author: Labrecque, J. A. D.

text:
    HERBERT E. KENT, ET AL., PLAINTIFFS-APPELLANTS, v. THE BOROUGH OF MENDHAM, ETC., ET AL., DEFENDANTS-RESPONDENTS.
    Superior Court of New Jersey Appellate Division
    Argued March 9, 1970
    Decided July 9, 1970.

      Before Judges Kilkenny, Labrecque and Leonard.

      Mr. Edward Sachar argued the cause for appellants (Messrs. Sachar, Sachar & Bernstein, attorneys; Mr. Norman Schulaner, on the brief).

      Mr. Thomas L. Morrissey argued the cause for respondents (Messrs. Carpenter, Bennett & Morrissey, attorneys; Mr. Robert E Turtz, on the brief).
   The opinion of the court was delivered by

Labrecque, J. A. D.

Plaintiffs appeal from the dismissal of and denial of their motion to amend their complaint challenging certain zoning ordinances of the Borough of Mend-ham (hereafter the borough).

The borough is a residential community located some seven miles west of Morristown and bisected by State Highway Route 24. Situated in a hilly rural area, it is surrounded on three sides by the Township of Mendham (hereafter the township). Except for a new shopping center on Main Street (Eoute 24) near the borough’s eastern boundary, businesses serving local needs and small industrial uses are centrally located, principally in a two-block area bordering Main Street near its junction with Hilltop Eoad and Mountain Avenue.

In February 1965 the borough council enacted ordinance 2-65 which divided it into five residental zones, a business zone and an office building and research laboratories (OB-EL) zone. Tbe latter zone included two distinct areas, one (area A) in the southwesterly section oí the borough, consisting of an approximate rectangle bounded by the borough line on the west, the Morris County-Somerset County line on the south, Bliss Eoad on the east and Pleasant Valley Eoad on the north. Permitted uses within the OB-EL zone were office buildings for executive or administrative purposes and scientific engineering and research laboratories and their accessory uses. The ordinance prescribed a minimum lot area for this section of the OB-EL zone of 25 acres, a minimum floor area for buildings of 20,000 square feet, and stipulated that there should be no more than ten employees per acre and at least one off-street parking space for each two persons employed. A height limitation of 45 feet was placed on structures and they were required to be set back 300 feet from the public street. All site development plans were to be submitted to the borough’s planning board for review prior to the issuance of building permits.

The second area (area B) included within the OB-EL zone, composed of 130 acres, was located in the northeast corner of the borough, west of Pitney Eoad and north of East Main Street. In this section the minimum lot area was fixed at ten acres and the maximum number of employees permitted at 15 per acre. A strip of land abutting the B area on its northerly border was rezoned from residence A, requiring a minimum lot size of three acres, to residence B, which required a one acre minimum. In December 1965 ordinance 12-65 was enacted amending ordinance 2-65 to authorize nursing homes as an additional use in the OB-EL zone.

Mountainside Road constitutes the northerly boundary of the borough and most of the plaintiffs, some of whom reside in the borough and some in the township, have homes on either Mountainside Road or Pitney Road. The latter with its extension constitutes the easterly boundary of the borough. None of them resides in the OB-RL zone.

On June 6, 1966, pursuant to a recommendation contained in the master plan adopted by the borough’s planning board on November 9, 1965, a comprehensive restatement of the borough’s then existing zoning ordinances was enacted as ordinance 9-66. In the new ordinance the OB-RL zone was separated into two zones, the “25 acre OB-RL zone” and the “10 acre OB-RL zone.” Later, in June 1966, to cure an inadvertent omission, ordinance 9-66 was amended by ordinance 11-66 to permit nursing homes within the ten-acre OB-RL zone.

On December 22, 1967 plaintiffs instituted the present action challenging ordinances 2-65, 12-65, 9-66 and 11-66 as arbitrary, unreasonable, not in accordance with a comprehensive zoning plan and not in furtherance of the objectives of zoning. They further alleged, as to ordinances 12-65, 9-66 and 11-66, that notice of the hearings thereon had not been given, pursuant to N. J. S. A. 40:55-53, to the clerk of the township, which extended to within 200 feet of the rezoned land. The absence of such notice was conceded by the borough.

On February 5, 1968, while the suit was pending, the borough adopted ordinance 1-68 which, plaintiffs concede, reiterated the provisions of ordinances 9-66 and 11-66. Thereafter defendants moved for summary judgment, and plaintiffs moved to supplement their complaint to include a challenge to the newly enacted ordinance. The court granted both the motion to amend to add an additional count and the motion for summary judgment as to the first four counts of the complaint. To the extent here relevant, it found that the action had not been instituted wihin 45 days as required by R. R. 4:88-15 (a) and declined to disregard the limitation or enlarge the time, as authorized by R. R. 4:88-15(c), finding that no substantial constitutional issue was involved. It went on to state that the failure to give notice of the hearings with reference to ordinances 12-65, 9-66 and 11-66 to the clerk of the township amounted to a procedural, rather than a jurisdictional defect. A subsequent motion for summary judgment as to the amended complaint challenging ordinance 1-68 was denied, the court stating that “ In the event [the] later ordinance [1-68] is voided, the court feels that the earlier ordinance [s] would stand,” and “until there is a determination of the validity or invalidity of ordinance 1-68, there is no way of knowing which ordinance is to be controlling.”

On December 27, 1968 the borough adopted ordinance 10-68 which provided that “(1) Ordinance 1-68 be and the same hereby is repealed without in any way impairing the effectiveness of Ordinances 2-65, 12-65, 9-66 and 11-66, which Ordinances have been, are and shall continue to be in full force and effect.” When it was determined that that ordinance had not been properly enacted, ordinance 3-69, to the same effect, was adopted on March 3, 1969. It recited that ordinance 1-68 had been enacted “to remove a claim of alleged procedural defects in the adoption of ordinances 2-65, 12-65, 9-66 and 11 — 66.” Defendants thereafter moved to dismiss plaintiff’s challenge to ordinance 1-68 as moot in view of ordinance 3-69, and plaintiffs moved to supplement their complaint to add a count challenging the continuing validity of ordinances 2-65, 12-65, 4-66 and 11-66, and seeking a declaration that the borough was without a zoning ordinance. The motion to dismiss was granted and the motion to file a supplemental complaint was denied, the court holding, in effect, that ordinance 3-69 had not effected a repeal of all prior zoning ordinances, and that ordinances 9-66 and 1.1-66, as they codified ordinances 2-65 and 12-65, continued in effect.

Plaintiffs’ appeal is from the dismissal of their complaint and all antecedent interlocutory orders. They raise two points: (1) the denial of their motion to amend to challenge the four zoning ordinances, 265, 12-65, 9-66 and 11-66, “as effected by the enactment of ordinance 3-69,” was error, and (2) dismissal of the counts of their original complaint challenging those ordinances was likewise error. We consider them in inverse order.

Plaintiffs argue that (1) the invalidity of the prior ordinances, 2-65, 12-65, 9-66 and 11-66, was a continuing one; hence it was not subject to the limitations of R. R. 4:88-15 (now B. 4:69-6); (2) if the enactment of ordinance 3-69 effected a reinstatement of the prior ordinances, R. R. 4:88-15 did not bar their challenge thereto, and (3) if they were not within time, substantial constitutional questions were involved which required that the time be enlarged, as authorized by R. R. 4:88-15(c) (now R. 4:69-6(c)). Defendants urge that the validity of the four prior ordinances was properly upheld on the merits and that in any event plaintiffs’ delay in challenging them was fatal. We find plaintiffs’ contentions to be without merit.

Initially we note that ordinance 2-65, which originally created the OB-RL zone, was enacted in February 1965, at a time when there was no statutory obligation to give notice of the hearing thereon to the clerk of the Township of Mend-ham. Ordinance 12-65 did no more than add to the uses permitted in the OB-RL zone. Ordinance 9-66, in addition to dividing the former OB-RL zone as two separate OB-RL zones, reenacted the zoning ordinances already in effect. Ordinance 11-66 merely added to the uses permitted in said zone. Thus, unless ordinance 2-65 has been validly repealed, it would remain in effect notwithstanding any invalidity in the amendatory ordinances under attack.

We are convinced that the delay in seeking review of the prior ordinances was fatal, and that the issues involved did not mandate a disregard of tire time limitation fixed by R. R. 4:88-15, or its enlargement. For this reason we need not consider whether the affidavits filed revealed the absence of any factual dispute as to the allegations of the complaint, thereby justifying the granting of summary judgment, or whether the court properly proceeded to dispose of the case on the merits in advance of trial.

We find no merit to plaintiffs’ contention that the invalidity of the four ordinances was a continuing one and thus the present action was not subject to the limitation of R. R. 4:88-15. Regardless of the degree of invalidity charged, a direct review of the council’s action by a proceeding in lieu of prerogative writs was subject to the limitation provided in the rule. Marini v. Wanaque, 37 N. J. Super. 32 (App. Div. 1955). See also Schultze v. Wilson, 54 N. J. Super. 309, 321 (App. Div. 1959), certif. den. 29 N. J. 511 (1959). We find Meyers v. Mayor, etc., East Paterson, 37 N. J. Super. 122 (App. Div. 1955), on which plaintiffs rely, to be inapposite. There we were dealing with a salary increase; the action had been brought within 30 (now 45) days of the payment of an installment of salary at the increased rate, and we held that the ordinance and payments made pursuant thereto were to be regarded as several successive illegal or unlawful acts, each remediable through a proceeding in lieu of prerogative writ. (At 128). There the ordinance would have been valid as to any other occupant of the office, and the challenge to the increase in pay granted Gemba was premised upon his disentitlement to the increased salary because of a prior increase which he had received during his term, in violation of N. J. S. A. 40:46-23. Here the issue was whether the council had properly exercised its zoning powers. That exercise took the form of the ordinances under review. The status of property in the newly created zone was fixed by these ordinances, and the public, as distinguished from an official who was being illegally paid an enhanced salary, was entitled to rely thereon in the absence of a timely challenge thereto. To apply the doctrine of Meyers here would be not only to do violence to the spirit of zoning, but to greatly impede the enforcement of zoning regulations. We likewise find Jones v. MacDonald, 33 N. J. 132 (1960), Weinstein v. Newark, 100 N. J. Super. 199 (Law Div. 1968), and State v. Kressler, 50 N. J. Super. 362 (Cty. Ct. 1958), to be inapposite.

Plaintiffs’ argument that if adoption of ordinance 3-69 (repealing ordinance 1-68) effected a reinstatement of the prior ordinances, they thereby became entitled to challenge the prior ordinances notwithstanding R. R. 4:88-15, is without substance. They cite no case in which it has been held that upon a finding of invalidity of a repealing ordinance, the ordinance sought to be repealed thereby becomes subject to challenge as though it had been newly enacted. We find the rationale expressed in Lettieri v. State Board of Medical Examiners, 24 N. J. 199, 206 (1957), cited by plaintiffs, to be inapplicable here. At the time summary judgment was granted, ordinance 1-68 had been enacted but its validity was under attack by plaintiffs.- If its invalidity was upheld, or if — as occurred here — it was repealed before that contingency occurred, the prior ordinances continued in effect. Wallace v. Bradshaw, 54 N. J. L. 175 (E. & A. 1891); Texas Co. v. Dickinson, 79 N. J. L. 292, 295 (Sup. Ct. 1910).

Exceptions to the time limitations imposed upon the in-lieu procedure should be but exceptionally condoned, and only in the most persuasive circumstances. Robbins v. Jersey City, 23 N. J. 229, 238 (1957). Subsection (c) permits the enlargement of the period of time prescribed by R. R. 4:88-15 when it is manifest that the interests of justice so require. Cases involving substantial constitutional issues have been held to qualify for relaxation of the rule. See Schack v. Trimble, 28 N. J. 40 (1958); Oldfield v. Stoeco Homes, Inc., 26 N. J. 246 (1956); McKenna v. N. J. Highway Authority, 19 N. J. 270 (1955); Catalano v. Pemberton Tp. Bd. of Adjustment, 60 N. J. Super. 82 (App. Div. 1960). While we recognize plaintiffs’ standing to maintain the present suit, see Mulligan v. New Brunswick, 83 N. J. Super. 185 (Law Div. 1964), we are in agreement that, as to them, no substantial constitutional issues were presented. We look to their complaint in order to determine that issue. Its main thrust was directed to the allegedly illegal designation of an area of the township as an OB-EL zone. As to ordinance 2-65, by virtue of which the area in question was first placed in that zone, plaintiffs charged only that it was not in accordance with a comprehensive zone plan or in furtherance of the objectives of zoning as set forth in N. J. S. A. 40:55-32, “to the detriment of the municipality as a whole.” This presented no more than the usual taxpayer’s challenge, pro bono publico, to the reasonableness of the council’s exercise of the discretion vested in it by the zoning statutes.

While constitutional due process and equal protection ordain that the authority vested in the municipality in zoning matters shall not go beyond the public need, or impress unnecessary and excessive restrictions upon the use of private property or the pursuit of useful activities, Katobimar Really Co. v. Webster, 20 N. J. 114, 122-23 (1955), here plaintiffs did not allege the taking of any property of theirs, or any excessive restrictions upon its use. Actually, they did not allege that they were property owners within the OB-EL zone, or that the establishment of the zone had affected their property in any way. We conclude that, after almost three years, as against the rights sought to be vindicated by plaintiffs’ complaint, the borough, particularly that portion of its inhabitants within the OB-EL zones created by ordinance 2-65, was entitled to repose.

What we have said concerning ordinance 2-65 also applies to ordinances 12-65, 9-66 and 11-66, which were challenged in the second, third and fourth counts, respectively, of the complaint. With respect to the admitted absence of notice to the clerk of the township of the hearing which preceded the adoption of each of them, we hold that the defect was procedural rather than jurisdictional. While the word “shall” is used in the statute, it appears clear that the power of the municipality to enact the ordinances in question did not depend upon the giving of the requisite notice. The statute requiring such notice, L. 1965, c. 163, did not become effective until July 33, 1965, many years after the enactment of N. J. S. A. 40:55-34, which prescribed the procedure for passage of zoning ordinances. In the Revised Statutes N. J. S. A. 40:55—53 comprises Article 5 (zoning is Article 3) and is found under the heading of “PLANNING.” Its application is not confined to zoning matters. Eurther, assuming, arguendo, that the giving of such notice was a prerequisite to the validity of the ordinance, the township, which could have complained of the lack of notice, is not a plaintiff. See Schultze v. Wilson, supra, 54 N. J. Super. at 335; Adams v. Jersey City, 107 N. J. L. 149, 150 (E. & A. 1930).

We hold that in the absence of a timely challenge, the failure to give notice to the township clerk afforded no ground for setting aside ordinances 13-65, 9-66 and 11-66. Public policy forbids an attack upon irregularities in the procedure which led to the adoption of ordinances where, as here, they have been accepted as valid enactments for a long period and property owners affected by them have fixed their status accordingly. West Essex Bldg., &c., Ass’n v. Caldwell, 112 N. J. L. 466 (Sup. Ct. 1934), aff’d 113 N. J. L. 398 (E. & A. 1934); see also Struyk v. Samuel Braen's Sons, 17 N. J. Super. 1, 9 (App. Div. 1951), aff’d N. J. 294 (1952); Benequit v. Monmouth Beach, 125 N. J. L. 65 (Sup. Ct. 1940). We find Mulligan v. New Brunswick, supra, cited by plaintiffs, to be inapposite in that there the procedural defect consisted of failure to urst refer the new zoning ordinance to the planning board, a failure which violated the overall legislative policy which required planning board action as a prerequisite to the enactment o£ a zoning ordinance. N. J. S. A. 40:55-33; Mulligan, supra, at 189-191. Catalano v. Pemberton Tp. Bd. of Adjustment, supra, was an action involving plaintiff’s private rights based upon the failure to observe the fundamental statutory provisions applicable to the enactment of ordinances. In Weinstein v. Newark, supra, plaintiff challenged the ordinance in vindication of his right to traverse the city streets free of illegal prohibtions. In each case, had the plaintiff chosen to violate the ordinance and risk prosecution, the ordinance would have been open to collateral attack in defense of plaintiff’s private rights. Not so here.

We accordingly hold plaintiffs’ challenge to the dismissal of counts one, two, three and four of the complaint to be without merit.

II

By their remaining point plaintiffs challenge the denial of their motion, made subsequent to the enactment of ordinance 3-69, to amend their complaint “to challenge the zoning ordinance * * * as affected by the enactment of ordinance 3-69.” They argue that ordinance 1-68 repealed the prior zoning ordinances and, upon its repeal in turn, the borough w'as left without any zoning ordinances whatsoever.

Where justice requires it, pleadings may be amended or supplemented. R. R. 4:15-1, R. R. 4:15-4 (now R. 4:9-1, R. 4:9-4). Applications to supplement or amend pleadings are addressed to the sound discretion of the court. Associated Metals, etc., Corp. v. Dixon, etc., Inc., 52 N. J. Super. 143, 150-151 (Ch. Div. 1958); Keller v. Pastuch, 94 N. J. Super. 499, 502 (App. Div. 1967). Our rules of procedure relevant to amendments and supplements to pleadings embody the norm of promoting the efficient use of the courts and avoiding the delays and wasteful expense of multiple suits with the same object in view. Falcone v. Middlesex County Med. Soc., 47 N. J. 92 (1966); Ajamian v. Schlanger, 14 N. J. 483, 486-87 (1954), cert. den. 348 U. S. 835 (1954). The rule permitting amendment is circumscribed, however, by the salutary qualification that the court’s jurisdiction is not to be invoked in the absence of a justiciable controversy. N. J. Turnpike Authority v Parsons, 3 N. J. 235, 240 (1949); Moss Estate, Inc. v. Metal and Thermit Corp., 73 N. J. Super. 56, 65 (Ch. Div. 1962).

As noted, the original establishment of the OB-RL zone and the rezoning of a small area immediately to the north of it as “one acre residential” took place in February 1965, while the hearing on plaintiffs’ motion to amend and defendants’ motion for summary judgment took place on March 14, 1969, over four years later. In lieu of permitting the amendment and thus sanctioning further delay, the court below elected to dispose of the issues posed by the proposed supplemental complaint. It concluded that the prior ordinances were still in effect; ordinance 1-68 was not intended to effect their repeal, but had been enacted for the purpose of rectifying the procedural defect on which plaintiffs were relying, i. e., failure to give the statutory notice to the Mendham Township clerk. It concluded, among other things, that “there was no intention to leave the Borough of Mendham without a zoning ordinance” and “the intent of the legislative body of the Borough of Mendham was not to leave this municipality without any zoning ordinance. I think their intent was very express, and they intended that the three prior ordinances exist and be effective.”

We hold that denial of the motion to amend was not a mistaken exercise of the court’s discretion and, in any event, plaintiffs were not prejudiced by it since the ruling they were seeking, e. g., whether there was a valid and subsisting zoning ordinance in the borough, was a legal one, which the court disposed of by its ruling on the motion.

Plaintiffs urge and defendants deny that ordinance 1-68 worked a repeal of all prior zoning ordinances. Although it provided that “all ordinances or parts of ordinances inconsistent herewith are hereby repealed to the extent of such inconsistency,” there was no express repeal oí prior ordinances. VTe find it unnecessary to determine the issue. If ordinance 1-68 failed to expressly or impliedly repeal the prior zoning ordinances beginning with ordinance 2 — 65, they continued in full force and effect. If, conversely, there was a repeal, whether express or by implication, by reason of the enactment of ordinance 1-68, its subsequent repeal by ordinance 3-69 worked a reinstatement of the prior zoning ordinances so that the borough was not left without a zoning ordinance. Wallace v. Bradshaw, supra, 54 N. J. L. at 176—77.

It is clear from a reading of ordinance 1-68 that it did no more than reenact the provisions of the prior zoning ordinances. It is likewise clear from a reading of the subsequent ordinances repealing it that it was enacted for the sole purpose of curing procedural defects in the adoption of three of the prior ordinances. It was under attack almost from its inception. Whether it contained a provision expressly repealing prior ordinances, or would have repealed them by operation of law, see Loboda v. Clark Tp., 40 N. J. 424, 434-35 (1963); Henninger v. Bd. of Chosen Freeholders, Bergen County, 3 N. J. 68, 71 (1949); Dept. of Labor v. Cruz, 45 N. J. 372, 380 (1965); State v. States, 44 N. J. 285, 291 (1965), upon its being set aside by reason of procedural defects in its enactment (as was charged in the first supplemental complaint), the prior ordinances would have continued in effect. The same result followed its repeal while it was still under attack.

For the reasons aforesaid, the interlocutory judgment of the Law Division dimissing counts one, two, three and four of the complaint, and the final judgment dismissing the complaint, as supplemented, and denying plaintiffs’ application to amend, are affirmed.

       While no formal written notiee was given to the township clerk, it was established by affidavit, and uncontradicted, that notices of the public hearings concerning these ordinances were published in the Mendham Observer-Tribune which circulates generally throughout the township, and that prior to the enactment of ordinance %-65 borough officials had met with the officials of the township concerning establishment of the proposed OB-RL zone.


source: Caselaw Access Project

author: Wick, J. S. C.

license: Public Domain

text:
    JEROLD BURG AND SESLYE BURG, HIS WIFE, PLAINTIFFS, v. PATRICK J. EDMONDSON, JOANNE MARY EDMONDSON, HIS WIFE, LINCOLN NATIONAL BANK. A CORPORATION, THE DINERS’ CLUB, INC., A CORPORATION, ROBINSON LUMBER COMPANY, A CORPORATION, ASSOCIATED MERCHANTS ACCEPTANCE INC., A CORPORATION, THE FIRST PENNSYLVANIA BANKING AND TRUST COMPANY, A CORPORATION, ACCREDITED CONSUMER DISCOUNT COMPANY, INC., A CORPORATION, AND PHILADELPHIA NATIONAL BANK, A BANKING CORPORATION OF THE UNITED STATES OF AMERICA, DEFENDANTS.
    Superior Court of New Jersey Chancery Division
    Decided June 19, 1970.

      Mr. Albert B. Melnik for plaintiff (Messrs. Melnik, Tarter, Muller and Morgan, attorneys).

      Mr. Patrick G. Mahoney for defendants Patrick J. Edmondson and Joanne Mary Edmondson.

      Mr. Raymond Saltzman for defendant Lincoln National Bank.

      Mr. Samuel Gerstein for defendants The Diners’ Club, Inc., Robinson Lumber Co. and Accredited Consumer Discount Company, Inc. (Messrs. Epstein, Fluharty, Freeman and Gerstein, attorneys).

      Mr. Sidney R. Granite for defendant Associated Merchants Acceptance, Inc. (Messrs. Granite and Granite, attorneys).

      Mr. Madison S. DuBois for defendant The First Pennsylvania Banking and Trust Co. (Messrs. DuBois, Maiale and DuBois, attorneys).

      Mr. Michael N. Kouvatas for defendant Philadelphia National Bank.

      Mr. Ralph J. Kmiec for petitioner James W. Hamilton, Jr. (Messrs. Kmiec & Palumbo, attorneys).
   Wick, J. S. C.

This is a motion for payment of surplus monies from a fund paid into court.

In the underlying suit, Jerold Burg sought a partition of a- certain tract owned by him and defendant Edmondson as partners.

Judgment was entered determining that partition was not equitable and ordering that the land be sold. The proceeds of the sale were to be distributed between plaintiff and defendant according to a formula not material to this motion. Defendant’s share was to be applied to the liens of seven specified creditors, who were made parties to the suit and filed their claims therein.

By an order dated May 2, 1969 this court directed Burg to sell the land in question and deposit Edmondson’s share with the Superior Court Clerk, to be withdrawn upon application to this court “by the judgment creditors of Patrick J. Edmondson and Joanne Mary Edmondson, his wife, # $ ífc ??

Nothing further was heard in this matter until May 21, 1970, when the attorney for James W. Hamilton, Jr. brought the motion now before the court requesting an order directing payment of the funds of Edmondson held by Burg. Apparently, unbeknownst to the court or the other creditors, Burg did sell the land in question, thereby realizing Edmond-son’s share. This sum has since been deposited with the clerk of the court. Hamilton was not one of the seven creditors named in the complaint or the amended order; however, he brings this motion to establish his priority to the surplus funds.

It is undisputed that judgments against Patrick J. and .Joanne Mary Edmondson were docketed in the following order. On May 3, 1968, Lincoln National Bank; on July 11, 1968, First Pennsylvania Banking and Trust Co.; on July 24, 1968, Accredited Consumer Discount Co., Inc.; on August 19, 1968, Philadelphia National Bank, and on February 25, 1970, James W. Hamilton, Jr. The only creditor who levied on the land in question was James W. Hamilton, Jr., on April 16, 1970.

The issue now is to determine the order of priority of the judgment creditors. Petitioner Hamilton relies on the rule that priority among judgment creditors is determined by order of levy of execution, or the date of entry of judgment if no execution was issued. This rule gives a judgment junior in time priority of lien over a senior judgment by first levying upon the land under an execution issued on the judgment. That this is the general rule of law in this State cannot be questioned. N. J. S. A. 2A:17-39, as interpreted by Clement v. Kaighn, 15 N. J. Eq. 47 (Ch. 1862), and followed consistently — see Silver v. Williams, 72 N. J. Super. 564, 567 (App. Div. 1962); Western Savings Fund Society of Philadelphia v. Goodman, 103 N. J. Super. 307, 312 (Ch. Div. 1968); Vineland Savings & Loan Ass’n v. Felmey, 12 N. J. Super. 384 (Ch. Div. 1950).

Out of this general rule arose the issue of whether a levy on monies held in custodia legis should also be entitled to priority. The first case which dealt with this issue was Fredd v. Darnell, 107 N. J. Eq. 249 (Ch. 1930). That case involved a levy on surplus monies held by a court-appointed special master in a partition suit. The issue was squarely presented of whether a levy on funds in custodia legi-s gave a subsequent judgment creditor priority over a prior judgment creditor who had not executed on his judgment. The court upheld the levy and priority, stating the law to be as follows:

It is a general rule that money or other property in the hands of an officer of a court is regarded as being in custodia legis, and in consequence ordinarily cannot be reached by execution in the absence of legislative authority. That rule appears to be based upon a necessity, incident to orderly judicial procedure, for any court whicii has acquired primary jurisdiction over property to continue the exercise of that jurisdiction free from embarrassments or conflicts with other courts arising from subsequent claims against the same property. Since a levs' ordinarily embodies the elements of dominion and control o£ the property, levies upon property m custodia legis may seriously interfere with orderly administration by the primary tribunal. Accordingly the test of immunity of property in custodia legis may in genera! bo said to be whether substantial confusion or embarrassment to the initial jurisdiction would result from the enforcement of process against the property by another tribunal. [107 N. J. Eq. at 253].

Vineland Savings & Loan Ass’n v. Felmey, supra, involved a levy on surplus monies from a foreclosure sale which had been deposited in court. Judge (now Justice) Haneman quoted the passage from Fredd cited above and determined that the levy was proper. He then concluded that R. S. 2:26-137 (now N. J. S. A. 2A:17-39), as interpreted by Clement v. Kaighn, supra, required the levy be given priority.

Silver v. Williams, 72 N. J. Super. 564 (App. Div. 1962), touched only briefly on the issue which was apparently not contested in that suit. The court said:

Standard does not contend that Mitchell is adversely affected by the fact that the execution and levy here took place subsequent to the institution of the foreclosure. Nor would such a contention have merit. In Vineland Savings & Loan Ass’n v. Felmey, supra (12 N. J. Super. 384), priority in foreclosure surplus moneys was adjudicated in favor of a junior judgment lien which was the basis of levy on the surplus money fund subsequent to the foreclosure sale, [at 571.]

In neither Fredd nor Vineland Savings & Loan Ass’n (or Silver v. Williams which relied on the latter) did the court consider the equity of the result reached or its fidelity to the purpose of N. J. S. A. 2A:17-39.

The first ease to take those considerations into account was Western Sav. Fund Soc. of Phila. v. Goodman, 103 N. J. Super. 307 (Ch. Div. 1968), which also concerned a levy on surplus monies from a foreclosure sale held by the clerk of the court. Judge Horn attempted to distinguish the other cases by holding that the order to show cause for distribution by the other judgment creditors in his case was equivalent to a levy by them prior to the levy of the junior judgment creditor. The ease cannot be read so narrowly, however.

In commenting upon the applicability of N. J. S. A. 2A:17-39 to the issue, the court stated:

N. J. S. 2A:17-39, N. J. S. A. upon which is based the authority to give priority to a judgment creditor who first levies, was not intended to be operative in a case such as the one at bar. Once the funds are paid into court it is only a matter of proper distribution; not a matter of securing a lien or obtaining a priority, [at 314]

This court must agree with that conclusion on the reasoning used by Clement v. Kaighn, 15 N. J. Eq. 47 (Ch. 1862), to make N. J. S. A. 2A:17-39 applicable to the priority of levying creditors when by its own terms it refers only to the interest of purchasers under a levy. Clement stated the rule as follows:

The statute, in terms, relates merely to the title which a purchaser by virtue of a sheriff’s sale under an execution at law shall acquire. It declares that the purchaser under a sale by virtue of an execution issued upon a junior judgment shall hold the land clear of all judgments upon which no execution has been taken out and executed on said land. In effect that gives to the junior judgment, by virtue of which the land is sold, priority over the senior judgment upon which no execution hath been sued out and executed upon the land. But the design of the statute is to give to the plaintiff in the junior judgment upon which execution is first sued out “the proper effect and fruits thereof.’’ The operation of the statute cannot, therefore, be limited to the case of a sale under the junior judgment, where no execution hath been sued out upon the senior judgment and levied upon the land. Eor if that were so, it would enable the plaintiff in the prior judgment to sue out and levy his execution upon such judgment after-the levy under the execution upon the junior judgment, and thus defeat the express object of the statute by preventing the plaintiff in the junior execution “from obtaining the effect and fruit thereof.” To give effect, therefore, to the statute, it is necessary to hold that the plaintiff in the junior judgment, by suing out and levying the first execution upon the land, acquires a priority of lien, which cannot be affected by any execution subsequently issued, nor by any mode in which the land may be sold. The issue of the execution upon the junior judgment, and its delivery, duly recorded, to the sheriff, destroys the priority which was enjoyed by the older judgment, and transfers it to the junior judgment. It reverses the priority of the encumbrances, no matter in what mode the land may be sold. This, I think, must have been the result if there were no further provision upon the subject. But the statute further declares, that where sundry executions issue against the goods and lands of the same person, then the like priority and preference shall be given as is given in writs of execution against goods only, via. they shall bind the property from the time that the writ, duly recorded, shall be delivered to the sheriff. [15 N. J. Eq at 57-58]

The equitable reason for reaching this result is stated later in the case at page 59, when the court said:

This is the inseparable consequence of the laches of the plaintiff in not suing out execution upon his judgment.

This concept of aiding the diligent judgment creditor and penalizing the sleeping one is not present in the case of a levy on a fund in court. In this case, for example, seven judgment creditors answered the law suit for partition and proved their claims. By an order of May 2, 1969 Burg was made, in effect, a trustee for the court to sell the land and deposit the funds in court. The other creditors waited patiently to he notified that this was done to collect their debts.

It was this situation that prompted Judge Horn to ask:

Why, therefore, should this court countenance a race to secure a priority when the method of acquiring it, to wit, by issuing execution and levying upon a fund in court, is only an empty gesture from the standpoint of actually reducing the funds to possession? Under our modern concepts, equitably a priority in payment should not rest upon an artificial, hollow and unsubstantial act. [103 N. J. Super. at 315]

His conclusion, was that

Although N. J. S. 2A:17-39, N. J. S. A. encourages the “vigilant” judgment creditor to gain “the proper effect and fruits thereof,” it does not contemplate that a party should be rewarded by causing a levy to be made after judgment creditors already have initiated proceedings to obtain distribution. [Ibid.]

The true rule set down by Western Saving seems to be:

In a ease such as here presented, where money is paid into court, it seems that since a judgment entered even after the deposit but before distribution would establish the right to participate in the fund, equitably a levy upon it should not be recognized as effecting a priority to payment against other lien holders. [103 N. J. Super, at 314]

This rule has been adopted by R. 4:64-2(b), at least insofar as it applies to foreclosures. There is no reason in logic or equity why this same result should not apply to proceeds from a partition sale.

This court feels the reasoning set forth in Weslern Saving and R. 4:64—2(b), as expounded herein, are superior to that used in Fredd and Vineland Savings and should be followed. This court perceives the correct rule of law to be that priorities of claims are not susceptible to change after the court has taken jurisdiction over the property in question. Therefore, the surplus monies will be distributed among the judgment creditors according to the order of the dates of their judgments in this case.


text:
    KUTNER BUICK, INC., PLAINTIFF, v. JUNE STRELECKI, COMMISSIONER OF MOTOR VEHICLES OF THE STATE OF NEW JERSEY, DEFENDANT.
    Superior Court of New Jersey Chancery Division
    Decided June 29, 1970.

      Mr. Abraham Greenberg for plaintiff (Messrs. Greenberg, Shmerelson & Greenberg, attorneys).

      Mr. George F. Kugler, Jr. Attorney General of New Jersey for defendant. (Mr. Remo M. Croce, Deputy Attorney General, of counsel).
   Wick, J. S. C.

This case involves the construction and validity of N. J. S. A. 39:5-47.

The statute reads as follows:

39:5—47. Seizure and sale of stolen motor vehicles
The commissioner may authorize the seizure of a motor vehicle operated over the highways of 'his state when he has reason to believe that the motor vehicle has been stolen or is otherwise being operated under suspicious circumstances and may retain it in the name of the department until such time as the identity of ownership is established, whereupon he shall order the release of the motor vehicle to its owner.
After the expiration of ninety days from the date the motor vehicle came into the possession of the commissioner by seizure or otherwise, he shall sell it at public sale, upon notice of the sale being first published for the space of two weeks in one or more newspapers published and circulating in this state, and also by posting the notice in five public places in this state. The newspapers and places of posting shall be designated by the Commissioner. Upon the sale of the motor vehicle all claims for interest therein shall be forever barred and the proceeds realized therefrom shall become the sole property of the state, to be used as other moneys received under chapter 3 of this title (§ 39:3-1 et seq.)

Pursuant to this statute, the Department of Motor Vehicles seized two 1967 Cadillacs bearing serial numbers B7140840 and J7220527. Plaintiff brought this action initially to enjoin the sale of the vehicles, but since they had already been sold the action is now one for damages.

The facts are not contested and are as follows. Sometime prior to November 15, 1967 a 1967 Cadillac two-door hardtop coupe-de-ville, with vehicle identification number J7220527, was involved in an accident. The owner was paid the full value of the vehicle by his insurance company and assigned his interest to it. Sometime prior to this, on November 35, 1967, the automobile was inspected by Camden Appraisal Board who determined that the cost to repair would be $6,343.34. The value of the ear before the accident was between S; ¡,675 and $5,550. The opinion of the expert who appraised the vehicle was that i!; could not be repaired.

The insurer put the vehicle up for sale at the car auction in Bordentown, Now Jersey. On November 22, 1967 Nolan Truck Sales, Inc. bought it for $1,135 and received the ownership documents. On January 10, 1968 the New Jersey Division of Motor Vehicles issued a certificate of owership to Nolan for the car in question. Nolan sold the vehicle on February 12, 1968 to Joseph Taylor for $1,500. Taylor ran a body shop in Philadelphia and purchased wrecks. The chain of title is broken at this point until March 31, 1968, when a certificate of ownership was issued by the Commonwealth of Pennsylvania to Eaymond Chalmers, a licensed used car dealer in Philadelphia, for a 1967 Cadillac sedan, serial number J7220527. Chalmers subsequently sold Kutner Buick, Inc. a 1967 used Cadillac in good condition with serial number J7220527 for $4,250. This vehicle was purchased by Gordon Whitehall, an employee of plaintiff with 12 to 14 years experience in buying automobiles. He testified that he examined the Pennsylvania certificate of ownership and determined it to be valid, and this is not disputed. He chocked the serial numbers oil the vehicle and even took a tracing of the vehicle identification number on the frame. Satisfied with liis inspection, he paid the price which the court finds was the fair market price.

Plaintiff sold the vehicle to Crest Fine Cars, who sold it to Calvin Patterson. On November 27, 1968 Joseph M. Carroll of the National Auto Theft Bureau and Sgt. Donald Kessler of the New Jersey State Police inspected the vehicle at the request of Mr. Eyan of the FBI. Both men are experienced experts in identifying stolen vehicles. Their testimony was ihat the serial numbers on the left door lock post and the engine were original plates bearing number J7220527 attached to the vehicle by sheet metal screws. However, to an expert eye with numbers stamped on the frame showed signs of tampering. The experts testified that the original serial number appeared to be ground off. They reached this conclusion by observing marks such as are left by a grind wheel on the frame where the number should have been. The experts then concluded that new numbers had been stamped where the old numbers had been ground off. They reached this conclusion by observing that some numbers were struck twice and some numbers were imprinted with less force than others. An original number stamped at the factory is struck by machine so that there can be no strikeovers or variations between digits.

A similar story is behind serial number B7140840. It was purchased initially by Drive It Yourself Co. of New Jersey, a Hertz licensee. On September 26, 1967 it was struck by a train and towed to Cooperson Brothers, Inc. in Camden. An employee of Cooperson with 45 years of experience in estimating the cost of repairs stated that the vehicle was a total loss and not worth repairing. On November 27, 1967 Drive It Yourself sold the wreck to Ace Auto Parts for $550. A certificate of ownership to a 1967 Cadillac bearing serial number B7140840 was issued by the State to it on November 28, 1967. The president of Ace testified that in his opinion the car could not be repaired.

Subsequently Ace sold the vehicle to Joseph Taylor Auto Body in Philadelphia for $800 and delivered the documents of ownership to it. The next appearance of the serial number was on a certificate of ownership issued to Raymond Chalmers on March 5, 1968 by the Commonwealth of Pennsjdvania. A used 1967 Cadillac bearing this serial number and this certificate of ownership was purchased by Kutner Buick for $4,100. The court is satisfied from the testimony of Gordon Whitehill that the same procedure was followed as on J7220527 and that the $4,100 was the fair market value.

On March 19, 1968 the vehicle was sold for $4,400 to Stanley Auto Co., who sold it to Wilma Clifton.

This vehicle was also inspected by Mr. Carroll and Sgt. Kessler, who reached the same conclusions as they did on J7220527.

From the testimony, there is no doubt in the court’s mind that J7220527 and B7140840 were stolen vehicles. The automobiles originally bearing those numbers were wrecked beyond repair. The inference is too strong to even he questioned that someone took the serial plates off the door posts and engines and placed them on stolen cars. The numbers on the frame were ground off and restamped to match the plates. The certificate of title went with the plates and the stolen ears.

Plaintiff raises the possibility that a new frame was placed on the original cars after they were repaired and that the new frame was restamped to agree with the serial number on the body. No evidence was introduced that this is what in fact happened. N. J. S. A. 39:10-7 makes it illegal to change a vehicle identification number, while N. J. S. A. 39:10-16 permits a new certificate to be issued in case of the hypothetical plaintiff raises. If what plaintiff suggests was done, it follows that the legal rather than the illegal correction would have been used. The testimony also was quite clear that the cars could not be repaired, and there was no rebuttal of this testimony. The only reasonable explanation is that the vehicles plaintiff bought were stolen. The court so finds.

Although no testimony was offered by the State that all the evidence offered at trial was available to the Commissioner of Motor Vehicles, there is a strong inference that this would have been the ease. With this last assumption, the requirement of N. J. S. A. 39:5-47 that the Commissioner have reason to believe that the motor vehicle had been stolen is fulfilled.

The court is also satisfied from the testimony of Gordon Whitehill that Kutner Buick, Inc. had no knowledge that the vehicles in question were stolen but that it relied upon the certificates of ownership and an inspection of the various serial numbers on the ears. The State did not introduce any testimony that the tampering with the serial numbers would be noticeable to anyone other than an expert. The court is therefore free to believe that plaintiff not only did not know but could not reasonably have found out that the vehicles in question were stolen. There is also no doubt that the price paid by plaintiff was fair.

When defendant Commissioner repossessed the vehicles and subsequently resold them pursuant to the statute (it being impossible to determine the true owners), each buyer looked to his seller for restitution for breach of the seller’s warranty of title. Plaintiff, having repaid its purchasers, brings this suit to recover its loss from the State. Since the requirements of N. J. S. A. 39:5-47 have been satisfied, plaintiff can only be successful by showing that the statute is unconstitutional as applied to the facts in this case.

The issue is whether the State ma}’- seize stolen motor vehicles from the possession of an innocent purchaser for value for its own use without just compensation.

The State can advance two theories to uphold the statute. The first is the principle of escheat. By escheat, the State takes title to property having no owner, 30A C. J. S. Escheat § la (1965), or an unknown owner. Standard Oil Co. v. New Jersey, 341 U. S. 428, 71 S. Ct. 822, 95 L. Ed. 1078 (1951). The limit of the State’s power to escheat is governed by N. J. Const. (1947), Art. 1, par. 20, which provides that “Private property shall not be taken for public use without just compensation.” This is similar to U. S. Const. Amend V, “nor shall private property be taken for public use, without just compensation.”

The rule has been established that “any doubts as to whether property is subject to escheat is resolved against the State.” State v. Elizabethtown Water Co., 40 N. J. 280, 288 (1963); State v. United States Steel Corp., 12 N. J. 38, 47 (1953).

The issue here is whether the State may assert the claim of the unknown owner of a motor vehicle against a bona fide purchaser under its powers of escheat. This court holds that it cannot.

The State contends that plaintiff as an innocent purchaser of a stolen vehicle holds no title. As a general proposition of law, that seems to be what the hornbooks and cases say. See National Retailers Mut. Ins. Co. v. Gambino, 1 N. J. Super. 627 (Law Div. 1948); 46 Am. Jur., Sales, § 459, n. 11, at 622 (1943); 7 Blashfield, Cyclopedia of Automobile Law and Practice 208 (1950).

Most of the cases that have laid down this rule have dealt with the rights of the original owner over a bona fide purchaser. National Retailers Mut. Ins. Co. v. Gambino, supra, states:

And if the wrongdoer seifs the chattel to an innocent purchaser, the latter obtains no title from the trespasser because the wrongdoer had none to give. The owner may still retake it in its improved or changed state. Silsbury v. McCoon, 3 N. Y. 379 (1850). [at 629-630]

The concern in those cases has been to protect the innocent victim of theft. Although many cases speak in terms of no title in the purchaser, the bettor and more accurate rule of law seems to be that a bona fide purchaser of personal property taken tortiously or wrongfully, as by trespass or theft, does not acquire a title good against the true owner. 77 C. J. S. Sales § 295e (1952).

In those cases which have dealt with the rights of a bona fide purchaser of stolen motor vehicles vis-a-vis persons other than the owner, the law has emerged that a purchaser in good faith has the title and right to possession of stolen goods against all except the rightful owner. Savarese v. Hartford Fire Ins. Co., 99 N. J. L. 435 (E. & A. 1924); Norris v. Alliance Ins. Co., 1 Misc. 315, 123 A. 762 (Sup. Ct. 1923); Lindner v. Hartford Fire Ins. Co., 58 Misc. 2d 86, 294 N. Y. S. 2d 422 (Sup. Ct. 1968); Wacksman v. Harrell, 174 Ohio St. 338, 189 N. E. 2d 146 (Sup. Ct. 1963); Barnett v. London Assur. Corp., 138 Wash. 673, 245 P. 3, 46 A. L. R. 526 (Sup. Ct. 1926); but cf. Giles v. Citi zens Ins. Co., 32 Ga. App. 207, 122 S. E. 890 (Ct App. 1924); Gurley v. Phoenix Ins. Co., 233 Miss. 58, 101 So. 2d 101, 71 A. L. R. 2d, 221 (Sup. Ct. 1958); Hessen v. Iowa Auto. Mut. Ins. Co., 195 Iowa 141, 190 N. W. 150, 30 A. L. R. 657 (Sup. Ct. 1922).

This rule seems to be the most reasonable and most equitable. The bona fide purchaser parts with his legal property as consideration for the stolen goods. It is fair to have him hold the goods in its stead. As opposed to any who claim the goods who have not paid the price, the equities weigh most strongly for the defrauded buyer. It is he who should be entitled to possession until one comes along who can show a greater interest or greater equities. By this rule, a good faith purchaser by his purchase acquires a property right in stolen goods which is constitutionally protected. Since this is so, the State cannot escheat the stolen vehicles because of the superior property interest of plaintiff.

Secondly, it is settled law that the State can obtain nothing more than the unknown owner could obtain. State v. Elizabethtown Water Co., supra; State by Parsons v. United States Steel Corp., 22 N. J. 341 (1956); State by Parsons v. Standard Oil Co., 5 N. J. 281 (1950), aff’d Standard Oil Co. v. New Jersey, 341 U. S. 428, 71 S. Ct. 822, 95 L. Ed. 1078 (1951). There are certain defenses that a bona fide purchaser would have against the true owner which would extinguish the latter’s rights in the vehicle. For example, N. J. S. A. 12A:2-403(2) gives a bona fide purchaser superior title over an owner who entrusted his goods to a merchant who deals in goods of that kind. Other examples may be found in 7 Blashfield, Cyclopedia of Automobile Law and Practice, § 4356 (1950), including perhaps the negligence of the original owner in allowing his vehicle to be stolen. The purchaser’s right to these defenses which might establish his-interest to be superior to the original owner are sufficient to vest him with a constitutionally protected property interest in the vehicle. Por this reason the State cannot escheat the property from plaintiff.

The doctrine which supports the validity of the statute is forfeiture.

A statutory forfeiture proceeding is in rem. It is the property which is proceeded against and, by resort to a legal fiction, held guilty and condemned as though it were conscious instead of inanimate and insentient. Various Items of Personal Property v. U. S., 282 U. S. 577, 51 S. Ct. 282, 75 L. Ed. 558 (1930); The Palmyra, 12 Wheat. 1, 6 L. Ed. 531 (1827); Spagnuolo v. Bonnet, 16 N. J. 546, 560 (1954); State v. Moriarty, 97 N. J. Super. 458 (Law Div. 1967), aff’d 102 N. J. Super. 579 (App. Div. 1968), aff’d Farley v. $168,400.97, 55 N. J. 31 (1969).

Statutes providing for the forfeiture of illicit goods or property used in connection with illegal activities have generally been held constitutional as against the objection of their being a deprivation of property for public use without compensation. See Various Items of Personal Property v. U. S., supra; United States v. One Ford Coupe Automobile, 272 U. S. 321, 47 S. Ct. 154, 71 L. Ed. 279 (1926); 37 C. J. S. Forfeitures § 4(a) (1943); 16A C. J. S. Constitutional Law § 645 (1956).

Although the eases are not always explicit as to why forfeitures are upheld, it would appear that their validiiy depends on their reasonable necessity to accomplish a legitimate purpose under the police power. See Lopez v. N. J. Bell Telephone Co., 51 N. J. 362 (1968); 16A C. J. S. Constitutional Law § 645 (1956).

Within New Jersey, statutes providing for forfeiture have been applied to contraband such as gambling paraphernalia (N. J. S. A. 2A:152-6 et seq.), Farley v. $168,400.97, 55 N. J. 31 (1969); Spagnuolo v. Bonnet, supra; personal property on the premises on which an unregistered still is found (N. J. S. A. 33:2—1 et seq.); Patrick v. Driscoll, 132 N. J. L. 478 (Sup. Ct. 1945); and vehicles used illegally to transport narcotics (N. J. S. A. 24:18-38.1 to 38.3), Ben Ali v. Towe, 30 N. J. Super. 19 (App. Div. 1954) (although held not applicable to the facts in that case); contra, Commercial Credit Corp. v. Congleton, 21 N. J. Super. 88 (Cty. Ct. 1952).

This court can take judicial notice of the problem of stolen vehicles within this State as well as across the country. It thus acknowledges the Legislature’s right under the police power to pass such statutes as it deems necessary to solve or alleviate the problem. It is clear from N. J. S. A. 39:10-1 et seq. that the whole scheme of motor vehicle certificates is directed to prevent the transfer of stolen vehicles. General Motors Acceptance Corp. v. Smith, 101 N. J. L. 154 (E. & A. 1924). See particularly, N. J. S. A. 39:10-3.

N. J. S. A. 30:10—7 is directed at preventing the mode of theft used in this case by requiring that

Every motor vehicle and noneonventional type motor vehicle shall have and contain a manufacturer’s vehicle identification number, which number shall not be obliterated, erased, mutilated, removed or missing.

Read in this context, N. J. S. A. 39:5—47 is a penalty to enforce the provisions of N. J. S. A. 39:10-1 et seq., and is clearly constitutional as applied to the thief or non-bona fide purchaser from a thief.

The issue in this case is whether the forfeiture may also work against a bona fide purchaser for value.

Eorfeitures have been upheld against innocent owners or lienors who entrust their property to one who uses it to commit an illegal act. Van Oster v. Kansas, 272 U. S. 465, 47 S. Ct. 133, 71 L. Ed. 354 (1926).

Confiscations have been held valid against the true owner even when he was ignorant of its use for illegal purposes, on the reasoning that the property was the offender and the culpability of the owner was not in question. Goldsmith, Jr.-Grant Co. v. United States, 254 U. S. 505, 41 S. Ct. 189, 65 L. Ed. 376 (1920); United States v. The Malek Adhel, 2 How. (U. S.) 210, 11 L. Ed. 239 (1844); Farley v. $168,400.97, 55 N. J. 31, 38 (1969); State v. One 1960 Mercury Station Wagon, 5 Conn. Cir. 1, 240 A. 2d 99 (Cir. Ct. App. Div. 1968). See generally, 36 Am. Jur. 2d, Forfeitures and Penalties, § 18, 19 (1968), Annotation, “State Liquor Laws — Vehicle Forfeitures,” 14 A. L. R. 3d § 3(a) (1967); Annotation, “Forfeiture by innocent vendor of article sold conditionally and used by vendee in violation of law,” 2 A. L. R. 1596 (1919).

New Jersey ascribed to this rule in Spagnuola v. Bonnet, 16 N. J. 546 (1954), saying:

The established rule is that the forfeiture becomes absolute at the commission of the prohibited acts and the title from that moment vests in the state or government in ali cases where the statute in terms denounces the forfeiture of the property as a penalty for a violation of the law, without giving any alternative remedy or providing any substitutes for forfeiture or allowing any exceptions to its enforcement, and that in all such cases it is not in the power of the offender or the former owner to defeat the forfeiture by any subsequent transfer of the property, even as to a bona fide purchase!- for value, without notice of the wrongful acts done or committed by the former owner. The forfeiture is considered as directed against the thing itself, not merely the possessor’s interest in it [at 560]

This passage was quoted with approval in Farley v. $168,400.97, supra.

Thus the law has been too clearly written to say that the Legislature may not do that which defendant urges. The statute itself is sufficiently broad to include within it the forfeiture of the interest of a bona fide purchaser. This court doubts that the 1921 Legislature intended the statute to reach such a harsh result, but in the absence of any legislative intent this court must enforce the statute according to its plain meaning. But cf. Peisch v. Ware, and United States v. Cargo of the Ship Favourite, 4 Cranch (U. S.) 347, 364-365, 2 L. Ed. 643, 548 (1808).

The last issue is whether the statute satisfies procedural due process.

Farley v. $168,400.97, 55 N. J. 31 (1969), put this issue to rest by commenting:

We note that a forfeiture statute need not provide for procedural due process. In this State, the judiciary itself has the constitutional power to provide for the demand of procedural due process, whatever they may be. State v. American-Hawaiian Steamship Co., 29 N. J. Super. 116, 128-129 (Ch. Div. 1953). [at 43, n. 5]

Procedural due process would seem to require notice to those interested in the property that there has been a seizure and to offer them an opportunity to be heard at a hearing. See Windsor v. McVeigh, 93 U. S. 274, 23 L. Ed. 914 (1876); State v. Moriarty, supra; State v. American-Hawaiian Steamship Co., 29 N. J. Super. 116 (Ch. Div. 1953); Commercial Credit Corp. v. Congleton, 21 N. J. Super. 88 (Cty. Ct. 1952); 37 C. J. S. Forfeitures § 5(b) (1943).

Since N. J. S. A. 39:5-47 is devoid of provisions for either, this court, following Farley, will interpret the statute as requiring the State to give notice to all parties having an interest in the seized motor vehicle. A hearing must then be held by the Commissioner or in the courts, at which time the State must prove that the vehicle in question has been stolen, with interested parties having the opportunity to present opposing evidence and cross-examine the State’s witnesses. Only after a decision in favor of the State and after appeal or the time for appeal has expired does the State have the right to dispose of the vehicle pursuant to the statute. Since the proceedings before this court complied with procedural due process and the State proved to the court’s satisfaction that the vehicles were stolen, there is no alternative except to confirm the Commissioner’s action.

Although the court considers the forfeiture to work a hardship, it does not consider the judicial system as the proper branch of government to grant remission. N. J. Const. (1947), Art. V, § 2, par. 1, and N. J. S. A. 2A:167-1.

Plaintiffs complaint must be dismissed and judgment will be entered accordingly.


author: Convery, J. S. C.

text:
    STEVEN A. FITZGERALD, AN INFANT BY HIS GUARDIAN AD LITEM, ARTHUR W. FITZGERALD AND ARTHUR W. FITZGERALD, INDIVIDUALLY, PLAINTIFFS, v. NEWARK MORNING LEDGER COMPANY, TRADING AS NEWARK STAR LEDGER, A CORPORATION OF THE STATE OF NEW JERSEY, DEFENDANT.
    Superior Court of New Jersey Law Division
    Decided June 29, 1970.

      Mr. Ronald W. Spevack for plaintiffs (Messrs. Spevack & Kogos, attorneys).

      Mr. Lawrence S. Grossman for defendant (Messrs. Burton, Quackenboss & Axelrod, attorneys).
   Convery, J. S. C.

This suit arsies out of personal injuries allegedly sustained by the infant plaintiff Steven A. Fitzgerald while on a trip to Bear Mountain sponsored by defendant Newark Morning Ledger Company, trading as Newark Star Ledger. The infant plaintiff was a newsboy for defendant and entered a contest wherein, if he got additional subscribers on his route, he would be given the opportunity to go on a trip to Bear Mountain. A condition to being allowed to go on the trip was that his parents had to sign an agreement to release defendant from any and all claims for injuries sustained by the infant plaintiff on the trip and also to indemnify defendant for any and all injuries claimed by the infant plaintiff. The form was shown to the father and the infant plaintiff and was signed by them. The infant plaintiff was then allowed to go on the trip, and while walking around Bear Mountain Park was accosted by a group of teenagers and allegedly injured.

Defendant moves for summary judgment against plaintiffs based on the release signed by Arthur W. Fitzgerald, father of the infant plaintiff, and also requests the court to grant judgment on defendant’s counterclaim for indemnification against plaintiff Arthur W. Fitzgerald.

Plaintiffs move to strike the defenses of release and indemnification as being against public policy.

In support of its summary judgment motion defendant argues that in the absence of fraud, misrepresentation, or overreaching by the release, and in the absence of a showing that the releasor suffered from an incapacity affecting his ability to understand the meaning of the release, and in the absence of any other equitable ground, a release is binding and the releasor will be held to the terms of the bargain he willingly and knowingly entered. Raroha v. Earle Finance Corp., Inc., 47 N. J. 229 (1966); Wojcik v. Pollock, 97 N. J. Super. 319 (Law Div. 1967). While these cases accurately set out the general lav/ of releases in this State, in both of them the release was tendered and executed after the alleged tortious conduct of defendant and as part of a settlement of plaintiff’s claim.

The release in the instant case might better be characterized as a contract exempting liability for future negligent acts.

A contract exempting a person from liability for future negligent acts is subject to tbe objection that it tends to induce a want of care, and sueb agreements are often declared invalid on tbe grounds of public policy. Mueb depends upon tbe positions of the contracting parties. If they do not stand on a footing of equality, so that one is compelled to submit to a stipulation relieving tbe other from liability for future negligence, tbe stipulation is invalid. * * * On the other band, situations may exist where tbe relationship of tbe parties is such as to compel recognition of the validity of a contract limiting liability for negligence. In fact, it is said that contracts against liability for negligence are valid except m those cases where a public interest is involved. Such a contract, however, is not favored by the law, and should be construed strictly, with every intendment against the party seeking its protection. [38 Am. Jur., Negligence, § 8, at 649]

New Jersey accepts the view that such agreements are void if they violate public policy. McCarthy v. Nat’l. Ass’n. for Stock Car Auto Racing, etc., 48 N. J. 539 (1967).

A parent, as natural guardian, owes his child a duty of protection and guidance, and there is at least a moral duty to see that a child’s property rights are fully protected. A parent has no authority unless he has been appointed guardian to compromise or release claims or canses of action belonging to the child. Loesch to Use of Harleysville Mutual Cas. Co. v. Vassiliades, 17 N. J. Super. 306 (App. Div. 1952).

In Ohio Casualty Ins. Co. v. Mallison, 223 Or. 406, 354 P. 2d 800 (1960), plaintiff insurance company brought an action to enforce an indemnity agreement entered into by defendant parents in consideration for settlement of their child’s claim. The contract required defendants to indemnify plaintiff as against any loss by reason of any later suit brought by the child. A subsequent discovery of injuries more serious than those contemplated at the time of settlement resulted in an action against the tortfeasor, plaintiff’s insured, in which the minor recovered. The Supreme Court of Oregon held that an agreement which places parents in a position whereby their interests will conflict with those of their child violates the principle that a fiduciary may not undertake an obligation inconsistent with the duty which grows out of that relationship. Furthermore, this agreement precipitates a situation wherein family harmony may he jeopardized and was therefore held to be contrary to public policy.

By the terms of this release and indemnity agreement, the father and son covenanted to release defendant from any and all claims arising out of or in connection with said trip and agreed to indemnify and save harmless defendant from all claims that may be made by or on behalf of the son. If such an agreement could be enforced it would be for the benefit of the father to prevent the bringing of any suit on the claim of the infant no matter how advantageous such suit might be for the infant. Therefore, defendant induced the father to enter into a contract in which his personal interest came, or might come, into conflict with his duty to his son. It is clearly void as against public policy because it is an agreement, the object or necessary tendency of which is to place a person owing a duty to a third person, in a position where he is under obligations inconsistent with such duties. The agreement placed the father’s personal interest in a position antagonistic to his duty toward the infant. A true conflict arose after the alleged injury to the minor.

Defendant’s motion for summary judgment is denied. Plaintiffs’ motion for summary judgment to strike the defenses of release and indemnification is granted.


author: Handler, J. S. C.

text:
    COMMERCIAL INSURANCE COMPANY OF NEWARK, NEW JERSEY, A CORPORATION, PLAINTIFF, v. JOHN APGAR, INDIVIDUALLY AND TRADING AS PARKWOOD COMPANY AND PARKWOOD COMPANY, A CORPORATION, DEFENDANTS.
    Superior Court of New Jersey Law Division
    Decided June 30, 1970.

      Mr. Samuel March, attorney for plaintiff.

      Mr. Ralph N. Solodar, attorney for defendants.
   Handler, J. S. C.

Plaintiff Commercial Insurance Com-

pany of Newark (Commercial) sues John Apgar, individually and trading as Parkwood Company (Apgar), and Parkwood Company, a corporation (Parkwood). The action is for the wrongful and fraudulent conversion of insurance premiums paid by Seabrook Farms, Inc. (Seabrook) to defendants and not remitted to plaintiff. Defendants do not dispute that collected premiums are owed to Commercial. It is denied, however, that there was a conversion of the premiums involved and that Apgar rather than Parkwood was the insurance agent. They further assert that there is due a commission on the earned premiums.

In some respects this case is a sequel to Seabrook Farms, Inc. v. Commercial Insurance Co., 104 N. J. Super. 419 (Ch. Div. 1969). Many of the facts determined in that case are consistent with the facts here. Apgar was the principal stockholder and controlling officer of Parkwood, a licensed insurance brokerage company. Over the years he had been associated closely with Seabrook and other Sea-brook interests as an employee and as an insurance advisor, representative, consultant and broker. Parkwood had been the broker of record on most of the insurance business involving the Seabrook interests. In the spring of 1966 it became necessary to consider the replacement of a comprehensive business insurance policy for Seabrook. Apgar dealt with Donald G. McAllister of Seabrook. He stated to Mc-Allister that he was having difficulty obtaining insurance coverage and would require monies in advance to apply toward premiums in order to secure insurance on a binder. There were needed, he testified, a “good faith” or “good will” deposit because various prospective insurers expressed concern over the financial position of the Seabrook interests and the types of fire risks involved. As a result of Apgar’s explanation, Seabrook on April 28, 1966 issued a check payable to Parkwood for $15,000 which was deposited by Apgar in Parkwood’s account. Apgar subsequently told Seabrook that $15,000 was not enough aud that the “insurance companies want another good will deposit,” an additional $10,000. On June 2, 1966 Seabrook sent another check payable to Parkwood in the amount of $10,000 which was deposited by Apgar in Parkwood’s account. On or about June 3, 1906 Apgar contacted Appleton and Cox, the insurance representatives for the Continental Insurance Group of which Commercial was a member. A representative of Commercial toured the Seabrook properties with Apgar for the purpose of evaluating the risks. Shortly thereafter Commercial’s representative advised Apgar that the risk would be accepted subject to underwriter’s approval. Apgar did not at that time inform Commercial that he had already received from Seabrook, the prospective insured, a total of $25,000 as a deposit or advance against insurance premiums.

Commercial was described as an “agency company.” Commercial was required by law to utilize an insurance agent in order to place and write insurance. On June 10, 1966 Commercial issued a temporary binder. On the same date Commercial designated Apgar, with the trade name Park-wood Company, as an authorized agent for Commercial by filing a certificate of appointment of agent with the New Jersey Commissioner of Banking and Insurance. On June 17, 1966 Commercial was advised by the Commissioner that the designation was improper because John Apgar was licensed as an individual and a corrected certificate of appointment was requested. Such a corrected certificate of appointment designating John Apgar as agent was then filed with the Commissioner on June 29, 1966. Apgar disclaimed any actual knowledge of the fact that he had been designated as an authorized agent for Commercial or that a certificate of his appointment as agent had been filed with the Commissioner. Nevertheless, in view of Apgar’s own licensure and experience in the insurance field, he knew that Commercial was an “agency company” required to write insurance through a duly designated agent and that a certificate of appointment of an agent designated by Commercial was requisite for the writing of this policy.

A comprehensive business insurance policy for a three-year term was issued on December 5, 1966. Commercial sent it by mail to Apgar and he delivered the policy to Sea-brook on December 7, 1966, together with an invoice for $60,000 representing the total premiums for three years. A Seabrook check was drawn payable to Parkwood in the amount of $36,603. This included $35,000, which added to the total of $25,000 previously paid by Seabrook, constituted payment of all premiums due. Payment in full was receipted by Apgar.

Apgar and Parkwood failed to remit to Commercial any of the premiums collected from Seabrook and Commercial cancelled the insurance policy for nonpayment of premiums. Seabrook then instituted an action against Commercial for a declaratory judgment, contending that it had paid the full premium and that Commercial was not justified in cancelling the policy. Commercial counterclaimed for $25,000, the portion of the premiums paid by Seabrook as advances. In Seabrook Farms, Inc. v. Commercial Insurance Co., supra, it was held that Apgar and Parkwood were not the agents of Commercial when Seabrook paid its initial premium advances of $25,000 but were in fact at that time the brokers for Seabrook. As a consequence Seabrook had to bear the responsibility of any misappropriation on the part of Apgar or Parkwood with respect to these payments. It was ruled, therefore, that Seabrook was obligated to pay Commercial $25,000 and that Commercial was not entitled to .cancel the policy.

With respect to the $35,000 received by Apgar and Park-wood on December 7, 1966, this occurred after Commercial designated Apgar its agent. Defendants do not therefore deny that there is owed to Commercial this sum representing the balance of the premiums collected (less commissions claimed by them), although Apgar disputes that he rather than Parkwood was the agent of Commercial.

Plaintiff’s primary thesis is that defendants fraudulently converted the premiums due. The gravamen of the tort of conversion consists of the wrongful exercise of dominion and control over property owned by another in a manner inconsistent with the owner’s rights. McGlynn v. Schultz, 90 N. J. Super. 505 (Ch. Div. 1966), aff’d 95 N. J. Super. 412 (App. Div. 1967), certif. den. 50 N. J. 409 (1967); Prosser, Law of Torts (3rd ed. 1964), § 15, at 79. It is essential that the money converted by a tortfeasor must have belonged to the injured party. The tort is not limited, however, to cases where the defendant was obligated to deliver to the owner the identical property, coin, bank notes and the like which he had received. Pearl Assur. Co. v. National Ins. Agency, 151 Pa. Super. 146, 30 A. 2d 333 (Super. Ct. 1943) (construing the Pennsylvania statute defining “fraudulent conversion”); Manufacturers’ Cas. Ins. Co. v. Mink, 129 N. J. L. 575 (Sup. Ct. 1943).

In Seabrook Farms, Inc. v. Commercial Insurance Co., supra, 104 N. J. Super, at 423-424, it was observed that “[w]hen an insurer entrusts an insurance policy to an agent for the purpose of delivering the policy to and collecting the premiums from the insured, the insured’s payment of such premiums to the agent is deemed pajunent to the insurer.” A similar result obtains when the insured makes payment to an insurance broker (as distinguished from an insurance agent) to whom the carrier has entrusted the policy for delivery to the insured. Mt. Vernon Fire Ins. Co. v. Gillian, 95 N. J. Super. 279 (App. Div. 1967); Kubeck v. Concord Ins. Co., 103 N. J. Super. 525 (Ch. Div. 1968), aff’d 107 N. J. Super. 510 (App. Div. 1969). Thus, in terms of whether there was insurance coverage, as indicated in Seabrook Farms, Inc. v. Commercial Insurance Co., supra, Seabrook’s payment of $35,000 to defendants was tantamount to its paying the money to Commercial itself. The more precise issue here, however, is whether such payment of premiums by an insured to an insurance agent constitutes those premiums the property of the insurer, not from the standpoint of effecting insurance but as a predicate for a tortious conversion.

It has been noted that the duty of an insurance agent “to act in a fiduciary capacity in aiding, soliciting, negotiating and effecting contracts of insurance for companies, insureds and prospective insureds, N. J. S. A. 17:22-6.1, 17:22-6.2, necessitate [s] that they handle monies of other persons in a trustworthy manner.” In re Comm'r of Banking and Insurance v. Parkwood Co., 98 N. J. Super. 263, 272 (App. Div. 1967). Emphasizing this duty, plaintiff contends that the premiums paid by an insured to an agent of the insurer may be considered the property of the insurer by virtue of an actual or implied trust relationship. Various cases are marshalled as authority for this proposition.

In Matter of Leterman v. Pink, 249 App. Div. 164, 291 N. Y. S. 249 (App. Div. 1936), aff’d sub nom. Ebenstein v. Pink, 275 N. Y. 613, 11 N. E. 2d 781 (Ct. App. 1937), the court rejected the contention that there exists a custom among insurance brokers permitting them to commingle premiums collected from clients with their own general funds. The court adopted the view that “[t]he clear duty of any insurance agent is to keep separate and distinct, from his own property, specific premium payments received from a client and promptly to transmit to the insurance companies moneys thus collected.” 291 N. Y. S. at 254. In Mid-States Ins. Co. v. American Fidelity & Cas Co., 234 F. 2d 721 (9 Cir. 1956), it was decided at the trial level that the premiums received by the agent on behalf of the insurer were not trust funds since the agent was customarily allowed to use some of the collected premiums to pay his private agency expenses. This determination was reversed on the grounds that an earlier agency agreement which made no reference to a trust arrangement had been superseded by a later agreement with elaborate provisions that all premiums received by the agent should be held as trustee for the insurer. The court in Clay v. Eagle Reciprocal Exchange, 368 S. W. 2d 344, 351 (Mo. Sup. Ct. 1963), applied a state law which provided that an insurance agent who “receives or collects money on any account whatsoever for any insurance company doing business in this state shall be responsible in a trust or fiduciary capacity for any money so collected or received by him * * *.” It was construed to apply not only to monies which the agent actually had received but also to monies which he ought to have collected. Cf. Twin City Fire Ins. Co. v. Green, 176 F. 2d 532 (8 Cir. 1949), reh. den. subject to modification, 177 F. 2d 626 (8 Cir. 1949).

Principal reliance is placed on Bohlinger v. Ward & Co., 34 N. J. Super. 583 (App. Div. 1955), aff'd 20 N. J. 331 (1956). There a New York insurance company had become insolvent and its statutory liquidator instituted suit against a New Jersey agent to recover premiums remaining duo and unpaid to the company. The chief issue was whether the agent could offset against amounts owing to the company certain credits attributable to unearned premiums. Although the written agency agreement between plaintiff and defendant required the agent to pay promptly all collected premiums minus a deduction for specified commissions, the procedure customarily followed was for the agent to remit only the net amount of earned premiums due the company. Eejecting the view that a debtor-creditor relationship existed, the Appellate Division regarded the collected premiums as trust funds “to be received, held, and disbursed in a fiduciary capacity.” 34 N. J. Super, at 588. The Supreme Court stressed that a contrary holding would unjustifiably give a preference to clients of this particular agent over all other creditors and policyholders of the insolvent carrier. Particular weight was placed on the fact that the agent, aware of the shaky financial condition of his principal, had actively sought to gain a priority for his own customers at the expense of other policyholders. Accordingly, the Supreme Court agreed with the Appellate Division that the premium monies already in possession of the agent should be treated as assets of the insurance company and be distributed pursuant to the law governing allocation of the remaining funds of an insolvent insurance company, without any bookkeeping credit for refunds due on cancelled policies. Cf. Bohlinger v. Zanger, 306 N. Y. 228, 117 N. E. 2d 338 (Ct. App. 1954), reh. den., 306 N. Y. 851, 118 N. E. 2d 908 (Ct. App. 1954); Bohlinger v. Mayville Realty Co., 135 N. Y. S. 2d 865 (Sup. Ct. 1954), aff'd 285 App. Div. 1045, 141 N. Y. S. 2d 509 (App. Div. 1955), app. den. 309 N. Y. 1030, 129 N. E. 2d 790 (Ct. App. 1955).

The legal principles which may be synthesized from these authorities disclose that courts are not hesitant in positing a trust with respect to premiums received by an agent on behalf of an insurer, if one or more factors are present. Frequently there is a written agency agreement establishing a trust (e. g., Mid-States Ins. Co. v. American Fidelity & Cas. Co. and Bohlinger v. Ward & Co., supra). There may be an operative statute which imposes a fiduciary relationship or expressly requires the segregation or strict accounting of all collected premiums (e. g., Clay v. Eagle Reciprocal Exchange, and Twin City Fire Ins. Co. v. Green, supra). Policy considerations involving the rights of third persons, such as creditors or other policyholders, may also be critical in determining the existence of a trust or as a basis for implying a fiduciary duty in the strict handling of collected premiums (e. g., Bohlinger v. Ward & Co. and Leterman v. Pink, supra).

The relationship between the parties herein bears none of the indicia of a trust with respect to premiums in the hands of an agent. Such a trust cannot be predicated on the basis of contract. There was no written agency contract, nor was there any evidence whatsoever as to an express oral agreement between the parties with respect to the handling of premiums. Established custom and usage may sometimes flesh out an otherwise ambiguous understanding of the parties. Ace Stone, Inc. v. Wayne Tp., 47 N. J. 431 (1966). Here the testimony was that there is no custom or usage within the insurance industry, in the absence of any specific written or oral understanding, which would import into the arrangements of the parties a requirement that collected premiums be segregated or be treated as trust funds.

In some instances a course of dealing or conduct serves to explicate the practical understanding of the parties. Michaels v. Brookchester, Inc., 26 N. J. 379 (1958); Journeyman Barbers, etc., Local 687 v. Pollino, 22 N. J. 389 (1956). For example, in Hartford Accident & Indem. Co. v. Cooper Park Dev. Corp., 169 F. 2d 803 (3 Cir. 1948), the court, in applying New Jersey law, found that without the earmarking of premium payments or other hallmarks of a trust relationship, monthly accounting would demonstrate the. existence of a creditor-debtor relationship with respect to premium collections. Also in Twin City Fire Ins. Co. v. Green, supra, the court considered that the dealings between the insurance company and the agent might evidence an intention to take the arrangement out of the operation of the predecessor of the Missouri statute cited in Clay v. Eagle Reciprocal Exchange, supra, and to treat the agency as a debtor on a running account. The record here is sparse as to any conduct or dealings between the parties which would color the nature of their relationship. It discloses merely that segregation or strict accounting of premiums was not expected. After several informal demands, the first actual bill was not rendered by Commercial until July 1967, more than six months after the placement of the policy. Thus the parties did not even adhere to an accepted custom that premiums be remitted promptly within 60 days. Bills were then sent by Commercial on a monthly basis which encompassed transactions in addition to Sea-brook’s, suggesting a running account between the parties. It cannot be said that there was a course of dealing between Commercial and defendants which would in any sense bolster the creation of a trust. In short, there is no basis for determining that defendants were required by any contractual understanding express or implied to become trustees of Commercial with respect to the collected premiums.

Additionally, Commercial has been unable to point to any New Jersey statute which expressly requires an agent to segregate collected premiums or to establish a trust with respect thereto. N. J. S. A. 17:22-6.2a, dealing with brokers acting in the capacity of agent, codifies the common law duty of an agent-broker to accept premiums from an insured as payment to the carrier in order to protect the insurance-buying public. Mt. Vernon Fire Ins. Go. v. Gillian, supra; Kubeck v. Concord Ins. Co., supra. Moreover, no special considerations founded in public policy have been urged which would dictate the positing of a trust. There is not here involved the protection of the insurance-buying public (e. g., Mt. Vernon Fire Ins. Co. v. Gillian and Kubeck v. Concord Ins. Co., supra) or third persons such as creditors or other policyholders (e. g., Bohlinger v. Ward & Co., supra). As far as the carrier itself is concerned, there was nothing to prevent Commercial from protecting itself as a cestui que trust. Such contractual safeguards were employed, for example, in Spilka v. South American Managers, Inc., 54 N. J. 452, 456 (1969), where “[t]he agent acknowledged in the agreement that all premiums it collected are trust funds belonging to the insurer and that its duties and obligations with respect thereto shall be those of a trustee under the laws of the State of New Jersey.” Similar protective provisions were detailed in Manufacturers' Cas. Ins. Co. v. Mink, supra. Commercial, in sharp contrast, was content merely to file with the Commissioner of Banking and Insurance a certificate designating Apgar as an authorized agent — a pro forma compliance with N. J. S. A. 17:22-6.14.

Commercial is not defeated by its failure to establish the requisites of a tortious conversion against defendants. Defendants acknowledge that “[w]hen proof of an alleged conversion fails, the result is only a breach of contract.” This concession is apparently premised on the proposition that a party may forego the tort and establish liability on a contract basis. Colton v. Gross, 3 N. J. Misc. 170, 127 A. 574 (Sup. Ct. 1925); Republic of China v. Pong-Tsu Mow, 15 N. J. 139 (1954). Indisputably, Commercial is owed $35,000.

Plaintiff further contends that it is entitled to “a judgment in fraud.” It asserts that the dereliction of defendants, and particularly Apgar, was fraudulent notwithstanding its allegations of fraud are intertwined in its claim of tortious conversion. It has been recognized that a defendant may be liable in both contract and tort. Manufacturers’ Cas. Ins. Co. v. Mink, supra. If fraud has been demonstrated but the tort of conversion as such has not been established because of evidential or legal insufficiency — and it be acknowledged that at the very least the putative tortfeasor is liable as a debtor in contract the acts of fraud should appropriately be considered in determining the nature and extent of the defendants’ liability.

Throughout the transaction Apgar evinced a lack of candor and business honesty. In his first encounter with Commercial he failed to disclose that Seabrook, a prospective insured, had already paid $25,000 as an advance on insurance. Such an intentional concealment "of material information is tantamount to an affirmative misrepresentation. Medivox Productions, Inc. v. Hoffmann-LaRoche, Inc., 107 N. J. Super. 47 (Law Div. 1969). Commercial, however, was not misled or induced to accept the insurance risk by this circumstance. But Apgar perpetuated this concealment and thereby affected Commercial’s subsequent actions. After the issuance of the policy on December 7, 1966 Apgar did not inform Commercial that the premiums had been paid either to him or to Parkwood. In fact, Apgar affirmatively indicated that the full premium had not been received. In the face of mounting demands, he advised Commercial that payment could not then be made because of financial complications involving the estate of one of the principals of Seabrook. He then stated to Commercial that the insured had taken the policy on an installment basis. Those representations were false and made with the intention that Commercial defer collection of the full premiums. Commercial indeed relied upon Apgar’s misrepresentations. It agreed to accept payment from Apgar on an installment basis. It received a check from Parkwood on June 8, 1967 in the amount of $17,808. This check was not paid for insufficient funds. Although Apgar contended that it was the understanding of the parties that the check was not to be deposited by Commercial when received, in point of fact he never made the check good. Thereafter Commercial can-celled the insurance policy and was sued by Seabrook. And, of course, it was compelled to institute the within action.

These facts establish the constituent elements of fraud. Louis Schlesinger Co. v. Wilson, 22 N. J. 576 (1956); Ocean Cape Hotel Corp. v. Masefield Corp., 63 N. J. Super. 369 (App. Div. 1960); Parker Precision Products Co. v. Metropolitan Life Ins. Co., 407 F. 2d 1070 (3 Cir. 1969). There were false representations by Apgar with the intent that Commercial rely thereon; there was knowledge on the part of the defendants that the representations were false; there was a reasonable belief by plaintiff that the representations were true; there was reliance on these representations, and there was consequent action taken by Commercial to its detriment and injury.

Apgar denies his individual liability to Commercial and contends that Parkwood was the insurance agent. The agency relationship is shrouded in confusion because the parties themselves treated this with indifference. Both Apgar and Parkwood were licensed insurance agents. As previously noted, Apgar was designated by Commercial as the authorized agent and he is chargeable with knowledge thereof. Commercial indicated that Parkwood was the agent on the temporary binder, but Apgar countersigned the insurance policy as the agent in fulfillment of the statutory requirement for such countersignature. N. J. S. A. 17:22-6.15. Commercial’s monthly billings were addressed to “Parkwood Agency.” In view of these conflicting circumstances, the designation by Commercial of Apgar as tire authorized agent and his countersignature of the insurance policy pursuant to N. J. S. A. 17:22-6.14, 17:22-6.15 are the significant factors. Apgar must be considered the agent in this transaction together with Parkwood.

A resolution of the issue of actual or implied agency as between both defendants is not essential to a determination of their liability. Defendants have acknowledged the debt to Commercial. The agency of Parkwood is conceded. Park-wood received the premiums from Seabrook through Apgar. The premiums due Commercial were deposited in Parkwood’s account and disbursed for the personal use of Parkwood and Apgar. Parkwood itself, therefore, through its principal officer, participated in the wrongful withholding of the premiums and the fraud incidental thereto. McGlynn v. Schultz, supra.

Apgar was personally responsible for the acts of fraud which occurred. Fraud may he committed, as in this case, by an individual through his ownership, control and manipulation of a corporate entity. Such an individual will not be shielded because he utilized the instrumentality of a corporation. McGlynn v. Schultz, supra. As stated in Vreeland v. New Jersey Stone Co., 29 N. J. Eq. 188, 195 (Ch. Div. 1878), aff'd 29 N. J. Eq. 651 (E. & A. 1878):

“All who get gain by fraud must bear the legal consequences of the wrong they do. When a fraud is committed in the name, and under cover of a corporation, by persons having the right to speak for it, for their personal gain and benefit, they are bound to answer personally for their wrongful acts. Their tongues uttered the false words and their purses should pay the damages.’’

Defendants assert that they are entitled to a set-off for commissions earned for the placement of the insurance policy with Seabrook. Ordinarily, as conceded by Commercial, even in the absence of an express agency agreement an insurance agent responsible for the placement of insurance would he entitled to a commission. But an insurance agent who commits a fraud against his principal forfeits his right to compensation. Budnick v. Maccabees, 230 N. Y. S. 2d 271 (N. Y. City Ct. 1963); cf. Carpenter v. Overland Tire Co., 102 N. J. L. 196 (E. & A. 1925). In failing to remit any of the premiums, defendants were guilty of a willful and total breach of contract, indelibly tainted with fraud. They did not earn their commissions.

Plaintiff projects an additional theory to justify- recovery against defendants. It contends that the failure to remit collected premiums and their subsequent use by defendants for their own personal and business needs constituted a fraudulent transfer, contrary to N. J. S. A. 14A:14-10. Commercial conducted what was described as an “audit” of Parkwood .in July 1967. It was not made clear exactly what books and records of defendants were examined. The evidence nevertheless indicates that the $35,000 was in Parkwood’s general bank account at the end of December 196-6 and that by June 1967 this account was overdrawn. Disbursements were apparently made for Apgar’s salary and for rental, mortgage and other business expenses. It cannot be concluded, however, that any of these disbursements, to the extent that they constitute transfers within the meaning of the pertinent statutes, were “without fair consideration” or, in the absence of a complete depiction of Parkwood’s net worth, including assets and liabilities, that the disbursements were made while Parkwood was or would likely become insolvent. In brief, the evidence was insufficient to substantiate this aspect of plaintiff’s claim.

Plaintiff herein has eschewed exemplary or punitive damages based upon defendants’ fraud. Consequently, it is entitled to $35,000, representing the balance of the full premiums collected by defendants, together with interest from February 7, 1967, and costs.

In accordance herewith, judgment in fraud is rendered in favor of plaintiff against both defendants.