author: Kole, J. A. D.

text:
    CITY OF NEWARK, A MUNICIPAL CORPORATION OF THE STATE OF NEW JERSEY, PLAINTIFF-RESPONDENT, v. HARTFORD ACCIDENT & INDEMNITY COMPANY, A FOREIGN CORPORATION, DEFENDANT-APPELLANT.
    Superior Court of New Jersey Appellate Division
    Argued May 20, 1975
    Decided June 12, 1975.

      Before Judges Carton, Crane and Kole.

      Mr. Wilbur A. Stevens argued the cause for appellant (Messrs. Stevens and Mathias, attorneys).

      Mr. Salvatore Perillo, First Assistant Corporation Counsel, argued the cause for respondent (Mr. Milton A. Buck, Corporation Counsel-City of Newark, attorney).
   The opinion of the court was delivered by

Kole, J. A. D.

A complaint was filed in the United States District Court by four individuals, Capelas, Lopez, Israel Santiago and Johnny Santiago, against, among others, Keegan, Keogh and Eomaniello, police officers of the City of Newark. To the extent here relevant, the complaint charged violations under color of law of the civil rights of the plaintiffs by these police officers under the Federal Civil Eights Act, 42 TJ. 8. G. A. § 1983 et seq. It claimed that the police officers unlawfully arrested, searched, detained, imprisoned, assaulted and battered, and conspired to, and did, maliciously prosecute Lopez and the Santiagos. It also charged that Keegan refused and neglected to prevent the commission of these acts although knowing of the conspiracy to commit them. Claims were made for compensatory and punitive damages. Apparently Keegan, Keogh and Romaniello answered in the federal court through personal counsel, although at oral argument we gained the impression that the city either had undertaken their defense or had assigned counsel for that purpose.

At the times involved by the federal action defendant Hartford Accident & Indemnity Company (Hartford) had in effect a liability insurance policy designating as “named assureds” the “City of Newark Police Department, City of Newark, Police Director of City of Newark, Mayor of the City of Newark, Arson Squad (17 members) of City of Newark and Judges and Clerks of Newark Municipal Courts.” The policy also describes as an “insured” a named insured designated in the declarations as (1) an individual, (2) a partnership or joint venture, including any partner or member but only with respect to his liability as such, and (3) any other “organization,” including any executive officer, director or stockholder thereof while acting within the scope of his duties as such.

The coverage provided personal injury liability to the extent of $100,000 each person “aggregate” and $300,000 total “general aggregate.” The policy expressly provides that the carrier will pay on behalf of the “insured” all sums which the insured shall become legally obligated to pay as damages because of injuries sustained by any person arising out of one or more of the following offenses committed in the conduct of the “named insured’s business”: false arrest, detention or imprisonment or malicious prosecution, and assaults and batteries committed or alleged to have been committed at the time of making or attempting to make an arrest or in resisting an overt attempt to escape by a person under arrest. It excludes from coverage all claims arising as a result of any act on the part of “the assured” after the claimant has been placed in jail or other place of lawful confinement.

The insurance carrier under the policy has the “right and duty to defend any suit against the insured seeking damages on account of such personal injury even if any of the allegations of the suit are groundless, false or fraudulent.” In addition to assaults or batteries occurring while a person is in lawful confinement, the policy excludes coverage for personal injuries arising out of the willful violation of a penal statute or ordinance committed by or with the knowledge and consent of an insured or arising out of riot, civil commotion or mob action or any act or omission in connection with the prevention or suppression of the same. A $5,000 deductible with respect to each claim to be paid by the insured is provided and under no circumstances is the carrier required to pay in excess of the $300,000 “general aggregate.”

The premium paid for the insurance coverage by plaintiff city is not insubstantial. It is about $816,000 for a three-year period.

The city instituted this action seeking a declaration of coverage to the individual policemen defendants in the federal civil rights action and requiring the insurer to provide them with a defense. The trial judge, on motion for summary judgment by plaintiff, ordered Hartford to defend the police officers for “any offenses alleged in the complaint” in the federal court action which are covered by the policy and “enumerated therein.”

Hartford appeals the judgment against it on a number of grounds. We discuss them, but not necessarily in the order presented.

We agree with the conclusion of the trial judge that the individual policemen are named insureds and are covered by the policy.

Where, as here, a policy is susceptible of two reasonable interpretations as to coverage, the one favorable to the insured will be adopted if in accordance with the latter’s reasonable expectations. Bryan Constr. Co. v. Employers' Surplus Lines Ins. Co., 60 N. J. 375 (1972); Butler v. Bonner & Barnewall, Inc., 56 N. J. 567, 576 (1970). The present policy expressly designated the “City of Newark Police Department” as a named assured. There is no evidence that the police department is an entity capable of being sued. An action against the police department would have to be brought against the city. It is redundant to have listed both the city and the police department, unless the policy was meant to provide coverage for individual members of the department.

Here, it is within the reasonable expectations of the insured, considering the policy language and purpose, that the individual members of the police department would be covered, and any suit against them would be defended by the carrier and awards of damages against them would be paid by the carrier to the extent that the policy, consistent with its language and public policy, covers the claims asserted against the individual policemen. See Caplan v. Johnson, 414 F. 2d 615 (5 Cir. 1969); Baltzar v. Williams, 254 So. 2d 470 (La. App. 1971); Estrada v. Indem. Ins. Co. of N. Am., 158 Cal. App. 2d 129, 322 P. 2d 294 (Dist. Ct. App. 1958).

We are also satisfied that, at least as to the obligation to defend, the trial judge properly held that the claims asserted in the federal action under the Civil Rights Act are covered by the insurance policy, to the extent that they are “offenses” mentioned in the policy and allege common law torts under state law — e.g., false arrest, detention or imprisonment, malicious prosecution, and assault and battery ■ — ■ even though recovery is sought under the federal act and in the federal court. The carrier could have excluded from coverage civil rights actions or limited coverage to common law torts, but it did neither. See 42 U. S. C. A. §§ 1983, 1988; Howell v. Cataldi, 464 F. 2d 272 at 277-279 (3 Cir. 1972); Caplan v. Johnson, supra; Colton v. Swain, 358 F. Supp. 859 (N. D. Ill. 1973), app. dism. 495 F. 2d 1375 (7 Cir. 1974); Peoria v. Underwriter’s at Lloyd’s London, Unincorporated, 290 F. Supp. 890 (S. D. Ill. 1968).

The court below correctly held that in the present case the determination of the basic duty of the carrier to defend should be made by comparing the torts alleged in the federal complaint with the “offenses” (i.e., torts) listed in the coverage provisions of the policy. See Burd v. Sussex Mut. Ins. Co., 56 N. J. 383 (1970); Westchester Fire Ins. Co. v. Continental Ins. Co., 126 N. J. Super. 29 (App. Div. 1973), aff’d o.b. 65 N. J. 152 (1974).

We are not here dealing with a clause of a policy which excludes coverage for intentional acts. This policy deliberately covers specific intentional acts that are alleged in the federal action complaint. Premiums have been paid for such coverage. There is no showing that the exclusions as to injuries arising out of a willful violation of a penal enactment or a riot or any other exclusion are at all applicable. None of the policemen has been found guilty in any penal proceeding involving these acts. Compare Burd v. Sussex Mut. Ins. Co., supra. The only factual issues heTe to be decided relate to the extent of the basic obligation to defend and the duty to pay the compensator]'- damages awarded in the federal action — i.e., the extent to which the torts there involved and damages awarded therefor are covered by the policy and should be defended and paid by the carrier. With respect to those issues the carrier is entitled to a plenary hearing. But that hearing should not delay the defense of the federal action or bar a determination now of the carrier’s basic duty to defend that action or to pay for its appropriate share of the expense of such defense. We have concluded that under the circumstances here such a plenary hearing with respect to the extent of the duty to defend and pay should await the outcome of the federal action. See and compare Burd, supra; Raday v. Manville Bd. of Ed., 130 N. J. Super. 553 (App. Div. 1974); Lyons v. Hartford Ins. Group, 135 N. J. Super. 339 (App. Div. 1973), certif. den. 64 N. J. 333 (1974); Hanover Ins. Group v. Cameron, 133 N. J. Super. 51 (Ch. Div. 1973). The trier of fact in that action should be requested to answer specific interrogatories which may assist in determining the extent of the carrier’s duty to defend and pay under the policy. This may facilitate the resolution of the later proceeding although, of course, the carrier would not necessarily be bound by any such findings.

The carrier contends that if it is made to defend the federal action, state public policy would be offended. We question but need not now decide whether the carrier may seek refuge in this kind of defense where it issued the insurance policy covering the specific intentional acts and collected premiums therefor. Nevertheless, we presently see no merit to the public policy argument.

Insurance policies providing for indemnity to an insured against the civil consequences of his own willful criminal acts or injuries to others that he actually intends have been held to violate public policy. But here other values are involved. The duty to defend and pay is limited to the specific intentional “offenses” committed in the course of the policemen’s “business.” With appropriate further limitations, there would appear to be no public policy problem. Thus, for example, a defense or indemnification should not be permitted for an act that constitutes a crime or involves actual malice or other outrageous conduct, or for an act outside the scope of the policemen’s employment. The New Jersey Tort Claims Act, N. J. S. A. 59:3-l et seq., applicable when these alleged torts were committed, may also have some relevance to the public policy issue. The extent of its applicability, however, has not been argued before us and we accordingly merely mention it. See, e.g., N. J. 8. A. 59:2-1, 59:2-2; 59:3-1; 59:3-8; 59:3-14; 59:10-4. Compare N. J. 8. A. 59:10A-1 et seq. See also, N. J. 8. A. 40A ¡14-155.

The municipality has an interest in assuring that its policemen, who are engaged in a hazardous enterprise that likely may lead to the kinds of offenses alleged in the federal action, are protected, at least to the extent of being provided a defense by an insurance carrier, for torts of this nature committed within the scope of its and their business. Even though the city is not vicariously liable for such torts under the Civil Eights Act, see Howell v. Gataldi, supra, it also has an interest in endeavoring to secure indemnification to such employees for damages arising from such torts, except, of course, where that is prohibited by law or public policy. Compare Malanga v. Mfrs. Cas. Ins. Co., 28 N. J. 220 (1958), and the New Jersey Tort Claims Act, supra.

Public policy would not preclude indemnification or a defense with respect to compensatory damages awarded against the policemen for the “offenses” covered by the policy, where the injury suffered is the unintended or only the probable result of the intentional act, or where the act is within the scope of the policemen’s employment. It would plainly not permit a defense or indemnification by the carrier of any claim for punitive damages. The scope of other prohibited defenses or indemnification is not as clear as it might be and need not now be decided. It may await a plenary trial of this declaratory judgment action after the civil rights action is concluded. See Burd v. Sussex Mut. Ins. Co., supra; Ruvolo v. Am. Cas. Co., 39 N. J. 490 (1963); Lyons v. Hartford Ins. Group, supra; LoRocco v. N. J. Mfrs. Indem. Ins. Co., 82 N. J. Super. 323 (App. Div. 1964), certif. den. 42 N. J. 144 (1964). See also Hanover Ins. Group v. Cameron, supra; Raday v. Manville Bd. of Educ., supra, and the New Jersey Tort Claims Act, supra..

Eor present purposes we need only hold that an insurance policy such as that issued here by Hartford to the municipality does not per se offend public policy simply because Hartford has therein undertaken the basic duty to defend municipal policemen and pay for damages awarded against them in an action for intentional acts described in the policy, as long as those duties are limited as we have indicated. See and compare Newport Beach v. Sasse, 9 Cal. App. 3d 803, 88 Cal. Rptr. 476 (D. Ct. App. 1970); Ohio Farmers Ins. Co. v. Landfried, 348 F. Supp. 486 (W. D. Pa. 1972); Colton v. Swain, supra; Peoria v. Underwriter's at Lloyd's London, Unincorporated, supra; Caplan v. Johnson, supra.

Accordingly, we have concluded that Hartford has the basic duty to defend the individual policemen in the federal action for the torts committed while acting in the business of the police department that are within the expressly covered offenses insured against. However, for the reasons hereafter set forth, the extent of that duty may not be determined in a summary judgment proceeding and must await a plenary hearing in the present action.

We do not believe that our holding is in conflict with the principles established in Burd, Lyons or Raday, supra. Unlike those cases, we are concerned with an insurance policy specifically covering the torts for which damages are sought, and the situation is one which involves both (1) matching the torts alleged with those expressly included in insurance policy coverage and (2) issues of fact as to coverage. In our view, the basic duty to defend is evident and the only remaining question in that area is the extent or cost thereof. Whatever conflict of interest there may be in the carrier’s defending the federal action may be resolved as indicated below.

There are charges in the federal complaint, such as extortion, which are not covered by the policy and must be defended by private counsel. The claims for punitive damages should not be defended by the carrier, even though conceivably we might assume, by reason of the present action by the city, that the policemen are willing to undertake that risk. See LoRocco v. N. J. Mfrs. Indemn. Ins. Co., supra, 82 N. J. Super. at 333. There is a possible conflict of interest between the policemen and the carrier even with respect to compensatory damages for the offenses covered by the policy ■ — ■ e.g., whether the injury is the result of the kind of intentional act for which coverage may be provided by law. There is also the question of the extent to which the cost of the defense should be paid by the carrier and policemen, respectively, as well as the reasonableness of the amount of such cost to be assessed against the carrier. And, of course, there is the issue of the amount of indemnification to be paid if damages are recovered in the federal action.

Under these circumstances, we think the prudent course is to have the policemen’s personal counsel undertake the actual defense of the federal action, with the carrier’s attorney available to protect its interests under the policy. After that action is terminated, the present declaratory judgment action should proceed to trial and all of the questions we have mentioned should be determined therein. See Hanover Ins. Group v. Cameron, supra, 122 N. J. Super. at 68.

We have considered Hartford’s remaining contentions and find them to be without merit. The Declaratory Judgment Act, N. J. S. A. 2A:16-oO et seq., permits the state court to determine the coverage issue, even though a federal Civil Eights Act action is involved. The court is in no way thereby invading the power of the federal judiciary. Although the better practice might have been for the policemen to bring in Hartford as a third-party defendant in the federal court action, they were not required to do so. The city has an adequate interest to institute this action on their behalf. Additionally, during oral argument we were advised that the carrier is taking the same view as to non-coverage in actions instituted in the state courts against the city’s policemen. The issue here raised should, therefore, be resolved.

That another carrier having this kind of insurance with the city may have viewed it as covering only the city’s vicarious liability is not dispositive of the issue of coverage or the duty to defend under this policy. Nor is the city’s inter-office memorandum as to the interpretation of the present policy, relied on by Hartford, in any way conclusive on these matters.

To the extent that the summary judgment determines that the basic duty to defend the federal action is that of Hartford, it is affirmed. In all other respects it is reversed, and the matter is remanded for plenary hearing after the federal action has been completed, in accordance with this opinion.

      Capelas claimed damages for extortion against Keogh and Romaniello. This claim is plainly not covered by the insurance policy here involved and need not be defended by the carrier, nor need a judgment in Capelas’ favor be paid by it.
      Since the civil conspiracy claim does not enlarge the federal court plaintiffs’ cause of action, at least as to compensatory damages under state tort law, it would appear to be covered by the policy to the extent it involves the underlying wrong for which coverage is afforded. See Lopes v. Stayer, 62 N. J. 267, 276 (1973).

      If the question of settlement arises at the federal trial that matter, -of course, may present problems which will have to be then resolved. See Rova Farms Resort Inc. v. Investors Ins. Co., 65 N. J. 474 (1974), and concurring opinion at 508.


source: Caselaw Access Project

author: Michels, J. A. D.

license: Public Domain

text:
    SOMERSET APARTMENTS, INC., PETITIONER-RESPONDENT, v. DIRECTOR, DIVISION OF TAXATION, RESPONDENT-APPELLANT.
    Superior Court of New Jersey Appellate Division
    Submitted May 12, 1975
    Decided June 16, 1975.

      Before Judges Michels, Morgan and Milmed.

      Mr. William F. Hyland, Attorney General of New Jersey, attorney for appellant (Mr. Richard M. Conley, Deputy Attorney General, of counsel, and Mr. Michael F. Goldman, Deputy Attorney General, on the brief).

      Messrs. Hcmnoch, Weisman, Stern & Besser, attorneys for respondent (Mr. Ronald M. Sturtz and Messrs. Meltzer & Schiffrin of the Pennsylvania Bar, of counsel).
   The opinion of the court was delivered by

Michels, J. A. D.

Sidney Glaser, Director of the Division of Taxation, Department of the Treasury, State of New Jersey (Director), appeals from a judgment of the Division of Tax Appeals (Division) vacating assessments levied against petitioner Somerset Apartments, Inc., by the Division of Taxation for the years 1966, 1967 and 1968 under the New Jersey Corporation Business Tax Act (1945), N. J. S. A. 54A0A-1 et seq.

The parties stipulated the essential facts. Petitioner is a New Jersey corporation and the owner of record of land and buildings comprising an apartment complex known as Somerset Apartments located in the Township of Cherry Hill, New Jersey. Petitioner holds title to the land and buildings solely as nominee of seven partners trading as Somerset Apartments (the partners), who are the sole beneficial owners of the land and buildings. The agreement pursuant to which petitioner holds title to the property in part provides:

Somerset acknowledges and declares to, and agrees with Partners that Somerset holds title to the said property; that the interest of Somerset in the said property has been, now is and will be solely that of the straw and nominee of Partners, who are the sole beneficial owners of said property; that Partners have and will have all beneficial interest in such property and the operation thereof; that Somerset has and will have no beneficial interest in the said property and that Somerset will, without any consideration paid or passing to Somerset, but without any expense to Somerset, upon the request of Partners, make such transfers and execute and deliver such deeds, documents, mortgages and other instruments as Partners may hereafter specify. Conveyance of title to Partners or their nominee shall be made at the request of Partners free and clear of all restrictions, liens, encumbrances, rights, title and interests in others, except any mortgages on said property.

Tlie property had previously been owned by the partners. However, during the processing of a loan for the complex, interest rates rose above the legal limit for individual borrowers in New Jersey and the lenders insisted that a corporation be formed. The partners formed petitioner corporation, and title to the property was placed in petitioner in accordance with the agreement referred to above. Financing of the property was then obtained in the form of two mortgages, petitioner being the mortgagor for both. An agent for the partners collected the rents from which mortgage and local property tax payments were made, and the income attributed to the apartments was reported by the partnership on its return with the approval of the Internal Eevenue Service.

Petitioner did not include the land and buildings comprising the apartment complex among its assets in the tax returns filed under the Corporation Business Tax Act and did not pay a tax based on the value thereof. Petitioner paid the minimum corporation business tax of $25 in accordance with the table set forth in N. J. 8. A. 54:10A-5. The Division of Taxation thereafter assessed petitioner for the years 1966, 1961 and 1968 an estimated tax of $2,000, of which $25 has been paid, leaving an unpaid balance of $1,915 together with accumulated interest. The estimated tax was based in part on the inclusion of the value of the land and buildings of the apartment complex in determining petitioner’s net worth. Petitioner appealed to the Division which vacated the assessment holding that the land and buildings were not assets of petitioner “as that word would be understood by the ordinary citizen or a trained accountant,” and should not have been considered in determining its net worth for purposes of taxation under the Corporation Business Tax Act (1945). We disagree.

The Yew Jersey Corporation Business Tax Act (1945) imposes an annual franchise tax on every nonexempt domestic or foreign corporation, “for the privilege of having or exercising its corporate franchise in this State, or for the privilege of doing business, employing or owning capital or property, or maintaining an office, in this State,” N. J. 8. A. 54:10A-2. The tax is imposed upon the corporation for the privilege of exercising corporate powers in this State. Werner Machine Co. v. Director, Div. of Taxation, 17 N. J. 121, 126 (1954), aff'd 350 U. S. 492, 76 S. Ct. 534, 100 L. Ed. 634 (1956). While the tax is not levied upon any of the property of the corporation (United, States Steel Corp. v. Director, Div. of Taxation, 38 N. J. 533, 540 (1962); Werner Machine Co. v. Director, Div. of Taxation, supra, 17 N. J. at 127), it is levied for employing or owning property in the State. See Roadway Express Inc. v. Director, Div. of Taxation, 50 N. J. 471, 483 (1967), app. dism. 390 U. S. 745, 88 S. Ct. 1443, 20 L. Ed. 2d 276 (1968); Newark Bldg. Assoc. v. Director, Div. of Taxation, 128 N. J. Super. 535, 545 (App. Div. 1974). The amount of the tax is determined on the basis of net worth and net income. N. J. 8. A. 54.T0A-4 and N. J. 8. A. 54:10A-5. See also Roadway Express, Inc. v. Director, Div. of Taxation, supra at 476; United States Steel Corp. v. Director, Div. of Taxation, supra; Werner Machine Co. v. Director, Div. of Taxation, supra.

N. J. 8. A. 54:10A-4(d) defines “net worth” as “the aggregate of the values disclosed by the books of the corporation” and further provides:

If in the opinion of the commissioner, the corporation’s books do not disclose fair valuations the commissioner may make a reasonable determination of the net worth, which, in his opinion, would reflect the fair value of the assets * * * carried on the books of the corporation, in accordance with sound accounting principles, and such determination shall be used as net worth for the purpose of this act. [Emphasis supplied]

Since petitioner did not maintain financial statements, books or records of any kind, the Director determined that the net worth of petitioner was the amount of its equity in the apartment complex as reflected by the mortgages outstanding against the property. This method of determining net worth for purposes of our Tax Act was upheld in Brook-chester, Inc. v. Director, Div. of Taxation, 113 N. J. Super. 570 (App. Div. 1971), certif. den. 58 N. J. 392 (1971), wherein the court stated:

We are of the view that the outstanding mortgage balances, presumably none of which is [sic] in arrears, are an indicia of minimum fair values of the respective properties under accounting principles which are sound and administratively feasible in the light of this tax statute and the particular circumstances of this case. We reject the notion that some of these corporations owning fixed assets of a clearly discernible minimum value evidenced by the outstanding current mortgage balances have no or little “net worth” because of the accumulated depreciation reflected on their respective books. We do not perceive it our duty to construe the statute in question to reach such an absurd result. [Id. at 575-576]

We are satisfied that the value of the apartment complex owned by petitioner was properly included in its net worth for the purpose of determining the amount of corporate business tax payable by it even though it held title to said property solely as a nominee for the benefit of others. Petitioner chose to utilize the corporate structure to enable it to obtain the necessary financing of the apartment complex. Having chosen this method of owning property and conducting business in this State, it cannot now deny its existence in order to avoid the tax consequences of our Corporation Business Tax Act. Of General Public Loan Corp. v. Director, Div. of Taxation, 13 N. J. 393, 400-401 (1953); Ackerman v. Citron, 55 N. J. Super. 122, 128 (App. Div. 1959).

An argument similar to that made here by petitioner was rejected by the Appellate Division of the New York Supreme Court in Redman v. Mealey, 270 App. Div. 75, 58 N. Y. S. 2d 735 (App. Div. 1945). Plaintiff therein claimed a deduction on his New York State income tax return for rental losses, mortgage interest and taxes on certain real estate the title to which was held by his wholly-owned corporation which he had formed to avoid personal liability on the mortgage indebtedness. The corporation merely held title to the property, not functioning in any other way. The Commissioner disallowed the deductions and the court affirmed, saying:

The remaining question under review seems novel in our State. However, that no rule appears to have been established which gives free sanction to the avoidance of corporate existence solely because those who are in ownership and control choose to disregard it, is of some significance. Matter of Brown, 130 Misc. 865, 876, 226 N. Y. S. 1, 20, Id., 225 App. Div. 759, 232 N. Y. S. 371, modified In re Brown’s Will, 252 N. Y. 366, 169 N. E. 612. We think it may be held that generally it may not be so disregarded solely for such reason when the revenues of the State are to be affected thereby. Otherwise would be to invite undue confusion and uncertainty, and corporate existence and ownership of property would be made an instrument for the evasion of just taxation. Petitioner formed his corporation for a definite and permissible purpose which worked to his own advantage, viz: the avoidance of certain possible personal liabilities. Thereafter the conduct of its affairs which was in the main treated by him as an individual proprietor, was, it appears, occasioned in order to serve his own convenience and as well perhaps the saving of expenses. But the eye of the law could not because of that fail to overlook the fact of the corporate entity and its lawful title to the real estate. [Id. at 58 N. Y. S. 2d 738]

We are not persuaded to reach a different conclusion by the fact that the Internal Revenue Service has chosen to disregard the corporate entity for purposes of federal taxation and has permitted the income attributable to the apartment complex to be reported by the partnership rather than petitioner.

Accordingly, the judgment of the Division is reversed and the taxes assessed against petitioner for the years 1966, 1967 and 1968 are reinstated.


author: J. A. Ackerman, J. A. D.

text:
    MIHRANIAN, INC., A CORPORATION OF THE STATE OF NEW JERSEY, PLAINTIFF-APPELLANT, v. SAMUEL J. PADULA AND BOND AND MORTGAGE COMPANY OF NEW JERSEY, A CORPORATION OF THE STATE OF NEW JERSEY, AND VILLA MADRID, INC., A CORPORATION OF THE STATE OF NEW JERSEY, DEFENDANTS-THIRD PARTY PLAINTIFFS-RESPONDENTS, v. JERSEY COAST SEARCH AND ABSTRACT COMPANY AND COMMONWEALTH LAND TITLE INSURANCE COMPANY, THIRD PARTY DEFENDANTS-RESPONDENTS.
    Superior Court of New Jersey Appellate Division
    Argued January 21, 1975
    Decided June 17, 1975.

      Before Judges Halpern, Crahay and Ackerman.

      Mr. Mark F. Saker argued the cause for appellant (Messrs. Cervato, O’Connor, Braelow & Mehr, attorneys; Mr. Saker on the brief).

      Mr. Alexander Feinberg argued the cause for respondent, Bond and Mortgage Company of New Jersey (Messrs. Evoy and Feinberg, attorneys; Mr. William, I. Evoy on the brief).

      Mr. Gregory V. Sharkey argued the cause for respondent, Villa Madrid, Inc. (Messrs. Citta, Gasser, Carluccio, Holzapfel & Sharkey, attorneys; Mr. Sharkey on the brief).

      Mr. Garry J. Roetiger argued the cause for respondents, Jersey Coast Search and Abstract Company and Commonwealth Land Title Insurance Company (Messrs. Hiering, Grasso, Gelzer, Kelaher, attorneys).
   J. A. Ackerman, J. A. D.

This appeal presents a question of some novelty with respect to enforcement of a vendee’s lien.

The decision of the court below was based upon an oral stipulation of facts, formulated and agreed to by the parties on the scheduled date for hearing before the court. The salient facts may be summarized as follows:

On April 30, 1971 Samuel J. Padula, as vendor, and Mihranian, Inc., as vendee, entered into a written contract for the sale and purchase of certain land known as Section 2, Brookside Estates, in Dover Township, containing 39 prospective lots, and a deposit of $10,000 was paid by Mihranian. The contract provided that if Padula did not obtain subdivision approval for the 39 lots within six months, then, at Mihranian’s option, the contract could be declared null and void, in which event the deposit would be returned and the rights of all parties cease. It further provided that Padula should be allowed to pay over the $10,000 received as the deposit to Bond and Mortgage Company of New Jersey, described as the “seller under a certain contract of sale entered into by Samuel J. Padula and Bankers Bond and Mortgage for the sale of the within premises”. In fact, as known to Mihranian, Padula had not yet signed a formal contract with Bond and Mortgage to purchase the property and, at the time of the contract with Mihranian, Padula therefore had neither legal title to the premises nor equitable ownership thereof.

A week later, on May 5, 1971, Padula did enter into a contract with Bond and Mortgage for the purchase of the premises. Although it provided for the obtaining of subdivision approval by Bond and Mortgage, no time limit for securing the same was specified and the contract, unlike that between Padula and Mihranian, was not conditional. Bond and Mortgage received the $10,000 paid by Mihranian to Padula. It was stipulated that Bond and Mortgage did not then have actual knowledge of the contract between Padula and Mihranian or of the source of the deposit.

At about this time Mihranian, which apparently also signed a contract with Padula on or about April 30, 1971 for the purchase of Section 1, Brookside Estates, consisting of 15 prospective lots, signed an addendum thereto which provided that a $10,000 deposit made on the purchase of Section 1 should be deemed reallocated so that the down-payment on Section 1 should be only $5,000 and the remaining $5,000 should be considered an additional down-payment on the purchase of Section 2. The deposit on the latter contract was therefore increased from $10,000 to $15,000. There is no indication that this extra $5,000 was paid over to Bond and Mortgage.

Padula failed to get subdivision approval within six months. On November 3, 1971 Mihranian elected to terminate the contract and demanded the return of the $15,000 deposit, as it was entitled to do. On December 21, 1971 it commenced action in two counts against Padula and Bond and Mortgage for recovery of the deposit and establishment of a vendee’s lien on the premises in question. Lis pendens was filed on December 28, 1971.

Legal title to the premises never became vested in Padula but it was conveyed to his assignee. Sometime after the institution of the above suit and the filing of the lis pendens, Padula assigned his rights under his contract with Bond and Mortgage to Villa Madrid, Inc. and there was a closing on this assignment on April 13, 1972. The consideration paid for the assignment is not set forth in the stipulation of the parties nor is a copy of the assignment reproduced in the appendix. On May 8, 1972 Villa Madrid closed with Bond and Mortgage, receiving a deed conveying to it legal title to the premises and, in connection therewith, it was given a $10,000 credit on the purchase price by Bond and Mortgage — obviously because of the original deposit made by Padula from Mihranian’s funds.

On or about July 14, 1972 Mihranian filed a supplemental complaint adding Villa Madrid as a party defendant to its action seeking return of its deposit and enforcement of a vendee’s lien against the premises.

It seems clear from the stipulation and arguments of the parties that Villa Madrid did not have actual notice when it closed with Bond and Mortgage of Mihranian’s claim for a vendee’s lien or of the actual source of the deposit for which it received credit at closing. Both Bond and Mortgage and Villa Madrid filed third-party complaints against their title companies and the latter companies joined in the proceedings before the trial judge. Although those pleadings are not included in the record on appeal and the defenses and claims of the title companies are not before us or material to our decision, the companies in effect acknowledged that they had negligently overlooked the lis pendens in their searches.

Mihranian claimed below that it had a valid vendee’s lien and that it was enforceable against the land in Villa Madrid’s hands. Bond and Mortgage, Villa Madrid and the two title companies asserted, among other things, that the lien was never valid because Padula never acquired legal title. With the acquiescence of the parties, the trial judge first entered an in personam judgment for $15,000 against Padula and adjourned to a subsequent date the determination of the other issues, including the validity of the vendee’s lien claim. On the adjourned date, after hearing argument, he ruled that Mihranian dd not have a valid vendee’s lien, saying:

The lien — this is the way I am going to rule, and I appreciate that it is complicated and there are some factors that are obscure, but as X see it, the contract if Mihranian can get anywhere he has to have me consider Padula was the vendor under this equitable claim and at the time, April 30, 1971, when the contract was entered into and presumably the $10,000.00 was paid, later supplemented by five more, Padula had no contract, he had no title, he had no interest and he didn’t even have an equitable title or an equitable claim arising out of a contract with Bond and Mortgage, the title holder. That contract only came into being later. Mihranian, on top of it, knew that Padula didn’t have title. I don’t know whether they knew whether he had equitable title or not but they knew he had no title whatsoever and therefore I am going to find that no equitable lien attached to the land on the 30th of April, 1971 or at any time thereafter arising out of the Padula contract to Mihranian because Padula had no interest upon which the lien could attach. The lien has to attach onto something' that Padula owned.

This ruling rendered all other unresolved issues between the parties moot. A judgment was entered denying relief on the lien claim. Mihranian appeals.

We are satisfied that the trial judge erred and we reverse.

The vendee’s lien is of ancient origin and it has been recognized and enforced in this State since at least 1830. Copper v. Wells, 1 N. J. Eq. 10 (Ch. 1830); see Reilly v. Griffith, 141 N. J. Eq. 154, 165 (Ch. 1947), aff’d 142 N. J. Eq. 724 (E. & A. 1948). It is frequently referred to as the counterpart to the vendor’s lien and, although courts elsewhere are not in entire accord as to the sources and reasons for its existence, it is enforced in most other jurisdictions in this country. As stated in 10A Thompson on Real Property § 5271 at 572 (1957) :

Whether the foundation of this lien is natural equity, imputed intention, partial ownership, the implication of a trust, or a blending of some of these sources, the authorities, almost without exception in those jurisdictions which give a lien to the vendor, are clear that one exists.

Our courts, in affirming the existence and validity of vendees’ liens, generally refer to the maxim that equity regards as done that which ought to be done, to the doctrine of equitable conversion which is firmly entrenched in our jurisprudence, and to the trust relationship which arises between the parties upon the execution of a contract of sale of realty. When such contract is entered into, in the eyes of equity the contract is regarded for most purposes as though specifically executed and the original estate of each of the parties is regarded as “converted”. The vendee becomes the equitable owner of the land and the vendor of the purchase money, and the vendor is considered the trustee of his estate in the land for the vendee. When the vendee pays a portion of the purchase money, the vendor becomes a trustee for him and the vendee acquires a lien just as if the vendor had executed a mortgage to him of his estate to the extent of the payment received. See Craft v. Latourette, 62 N. J. Eq. 206 (Oh. 1901); Richeimer v. Fischbein, 107 N. J. Eq. 493 (E. & A. 1931), rev’g. 105 N. J. Eq. 627 (Ch. 1930); Rutherford Nat. Bank v. H. R. Bogle & Co., 114 N. J. Eq. 571 (Ch. 1933); Reilly v. Griffith, supra; Plainfield Courier News Co. v. Hollander, 93 N. J. Super. 442 (Ch. Div. 1967). As stated in the latter case, quoting with approval from 3 American Law of Property, § 1178 at 195-196:

* * * Such lien, in England and in most American jurisdictions, is bestowed upon the purchaser even in the absence of any special equities in his favor, such as possession or improvements made by him, on the theory that with each payment the purchaser performs pro tanto and is thereby equitably vested with a ratable portion of the estate. If the vendor cannot convey, the purchaser, as equitable owner, pro tanto, may assert his rights in a court of equity to recover any payments made. If the vendor is not the absolute owner, the purchaser’s lien attaches only to the extent of the vendor’s interest, which may be converted into money by judicial sale — a remedy which is, in effect, the same as the foreclosure of an equitable mortgage. * * * [9S N. J. Super. at 444]

See, generally, Annotations, “Eight of vendee under executory land contract to lien for amount paid on purchase price”, 45 A. L. R. 352 (1926) and 33 A. L. R. 2d 1384 (1954); Annotations, “Vendee’s right to recover amount paid under executory contract for sale of land”, 59 A. L. R. 189, 233 et seq. (1929) and 134 A. L. R. 1064, 1081 (1941); 53 C. J. 8., Liens, § 7b at 852; 77 Am. Jur. 2d, Vendor and Purchaser, §§ 512-516 at 639-644; 4 Pomeroy’s Equity Jurisprudence (5 ed.), § 1263 at 773-776.

It is, of course, true that in the usual ease the vendor has legal title at the time he enters into the contract of sale and there is no problem of an insufficient estate to which the vendee’s lien may attach. However, the courts everywhere, applying the basic underlying policy reasons which gave rise to vendee’s liens in the first instance, have been liberal in fashioning rules to protect the vendee’s interests. Thus it is well settled that a lien exists not only where the vendor is at fault for breach of the contract but also where, as here, it is rescinded under a condition entitling the vendee to rescind. Reilly v. Griffith, supra. Although there is nothing to which the lien can attach if the vendor has never at any time had an interest in the land, see Jarman v. Kleeberg, 102 Fla. 563, 136 So. 448 (Sup. Ct. 1931); Annotation, supra, 33 A. L. R. 2d at 1386, it is not fatal to its existence that the vendor had no interest when the contract was entered into so long as he subsequently acquires an interest. Equity considers the property dedicated to the promised use, and as soon as the vendor acquires an interest in the land the vendee’s lien immediately becomes affixed and attached thereto, and this is so even though the vendee’s deposits on the purchase price were made prior to the vendor’s acquiring his interest. Our courts have so held whore the interest subsequently acquired by the vendor is legal title. Rutherford Nat. Bank v. H. R. Bogle & Co., supra; Tancred v. Beppler, 15 N. J. Super. 394 (Ch. Div. 1951). Although the direct authority in point is sparse, the rationale of the above cases and the basic reasons for enforcing vendee’s liens apply equally well where the interest acquired is equitable ownership. Such ruling was made in Elterman v. Hyman, 192 N. Y. 113, 84 N. E. 937, 942 (Ct. App. 1908), where the vendor had only equitable title pursuant to a contract to buy the land which he had agreed to sell to plaintiff, and the court said, “If the vendor is not the absolute owner, the lien of the vendee ‘exists only to the extent of the vendor’s interest,’ which in this case is only that of a subpurchaser.” See also, Elterman v. Hyman, 141 App. Div. 208, 126 N. Y. S. 6, 11 (App. Div. 1910); Harding v. Burke, 205 App. Div. 597, 200 N. Y. S. 144 (App. Div. 1923); see Wayne B. & L. Co. of Wooster v. Yarborough, 11 Ohio St. 2d 195, 228 N. E. 2d 841 (Sup. Ct. 1967); see Temple v. Clinton Trust Co., 1 N. J. 219, 226 (1948); 51 Am. Jur. 2d, Liens, § 17 at 156. And see, Reilly v. Griffith, supra, where it was held that when it was impossible to enforce a vendee’s lien against the whole title to lands involved in the transaction which gave rise to the vendee’s lien, because the vendor had sold the lands to a subsequent bona fide purchaser, the lien would be impressed on any interest retained by the vendor and would attach to a purchase money mortgage retained by the vendor. Vice-Chancellor Woodruff said, “While relief in this exact form seems never to have been sought of this court, or granted by it, I have no hesitation in advising it. Every consideration of conscience and of justice requires such action * * 141 N. J. Eq. at 169.

Here Padula had no interest in the land when the contract was signed with Mihranian and the latter made its down-payment. A week later Padula acquired equitable ownership by virtue of his contract to buy from Bond and Mortgage. Mihranian’s vendee’s lien attached immediately to his interest. When Mihranian rescinded and commenced action to enforce its equitable lien, it filed a proper lis pen-dens which clearly had the effect of giving notice to subsequent purchasers of Padula’s interests of the claim to the lien in the lands in question. See N. J. 8. A. 2A:15-6 et seq. Villa Madrid was bound by such lis pendens and took title subject to Mihranian’s claim of lien. Mihranian’s equitable lien may be enforced out of the land. To hold otherwise would permit persons like Padula dealing in real estate to avoid vendee’s liens by simply assigning their rights to others and not taking legal title. Such result offends every consideration of conscience and justice.

We conclude that Mihranian had a valid vendee’s lien for the payments made by it on account of the purchase price of the lands, and we reverse for further proceedings in accordance with this opinion. We express no opinion as to the rights of the respondents inter sese, those issues having been rendered moot by the decision of the trial judge and not presented to us on this appeal. We do not retain jurisdiction.


text:
    DE METRIOS STAMBOULOS AND GEORGIA STAMBOULOS, HIS WIFE, AND ANNA STAMBOULOS, PLAINTIFFS-RESPONDENTS, v. CHRIGHTON MC KEE AND JOHANNA MC KEE, DEFENDANTS-APPELLANTS.
    Superior Court of New Jersey Appellate Division
    Submitted June 10, 1975
    Decided June 17, 1975.

      Before Judges Carton, Crane and Kole.

      Messrs. Fornabai and Zimmermann, attorneys for appellants (Mr. James V. Zimmermann, on the brief).

      Messrs. Gladstone, Hart, Mandis, Rathe and Shedd, attorneys for respondents (Mr. Mitchell S. Camp on the brief).
   The opinion of the court was delivered by

Kole, J. A. D.

Defendants have been month-to-month tenants of an apartment in a four-family apartment building in Port Lee for a substantial period of time. Plaintiffs acquired title to the building on May 31, 1974. On that day they served on defendants a notice to quit and demand for possession of the apartment as of June 30, 1974. One of the plaintiffs apparently desired to reside therein. After the notice was served it appeared that another apartment in the building would become vacant in July, but it had been promised to a friend of one of the plaintiffs.

Defendants held over beyond June 30. This dispossess action was thereafter instituted. The trial judge held that plaintiffs had complied with the 30-day notice required by law; that the right to possession of the apartment vested in the landlord when the notice was given on May 31, 1974, and that the newly enacted eviction statute, effective June 25, 1974, pertaining to residential property such as that here involved, L. 1974, c. 49, did not apply since the landlords’ vested right to possession accrued prior to its effective date. He granted a judgment for possession to plaintiffs. This appeal followed.

There is adequate credible evidence to sustain the trial judge’s determination that the required 30-day notice was served in time, as required by law. That finding, accordingly, is affirmed. State v. Johnson, 42 N. J. 146 (1964).

We have concluded, however, that the judge erred in holding that plaintiffs’ right to possession vested upon service of the notice to quit and demand for possession, rather than on June 30, 1974 when possession was to be surrendered. Hence, the new eviction statute, effective June 25, 1974, applied to this proceeding. Since good cause for eviction under that statute was not shown, the action should have been dismissed. See 25 Fairmount Ave., Inc. v. Stockton, 130 N. J. Super. 276 (Cty. D. Ct. 1974).

We are in substantial agreement with the rationale of Stockton. As applied to a month-to-month tenancy, the right to possession in the landlord did not arise until the ■ time specified in the 30-day notice for the termination of the tenancy — here, June 30, 1974. On that date the new statute was applicable and precluded, with respect to residential tenants such as defendants, the termination of the month-to-month tenancy, the vesting of a right to possession in the landlord, or the dispossession of the tenants until and unless one of the “good cause” requirements specified in § 2 of the statute, N. J. S. A. 2A:18-61.1, was shown.

We do not agree with plaintiffs that N. J. S. A. 2A:18-56, requiring one month’s notice to quit in order to terminate a month-to-month tenancy, indicates that the tenancy is terminated merely by the giving of the notice. That provision has been said to be intended to protect the tenant by giving him time to readjust his affairs before his tenancy is terminated on the date set forth in the notice. Gretkowski v. Wojciechowski, 26 N. J. Super. 245, 250 (App. Div. 1953); Pa. R. R. Co. v. L. Albert & Son, Inc., 26 N. J. Super. 508, 511 (App. Div. 1953), cert. den. 13 N. J. 361 (1953). See also, Bhar Realty Corp. v. Becker, 49 N. J. Super. 585 (App. Div. 1958).

Moreover, a month-to-month tenancy is a continuing tenancy, which does not give rise to a new relationship for each month. Even under the law as it existed prior to this statute, a new tenancy was established only when the existing monthly tenancy was actually ended and the new one commenced. Thus, where the landlord gave a proper notice to quit and demand for possession at the end of the month, unless the tenant paid an increased rental commencing the beginning of the following month, the holding over of the tenant created a new tenancy at the increased rental. See Bhar Realty Corp. v. Becker, supra; Saracino v. Capital Properties Associates, Inc., 50 N. J. Super. 81, 87 (App. Div. 1958); Hertzberg v. Siegel, 8 N. J. Super. 226 (App. Div. 1952); Dector v. Phelps, 136 N. J. L. 53 (Sup. Ct. 1947); Finkelstein v. Herson, 55 N. J. L. 217 (Sup. Ct. 1893).

Additionally, the notice to quit under N. J. S. A. 2A:18-56 is one of the procedural requirements to effect a termination of the tenancy in order to give the county district court jurisdiction in a dispossess action. The mere giving of it does not create or affect substantive rights between a landlord and tenant. Stockton, supra, 130 N. J. Super. at 286. Compare Bhar Really Corp. v. Becker, supra, 49 N. J. Super. at 588-589.

Thus, the new statute, effective June 25, 1974, five days before the landlord’s right to possession vested, will be given prospective effect in the present ease. The problem of retroactive deprivation of vested rights, therefore, is not involved. Compare Engler v. Capital Management Corp., 112 N. J. Super. 445, 447 (Ch. Div. 1970), where the lease had expired, giving rise to an immediate vested right of possession in the landlord, and the court refused to apply the later enacted retaliatory eviction act, N. J. S. A. 2A:42 — 10.10. See also, Rothman v. Rothman, 65 N. J. 219, 225-232 (1974); Nickell v. Gall, 49 N. J. 186 (1967); Troy Hills Village, Inc. v. Fischler, 122 N. J. Super. 572, 578-579 (Law Div. 1971), aff’d o.b. 122 N. J. Super. 525 (App. Div. 1973).

Plaintiffs contend that the denial of their right as landowners to terminate a month-to-month tenancy in order to occupy the premises themselves violates fundamental property rights and is unreasonable and arbitrary since it bears no rational relationship to the announced statutory objective.

The express purpose of the new statute here involved was stated by the Legislature as follows:

At present, there are no limitations imposed by statute upon the reasons a landlord may utilize to evict a tenant. As a result, residential tenants frequently have been unfairly and arbitrarily ousted from housing quarters in which they have been comfortable and where they have not caused any problems. This is a serious matter, particularly now that there is a critical shortage of rental housing space in New Jersey. This act shall limit the eviction of tenants by landlords to reasonable grounds and provide that suitable notice shall be given to tenants where an action for eviction is instituted by the landlord. [Statement attached to L. 1974, c. 49]

The statute was adopted in response to a legislative recognition of a problem facing tenants at a time when a critical housing shortage exists. Courts have also recognized the current rental housing shortage. See, e.g., Inganamorte v. Fort Lee, 62 N. J. 521 (1973); Marini v. Ireland, 56 N. J. 130 (1970); Samuelson v. Quinones, 119 N. J. Super. 338 (App. Div. 1972). The intent of this legislation is to limit the eviction of tenants by landlords to the statutory grounds with respect to premises not excluded from its coverage. Stockton, supra 130 N. J. Super. at 287-288. See Bradley v. Rapp, 132 N. J. Super. 429 (App. Div. 1975).

There is a presumption of constitutionality of a legislative enactment. The party contesting its validity has a heavy burden of proof. Private property rights are always subject to the reasonable exercise of the state’s police power, where the protection of the health, safety and general welfare of the people are concerned. Rothman v. Rothman, supra,7 David v. Vesta Co., 45 N. J. 301 (1965); Fried v. Kervick, 34 N. J. 68 (1961); Jamouneau v. Harner, 16 N. J. 500 (1954), cert. den. 349 U. S. 904, 75 S. Ct. 580, 99 L. Ed. 1241 (1955).

To support their contention with respect to the constitutional invalidity of the statute as applied to them, plaintiffs make the following arguments: (1) they are being deprived of living quarters in their own building by tenants who would have had no legal authority to do so under prior law; (2) earlier rent control legislation adopted during periods of housing shortages permitted evictions where the landlord in good faith desired the premises for his own or his family’s use as a housing accommodation; (3) provisions for this kind of relief to the owner constitute a recognition that the present statute is unreasonable, arbitrary and discriminatory as applied to owners, such as plaintiffs, who desire the apartment for their own use; (I) to deprive plaintiff’s of the right to occupy an apartment which they intended for their own use when they purchased the building bears no rational relationship to the statutory objective; (5) the new legislation in effect converts a month-to-month tenancy to a perpetual tenancy, terminable “for all practical purposes,” except for statutory “good cause,” at the will of the tenant, thereby impairing plaintiffs’ contract rights and the right personally to assume possession of their own property, and (6) this result could not have been intended by the Legislature.

Plaintiff’s arguments are without merit.

The legislative intent is clear. The statute does not permit the good faith intention of the landlord to occupy the rented premises to serve as a reason for terminating the tenancy or obtaining possession. Whether this was an oversight or not we do not know. We note that the act specifically excludes from its coverage owner-occupied premises with not more than two rental units. N. J. S. A. 2A:18-61.1. However, the remedy is not to seek judicial relief but rather to obtain amendatory legislation to cover this kind of situation. Compare Bradley v. Rapp, supra, relating to the owner-occupied two rental unit exclusion.

We must enforce the statute as written. We cannot supply a provision. Dacunzo v. Edgye, 19 N. J. 443 (1955). Nor does the fact that prior legislation of a similar nature provided this kind of relief to a landlord mean that its absence makes the statute per se unreasonable or constitutionally infirm. It may well be that the Legislature considered the possibility of abuse to which such a provision might lend itself, without considering other restrictive safeguards against such abuse.

In any event, we cannot say that, in view of the purpose of the new statute, the situation facing these plaintiffs creates such an unreasonable result as to require invalidating the act as applied to them in the present factual setting.

Although the representation by the tenants that they have resided in their apartment for the previous 28 years was contained solely in an affidavit, there is no doubt of their occupancy thereof for a substantial period. There is evidence in the record that another apartment was available in the building in July 1974 which either plaintiffs could have occupied or defendants now say they would have accepted, if offered. The promise of the apartment to a friend of plaintiffs’ conceivably might have been withdrawn under the circumstances. To this extent, therefore, the hardship and alleged interference with property rights have been created by plaintiffs themselves.

In any event, even if the other apartment were not then available, it would contravene the statutory goal to oust defendants at this juncture from quarters they have comfortably occupied for a lengthy period of time, where they have not created any of the problems referred to as “good cause” under the statute. Such action would expose them to the hazards of the very housing crisis to which the statute is addressed. The thrust of the new legislation is to maintain the status quo with respect to tenants who presently have housing in order not to aggravate that crisis, except where a statutory exclusion or basis for eviction exists. See Bradley v. Rapp, supra. In view of the substantial relation between this legislation and the valid public interest, we have concluded that the situation presented by plaintiffs does not represent “beyond all question a palpable invasion of rights secured by the organic law.” Reingold v. Harper, 6 N. J. 182, 195 (1951).

We are not persuaded, under the circumstances here, that the legislation operates to impair contract rights to the extent that it may be said to convert a month-to-month tenancy to a perpetual tenancy terminable solely at the will of the tenant. The constitutional interdiction against impairment of contracts is not an absolute one. It is subject to the implied condition that a contract’s fulfillment may be frustrated by the appropriate exercise, as here, of the police power. See Brookchester, Inc. v. Ligham, 17 N. J. 460 (1955) ; Albigese v. Jersey City, 127 N. J. Super. 101 (Law Div. 1974), mod. on other grounds 129 N. J. Super. 567 (App. Div. 1974), and eases cited therein; American Trial Lawyers Ass’n v. N. J. Sup. Ct., 126 N. J. Super. 577 (App. Div. 1974), aff’d 66 N. J. 258 (1974). See also, P. T. & L. Constr. Co. v. Comm’r, Dept. of Transp., 60 N. J. 308 (1972).

Eeversed.

      This statute amended N. J. A. 2A :18 — 53 and added N, J. 8. A. 2A:18-61.1 et seq.


author: Fritz, J. A. D.

text:
    STATE OF NEW JERSEY, PLAINTIFF-RESPONDENT, v. SARAH JEAN LAMB, DEFENDANT-APPELLANT.
    Superior Court of New Jersey Appellate Division
    Argued January 28, 1975
    Decided June 19, 1975.

      Before Judges Matthews, Fritz and Botter.

      Mr. William L. Roughton, Assistant Deputy Public Defender, argued the cause for appellant {Mr. Stanley O. Van Ness, Public Defender, attorney; Mr. Michael Sufness, Assistant Deputy Public Defender, of counsel and on the brief).

      Mr. Lowell Espey, Deputy Attorney General, argued the cause for respondent (Mr. William F. Hyland, Attorney General of New Jersey, attorney; Mr. William Welaj, Deputy Attorney General, on the brief).
   The opinion of the court was delivered by

Fritz, J. A. D.

Defendant appeals from her conviction by a jury of second degree murder. The difficult question in the case involves defendant’s duty to retreat vel non in the circumstances here presented, a distinct variation on the theme already orchestrated by State v. Pontery, 19 N. J. 457 (1955), State v. Abbott, 36 N. J. 63 (1961), State v. Bonano, 59 N. J. 515 (1971), and State v. Provoid, 110 N. J. Super. 547 (App. Div. 1970).

The pertinent facts are not in serious dispute. Defendant and her husband Larry had separated. Thereafter she first occupied the apartment they had shared even though her husband was forceful to the point of criminality in demanding that she leave. When she refused, he left, returning a number of times. Subsequently he requested that she leave long enough for him to find a place. She went to her mother’s home. Her husband moved all, or substantially all, his belongings elsewhere and vacated the apartment. Defendant returned to live there with a cousin.

On the night of the killing, defendant had been at a local bar with her apartment-mate cousin Charlene. Her husband came to the bar to solicit her company. In a discussion outside the bar, which was evidently not at all acrimonious, defendant refused her husband’s invitation because, she told him, she "was going to go home and go to bed because I didn’t feel that good.”

Thereafter defendant, her cousin and a male companion named Ricky went first to a "White Castle” for a hamburger, and then the three returned to the apartment. But the cousin did not stay. She left defendant and Ricky, announcing her intention to return to the bar they had earlier visited. Ricky and defendant were playing records. Defendant exchanged her "top” for a housecoat, keeping her "slacks and things on.” Charlene called twice, essentially to find out if everything was all right, and the second time to advise defendant that she was coming home.

Then Larry called. Defendant characterized his demeanor as nasty. She accused him of drinking. He did not believe the lie she told him when she respouded to his inquiry by saying she was alone in the apartment.

■ What then transpired was graphically described by defendant in her testimony at the trial:

Q Then what happened?
A A few minutes later I hear somebody coming up the steps because I was standing in the bedroom by the night stand because I went in the bedroom to answer the phone. So I heard somebody coming up the steps. So I heard the door. I didn’t go open the door. I heard somebody. I hear the fist knock the door-, because if you hit it with your fist it would open. You hit it very hard.
Q With a motion like this the door would open?
A It would come open. So Ricky was standing like in the living room and the bedroom.
Hssfcsítíícsí'isJtsfcJíe
Q And the next thing you heard was the pound on the door and the door opened?
A Right.
Q And who came in?
A Larry come running in like that. Ricky was standing between the living room and the bedroom. And so Ricky walked up and saw — so Larry took and punched Ricky and so the next thing I know they were on the bed and tussling. I was trying to break it up.
Q Which bed?
A On the bed right here.
Q In the bed?
A I was trying to break it up. When I went over and tried to grab Larry off Ricky, Larry took and gave me a backhand like with his fist balled up and I went against the wall.
Q And where did he hit you?
A In my face. And I bounced up against the wall. And I come back and I was still trying to break them up. I don’t know. Some way Ricky got away. He was going in the living room to get his coat. And so he eould leave. And so by that time he walked out. I seen Ricky when he went in the living room. Larry took and grabbed me and throwed me on the bed and put his hand around my neck. He said, bitch, I’m going to kill you before I leave here. Before I leave here tonight. So by that time Ricky was coming back into the room. Him and Ricky started back. They started to tussling and got in the bed. And I ran in the kitchen and I got the knife out of the drawer.
Q Why did you get the knife?
A I was afraid. After he said he was going to kill me and everything and I wasn’t really thinking, you know, about'— I don’t think I was thinking about what I could do to defend myself. And so then I ran back into the bedroom. So he left Ricky alone and he was coming after me. I remember getting up on the bed.
Q What do you mean by getting up on the bed?
A I jumped up on the bed. I closed my eyes and I swung the knife.
Q When you swung the knife what was' your husband doing?
A He was coming at me with his fist. When he went to come at me with his fist I remember closing my eyes and coming down with the knife.
Q And then what happened?
A When I opened my eyes Larry was standing there and he looked at me. He said, Jean, you stabbed me. Like that. So I said, Oh my God, no I didn’t. Then I seen the blood start flowing and he fell to the floor. When he fell to the floor than I said, Oh God please don’t let him be dead, like that.

In the course of his charge the judge told the jury that a defendant may not resort to the use of a deadly force when an opportunity for safe retreat is at hand. A timely objection was made on the ground that “an individual need not retreat from their own home.” The judge rejected the objection for the expressed reason that

* * * the decedent had as much right in that home as the defendant. The law requires a retreat if parties are on equal footing. This was not an intruder. This was not a third party. There a person of course does not have to retreat in his own home.

Reliance for such a charge was evidently on the basis of State v. Pr ovoid, supra, where it was held that in jointly occupied premises there is no privilege of nonretreat. 110 N. J. Super, at 554. A distinction between this case and Provoid appears: here the apartment had been the matrimonial domicile but was no longer in fact occupied by the husband. We are not persuaded that the distinction has significance. The privilege of nonretreat is frequently couched in terms of the right of one being attacked “to be at the place where he was attacked.” State v. Bonano, supra, 59 N. J. at 519. Leaving aside for the moment the exceptions we have accepted, our State continues to adhere to the view that when it comes to a question whether one man shall flee or another shall live, the former shall flee rather than the latter die. Bonano, 59 N. J. at 519. The extent to which we thus esteem a human life was early recognized in Pontery, supra, where separated spouses were temporarily reunited in a jointly owned home, and the privilege of nonretreat was denied the wife by virtue of her victim husband’s “equal right to be there.” We are not here prepared to say that the separation in the matter before us so conclusively terminated all right in the husband to be there that the wife was entitled to kill without respect to the availability of completely safe retreat, if such existed. Ponlery applies, and the distinction with Provoid is more apparent than real. There was no error in the charge relating to the duty to retreat. This makes it unnecessary for us to consider further whether the claimed privilege of nonretreat continued after defendant had left the fray only to arm herself and return.

Defendant raises several additional issues. We are satisfied that her complaint against the failure of the judge to exclude her statement lacks merit. The findings by the trial judge that “defendant freely and voluntarily waived her right to counsel and knowingly and intelligently made both statements and signed the waiver of her rights and the written statement which she voluntarily gave” are abundantly supported by credible proof in the record of the voir dire hearing which was held.

Three other contentions appear which do cause us concern.

Eirst, defendant complains with respect to the charge on provocation. We have no doubt at all that the charge in this respect should have been more carefully tailored to the facts of the relationship between defendant and the deceased as they were available to be found by the jury from the testimony. Provocation sufficient to support a verdict of voluntary manslaughter may be found in a course of ill treatment by way of the “accumulatpon of] a detonating force.” State v. Guido, 40 N. J. 191, 211 (1963). The matter is raised here as one of plain error since at trial there was no objection to the charge in this respect.

Second, during deliberation the jury returned a note whereby it obviously sought to rehear the testimony of three witnesses: the eyewitness, defendant and her cousin. The court, concerned with the probability that to grant the request would probably extend the trial two more days, refused the request, noting that the testimony, if transcribed, “would be about three hundred pages.” Such a decision is a matter of the exercise of sound discretion of the trial judge and we are loath to interfere. But generally where the testimony is readily available and in the absence of some unusual circumstance, such a request should be gi’anted; the burden of time is not such an unusual circumstance. State v. Wolf, 44 N. J. 176, 185-186 (1965).

Third, the judge admitted in evidence, over defendant’s timely objection, five photographs of the deceased lying where he fell after he was stabbed. Again the exercise of sound discretion is the yardstick against which this judicial decision is measured and we will not reverse absent a palpable abuse thereof. State v. Thompson, 59 N. J. 396, 420 (1971). We have seen the photographs, which are black and white pictures of a dead man lying on the floor, with a hole made by a knife in his chest. To some who, arguably at least, have become inured to such things by a professional lifetime of dealing with them, they are not “inflammatory.” But the exercise of discretion in this event is a ratio between relevance and prejudice (Thompson, supra, 59 N. J. at 420-421), and we have a lot of difficulty comprehending what these pictures proved that was disputed. Their particular relevance was not argued when they were offered — only defendant’s objections were heard and overruled — and their necessity has been argued to us only in such general terms as “they bolstered the credibility of various [unnamed] State’s witnesses, whose testimony [unparticularized] concerning these areas was subject to attack [unspecified] during the defense presentation of its case.”

We need not determine whether any of the three foregoing arguments, by itself, would support a reversal, for we are completely satisfied that the aggregate of the three resulted in untoward prejudice to defendant and a trial that was less than fair. In such circumstances we will grant a new trial. State v. Orecchio, 16 N. J. 125, 129 (1954). Such a decision also makes it unnecessary for us to consider defendant’s further arguments that her motion for new trial was improperly denied or that her sentence was excessive. Reversed and remanded for a new trial.


author: Per Curiam.

text:
    MARIO FERRARI, PLAINTIFF-APPELLANT, v. HAROLD MELLEBY, CHIEF OF POLICE OF THE CITY OF CAMDEN, DAVID D. KELLY, DIRECTOR OF PUBLIC SAFETY OF THE CITY OF CAMDEN, AND THE CITY OF CAMDEN, A MUNICIPAL CORPORATION OF THE STATE OF NEW JERSEY, DEFENDANTS-RESPONDENTS.
    Superior Court of New Jersey Appellate Division
    Submitted June 10, 1975
    Decided June 19, 1975.

      Before Judges Halpern, Crahay and Ackerman.

      Mr. Saverio R. Principato, attorney for appellant.

      Mr. Martin F. McKernan, Jr., attorney for respondents.
   Per Curiam.

This is an appeal by appellant Mario Ferrari, Deputy Chief of Police of the Police Department of the City of Camden, from a judgment entered in the Chancery Division on November 6, 1974, denying his request for injunctive relief to restrain respondents from proceeding with police departmental charges against him and to have a hearer designated other than Harold Melleby, the Police Chief of the City of Camden.

Whether appellant should have sought relief in the Law Division by a complaint in lieu of prerogative writs will not be determined since the parties and the trial judge agreed that the Chancery Division had jurisdiction of the issue presented. Whether a law division judge, a Chancery Division judge, or both, had jurisdiction is of little moment because the issue presented will be decided by this court, as will appear infra.

The trial judge granted summary judgment in favor of respondents based on the pleadings before him, because he was of the opinion that appellant must first exhaust his administrative remedies before seeking relief in the courts. We disagree and reverse.

As indicated, certain disciplinary charges, which need not be detailed, were filed against appellant by Harold Melleby, Camden’s Chief of Police. Thereafter, David D. Kelly, Camden’s Director of Public Safety, appointed Melleby as the designated hearer to try the charges. The thrust of appellant’s Chancery Division complaint was to have Kelly designate someone other than Melleby because he was convinced that Melleby was prejudiced against him and would not give him a fair and impartial hearing. When respondents denied his request, he turned to the courts for relief. It is our view that courts should be available to litigants to grant meaningful relief before a departmental hearing is held if the facts and .circumstances warrant it. See Kelly v. Sterr, 62 N. J. 105, 110 (1973) where the court commented upon the departmental hearing there held that "Certainly defendant was entitled to be tried before a fair and impartial tribunal.”

This right to a fair .and impartial hearing transcends appellant’s individual rights. The general public must be assured that nobody charged with wrongdoing, even though not criminal in nature, be deprived of his constitutional right to a fair and impartial hearing. Appellate courts in particular are given the supervisory responsibility, which must never be lightly cast aside, to safeguard those fundamental rights and maintain the public’s respect.

It is crystal clear, as established by custom and our case law, that the general rule is that a superior officer may reprimand subordinates, may prefer departmental charges against them and not be disqualified per se to try such charges when duly designated to do so. Kelly v. Sterr, supra; Zober v. Turner, 106 N. J. L. 86 (E. & A. 1930). We go further and hold that courts should be extremely cautious in interfering with that administrative procedure and, in fact, rarely anticipate the necessity of doing so.

However, in the instant case, we have determined that justice and administrative due process mandate the granting of relie/ before the hearing is held so as to avoid the needless expenditure of everyone’s time and expense in holding the hearing and, if found guilty, an appeal to the Civil Service Commission and, thereafter, an appeal to the courts. See Nolan v. Fitzpatrick, 9 N. J. 477 (1952).

Our reasons for determining that appellant will not receive a fair and impartial hearing in this case will be briefly summarized.

(a) In April 1974 appellant was removed from his position as operations commander at the behest of Melleby.

(b) In August 1974 Melleby put appellant on sick leave without first obtaining a medical evaluation that such was necessary.

(c) On August 9, 1974 Melleby and the city attorney wrote an unsolicited letter to the commanding general of appellant’s Army Eeserve unit wherein they informed the commanding general that appellant was on sick leave for the purpose of psychiatric evaluation and that appellant was imminently capable of serious violent conduct. Again, no medical evaluation to ascertain this was ever requested.

(d) In August 1974 Melleby caused the police car assigned to appellant to be seized and then confiscated his personal papers therein relating to the pending departmental charges, including correspondence between appellant and his attorney. Despite appellant’s request he was refused permission to remove such personal belongings or to have them sealed because Melleby wanted to read them. It was not until sometime in September 1974, after the trial judge ordered the papers to be returned, that some of them were returned by respondents. In this regard it should be noted that Melleby asserted it was his duty to seize and read appellant’s personal papers.

(e) When appellant was recalled to do his military service as a reserve lieutenant, Melleby played a part in causing his salary to be suspended during that period. It was necessary for appellant to ultimately sue and recover his salary.

(f) Finally, it appears obvious from the record before us that whenever the departmental charges against appellant are heard, Melleby in all probability will have to be a witness if the charges against appellant are to be sustained.

We realize that the trial judge did not pass upon the merits of appellant’s complaint and normally we would remand the matter to him for a decision on the merits. However, in view of the fact that the complaint is now almost two years old, and appellant has been suspended without pay since August 1974, we deem it advisable to exercise our original jurisdiction under R. 2:10-5 and forthwith decide the merits.

- We have carefully reviewed the record and are satisfied that appellant’s charges are essentially true as outlined previously, and that in substance they are not denied by respondents. This is not the ordinary case of a superior officer preferring charges against a subordinate and then trying him thereon. We are convinced, by the record before us, that appellant will be unable to receive a fair and impartial trial if Melleby is the designated hearer.

The summary judgment granted below is reversed and the matter is remanded to David D. Kelly, Director of Public Safety of the City of Camden, or whoever else is authorized to designate a hearer with respect to the pending departmental charges against appellant, with directions to rescind the appointment of Melleby and designate a substitute hearer as soon as possible in accordance with the views expressed herein. Jurisdiction is not retained.


text:
    CITY CONSUMER SERVICES, INC., A CORPORATION ORGANIZED UNDER THE LAWS OF THE STATE OF NEW JERSEY, PLAINTIFF-APPELLANT, v. DEPARTMENT OF BANKING, STATE OF NEW JERSEY, DEFENDANT-RESPONDENT.
    Superior Court of New Jersey Appellate Division
    Argued June 3, 1975
    Decided June 23, 1975.

      Before Judges Carton, Crane and Kole.

      Mr. John P. Sheridan, Jr. argued the cause for appellant (Messrs. Cahill, McCarthy and Hicks, attorneys).

      Mr. Michael E. Goldman, Deputy Attorney General, argued the cause for respondent (Mr. William F. Hyland, Attorney General of New Jersey, attorney; Mr. Richard M. Conley, Deputy Attorney General, of counsel).

      Messrs. Miller, Myers, Matteo and Rabil filed a brief for amicus curiae, New Jersey Savings League (Mr. Michael D. Matteo on the brief).
   Per Curiam.

This appeal involves an attack on a regulation of the Commissioner of Banking, N. J. A. G. 3 .T8-8.1.

The Secondary Mortgage Loan Act, N. J. S. A. 17 :llA-34 el seq. (the act), directed at potential abuses of borrowers by second mortgage lenders, subjects the lenders to licensing and other rigid supervision by the State Commissioner of Banking (Commissioner). Oxford Consumer Dis. Co. of No. Phila. v. Stefanelli, 102 N. J. Super. 549 (App. Div. 1968), suppl. on other grounds 104 N. J. Super 512 (App. Div. 1969), aff’d as mod. on other grounds 55 N. J. 489 (1970), app. dism. 400 U. S. 808, 91 S. Ct. 45, 27 L. Ed. 2d 38 (1970); Crescent Invest. Co. v. Comm’r of Bank. & Ins. of N. J., 103 N. J. Super. 11 (Ch. Div. 1968). The Commissioner has the authority to make “rules and regulations to effectuate the purposes of this act and to establish and maintain ethical, fair, equitable and honest business standards for persons who are subject to any provision of [the] * * * act.” N. J. S. A. 17 :llA-54(a). The regulation here challenged was adopted pursuant to this statutory provision.

It is undisputed that savings and loan associations and other banking institutions may not make directly the kind of second mortgage loans with the rate of return permitted by the act. Both federal and state chartered savings and loan associations may only engage in this kind of secondary mortgage loan business through separate service corporations. 12 U. S. C. A. § 1464 (c); 12 C. F. R. § 545.9-1; N. J. S. A. 17.T2B-165(7) (b), 17.T2B-152, 17:12B-153; N. J. A. G. 3:27-4.6, 3:27-4.2.

Second mortgage loans by licensees under the statute may carry a 15% per annum interest rate and by regulation of the Commissioner may have a maximum rate of 18%. N. J. 8. A. 17:llA-44(a). Generally, savings and loan associations and other hanking institutions, by regulation of the Commissioner, may make real estate mortgage loans with an interest rate not exceeding 9J/2% per year. N. J. S. A. 31:1 — 1.

,The use of a service corporation by a savings and loan association (association) is thus of benefit to it. The rate of return on loans that may be secured by second mortgages is higher than that otherwise permitted and the ultimate profits to the association that owns the corporation is correspondingly increased. On the other hand, this profit motive may contain the seed of the very kind of potential danger to borrowers that the act was designed to forestall.

Plaintiff City Consumer Services, Inc. (Consumer) was formed as a wholly-owned subsidiary service corporation of City Federal Savings and Loan Association (City Federal) pursuant to 12 U. S. C. A. § 1464(c). In January and February 1974 Consumer applied for and obtained secondary mortgage loan licenses under the act to be used at City Federal’s principal place of business in Elizabeth and at City Federal’s 37 branch offices. Consumer claims to have expended $4,100 in acquiring these licenses and $45,000 in initial outlay in order to engage in the secondary mortgage loan business.

Subsequent to the acquisition of the licenses, the Commissioner, after due notice and an opportunity for submission of views, adopted the regulation here involved, N. J. A. G. 3:18-8.1, on June 6, 1974. It appears that Consumer and one private citizen filed statements opposing the regulation when it was proposed. The New Jersey Mortgage Council supported the proposal.

No hearings were held prior to or subsequent to the notice of the proposed regulation; nor have there been reports by the Commissioner setting forth the reasons for the proposed or final regulation. These reasons, however, are embodied in the Commissioner’s brief and argument on this appeal.

The regulation provides:

(a) A licensee is prohibited from engaging in the secondary mortgage loan business at a location which is utilized by a banking institution or savings and loan association as a main, branch or any other office; except that, no licensee shall be prohibited from engaging in the secondary mortgage loan business at a location utilized by a banking institution, or savings and loan association, where the office and operations of the licensee are separate, apart and distinct from the offices and operations of the banking institution or the savings and loan association and when employees of the banking institution or savings and loan association are not employed by or soliciting for the licensee.
(b) In the event a licensee is presently engaged in the secondary mortgage loan business at any such location or locations, the licensee shall have 60 days, unless extended by the Commissioner for good cause shown, to relocate its offices, subject to the approval of the Commissioner; otherwise, said license(s) shall be surrendered to the Commissioner for cancellation.

Thus, under the regulation the licensee may conduct its business at the location used by the institution, provided the office and operations of the licensee are separate from those of the institution and the latter’s employees are not employed by or soliciting for the licensee.

Consumer, on this appeal, challenges the validity of the regulation on a number of grounds. The New Jersey Savings League, as amicus curiae, has filed a brief supporting Consumer’s position.

It is contended that the Commissioner had no authority under the act to promulgate the regulation and that it is otherwise invalid. We disagree.

It should be noted that it is Consumer which sought the licenses to engage in this kind of business. It has the burden of showing that the presumptively valid regulation is illegal because it is unduly onerous or otherwise unreasonable or is outside the scope of delegated authority. No such showing has been made on the present record. See Motyka v. McCorkle, supra; Cole Nat. Corp. v. State Bd. of Examiners, 57 N. J. 227, 231 (1970); Schwerman Trucking v. Dept. of Env. Protection, 125 N. J. Super. 14, 20 (App. Div. 1973).

The reasons set forth by the Commissioner for adopting the regulation in our view show that it was designed to effectuate what may be reasonably considered within the purposes of the act — to establish ethical, fair and honest business standards for service corporations, affiliated with associations and other banking institutions, that must be licensed to make second mortgage loans thereunder.

One of the primary goals of the act is to insure that a potential borrower knows that he is doing business with a secondary mortgage loan licensee. In this connection it is important that such borrower is not under the misapprehension that he is dealing with a banking institution or an association, having the traditional attributes of integrity, respectability and honesty of these institutions. Thus, the act provides that a secondary mortgage loan licensee shall conspicuously display its license at each licensed place of business, N. J. S. A. 17.TlA-45(b); prohibits a licensee from advertising or otherwise conveying the impression that it is licensed by or does business under the supervision of the State of New Jersey or the Department of Banking, except that a licensee may advertise that it is “licensed pursuant to the Secondary Mortgage Loan Act,” N. J. S. A. 17:11A-46(Z) (1), and forbids a licensee to advertise any name, address or telephone other than its own, or to utilize in its advertisements or oral solicitations the word “bank” or any term inferring that the licensee is, or is associated with, a bank. N. J. 8. A. 17:11A-46(Z) (2) and (3). The act also requires that the application for a license state the address where the secondary mortgage loan business is to be conducted; that the license specify the licensee’s principal place of business or branch office and that a licensee may only transact business at the location designated on the license. N. J. 8. A. 17 :llA-37(a), 17 :llA-41(a), 17:llA-46(a).

Accordingly, the place where the licensee’s business is located and the manner in which it is conducted are of substantial consequence in the legislative scheme and appropriately the concern of the Commissioner. Additionally, he is charged not only with the enforcement of the act but also with the supervision of the activities of banking institutions and associations. His expertise in both of these areas is plain. He is in a position to sense potential dangers both to borrowers and the banks and associations, and to enact a regulation, such as this, which may avert them.

One of the potential hazards cited by the Commissioner is the possible conflict of interest were the licensed business or its employees to operate at the location of the association or banking institution. This conclusion could have been fairly reached by him. The temptation to divert what normally might be a first mortgage loan into the more profitable service corporation’s second mortgage loan portfolio is not unreal, where the institution and the licensee are at the same location and staffed by the same personnel. That kind of conduct, where it is not truly justified, not only may be harmful to the borrower but may lead him to believe that he is in fact obtaining a bank or association loan. By requiring the service corporation as a secondary mortgage loan licensee to operate out of a separate place with separate employees, these problems are minimized or obviated.

The act specifically precludes a construction which would expand or restrict the powers otherwise conferred by law upon financial institutions, such as federal and state banks and associations, to engage in the secondary mortgage business under the act, and provides that no such institution, in exercising any power otherwise conferred on it, shall be subject to any provision of the act. N. J. 8. A. 17:11A-61. If City Federal, the association, were permitted by law itself to engage in the type of mortgage business contemplated by the act, the regulation plainly would be invalid. In that event City Federal would not even need to obtain a license for that purpose. But that type of lending by the institution is not now permitted by law. It may only engage in that business through the medium of a wholly-owned service corporation, which admittedly must be licensed under the act. Even the federal regulation under which plaintiff operates provides that the association and its service corporation must maintain a separate existence as entities, that each of them must be held out to the public as a separate enterprise, and that the insured institution must not dominate the service corporation to the extent that the latter is treated as a mere department of the former. 12 C. F. B. 570.10. In view of the evils at which the state act is directed, we cannot say that the Commissioner may not supplement these requirements by mandating a complete separation of location and personnel between the association and its service corporation, the secondary mortgage loan licensee. Nor do we find any basis for the claim that N. J. 8. A. 17:11A-61 was intended to defer the regulation of such service corporations to the comprehensive scheme of federal regulation of associations and such corporations.

It is fairly obvious that financial institutions, such as banks and associations, were not the prime target of the act, its main purpose being to correct abuses in the second mortgage loan industry, rather than to regulate such institutions. It is also true that the Legislature has considered giving these institutions the express power to engage in second mortgage lending. But the fact is that that authority has not been bestowed by the Legislature or by federal law; and the act empowers the Commissioner to curb by regulation potential abuses in the second mortgage loan business and to exercise strict control thereof. That the institutions themselves are exempt from such control does not mean that their licensed subsidiary service corporations are also exempt.

The silence of the act with respect to such licensed service corporations is no evidence that the Legislature intended to forbid the Commissioner to adopt a regulation, such as this, that in his experienced judgment would prevent possible dangers in a new area that he reasonably foresees. In 1970, when the act was adopted, the Legislature could not have anticipated that in 1973 the Federal Home Loan Bank Board would authorize such service corporations to make second mortgage loans. Under these circumstances we cannot say that the regulation is not within the general purpose of the act and the scope of the powers granted to the Commissioner thereby. See State v. Parmigiani, 65 N. J. 154 (1974); Safeway Trails, Inc. v. Furman, 41 N. J. 467 (1964), cert. den. and app. dism. 379 U. S. 14, 85 S. Ct. 144, 13 L. Ed. 2d 84 (1964). See also Donaldson v. Wildwood Bd. of Ed., 65 N. J. 236, 240 (1974).

Eor similar reasons no inference may be drawn from N. J. 8. A. 17:llA-46, that these service corporations are not subject to this type of regulation by the Commissioner. That section prohibits a licensee from advertising that it is, or is associated with, a bank. Since the authority of service corporations to make second mortgage loans was not in existence when the provision was enacted, it cannot be said that it was intended to exhaust the field or that it evidences a purpose to preclude the further prohibition of the use of the same premises and employees by a licensee, on the one hand, and an association or other financial institution, on the other.

We have considered the other data and history on both the state and federal scene submitted by Consumer and the amicus. We find nothing therein that supports the claim that there is any basic inconsistency between the federal statutes and regulations and the state rule before us, or any invasion by that rule of the federal regulatory scheme. See Yellow Cab Co. v. State, 126 N. J. Super. 81 (App. Div. 1973), certif. den. 64 N. J. 498 (1974).

It is contended that the unnecessary separation required by the regulation artificially inflates the cost of doing business for the service corporations of the associations, thereby lessening the ability of the corporations to charge a lesser rate of interest on second mortgage loans than the usual licensee. It is argued that the result is actually to impair the efficacy of this consumer-oriented legislation by adversely affecting, rather than aiding or protecting, potential borrowers.

This claim appears to have sufficient substance to warrant consideration. But there are no proofs on this issue upon which either the Commissioner or we may make a determination. A balancing process would seem to be required — a weighing of such proofs in the context of what the legislation and regulation seek to accomplish —• so that the effect of the regulation on savings and loan associations and other regulated financial institutions, as well as borrowers, may appropriately be assessed. In this connection the kind of advertising alleged to have been engaged in by Consumer for second mortgage business, referring to “low bank rates” and to City Eederal, may also be relevant.

The proceedings we have suggested should be before the Commissioner so that a determination may be made by him in the exercise of his expertise. That hearing may include, as well, evidence and arguments with respect to the other issues we have here considered. It may well be that in a factual context, after appropriate findings, the regulation itself or as applied, may be found to be wanting or to require modification or repeal. See Schwerman Trucking v. Dept. of Env. Protection, supra; Mutual Home Dealing Corp. v. Bank. & Ins. Comm’r, 104 N. J. Super. 25 (Ch. Div. 1968), aff’d o.b. 55 N. J. 82 (1969). Cf. Bailey v. Council of the Div. of Planning, etc., 22 N. J. 366, 374-375 (1956).

We leave the procedural route for that hearing to Consumer. It may petition the Commissioner for a hearing on the validity of the regulation, at which it may present proofs, N. J. S. A. 52:14B-8, or, by refusal to comply with the regulation, it may obtain a hearing if any of its licenses are sought to be revoked by the Commissioner for such noncompliance. N. J. 8. A. 17 :llA-56. In either event, the Commissioner should hold an early hearing.

All that we hold here is that on the record before us the regulation is valid on its face.

We do not retain jurisdiction.

      Both of these decisions related to a prior secondary mortgage loan statute, repealed when the present act was adopted. But the basic purpose of the legislation was not changed thereby.

      No such hearing is necessarily required before adoption of the regulation. See Motyka v. McCorkle, 58 N. J. 165 (1971). See also, Brown v. Heymann, 62 N. J. 1 (1972) ; General Motors Corp. v. Blair, 129 A. J. Super. 412 (App. Div. 1974).

      Although this provision under the present act, as compared with that in the prior statute, N. J. S. A. 17:11A-31, may he said in some respects to have narrowed the reach of the act with respect to these financial institutions, the change is too insubstantial to justify invalidating the regulation here involved. We do not agree that the term “financial institutions” in N. J. 8. A. 17:11A-61 was intended to include service corporations.

      On October 9, 1970 the general counsel of the Federal Home Loan Bank Board indicated by letter that it was customary practice for an officer of a savings and loan association to be an officer of the service corporation with comparable jobs and that persons working for both the association and the service corporation should be paid by the association and the corporation, respectively, for work performed on behalf of each. We note, however, that this advice was given prior to the 1973 amendment of the federal regulations which for the first time permitted the investment by service corporations in second mortgages. Assuming that this information was authoritative, it did not take into account the problems that may ensue from that kind of financing.