1941) cert. den. 317 U. S. 625, 63 S. Ct. 62, 87 L. Ed. 506 (1942)).

The matter was well summarized in Hozer v. State, etc., Police & Firemen’s Pension Fund, 95 N. J. Super. 196 (App. Div. 1967), cert. den. 50 N. J. 285 (1967) :

While a pardon may restore to a convicted felon his rights of citizenship and remove all penalties and legal disabilities, it cannot and does not substitute a good reputation for one that is bad; it does not obliterate the fact of the commission of the crime; it does not wash out the moral stain; it involves forgiveness and not forgetfulness and it does not “wipe the slate clean.” Stone v. Oklahoma, Real Estate Commission, 369 P. 2d 642 (Okl. Sup. Ct. 1962). A pardon “does not close the judicial eye to the fact that once he had done an act which constituted the offense.” In re Lavine, 2 Cal. 2d 324, 41 P. 2d 161, 163, 42 P. 2d 311, 313 (Sup. Ct. 1935). It does not restore his character and does not obliterate the act itself, [at 202]

The crime for which applicant was convicted was one involving moral turpitude. Can he prove that he is now a man of good character?

The issue in Hozer was, whether the policeman who was convicted of having “unlawfully and unintentionally neglected and omitted to perform his public duties as a police officer” (at 198) was entitled to a pension under a statute which required honorable service (N. J. S. A. 43 :16-1). The pension was denied by the appropriate pension fund commission on the ground that his service had not been honorable. On appeal the ruling of the pension commission was affirmed on the ground that the commission properly determined from the facts before it that Hozer’s service had not been honorable. The court wrote:

On the record of that hearing the Commission on April 24, 1964 found that “the condition of honorable service was not satisfied” and that appellant “would not be entitled to the service retirement pension.” We find that this conclusion was not based automatically upon the formal conviction of the crime but substantially upon the Commission’s distinct determination that appellant did not satisfy the condition of “honorable service,” although it is implicit in the determination that the conviction was deemed prima facie evidence of the dishonorable service. The hearing record amply supports the finding of dishonorable service. Lat 203]

Applying the principle thus enunciated to the case at bar, I conclude that the conviction is prima facie hut rebuttable evidence of lack of good and moral character. In this case I am convinced from the circumstances that at the time of the application for the gun permit, Sweigman was a man of good moral character. Over 13 years have passed without dereliction on his part. The witness who testified on his behalf extolled his trustworthiness in the highest terms. In my opinion, possession of a gun by this applicant will not present any danger to the community. Cf. Application of Walter Marvin Jr., 53 N. J. 147 (1969), cert. den. 396 U. S. 821, 90 S. Ct. 62, 24 L. Ed. 72 (1969).