author: Stamler (Joseph H.), J. S. C.

text:
    JACOB WILLIAM WOLF AND PEARL M. WOLF, PLAINTIFFS, v. THE HOME INSURANCE COMPANY, DEFENDANT.
    Superior Court of New Jersey Law Division
    Decided March 13, 1968.

      Mr. Leonard Rosenstein for plaintiffs (Messrs. Sherman. Ancier & Rosenstein, attorneys).

      Mr. John Methfessel for defendant (Mr. Samuel A. Gennet, attorney).
   Stamler (Joseph H.), J. S. C.

Plaintiffs sue to recover on a fire insurance policy issued by defendant. The case is before" the court on cross-motions for summary judgmeht. If defendant is successful on its motion that will obviate the need-for a trial. If plaintiffs are granted a partial summary judgment on the issues before this court, however, there still remain certain other issues to be tried. These remaining issues include: (1) failure to file proof of loss (to which plaintiffs respond with waiver and estoppel) — Cf. Weil v. Pennsylvania Fire Ins. Co., 58 N. J. Super. 145 (App. Div. 1959) ; (2) increased hazard allegedly caused by long vacancy of the premises and failure to remove combustible debris — Cf. Asbell v. Pearl Assurance Company, Ltd., 59 N. J. Super. 324 (App. Div. 1960); and (3) generally, plaintiffs’ failure to comply with the terms, conditions arid requirements of the policy.

There is no dispute as to the relevant facts. On October 8, 1964, a fire occurred damaging or destroying plaintiffs’ three-story frame apartment dwelling located at 80-82 Orchard Street in the City of Orange. Defendant had insured the premises for three years beginning on September 9, 1963 against fire with a limit of coverage under the policy of $25,000 (subject to an 80% co-insurance clause not here pertinent). The policy term had not yet expired on the date of the fire.

Prior thereto, on May 11, 1964 the plaintiffs had entered into an agreement with the State of New Jersey to sell the property in question together with another piece of property owned by plaintiffs which was located at 76 Orchard Street in the City of Orange. The successful negotiations, which were with the State Highway Department, were in lieu of condemnation proceedings. The sale price was $27,000 for the properties, without any allocation of this sum among the separate parcels of land or buildings. As of the date of pur--chase, the insured premises had already been vacated, and the State took possession of the property on July 29, 1964. The State’s possession was evidenced by signs posted at the-premises.

Following the fire of October 8, 1964 there was no downward revision in the original purchase price of $27,000. Plaintiffs were paid the agreed sum on March 4, 1965 arid' the State took title. It is alleged that the fire was reported - to the defendant one day after its occurrence. Defendant' having refused to pay for damages resulting from the fire, plaintiffs bring this action seeking to recover $25,000, the maximum coverage under the policy.

Defendant first contends that it is not liable for any loss suffered by plaintiffs since the premises in question were unoccupied beyond a period of sixty consecutive days. The insured premises were certified by an investigator for the State Highway Department on July 27, 1964 to have been vacant since the agreement with the State some two and one-half months earlier. The building was still vacant on October 8, 1964 when the fire occurred. Defendant relies on the standard provision found in the policy required by N. J. S. A. 17:36-5.20:

“Conditions suspending or restricting insurance. Unless otherwise provided in writing added hereto this Company shall not be liable for loss occurring * * * (b) while a described building, whether intended for occupancy by owner or tenant, is vacant or unoccupied beyond a period of sixty consecutive days; * * *”

Reference is made by defendant to Ekelchik v. American Casualty Co. of Reading, Pa., 56 N. J. Super. 171, 177 (App. Div. 1959), which supports the proposition that a policy of fire insurance is valid but suspended while the premises insured remain vacant and unoccupied beyond the specified period of sixty consecutive days.

As applied to the facts sub judice, this contention of defendant is untenable. In accordance with the above-quoted language of the policy and the statute, it is here “otherwise provided in writing” by a subsequent section of the policy-that for protected property other than manufacturing, such as the insured premises, “[permission is granted to be vacant or unoccupied without limit of time.” “Protected Property” is defined by the policy as “that which is within five miles air line of a Pire Station and within 600 feet * * * air line of a fire hydrant or suction point * * *; otherwise the property shall be classed as Unprotected.” The affidavit of plaintiff William Wolf,- which stands uncontroverted, states that the property in question, at the time of the fire and prior thereto, was “within five miles air line of a fire station, was within 600 feet of a fire hydrant and was never used for purposes other than residential purposes.”

Defendant’s principal contention is that plaintiffs did not sustain any loss which is covered under the policy of insurance. Plaintiffs insist with equal vigor that they have suffered a loss under this set of facts. The insuring provisions in the case at bar conform precisely with the language found in the first sentence of N. J. S. A. 17 :36-5.19:

“Every such fire insurance policy shall insure, limited to the amounts of insurance specified therein, the named insured and legal representatives, to the extent of the actual cash value of the property at the time of loss, but not exceeding the amount which it would cost to repair or replace the property with material of like kind and quality within a reasonable time after such loss, without allowance for' any increased cost of repair or reconstruction by reason of any ordinance or law regulating construction or repair and without compensation for loss resulting from interruption of business or manufacture, nor in any event for more than the interest of the insured, against all direct loss by fire, lightning, and by removal from premises endangered by the perils insured against in such policy, except as thereinafter provided, to the property described therein while located or contained as described in such policy, or pro rata for 5 days at each proper place to which any of the property shall necessarily, be removed for preservation from the perils insured against in such policy, but not elsewhere.” (Emphasis added).

There can be no dispute that an insured must sustain a loss before he can recover on a standard form fire insurance policy. The question before this court is: precisely when does one measure or ascertain whether a fire loss has occurred? What is the “time of loss” referred to in N. J. S. A. 17 :36-5.19? Does'the “loss” become fixed as of the date of the fire so that, as long as the insured has an insurable interest at that time, the insurer becomes obligated' to pay under its policy; or can subsequent collateral events, such as the fact that the sale between' insureds and the State of New Jersey was ultimately consummated nearly five months after the fire, with insureds receiving the full previously agreed upon contract price, be taken into account in determining the existence of an insurable “loss”?

This is a controversy which “has been raging in Anglo-American law since 1801.” Cribbet, “Insurance and the Executory Contract for the Sale of Real Estate,” 51 Ill. Bar J. 124 (1962). As noted in First National Bank of Highland Park v. Boston Ins. Co., 17 Ill. 2d 147, 150, 160 N. E. 2d 802, 804 (Sup. Ct. 1959) :

“The problem that the ease presents is not an easy one. When insured property is in a single ownership, it is not hard to hold to the orthodox concept of an insurance contract as a personal contract of indemnity. But there are inherent difficulties when there are multiple interests in the property. Those inherent difficulties are augmented because the effect given to an executory contract to sell realty, and to the doctrine of equitable conversion, differs significantly from one jurisdiction to another. The result is that neither courts nor commentators are agreed upon proper solutions for the many variations on the vendor-vendee-insurer theme.”

In au excellent note by William E. Young entitled “Some ‘Windfall Coverages’ in Property and Liability Insurance,” 60 Colum. L. Rev. 1063, 1071 (1960), the author feels that the Illinois court “understates the case” to say that neither the courts nor the commentators are agreed upon the proper solutions in this area.

It would appear that there are two broad lines of authority upon this question. What may be referred to as the “New York Rule” is derived from Foley v. Manufacturers’ & Builders’ Fire Ins. Co., 152 N. 7. 131, 46 N. E. 318, 43 L. R. A. 664 (Ct. of App. 1897) and a subsequent series of New York cases, especially Alexandra Restaurant, Inc. v. New Hampshire Ins. Co., 272 App. Div. 346, 71 N. Y. S. 2d 515 (App. Div. 1947), affirmed 297 N. Y. 858, 79 N. E. 2d 268 (Ct. of App. 1948). This rule is to the effect that in the absence of any contractual agreement to the contrary, a fire insurance policy is a contract of indemnification, the premiums for which are computed according to the value of the property and the risk involved without the knowledge of collateral remedies, so that recovery on the policy will not be denied as long as the insured has a valuable insurable interest at the time of the casualty, even though there is an executory contract for the sale of the real property outstanding which is later consummated. A large majority of the courts in this country that have dealt with the question adhere to the New York Rule. Dubin Paper Co. v. Insurance Co. of North America, 361 Pa. 68, 63 A. 2d 85 (Sup. Ct. 1949); Vogel v. Northern Assurance Co., 219 F. 2d 409 (3 Cir. 1955); First National Bank of Highland Park v. Boston Ins. Co., 17 Ill. 2d 147, 160 N. E. 2d 802 (Sup. Ct. 1959); Edlin v. Security Insurance Co., 269 F. 2d 159 (7 Cir. 1959), certiorari denied 361 U. S. 932, 80 S. Ct. 370, 4 L. Fd. 2d 354 (1960); Board of Trustees, etc. v. Cream City Mutual Insurance Co., 255 Minn. 347, 96 N. W. 2d 690 (Sup. Ct. 1959); Milwaukee Mechanics Ins. Co. v. Maples, 37 Ala. App. 74, 66 So. 2d 159 (Ct. of App. 1953), certiorari denied 259 Ala. 189, 66 So. 2d 173 (Sup. Ct. 1.953); Springfield Fire and Marine Ins. Co. v. Boswell, 167 So. 2d 780 (Fla. District Ct. of App. 1964); Koppinger v. Implement Dealers Mutual Ins. Co., 122 N. W. 2d 134 (N. Dak. Sup. Ct. 1963); Pink v. Smith, 281 Mich. 107, 274 N. W. 727 (Sup. Ct. 1937); Foster v. Equitable Mutual Fire Ins. Co., 2 Gray (68 Mass.) 216 (Sup. Jud. Ct. 1854). The contrary view, known as the “Wisconsin Rule” is an out-growth of Ramsdell v. Insurance Co. of North America, 197 Wis. 136, 221 N. W. 654 (Sup. Ct. 1928). This rule also regards a contract of fire insurance as a contract of indemnity but it denies recovery to the vendor-insured where the existence of a collateral executory contract for the sale of the real property eventually results in shielding the vendor from sustaining any actual pecuniary loss from the casualty. The Wisconsin Rule finds support in the following cases from other jurisdictions: Paramount Fire Ins. Co. v. Aetna Casualty & Surety Co., 163 Tex. 250, 353 S. W. 2d 841 (Sup. Ct. 1962); Glens Falls Insurance Company v. Sterling, 219 Md. 217, 148 A. 2d 453 (Ct. of App. 1959); Smith v. Jim Dandy Markets, 172 F. 2d 616 (9 Cir. 1949). Several of the cases cited herein as authority for each of the abovementioned rules are discussed later in this opinion.

The topic has received judicial attention in one reported New Jersey case. Tauriello v. Aetna Insurance Co., 14 N. J. Super. 530 (Law Div. 1951) dealt squarely with the same factual situation now before this court. There is no relevant distinction. In holding for the defendant insurer on the theory that the plaintiffs had not been able to show any loss, the court in Tauriello in effect followed that line of cases referred to as the Wisconsin Buie, when it said:

“The general rule is that a contract for insurance against fire is ordinarily one of indemnity under which the insured is entitled to receive indemnity or to be reimbursed for any loss that he may have sustained and cannot recover if he has sustained no loss. See 45 C. J. S. Insurance § 915, page 1009, section 915. In Draper v. Delaware State Grange Mutual Fire Insurance Co., 5 Boyce 143, 28 Del. 143, 91 A. 200 [Super. Ct. 1914], it was pointed out that a fire insurance policy is a contract not to insure the property against fire but to insure the owner against loss by fire, and that the insurance company can be called upon when, and only when, the insured has sustained a loss which under the terms of the policy calls for indemnification. The same rule finds support in Patterson v. Durand Farmers Mutual Insurance Co., 303 Ill. App. 128, 24 N. E. 2d 740 (1940).” (at p. 532)

The court goes on to state that the rationale of United Bond & Mortgage Co. of Hackensack v. Concordia Fire Ins. Co., 113 N. J. L. 28 (E. & A. 1934) and Power Building & Loan Association v. Ajax Fire Ins. Co., 110 N. J. L. 256 (E. & A. 1933), lends support to its decision.

Plaintiffs submit that in light of the persuasive appellate authority from other states before and after Tauriello, that holding is erroneous. Our system of jurisprudence envisions that while the opinions of courts of coordinate jurisdiction be taken into consideration, they are nevertheless not binding on a court of equivalent rank. State v. Patfol, Inc., 71 N. J. Super. 404, 408 (Cty. Ct. 1961), reversed on other grounds 76 N. J. Super 287 (App. Div. 1962), reargument denied 76 N. J. Super. 572 (App. Div. 1962); Ferraro v. Ferro Trucking Co., 72 N. J. Super. 519 (Law Div. 1962); see also 20 Am. Jur. 2d Courts, Sec. 194, p. 529 and § 201, p. 535.

An examination of the cases relied upon by the court in Tauriello leads this court to the conclusion that the question before it is deserving of fresh study. The two decisions of the New Jersey Court of Errors and Appeals referred to in Tauriello will be discussed later. Draper v. Delaware State Grange Mutual Insurance Co., 5 Boyce 143, 28 Del. 143, 91 A. 206 (Super. Ct. 1914) and Patterson v. Durand Farmers Mutual Insurance Co., 303 Ill. App. 128, 24 N. E. 2d 740 (1940), are not decisions of state courts of last resort. They are readily distinguishable from the facts now under consideration and from the facts in Tauriello, which are interchangeable with the instant facts. In Draper and in Patterson, the defect was that the insured claimant did not hold legal title to the property at the time of its destruction by fire. In Patterson she did not even have title at the time the policy was issued, and therefore lacked any insurable interest. In the present case it is stipulated that plaintiffs held title as of the date of the fire and well thereafter. Any broad pronouncements on this problem in Patterson, moreover, can no longer be relied upon as authoritative. The case is apparently not the law in Illinois today. See First National Bank of Highland Park v. Boston Ins. Co., 17 Ill. 2d 147, 160 N. E. 2d 802 (Sup. Ct. 1959); American National Bank and Trust Co. of Chicago v. Reserve Ins. Co., 38 Ill. App. 2d 315, 187 N. E. 2d 343 (1962).

The difficulty with the opinion in Tauriello may lie in its stress on the term “indemnity”. In talking about labels, Chief Justice Weintraub observed in Spina v. Consolidated Police, etc., Pension Fund Com., 41 N. J. 391 (1964) that:

“There is no profit in dealing in labels such as ‘gratuity,’ ‘compensation,’ ‘contract,’ and ‘vested rights.’ None fits precisely, and it would be a mistake to choose one and be driven by that choice to some inevitable consequence.” (at p. 401)

This is exactly what the court did in Tauriello. Instead of analyzing and determining just what interest of the insured was protected by the policy in force, it applied the label “indemnity” and was thus bound by what it considered to be the “general rule” for contracts of indemnity.

The concept is a nebulous one and simple solutions are not necessarily in order. As noted by Harnett and Thornton, “Insurable Interest in Property: A Socio-Economic Reevaluation of A Legal Concept,” 48 Colum. L. Rev. 1162 (1948) :

“the elusiveness of the indemnity principle carries with it an implied caveat that there can be little reliance on overly broad truths in an area where individual fact situations give the lie to broad generalizations.” (at p. 1178)

Nothing illustrates this better than a comparison of two 1959 decisions of the Supreme Court of Minnesota. In Marshall Produce Co. v. St. Paul Fire & Marine Ins. Co., 256 Minn. 404, 98 N. W. 2d 280 (Sup. Ct. 1959), the court presents all the usual language about a fire insurance contract being a personal contract of indemnity with the insured rather than a contract in rem, and that there can be no recovery if there is no loss to the insured. But when the same court, just three months earlier, in the case of Board of Trustees, etc. v. Cream City Mutual Ins. Co., supra, deals with a fact situation much closer to that in the case at bar, it cites with approval (96 N. W. 2d, at p. 696) the view that:

“the rights of an insurer and an insured are established as of the time of the fire, and those rights are not affected if the insured eventually is compensated for the loss from another source. The recovery of an insured will not be diminished because of the fact that he might have collateral contracts with third persons which operate to relieve the insured from the loss for which the insurer agreed to compensate him.”

If the two Minnesota cases mean anything, it would seem to be that there is nothing inherent in the language of “indemnity” that should commit a state, in all instances, only to a particular result.

The cases of United Bond & Mortgage Co. of Hachensack v. Concordia Fire Ins. Co., 113 N. J. L. 28 (E. & A. 1934) and Power Building & Loan Association v. Ajax Fire Ins. Co., 110 N. J. L. 256 (E. & A. 1933), cited by the court in Tauriello v. Aetna Insurance Co., 14 N. J. Super. 530, at p. 532 (Law Div. 1951), deal with a situation where the insured is a mortgagee who had insured his interest in the mortgaged premises. The test utilized by the two cases in determining whether the insured had suffered any loss is whether the debt represented by the mortgage was subsequently fully satisfied or not. Any analysis of this topic must also consider the opinion of our Supreme Court in Flint Frozen Foods, Inc. v. Firemen’s Ins. Co. of Newark, N. J., 8 N. J. 606 (1952). In that case Einhorn’s Inc., a creditor of the plaintiff, held warehouse receipts as collateral security upon a debt and obtained fire insurance which insured the creditor to the extent of its interest in groceries stored in a subsidiary of the plaintiff. A fire occurred which destroyed the goods covered by the warehouse receipts. Within a month after the fire the plaintiff-debtor had paid the debt in full. The insurance policy was assigned to plaintiff, which sued thereon notwithstanding that the assignor-creditor had never filed any claim under the policy. Plaintiff recovered below and the judgment was reversed on appeal. In holding that the plaintiff, as loss-claim assignee, could not recover because its assignor had suffered no loss, the Supreme Court made the following observations:

“A policy of fire insurance is a contract the terms of which are prescribed by statute, N. J. S. A. 17:36-5.7 [presently found in N. J. S. A. 17 :36-5.20]. Like any contract, when its terms are clear the court must enforce the contract as it finds it, James v. Federal Insurance Co., 5 N. J. 21, 24 (1950). Its meaning ‘is to be governed by its own terms without recourse to other documents unless its own language so requires,’ Herbert L. Farkas Co. v. New York Fire Ins. Co., 5 N. J. 604, 609 (1950). By the policy here in litigation the insurance company insured Einhorn’s to the extent of its interest against loss by fire with respect to groceries which Einhorn’s held as collateral security for a debt owed it by the plaintiff. The debt having been paid in full by the plaintiff, it necessarily follows that Einhorn’s suffered no loss. Therefore, neither Einhorn’s nor the plaintiff as its assignee can recover on the policy which expressly provides that there shall be no recovery ‘in any event for more than the interest of the insured.’ This conclusion, reached under the clear terms of the policy, is consonant with the fundamental principle of all insurance on property that the policy is a contract of indemnity. If the insured has suffered no loss with respect to the property covered by the policy, there is, of course, no liability on the policy, for there is nothing for the insurer to indemnify.” (at p. 610)

Defendant argues that the above-mentioned authorities place New Jersey under what has been referred to as the Wisconsin Eule and that, pursuant to this rule, this court must look to related transactions to determine whether the insured plaintiffs have sustained a loss. The contention is that even if the plaintiffs had an insurable interest at the time of fire, the subsequent culmination of the sale of the insured property to the New Jersey Highway Department nearly five months after the fire for the same amount the plaintiffs had agreed to accept prior to the fire “wiped out” any loss; and in this State if there is no loss, there is nothing to indemnify. Plaintiffs maintain, on the other hand, that the New Jersey cases are distinguishable from the present set of facts because there it was the debt due the property owner that was insured while here, pursuant to the terms of the contract and N. J. S. A. 17:36-5.19, the property itself is insured. Furthermore, they insist that any collateral arrangements or outside agreements a vendor may have are of no concern to the insurance company and that to make the payment of claims which are ostensibly due dependent on extraneous matters does violence to the express terms of the insurance policy.

This court is, of course, bound by all pronouncements of the present or former high tribunal of New Jersey. A fair and proper reading of Flint Frozen Foods, Inc. v. Firemen’s Ins. Co. of Newark, N. J., supra, and the earlier opinions of the Court of Errors and Appeals, cited previously, can only mean that when the insured in a contract of fire insurance is a creditor, mortgagee, lienholder or the like who is insuring the obligation due to him, related transactions occurring subsequent to the fire can be taken into account in determining whether the insured has sustained a loss. The question before this court is whether the same rule obtains in non-creditor situations when the insured is simply an individual insuring himself against damage loss to property that he owns.

This court is aware of the seemingly broad import given the words “loss” and “indemnity” in Flint Frozen Foods, supra. But the court would also like to focus on p. 612 of the same opinion. There the Supreme Court, after stating that it is now entirely appropriate for a person having merely a security interest to take out a fire insurance policy in his own name covering property in which he has an interest, finds that recovery by the plaintiff (the debtor and assignee of the former assured)

“is precluded by the fact that the policy did not purport to insure its interest as owners of the property destroyed and because as assignee its claim could rise no higher than that of its assignor, Einhorn’s, which suffered no loss.” (Emphasis added).

The intimation is that had the policy therein purported to insure á full ownership interest in the property, as does the one now before this court, the result might well have been different.

In deciding the issue now before this court, a few other cases are deserving of mention. Federal Insurance Co. v. Engelhorn, 141 N. J. Eq. 349 (E. & A. 1948), involved theft or disappearance of a mink coat stored with a bailee. It was held that the defendant insured had failed to prove that the total sum she recovered from both the insurer and bailee did not exceed her loss and a judgment in favor of the plaintiff insurer for this excess over the loss was affirmed. In view of the fact that the Court believed that compensation received by insured from the bailee one week after payment of her claim by the insurer was relevant in determining loss, the opinion may be said to lend some support, at least inferentially, to the notion that subsequent collateral events are to be considered in ascertaining existence of a loss. This was not a fire loss case involving realty, however, and other decisions may be closer in point.

The case of Feinbloom v. Camden Fire Ins. Co., 54 N. J. Super. 541 (App. Div. 1959), certification denied 30 N. J. 154 (1959), held that in the absence of a contrary provision in a fire policy, the rule is that if by reason of public regulations rebuilding is prohibited, the loss is total, even though some portion of the burned building remains which might otherwise have been available in rebuilding. And the Appellate Division added at p. 545 that in such a case where the loss is total because reconstruction or repair is impossible, the “maximum liability of the company then is the actual cash value of the property as of the time of the fire.” (Emphasis added). Eor at least this type of situation, then, the Appellate Division considers the time of the fire and time of the loss to be synonymous.

In Trade Insurance Co. v. Barracliff, 45 N. J. L. 543 (E. & A. 1883), plaintiff sued successfully to recover on a policy of fire insurance covering buildings and stock upon a farm whose legal title was in his wife’s name. The Court reasoned at p. 552 that plaintiff, who, with his wife and family, occupied and enjoyed the farm, had an insurable interest both at the time of making the insurance contract “and at the time of the loss”, and it presumably meant “time of the fire” when it spoke of “time of the loss”. Certainly there is nothing in the opinion that would indicate that the loss could not be or was not, in fact, calculated as of the time of the destruction by fire.

The Court continued (45 N. J. L., at p. 552) by stating that:

“this principle may be justly laid down that the amount to be recovered will depend, not on the loss happening to the individual interest of the assured, but on the damage accruing to whatever interests are covered by the policy, so far as the assured represents those interests, * * *”

This “principle” would appear to be in line with the suggestion of the present Supreme Court in Flint Frozen Foods, supra, that the considerations are somewhat different when a full ownership interest is being insured against fire and when merely a creditor status is being protected. The rule of Trade Insurance Co. v. Barracliff, supra, as quoted herein, would seem to stand for the proposition that when an ownership interest is involved, actual damage to the insured property is a sufficient basis for recovery by one who is the de facto owner. Support for this distinction is found in the same opinion when the Court of Errors and Appeals quotes with approval (45 N. J. L., at p. 551) the following language taken from an Iowa decision:

“If the holder has an insurable interest, no inquiry is made as to the value of that interest, * * * to limit the obligation of the underwriters. The rule may he different in the ease of mortgagees and lienholders.” (Emphasis added).

When the underlying nature of the respective interests being insured by a creditor and by an owner are examined, it becomes completely logical and consistent that a different rule should prevail in each instance. A creditor is interested only in having the debt or obligation owing to him assured. He seeks to have his status as creditor protected. An owner, on the other hand, already holds what our law considers to be the most complete type of interest and he wishes to insure his physical property rather than his status. In short, if a piece of property held as security burns down, the “loss” is not yet a proven fact because the creditor may still be able to pursue successfully his underlying obligation; but if the same property held in outright ownership burns, the “loss” is then complete because the “owner” has nothing left to his ownership status except the ashes and rubble unless lie can collect insurance that will enable him to rebuild or purchase some new property to evidence his ownership.

Different treatment for the creditor and owner in this respect has been recognized elsewhere. One commentator presents the following view:

“The theory [that an insurance policy is a purely personal contract! should still be adhered to where specific interests are insured, as e. g., that of a mortgagee, a lien holder, a life tenant, eta. But where the policy purports to insure the ‘property,’ there is good reason for saying that it insures all interests in the property whoever may own them.” Goble, “The Moral Hazard Clauses of the Standard Fire Insurance Policy,” 37 Colum. L. Rev. 410 (1937) at p. 428.

In Milwaukee Mechanics Ins. Co. v. Maples, 37 Ala. App. 74, 66 So. 2d 159 (Ct. of App. 1953), certiorari denied 259 Ala. 189, 66 So. 2d 173 (Sup. Ct. 1953), the court dealt with a set of facts similar to those now before this court. There was an option contract to purchase which was carried out by the vendee with only a minimal reduction in the previously agreed price and, in fact, the deal was consummated on the very afternoon following the fire. The court, in holding that the insured vendor had sustained a loss entitling her to recover under the policy, rejected the insurer’s contention that an earlier decision by the highest court of Alabama favorable to the insurance company was squarely in point by noting that in the earlier case the plaintiff was a mortgagee who foreclosed after the building had burned and purchased the property at the sale in full satisfaction of the mortgage debt. Continuing, the court said (66 So. 2d, at p. 167) :

“The mortgagee then sought to recover on the policy. The Supreme Court held that the purchase of the property for the full amount of the debt satisfied the mortgage and the mortgagee was not entitled to recover more.
Under facts of this type the mortgagee’s insurable interest is the debt. Such interest diminishes as the debt is paid, and becomes nonexistent when the debt is paid in full.”

The views expressed herein with respect to the nature of the insured owner’s interest and the determination of when he has sustained a loss by fire are thoroughly buttressed by an examination of the fire policy issued to the plaintiffs. The rights of the parties are controlled by this insurance contract. Power Building & Loan Association v. Ajax Fire Ins. Co., 110 N. J. L. 256, 257 (E. & A. 1933). And its meaning is to be governed by its own terms without recourse to other documents unless its language so requires. Herbert L. Farkas Co. v. New York Fire Ins. Co., 5 N. J. 604, 609 (1950).

In accordance with the mandate of N. J. S. A. 17:36-5.19, the present policy insures, but not “for more than the interest of the insured, against all direct loss by fire, * * * to the property described therein.” (Emphasis added). Here, unlike in Flint Frozen Foods, Inc., supra, the policy does purport to insure an ownership interest in the property. It is undisputed that plaintiffs held full legal title to the insured premises on the date of the fire. Did they also sustain a “loss” as of that date ? The statute and policy allow for a recovery up to the maximum coverage specified “to the extent of the actual cash value of the property at the time of loss.” The “time of loss” can only intend the time of fire damage or destruction. If any other meaning were inferred, then the time for valuing the loss would be uncertain in every case. Defendant insurer offers this court no fixed standard for determining when a casualty loss is to be measured and argues only that here, after taking cognizance of collateral events not involving the insurer which came to be realized nearly five months after the fire, there was no loss. Hothing in New Jersey law commits this court to such a view for a non-creditor fire insurance situation. As indicated previously, Feinbloom v. Camden Fire Ins. Co., supra, and Trade Insurance Co. v. Barraclif, supra, are to the contrary and would treat the fire and loss dates as being one and the same thing. Accord, e.g., Alexandra Restaurant, Inc. v. New Hampshire Ins. Co., 272 App. Div. 346, 71 N. Y. S. 2d 515 (App. Div. 1947), affirmed 297 N. Y. 858, 79 N. E. 2d 268 (Ct. of App. 1948); Springfield Fire and Marine Ins. Co. v. Boswell, 167 So. 2d 780 (Fla. District Ct. of App. 1964); Milwaukee Mechanics Ins. Co. v. Maples, 37 Ala. App. 74, 66 So. 2d 159 (Ct. of App. 1953), certiorari denied 259 Ala. 189, 66 So. 2d 173 (Sup. Ct. 1953). In Citizens Ins. Co. of New Jersey v. Foxbilt, Inc., 226 F. 2d 641, at p. 644, 53 A. L. R. 2d 1376 (8 Cir. 1955), the federal court, applying Iowa law, said that the measure of damages in the event of loss is ordinarily the difference between the fair market value of the insured property immediately before the fire and its fair market value immediately thereafter, not exceeding the face amount of the policy or the cost of repair and replacement. This court similarly is of the view that the time of the fire is the common, usual and expected time for valuing Voss”. It is axiomatic that the words used in an insurance policy will be construed in accordance with common usage. Jasion v. Preferred Accident Ins. Co., 113 N. J. L. 108 (E. & A. 1934); American Shops, Inc. v. Reliance Ins. Co. of Philadelphia, 26 N. J. Super. 145 (Cty. Ct. 1953).

To give any meaning other than “time of fire” to the words “time of loss”, moreover, results in totally contradictory interpretations to the word Voss” in the several sections of this fire insurance policy. The insurance contract provides that:

“The insured shall give immediate written notice to this Company of any loss, * * * and within sixty days after the loss, unless such time is extended in writing by this Company, the insured shall render to this Company a proof of loss, * * *” (Emphasis added).

On the facts sub judice, the insurance company maintains that if we look at the closing date between insureds and their vendee, nearly five months after the date of the fire, it becomes apparent that the plaintiffs have ultimately sustained no Voss” within the intendment of the policy. If this is the time of determining Voss”, then, • consistently, the “immediate” written notice to the Company of any loss and the sixty day requirement for filing a proof of loss only come into play as of the closing date. The defendant cannot have it both ways. A contract of insurance must be construed as a whole. Herbert L. Farkas Co. v. New York Fire Ins. Co., 5 N. J. 604, 610 (1950). While a party may plead inconsistent claims or defenses and may argue inconsistent principles of law, he cannot be heard to contend for two diametrically opposed sets of facts. Flint Frozen Foods, Inc., supra, at p. 611; In re Perrone’s Estate, 5 N. J. 514, 527 (1950). Certainly the only conceivable day meant by the terms of the policy after which notice of any loss must be given and proof of loss filed is the day on which the casualty occurred. Consistency dictates that the “time of loss” for purposes of arriving at the “actual cash value of the property” also be taken as the date of fire.

One of the arguments presented by the courts adhering to the minority Wisconsin Rule is that an insurance contract is one of indemnity and to permit the assured to recover without taking into account collateral events would convert insurance into a wagering or profit-making device. See Glens Falls Ins. Co. v. Sterling, 219 Md. 217, 148 A. 2d 453, 456 (Ct. of App. 1959). It is this court’s belief that if the facts of a particular case so warrant, our courts can always deal adequately with a case involving fraud. See, e.g., Downs v. Jersey Central Power & Light Co., 117 N. J. Eq. 138 (E. & A. 1934). In holding that the plaintiff was entitled to the insurance proceeds and that the defendant insurer could not be subrogated to the plaintiff’s rights in the matter, the Supreme Court of Minnesota dealt squarely with this contention of profit-making:

“In considering the asserted right of the insurer to subrogation to the collateral rights of the insured, certain conflicting considerations come into play. To permit the insured to keep the proceeds of both obligations offends public policy which frowns upon placing an insured in a position to profit by a loss which he may be tempted to cause himself or by carelessness fail to prevent. On the other hand, to give the insurer the benefit of the collateral obligation through subrogation ignores the plain terms of the insuring agreement and provides the insurer with a windfall. Its premiums are assumed to represent the fair equivalent of the obligation it contracted to incur without knowledge of the existence of collateral remedies.” Board of Trustees, etc. v. Cream City Mutual Ins. Co., 255 Minn. 347, 96 N. W. 2d 690, 696 (Sup. Ct. 1959).

In a 6 to 3 decision by the Supreme Court of Texas, the majority of the court, in adopting the Wisconsin Rule, stated:

“We believe the better result to be that if a vendor is entitled to specific performance under a contract of sale and thereby collects the full purchase price despite fire damage to improvements, he has suffered no legal loss.” Paramount Fire Ins., Co. v. Aetna Casualty & Surety Co., 163 Tex. 250, 353 S. W. 2d 841, 845 (Sup. Ct. 1962). (Emphasis added).

It should be remembered that the contract to purchase here arose out of a proposed condemnation of the premises. Had there been a condemnation proceeding commenced, the State would have remained free at all times up until the closing to abandon the proceeding entirely (providing only that it pay any expenses incurred by the property owners). N. J. S. A. 20 :1-30. In dealing with this precise problem in the light of a similar statute, the intermediate appeals court of Illinois said in American National Bank & Trust Co. of Chicago v. Reserve Ins. Co., 38 Ill. App. 2d 315, 187 N. E. 2d 343, 347 (1962) :

“At that stage of the condemnation proceedings the City might have abandoned its petition altogether upon the payment of the property owners’ expenses in the proceedings, as provided by statute (Ill. Rev. Stat. 1961, ch. 47, § 10 (o)). This being so, it seems clear to us that plaintiff did have an insurable interest in the property on the day of the fire. The fact that the city continued its proceedings against the property after the fire, rather than exercising its statutory prerogative to abandon them, is certainly a fortunate circumstance for the plaintiff, but it is not an event which defendant may seine upon in an effort to avoid liability on its contract of insurance.’’ (Emphasis added).

Even if N. J. S. A. 20 :1-30 were not applicable because of a negotiated contract, the State could have demanded an abatement of the purchase price, claiming at the time of closing of title, that it would not receive what it had bargained for.

The point was made in Tauriello v. Aetna Insurance Co., 14 N. J. Super. 530, at p. 532 (Law Div. 1951), that “a fire insurance policy is a contract not to insure the property against fire but to insure the owner against loss by fire.” The highest court of Pennsylvania said the following in response to this assertion:

“This principle is correct but the appellants in order to sustain their position give it an erroneous interpretation. Of course, the policy does not ‘insure a property against fire’; it does not purport to usurp the functions of Providence. But it does insure the owner of the covered property against the loss caused by the igneous destruction of his property and that loss is measurable as soon as the destruction is complete. The loss the company contracts to remedy is the fire-created, depletion of the insured’s assets, and that is made up not by the erection of a duplicate of the building destroyed but by paying the insured its value in money. This liability the insuring companies cannot escape by anything any third parties may later do for the insured’s benefit.” Dubin Paper Co. v. Insurance Co. of North America, 361 Pa. 68, 63 A. 2d 85, 96, 8 A. L. R. 2d 1393 (Sup. Ct. 1949). (Emphasis added).

Earlier in the same opinion, the court declared (63 A. 2d, at p. 92) :

“The destruction of a building by fire may conceivably bring many benefits to the owner and whatever these may be, the insurance company cannot participate in them.”

This court submits that the fallacy of the so-called Wisconsin Rule is well illustrated by the following hypothetical example suggested in the dissenting opinion in Paramount Fire Ins. Co. v. Aetna Casualty & Surety Co., 163 Tex. 250, 353 S. W. 2d 841, at p. 846 (Sup. Ct. 1962):

“Suppose the vendor and purchaser had entered into a contract providing for $5,000.00 cash payment, the balance to be paid in monthly instalments of $125.00 each due on the 10th day of each successive succeeding month. This would require 82 months, or approximately seven years, to pay the deferred payments. Vendor could not be forced to take his balance in one lump sum. He could insist on the monthly payments as set out in the contract in order to earn the interest. Under the majority holding Paramount’s liability would not be known until the last payment had been made.”

In the instant ease, the State did not take title until nearly five months following the fire. The delay might well have been even longer. Should the determination of an insured’s loss in the vendor-vendee-insurer context be made to await the outcome of such matters ? The insurer is not being damaged by being compelled to pay the insured who is owner as of the date of the fire. Its premiums are assumed to represent the fair equivalent of the obligation it contracted to incur without knowledge of the existence of collateral remedies. Board of Trustees, etc. v. Cream City Mutual Ins. Co., 255 Minn. 347, 96 N. W. 2d 690, 696 (Sup. Ct. 1959). And the evil of the chance possibility of an ultimate collection by the vendor of the full purchase price from his vendee and also the insurance payment for the damage sustained does not outweigh the disruptions and harassments closely associated with delays in settlement of fire loss claims. Cf. Springfield Fire and Marine Ins. Co. v. Boswell, 167 So. 2d 780, 785 (Fla. District Ct. of App. 1964).

In dealing with the problem at hand, some courts have recognized a theory of constructive trust whereby the vendor-insured can collect for the loss from the insurance company but only so as to hold the payment in trust for his vendee, who is owner of the property in equity under the doctrine of equitable conversion. Dubin Paper Co. v. Insurance Co. of North America, 361 Pa. 68, 63 A. 2d 85, 8 A. L. R. 2d 1393 (Sup. Ct. 1949); and see Godfrey, “Some Limited-Interest Problems,” 15 Law & Contemp. Prob. 415 (1950). The issue may perhaps turn on whether the contract of sale requires the vendee to obtain fire insurance. Raplee v. Piper, 3 N. Y. 2d 179, 164 N. Y. S. 2d 732, 143 N. E. 2d 919, 64 A. L. R. 2d 1397 (Ct. of App. 1957).

The doctrine of equitable conversion is in force in this State. Coolidge & Sickler, Inc. v. Regn, 7 N. J. 93, 98 (1951); Gallicchio v. Jarzia, 18 N. J. Super. 206 (Ch. Div. 1952). And in a suit for specific performance brought by a vendee against his vendor, the constructive trust theory has been applied so as to entitle the vendee to the proceeds of an insurance policy placed on the property by the vendor. See Millville Aerie, No. 1836, Fraternal Order of Eagles v. Weatherly, 82 N. J. Eq. 455 (Ch. 1913). But this court expresses no opinion as to the applicability of the theory when the suit, as here, is only between the vendor-insured and the insurer. The question of disposition of the insurance proceeds once they are in plaintiffs’ hand is not now before the court. Cf. Aetna Casualty & Surety Co. v. Cameron Clay Products, Inc., 151 S. E. 2d 305, 308 (W. Va. Sup. Ct. of App. 1966). The only point to be emphasized is that any equitable title in the vendee cannot be set up as a defense by the fire insurer in a suit brought against it on its contract with the vendor. Heidisch v. Globe & Republic Ins. Co. of America, 368 Pa. 602, 84 A. 2d 566, 29 A. L. R. 2d 884 (Sup. Ct. 1951); Milwaukee Mechanics Ins. Co. v. Maples, 37 Ala. App. 74, 66 So. 2d 159 (Ct. of App. 1953), certiorari denied 259 Ala. 189, 66 So. 2d 173 (Sup. Ct. 1953).

It is concluded therefore that defendant’s motion for summary judgment is denied. Plaintiffs’ motion for partial summary judgment on specific legal issues is granted. The matter may proceed accordingly to trial of the remaining issues.

Plaintiffs are directed to submit an order in conformity with this opinion within ten days consented to as to form or settled upon notice.


source: Caselaw Access Project

author: Triarsi, J. D. C.

license: Public Domain

text:
    CITY OF ELIZABETH, PLAINTIFF-APPELLEE, v. REV. ELMER L. SULLIVAN, DEFENDANT-APPELLANT.
    Union County Court Law Division — Criminal
    Decided March 12, 1968.

      Mr. John B. Weigel, Special Counsel for the City of Elizabeth, for plaintiff-appellee.

      Mr. Howard Popper for defendant-appellant.
   Triarsi, J. D. C.

(temporarily assigned). The defendant herein appeals from a conviction in the Elizabeth Municipal Court wherein he was charged with distributing a leaflet without first having obtained a permit in contravention of a city ordinance.

From the stipulated evidence it is factually determined that on the morning of December 22, 1967 the defendant, Rev. Elmer L. Sullivan, Rector of St. Augustine’s Episcopal Church in Elizabeth, appeared in Scott Park, situate a short “stone’s throw” from Thomas Jefferson High School, and distributed to a high school student a controversial social and political yellow leaflet entitled “ARE YOU ONE OE THE THOUSANDS OE YOUNG PEOPLE IN THE UNITED STATES DEEPLY CONCERNED OYER THE ROLE OP THE UNITED STATES GOVERNMENT AND ITS ARMED EORCES IN VIETNAM ?” It advises our youth that if they believe that the Vietnam war is “right” they need not wait to be drafted, they could volunteer; but, if they are of the opinion that the war is “wrong” there are avenues of learning available wherein they could be enlightened as to whether or not they are entitled to a Conscientious Objector classification resulting from their beliefs by the Selective Service Boards. Succinctly and unquestionably, the leaflet involves one of the most controversial and burning issues of our time; the public interest therein is at a maximum or apogee. The act of distribution was performed in the presence of the License Inspector and a policeman of the City of Elizabeth who, as a result of prior notice, attended to effect the service of a summons and the arrest of Rev. Sullivan. It must be noted that the inspector and police did not read the leaflet before the service of summons and arrest was completed and that they acted without any knowledge of the contents of the leaflet.

It must also be noted that the Rev. Sullivan failed to file an application for a permit and had not been issued a permit for distribution of the leaflet as required by the ordinance on or before December 22, 1967. He was subsequently convicted and fined $10. for the offense.

The Court on this appeal is presented with one pivotal issue, to wit: Whether the pertinent Elizabeth City Ordinance is violative of defendant’s constitutional rights of freedom of speech and freedom of press.

The City Ordinance under discussion, Ordinance No. 18 as amended by Ordinance No. 70, November 28, 1962, provides in pertinent part:

“SECTION 1. No person, except as in this ordinance provided, shall canvass, solicit, distribute circulars or other matter or call from house to house, in the City of Elizabeth without first having reported to and received a written permit from the License Inspector, Central Licensing Bureau, Division of Revenue, Department of Finance.
* * * * * * * *
SECTION B. This ordinance shall not apply to anyone who solicits any votes or support for a bona fide political candidate running for public office.
SECTION 4. The License Inspector shall have power to grant permits to canvass, which permits shall specify the number of hours or days the permit will be in effect, and such inspector shall refuse to issue a permit in all cases where the application of the canvasser or further investigation to be made at the discretion of such inspector, shows that the canvasser is not of good character or that he is canvassing for a project not free from fraud * * *.
SECTION 5. Before the permit may be issued the canvasser shall make an application to canvass, giving his or her full name and address, age, height, weight, place of birth, whether married or single, length and place of residence, whether or not previously arrested or convicted of crime, by whom employed, address of employer, and a description of the project for which he or she is canvassing. Each applicant shall be fingerprinted before a permit shall be issued.
* * * * * * * *
SECTION 7. Rules and Regulations:
A. No person shall canvass within the City except between 9 A. M. and 8 p. m.
B. A copy of the permittee’s photograph (2 inch x 2 inch) shall be carried on his permit * * *. The permittee shall exhibit his or her permit to the License Inspector, to any police officer, or other person including those being solicited, upon request. * * *
SECTION 8. This ordinance shall not affect any person engaged in the delivery of goods, wares or merchandise or other article or thing in the regular course of business to the premises of persons ordering or entitled to receive same.
This ordinance shall not affect any person engaged exclusively in any religious, charitable or philanthropic endeavor.
This ordinance shall not affect any person who is covered by the ordinance entitled, ‘An ordinance to regulate and license vendors, peddlers, itinerant or transient merchants.’ ”

Violation of the aforesaid ordinance is punishable by fine or imprisonment. Defendant herein was not imprisoned but fined $10. for contravening the ordinance.

A construction and analysis of the ordinance, sub judice, requires preliminarily a discussion of the statutory authority of the City of Elizabeth with respect to the passage of ordinances and like regulations. This authority has been legally characterized as a municipality’s police power and is embodied in N. J. S. A. 40:48-2. Said statute, setting forth the power of a municipality, a “creature” of the State, provides in pertinent part:

“Any municipality may make, amend, repeal and enforce such other ordinances, regulations, rules and by-laws not contrary to the laws of this state or of the United States, as it may deem necessary and proper for the good government, order and protection of persons and property, and for the preservation of the public health, safety and welfare of the municipality and its inhabitants, and as may be necessary to carry into effect the powers and duties conferred and imposed by this subtitle, or by any law.” (Emphasis added)

See also N. J. S. A. 40:52-1 (Power to License and Regulate).

The function and extent of the municipality’s police power has been discussed voluminously in the New Jersey decisional law. It is generally stated that a municipality has wide discretion as to the means it may employ to suppress an evil. Mister Softee v. Mayor & Council of City of Hoboken, 77 N. J. Super. 354 (Law Div. 1962). Municipal enactments are presumed valid and should be sustained when they bear a reasonable relationship to the end to be accomplished, namely, the safeguarding of the public health, safety and morals, and when the method adopted to meet the problem is reasonably designed to accomplish that end. Local Bd. of Health of Berkeley Twp. v. Johnson, 73 N. J. Super. 384 (App. Div. 1962); Schmidt v. Board of Adjustment of City of Newark, 9 N. J. 405 (1952); Moyant v. Borough of Paramus, 30 N. J. 528 (1959).

The presumption of validity discussed supra may, however, be overcome or rebutted not only by clear evidence aliunde, but also by a showing that the ordinance transgresses constitutional limitations. Mister Softee v. Mayor & Council of City of Hoboken, supra; Moyant v. Borough of Paramus, supra.

Defendant in the matter sub judicé contends that the ordinance under review is violative of and infringes upon his constitutibnal rights of free speech and press. N. J. S. A: Const. Art. 1, par. 6; U. S. C. A. Const, amend. 1. In determining the viability of defendant’s contentions, the Court must, at th'e outset, recognize the legal dichotomy between the regulation of commercial and non-commercial activity. It is widely recognized that the “business” of soliciting and canvassing is a proper subject for regulation under the police power if such regulation is reasonable. The justification for this kind of police power regulation is aptly stated by the Court in Moyant v. Borough of Paramus, supra:

“The way in which the business [of canvassing and soliciting] is necessarily conducted opens the way for fraud, deceit, and dishonest dealing by the unscrupulous * * * with redress difficult or practically impossible since the solicitor is very frequently a stranger * * *. Resort may also be easily had to the business by the criminally minded for the purpose of obtaining admittance to private homes in furtherance of some present or future unlawful object.” (at p. 544)

See also Schneider v. State of New Jersey (Town of Irvington), 308 U. S. 147, 60 S. Ct. 146, 84 L. Ed. 155 (1939); Dziatkiewicz v. Township of Maplewood, 115 N. J. L. 37 (Sup. Ct. 1935); 7 McQuillan, “Municipal Corporations” (3rd ed. 1949).

With respect to commercial soliciting and canvassing, therefore, an ordinance of the type under discussion will not be struck down in view of the reasons dictating regulation. Moyant v. Borough of Paramus, supra.

However, municipal regulation of the distribution of noncommercial leaflets involves grave constitutional questions of freedom of speech and press. Two decisions by the- United States Supreme Court require extended discussion and quotation in order to define the limits of the police power with respect- to the non-commercial distribution of leaflets or circulars. In Lovell v. City of Griffin, 303 U. S. 444, 58 S. Ct. 666, 82 L. Ed. 949 (1938), the Court was presented with a conviction under a city ordinance requiring a permit for the distribution of Circulars. Appellant therein was distributing a pamphlet in the nature of a religious tract. The Court, in arriving at its decision invalidating the ordinance observed:

“Freedom of speech and freedom of the press, which are protected by the first amendment from infringement by Congress, are among the fundamental personal rights and liberties which are protected by the Fourteenth Amendment from invasion by state action. * * * It is also well settled that municipal ordinances adopted under state authority constitute state action and are within the prohibition of the amendment.
* * * * * * *
The liberty of the press * * * necessarily embraces pamphlets and leaflets. These indeed have been historic weapons in the defense of liberty * * *. What we have had recent occasion to say with respect to the vital importance of protecting this essential liberty from every sort of infringement need not be repeated. * * * Liberty of circulating is as essential to that freedom as liberty of publishing.” (at pp. 450, 452, 58 S. Ct., at p. 668)

Schneider v. State of New Jersey (Town of Irvington), supra, also involved the constitutionality of an ordinance markedly similar to the one under analysis. Therein petitioner was arrested and charged with canvassing without a permit. Said petitioner was going from house to house at all hours distributing information on the Jehovah’s Witnesses and accepting small contributions. The Court found that the Irvington ordinance infringed upon the petitioner’s constitutional rights of freedom of speech and press. The Court stated:

“Although a municipality may enact regulations in the interest of the public safety, health, welfare or convenience, these may not abridge the individual liberties secured by the Constitution to those who wish to speak, write, print or circulate information or opinion. Municipal authorities * * * have a duty to keep their communities’ streets open and available for movement of people and property. * * * [S]o long as legislation to this end does not abridge the Constitutional liberty of one rightfully upon the street to impart information through speech or the distribution of literature, it may lawfully regulate the conduct of those using the streets. For example, * * * a group of distributors could not insist upon a constitutional right to form a cordon across the street and to allow no pedestrian to pass who did not accept a tendered leaflet; nor does the guarantee of freedom of speech deprive a municipality of power to enact regulations against throwing literature broadcast in the street.” (308 U. S., at p. 160, 60 S. Ct., at p. 150)

The Schneider ease, however, makes it quite clear that public convenience in respect of cleanliness of the street does not justify an exertion of the police power which invades the free communication of information and opinion secured by the Constitution. See also Coughlin v. Sullivan, 100 N. J. L. 42 (Sup. Ct. 1924).

Schneider v. State of New Jersey (Town of Irvington), supra, is controlling in a determination of the validity of the Elizabeth ordinance. The fact that Section 8 of the Elizabeth ordinance excepts persons engaged in religious, philanthropic and charitable endeavors, thereby differing in small degree from the Irvington ordinance, is immaterial. For, as the Court stated in Schneider:

“* * * [T]he Irvington ordinance * * * affects all those, who, like the petitioner, desire to impart information and opinion to citizens at their homes. If it covers the petitioner’s activities it equally applies to one who wishes to present his views on political, social, or economic questions.” (308 U. S., at p. 163, 60 S. Ct., at p. 152).

This Court is of the opinion that the Elizabeth City Ordinance [No. 18 as amended by No. 70, November 28, 1962] requiring a permit for distributing circulars under any circumstances is invalid on its face. Whatever the motive which induced its adoption, its character is such that it strikes at the very foundation of the guarantees of freedom of speech and freedom of press. The ordinance as applied to defendant’s conduct is void. To require a permit is not only oppressive but also dangerous and suppressive, for it makes impossible the free and unhampered distribution of pamphlets concerning important political and social problems. It would subvert the intent and spirit of the Constitutions of the United States and the State of New Jersey. Regulation of this sort, no matter how worthy its intendment, is a curtailment of the fundamental rights of our citizenry.

It is therefore, the opinion of this Court that defendant’s conviction must be reversed.

      See also Niemotko v. State of Maryland, 340 U. S. 268, 71 S. Ct. 325, 328, 95 L. Ed. 267, 280 (1950); Kunz v. People of State of New York, 340 U. S. 290, 71 S. Ct. 312, 95 L. Ed. 280 (1950); Saia v. People of State of New York, 334 U. S. 558, 68 S. Ct. 1148, 92 L. Ed. 1574 (1948); Hague v. C. I. O., 307 U. S. 496, 59 S. Ct. 954, 83 L. Ed. 1423 (1939); Jamison v. State of Texas, 318 U. S. 413, 63 S. Ct. 669, 87 L. Ed. 869 (1943); Talley v. State, of California, 362 U. S. 60, 80 S. Ct. 536, 4 L. Ed. 2d 559 (1960); Cf. Addenley v. State of Florida, 385 U. S. 39, 87 S. Ct. 242, 17 L. Ed. 2d 149 (1966).


author: Appleby, J. C. D. C.

text:
    W. T. GRANT CO., A DELAWARE CORPORATION, PLAINTIFF, v. JOSEPH WALSH AND JANET WALSH, HIS WIFE; DEFENDANTS.
    District Court, Middlesex County
    Decided March 8, 1968.

      Mr. David A. Rosenberg for plaintiff (Mr. Perry J. Martin, attorney).

      Mr. William J. Hamilton, Jr. for defendant. (Messrs. Pincus, Shamy Sheehan, attorneys).
   Appleby, J. C. D. C.

Plaintiff sues on a contract for the establishment of a retail installment sales account.

Defendant Janet P. Walsh entered plaintiff’s North Brunswick store on June. 13, 1967, for the purpose of purchasing sneakers for her two small boys, who accompanied her. While approaching the checkout counter, where she paid cash for her purchase, she was accosted by a saleslady, who inquired whether she desired to open a charge account. Mrs. Walsh declined, but the saleslady persisted, pleading that she would be awarded points in a contest. Mrs. Walsh finally capitulated and was taken to Joan Scott in the credit department. Mr. Walsh’s name and address were written by Mrs. Scott on a form entitled “retail installment sales contract, GRANT’S CHARGE-IT PLAN”, together with payment terms for an account of $200.00, plus interest for two years, carrying charges and insurance, all to be amortized at $10.00 per month, beginning one month from date. Clause L represented that Mrs. Walsh’s husband had authorized her to sign and that both accepted liability for the purchase of family necessaries. Mrs. Walsh signed and was given a book of coupons of various denominations totaling $200.00, good for purchases in any of plaintiff’s stores, all numbered and stamped “Void if detached”. Mrs. Walsh testified that the entire transaction took five to seven minutes, during which she was distracted by her children; that Mrs. Scott did not explain the details of the plan; that Mrs. Scott told her that the coupons worked basically the same as a charge plate, and that she would be charged as they were used. Mrs. Scott testified that she told Mrs. Walsh: “You only pay for what you buy out of the coupon book”, and asked her: “Will $10.00 a month be all right?” Mrs. Walsh understood this to mean the monthly payment after making purchases.

That evening Mrs. Walsh’s small son ripped some coupons from the book, and she destroyed them all in the belief that they were now void, and that, in any event, they were meaningless unless used. Mrs. Walsh failed to make the first payment on the account, and suit was instituted against her and Mr. Walsh.

Plaintiff’s credit manager testified that redeemed coupons_ were never checked or centrally cleared, but simply destroyed monthly. He also indicated that plaintiff- had other credit plans, and that Mrs. Walsh personally qualified íor a regular charge plate account. Subsequently, prior to trial, Mr. Walsh disavowed in writing by certified mail his wife’s authority to' bind him.

Defendant contends that Mr. Walsh was not bound by Mrs. Walsh’s signature and that there was failure of consideration, fraud; and usury in the transaction.

Paragraph L of the contract signed by Mrs. Walsh states: “Buyer, if over 21 and married, represents having authority from spouse to sign this retail installment sales contract and both accept liability, whether separated or divorced, for all purchases of family necessaries by means of coupon books or services purchases herein before notice is sent to seller by certified mail.”

Plaintiff contends that this binds Mr. Walsh through the creation of an agency by estoppel. Quite aside from the general defenses of fraud, etc., defendant Mr. Walsh contends that he never saw the contract until he was served with the complaint. There is no basis for plaintiff’s assumptions that Mrs. Walsh took a copy home and showed it to him.

Clause L specifically provides that both spouses accept liability for purchase of family necessaries. In the absence of any method for determining whether the coupons were ever spent, it is obviously quite impossible for plaintiff to prove that they were spent for necessaries. In any event— and quite apart from Mr. Walsh’s obligation, even in the absence of express agreement, to be bound for his family’s necessaries — he could not bound by Mrs. Walsh’s signature in the absence of notice.

In denying the defense of usury, plaintiff asserts that N. J. S. A. 17:16C-41 controls the rate of charges on its time price differential under retail installment sales. Not so. This statute refers only to contracts for the sale of goods, which are defined in N. J. S. A. 17:16C-1 as “All chattels personal having a cash price of $7,500.00 or less, but not including money or choses in action or goods sold for commercial or business use.” Defendant here received no goods or chattels, but only coupons or “scrip” intended to be used as money. Therefore, this transaction was governed by N. J. S. A. 31:1 — 1, the general usury statute, which established a maximum interest rate of 6%. The rate charged here is therefore usurious.

The usual charge account arrangement contemplates time payments beginning after goods and chattels have been purchased. Even if it were conceded that N. J. S. A. 17:16C-41 applied in the present case, the interest charged would be usurious unless the coupons were spent the same day they were received, since the contract provided for interest to start immediately. Even one day’s delay would reduce the borrowing period below the computed installment payment term.

Paley v. Barton Savings & Loan Assoc., 82 N. J. Super. 75 (App. Div. 1964) certification denied 41 N. J. 602 (1964) 198 A. 2d 446 (cited by plaintiff) is inapposite. The suit there sought to recover certain monies which had already been paid. The transaction was not a loan (nor a sale) but a fully performed agreement to buy mortgages. Thus the fee of 1% of the value of the mortgages to be purchased was a proper charge and not an usurious exaction.

Plaintiff contends that, even if the transaction is found to be usurious, it is still entitled to a judgment for the amount of the claim without interest. Again not so. Defendant pleads failure of consideration and fraud.

What did Mrs. Walsh receive for her alleged agreement to pay $246.01 over 24 months? A book of coupons entitling her to purchase $200.00 worth of goods from the plaintiff on credit. If the coupons were lost, stolen, destroyed, or detached from the book prior to use, she still had to complete payments, and plaintiff would be the richer by the amount of the loss without having supplied anything in return. Actually, all that plaintiff has done for defendant is to agree to sell her goods on credit at some time in the future.

Mrs. Walsh understood that she was applying for the usual type of charge account upon which there would be no payment until she made a credit purchase, and that she would then pay a maximum of $10.00 per month. Mrs. Scott told her “It’s like a charge account” and “You only have to pay for what you buy.” These statements were clearly untrue and were relied upon by Mrs. Walsh. Mrs. Scott testified that she had a “spiel” to sell the “scrip”, and the entire presentation was obviously cleverly designed to obscure the real nature of the transaction. These untruths and half-truths constituted fraud.

It is clear that the contract entered into was based on mutual mistake, even if all the evidence is interpreted most favorably to the plaintiff. Mrs. Walsh thought she had arranged a normal credit plan, and plaintiff’s agent supplied her with a coupon account.

Plaintiff’s attorney, in his oral argument, also pleaded that defendants would be unjustly enriched by a decision adverse to his client in that they might still have the coupons or might have spent them. Unfortunately, plaintiff will never know whether the coupons are spent, and will never be able to prove unjust enrichment, unless it establishes a clearing operation to check the coupons. Its greed has carried it beyond the bounds of an unconscionable agreement to a point where its desire to even economize on clerical expense thwarts its own proofs.

It is difficult to imagine a more one-sided scheme for the enrichment of a commercial establishment at the expense of a potential customer. Mrs. Scott testified that the plaintiff preferred the coupon plan — for obvious reasons. Christmas Clubs are criticized because no interest is paid on the participants’ savings. This coupon plan not only pays no interest on money advanced but even charges the potential customer interest on his account before he makes any purchases. And the store has the additional happy chance of realizing the full value of the coupons if they are stolen, lost, destroyed or detached before being used. The Court is of the opinion that this plan is, in addition to its other faults, against public policy.

There will he a judgment for the defendants on the plaintiff’s suit, with costs.


author:
Per Curiam.
      Sullivan, S. J. A. D.

text:
    THOMAS G. MC LAUGHLIN AND ALETA MC LAUGHLIN, HIS WIFE, PLAINTIFFS-RESPONDENTS, v. WILLIAM BASSING, OLIVER A. FINAN, INC., A CORPORATION, M. & O. CORPORATION, A CORPORATION, AND TRANSAMERICAN FREIGHT LINES, INC., A CORPORATION, DEFENDANTS-APPELLANTS.
    Superior Court of New Jersey Appellate Division
    Argued October 16, 1967
    Decided October 31, 1967.

      Before Judges Sullivan, Foley and Leonard.

      Mr. James P. Beggans argued the cause for defendants-appellants (Messrs. Beggans and Keale, attorneys, Geoffrey Gaulkin, of counsel).

      Mr. Lewis M. Holland argued the cause for plaintiffs-respondents (Messrs. Warren, Chasan, Leyner & Holland, attorneys) .
   Per Curiam.

This appeal is by leave of court from an order denying defendants’ motion to dismiss plaintiffs’ action because of the untimely issuance of the summons and the failure to prosecute the action.

•Plaintiff Thomas G. McLaughlin was hit by defendants’ tractor-trailer on February 1, 1960. The complaint was filed by his then attorney (not the attorneys prosecuting this appeal) on January 30, 1962. The summons was not issued until October 5, 1965.

Affidavits and depositions of plaintiffs’ then attorney clearly indicate that he was guilty of gross neglect, if not more. Plaintiffs concede that his delay was "inexcusable.”

A trial court may in its discretion, on motion, dismiss an action for a plaintiff’s failure to cause a summons to issue within 10 days after filing the complaint or to prosecute an action for 6 months. R. R. 4:4-1 and R. R. 4:42-2. However, here the trial court upon the concept of “substantial justice” refused to dismiss the action.

The exercise of discretion in the performance of the judicial function has limits of reasonableness beyond which it must be accounted mistaken and reversible. See Kavanaugh v. Quigley, 63 N. J. Super. 153, 158 (App. Div. 1960). To fail to enforce the above noted rules as to dismissals under the circumstances here present would be to virtually eliminate these rules. As Justice (then Judge) Proctor held in the analogous case of Pagano v. Krispy Kernals, Inc., 10 N. J. Super. 588, 590 (Law Div. 1950): “The rule would lose its efficacy if the court without good cause or extenuating circumstances should fail to enforce it.”

In Pagano the court dismissed the action for a seven month delay in the issuance of the summons notwithstanding the intervening bar of the statute of limitations where the neglect of an associate attorney caused the violation. Here plaintiffs’ former counsel delayed filing the summons for a period of over three years after defendants had every reason to believe they had the protection of the statute of limitations. Thus we conclude the “inexcusable” neglect of that attorney warrants a dismissal of this action even though the statute of limitations has intervened.

Defendants’ stipulation that they had suffered “no specific or demonstrable prejudice” does not aid plaintiffs’ cause. As further stated in Pagano, supra, at 591: “* * * the fact that plaintiff’s attorney states that no unnecessary hardship or injustice was practiced upon the defendant is irrelevant. Defendant no less than plaintiff is entitled to the protection afforded by the rules.” See Messenger v. United States, 231 F. 2d 328 (2d Cir. 1956) and Silverton v. Marler, 389 P. 2d 3 (Alas. Sup. Ct. 1964).

Eeversed with directions for remand and dismissal of the complaint.

Sullivan, S. J. A. D.

(dissenting). I think that the record supports the trial judge’s refusal to dismiss plaintiffs’ complaint.

Thomas G. McLaughlin was struck by an unattended runaway truck. His specials to date are more than $50,000. That defendants were aware of the accident is not disputed. Defendants’ insurance carrier had two medical examinations of Mr. McLaughlin. Plaintiffs’ then attorney avers that he had negotiations with defendants’ insurance carrier and was offered $60,000 to settle the claim which plaintiffs were unwilling to accept. Shortly before the statute of limitations expired, the complaint herein was filed, presumably to protect plaintiffs’ interests. However, counsel insists that he was assured at all times by the representative of the insurance company that the case would be settled if plaintiffs would accept something lower than the policy limit of $100,000.

It was because of the foregoing, according to counsel, that he assumed there would be no need to prosecute the ease any further by filing any additional pleadings.

Defendants have stipulated that they have suffered no specific or demonstrable prejudice as a result of the time lapse. They have not asserted that in fact they were unaware that the complaint was filed. Cf. Rooney v. Coraggio, 95 N. J. Super. 112, 116-117 (1967), cert. den. 50 N. J. 89 (1967).

The handling of this case by plaintiffs’ then attorney has been described as inexcusable. It is more than that, but I question whether a litigant must suffer because of counsel’s utter incompetence. Cf. Court Invest. Co. v. Perillo, 48 N. J. 334, 347 (1966).

Under all of the circumstances, I feel that the trial court exercised sound discretion in refusing to dismiss plaintiffs’ complaint.