author: Coneord, S. J. A. D.

text:
    OXFORD CONSUMER DISCOUNT COMPANY OF NORTH PHILADELPHIA, A CORPORATION, PLAINTIFF-RESPONDENT, v. ANTHONY E. STEFANELLI AND THERESA A. STEFANELLI, DEFENDANTS-APPELLANTS.
    Superior Court of New Jersey Appellate Division
    Argued June 17, 1968
    Decided September 11, 1968.
    See also 103 N. J. Super. 11 and 27, 246 A. 2d — and —.

      Before Judges Coneord, Labeecque and Haleern.

      Mrs. Annamay T. Sheppard argued the cause for appellants.

      Mr. Herman J. Ziegler argued the cause for respondent.

      Mr. Douglas J. Harper, Deputy Attorney General, argued the cause for Attorney General, intervenor (on side of defendants) (Mr. Arthur J. Sills, Attorney General of New Jersey, attorney; Mr. William J. Brennan, III, Assistant Attorney General, of counsel).

      Mr. 8leven 8. Badin argued the cause for Middle Atlantic Finance Association, as amicus curiae (Mr. Clive 8. Gummis, attorney; Mr. Michael B. Tischman, on the brief).
   The opinion of the court was delivered by

Coneord, S. J. A. D.

This appeal presents important questions relating to the validity and applicability to plaintiff, a Pennsylvania loan company not authorized to do business in New Jersey, of the Secondary Mortgage Loan Act of 1965 (L. 1965, c. 91, N. J. S. A. 17:llá~l et seq.), and regulations of the Commissioner of Banking and Insurance promulgated pursuant thereto, more specifically in respect of its loan to defendants, residents of New Jersey, secured by a second mortgage on their Newark home. The Attorney General has been granted leave to intervene on the side of defendants to defend the validity of the act and regulations; and Middle Atlantic Finance Association to file a brief amicus curiae, which has been helpful. It has also participated in the oral argument.

The Superior Court, Law Division, granted summary judgment for $5,071.82 in favor of plaintiff in its action on a note executed June 6, 1966 by defendants at the Philadelphia office of plaintiff and there delivered to it, that transaction being purportedly authorized by the Pennsylvania statute, Til. 7, Purdon’s Pa. Siat., §§ 6201-6219 (“Consumer Discount Company Act”). At the same time the court denied defendants’ motion for summary judgment. Enforcement of the mortgage taken as security for the loan at the same time the note was delivered was not sought or involved in the action.

Although the scope of defenses to the action now advanced is not identical with those set forth in the original pleadings, we have concluded that the questions of public policy implicated in the appellate arguments are so significant and the desirability in the public interest of present judicial determination thereof so obvious that we ought to decide all relevant legal questions argued on the appeal insofar as the record permits us to do so. None of the parties has contended for a narrower approach.

Basically, defendants and the Attorney General argue that the Secondary Mortgage Loan Act of 1965 is applicable to this transaction; and that there were several violations of that act in the course of the transaction, thereby, calling into play section 29 of the act precluding enforcement in the courts of this State of any obligation arising out of a secondary mortgage loan not negotiated and made in full compliance with the provisions of the act. Defendants also contend there was fraud by plaintiff in that they were not advised and did not know that the papers they signed included a mortgage on their home.

Plaintiff asserts the New Jersey statute does not and constitutionally cannot apply to this transaction; that the loan was valid under the Pennsylvania statute regulating such transactions; that conflict of laws principles call for application of the Pennsylvania rather than the New Jersey statute in resolving the validity and enforceability of the loan, and that denial of enforcement of the cause of action by New Jersey would violate the due process, equal protection, interstate commerce and full faith and credit clauses of the United States Constitution.

I. Legislative Background

The Secondary Mortgage Loan Act of 1965 emerged as a compromise of proposals embodied in three bills in the 1965 session of the Legislature, Assembly Nos. 522 and 732, and Senate No. 244. Its adoption was preceded by widespread complaints to the authorities concerning false and fraudulent advertising of the availability of loans and terms thereof and the exaction of exorbitant rates of interest and concomitant other charges from needy borrowers. Typically, the lenders in these transactions required the furnishing by borrowers of mortgages on their homes as security, and generally the financial difficulties of the borrowers were such that the mortgages given were necessarily junior liens to existing mortgages on their properties.

These conditions were fully documented in a report dated January 5, 1965 from the Secretary-Director of the New Jersey Real Estate Commission to Governor Hughes concerning the results of an investigation by the Commission of these abuses. Significant in relation to some of the legal questions presented herein is the statement in said report: “Our review showed that, in most cases, the New Jersey second mortgage operator would contact or be contacted by a financial outlet, usually in the Philadelphia area, where money was available for second mortgages if a specific procedure was followed.” The report showed that the customary procedure involved the use of New Jersey-based brokers, who made contact with or were approached by New Jersey prospective borrowers, in the latter instances usually as a result of advertisements. The broker then would bring the borrower to the financing loan company for consummation of the transaction, frequently in such nearby but out-of-state locations as Philadelphia.

In approving the bill as enacted Governor Hughes publicly stated:

“Assembly Bill No. 732 represents a major step forward in the vital area of consumer protection. With the enactment of this hill, New Jersey maintains its place in the forefront of States which have been quickest to recognize and curb the activities of those who would prey upon the public under the guise of legality and respectability. New Jersey once again has branded unethical conduct as unlawful conduct in order to protect its citizens from the hardships of exorbitant financial practices.”

II. The Act and Regulations

The act defines a “secondary mortgage loan,” in effect, as a loan not to be repaid in 90 days or less which is secured by a mortgage on real property used as a dwelling for not more than four families, which property is subject to the lien of a prior mortgage or mortgages, or the purchase of any interest in such a loan. Section 1(a). The business of making such loans is restricted to licensees qualifying under the terms of the act. Section 2. The holders of 50% of the stock in a corporate licensee, and any individual licensee, must have resided in this State for two years prior to applying for a license. Section 3. There are detailed provisions concerning procedure on applications for licenses and renewals thereof to the Commissioner of Banking and Insurance, including payment of an annual fee of $25 and filing a corporate surety bond of $5,000. Sections 4 ei seq. Licensees must indicate the location of “the office or branch,” Section 7; and the application, if by a corporation, must state “where the business is to be conducted,” section 4. There are provisions for hearings on refusals, suspensions or revocations of licenses. Section 11. The Commissioner may investigate activities, and examine books and records, section 14, which must be maintained by the licensee at its place or places of business in this State, section 17.

Section 21 sets forth a mathematical formula for ascertaining the gross dollar amount of interest which the lender may deduct in advance from the face amount of the loan, given the predetermined net proceeds of the loan to be made available to the borrower on closing and the number of installment payment periods for the whole term of the loan and for any calendar year. The parties agree that the formula produces about 14% simple interest per annum on outstanding unpaid principal balances.

Maximum incidental charges which may be made by the lender in respect of “costs, fees, services, points and premiums” are specified as: appraisal and inspection—$50 per parcel of land mortgaged; credit investigation'—$15; search fee—$50 per parcel; legal fees—5% of amount of loan, not exceeding $250; recording and filing fees, not to exceed $5 per document. Section 22. Borrowers may not be required to pay any fee for the procuring or placement of the loan, but such fees may be paid by the lender to an attorney or licensed realty broker. Id., subsection (b). The borrower “shall not be compelled to purchase” from the licensee fire, life or title insurance policies. Id., subsection (c).

Among a variety of kinds of provisions 'which may not be included in any loan instrument are a power of attorney of any kind, including any power to confess judgment and any provision whereby the debtor waives any rights accruing to him under the act or any other law. Section 23.

The act is not applicable to banking institutions, savings banks, federal savings and loan associations or any “insurance company or other financial institution * * * subject to any other law of this State or the United States” regarding mortgage loan transactions by such institutions. Section 31.

We have already mentioned section 29, which declares that no obligation arising out of a secondary mortgage loan shall be enforceable in the courts of this State unless negotiated and made in full compliance with the provisions of the act.

Other unmentioned provisions of the act are not implicated in the issues here raised.

Pursuant to his rule-making power under section 30 of the act, the Commissioner of Banking and Insurance has promulgated a set of rules, two of which are involved in this litigation. The first is Bule 1, reading:

“Notwithstanding the place of execution, nominal or real, of a secondary mortgage loan, if the real property is located in this State, said secondary mortgage loan will be deemed to be subject to the Secondary Mortgage Loan Act of 19(15

The second is Buie 5(d), under which the lender is required to notify the borrower in writing that he has the right to the advice of counsel of his own choosing before signing the loan papers.

III. The Instant Transaction

Most of the pertinent facts are undisputed; the parties disagree as to others. We propose to decide this appeal on certain of the material facts which are palpably free of any genuine issue and suffice as a matter of law to dictate judgment for defendants. Certain of the undisputed facts have already been related. Some of the assertions as to disputed facts will be mentioned as enlightening background.

Defendant Anthony E. Stefanelli made two affidavits in resistance to plaintiff’s motion for summary judgment, alleging the following. Prior to June 6, 1966 (when he made the loan) he was “contacted by a brokerage firm in South Jersey who asked [him] whether [he] needed a loan as [he] had accumulated some debts which [he] wanted to consolidate. Shortly thereafter [he] was contacted by Rodney Radhill, of 1401 Reed Street, Philadelphia, who informed [him] that he would be able to procure the money for [him].” On June 6 Radhill took him to plaintiff’s office where he executed several papers, including a mortgage on his home. However, it was not stated before or during the transaction that this involved a mortgage, and defendant did not “believe” this was a mortgage transaction at any time. After he received the net proceeds of the loan ($931.34; this was the balance after payment during closing by lender of certain of defendant’s prior obligations in addition to prepaid interest and other charges on the loan; see infra), Rad-hill cashed the check and retained $350 thereof as the price of a small portable television set he “sold” defendants, explaining he was not allowed to charge a brokerage commission for a loan. Only after he received, at a later date, a statement of the loan, did Stefanelli realize he had executed a mortgage on his home. Stefanelli further asserted in his affidavit that he was “compelled” to purchase creditor life insurance and creditor accident-health insurance, the premiums therefor having been “incurred” over his objections.

Plaintiff’s sole evidential showing on the motion as to Radhill’s part in the transaction is an affidavit of its manager that “Plaintiff does not have and never had an agent by the name of Rodney A. Radhill and plaintiff made no requirement for defendants to purchase anything from anyone in order to obtain the loan.” However, plaintiff failed to answer responsively an interrogatory requesting it to state who was present at the loan closing.

There is no dispute that defendants did on June 6, 1966 at the Philadelphia office of plaintiff sign and deliver to it a promissory note in the amount of $4,535.28 payable in 36 monthly installments of $125.98 each, beginning July 6, 19'66, and also a second mortgage on their Newark home as collateral security for the note. The note contained a power of attorney for entry of judgment thereon. It is conceded there were deductions from the face amount of the note of $1,020.43 for interest, $15 for service charge, creditor life insurance and creditor accident and health premiums of $102.05 and $145.13, respectively, and recording and releasing fees of $6.25. The amount of allowable interest under seclion 21 of the New Jersey act would have been some $758. Plaintiff says it did not “compel” defendants to buy the insurance. From the loan proceeds plaintiff at the direction of defendants paid their existing debts: $500 to Household Finance Corp.; $500 to Central Finance; and $1,309.08 to Geraldine Sica; leaving a balance of $937.34 disbursed to defendants (from which they paid $350 to Radhill for the television set, as noted above).

IV. The Pennsylvania Statute

The subject matter regulated under the Consumer Discount Company Act (cited above) is the business of lending sums of $3,500 or less (whether secured or unsecured) and charging interest and fees which aggregate more than 6% per year on unpaid principal balances. Tit. 7, Turdon’s, op. cit., § 6203. Such business is restricted to Pennsylvania corporations licensed by the Secretary of Banking. Hid. Supervision of licensees is comprehensive and comparable to that provided for by the New Jersey act. The amount of interest chargeable is formulated differently from the New Jersey act. It is fixed at $7.50 per $100 per year when the “contract is repayable” within 36 months; if for a longer term, then at $6 per $100 for the remainder of the term. Such interest is computed on the face amount of the loan (including all permissible charges) for the full term of the contract and deductible in advance notwithstanding provision for installment payments. Section 6213, subd. E. By way of comparison with the stated $7.50 rate, the formula set forth in Section 21 of the New Jersey act would permit an amount of interest which, if computed on the Pennsylvania basis for the $7.50 rate, would work out to about $5.90 per $100 per annum.

The Pennsylvania act also allows: service charge up to $15; extension or deferment charges at the rate of 1 J4% per month on the amount in arrears; actual official recording fees; the premium for insurance required or obtained as security for the loan; attorney’s fees and court costs in collection of any contract in default.

Plaintiff argues that comparing allowable interest charges under the New Jersey and Pennsylvania statutes is misleading; that the “cost of money” to the borrower should include the supplemental loan charges, which are potentially heavier in New Jersey. However, the comparison of potential cost of money under the respective statutes will not be determinative, in view of our approach to the issues as developed hereinafter.

We approach the legal questions presented for decision.

Y. Eesidenee Eequirement — Severability

[1J We have no hesitancy in agreeing with the contention of plaintiff that section 3 of the act, requiring that holders of at least 50% of the stock of a corporate applicant (as well as any individual applicant) for a license shall have been residents of New Jersey for two years prior to the application, is unconstitutional. The Attorney General accepts that proposition, acceding to a 1966 unreported decision of the Law Division to that effect. Defendants have offered no defense of the provision, and we conceive none. No reasonable relationship whatever has been advanced or is perceived between the objects of the legislation and the residence requirement for shareholders of a corporate licensee. The act does not require that licensees must be domestic corporations or that any of their officers, agents or managers be residents. Cf. Osborn v. Ozlin, 310 U. S. 53, 60 S. Ct. 758, 84 L. Ed. 1074 (1940); in respect of such requirements a debatable regulatory justification could perhaps be argued. It seems to us highly likely that section 3 had no motivation other than to favor New Jersey residents engaged in the consumer lending field as against out-of-staters. We conclude that the requirement of residence for shareholders is void as violative of due process and equal protection. In accord: Miskell v. Termplan Incorporated of Houston, 381 S. W. 2d 129 (Tex. Civ. App. 1964). There is possibly also implicated the privileges and immunities clause of the United States-Constitution, asserted derivatively in this action by plaintiff on behalf of its shareholders. Cf. Hess v. Pawloski, 274 U. S. 352, 355-356, 47 S. Ct. 632, 71 L. Ed. 1091 (1927).

However, defendants and the Attorney General contend that section 3 is severable from the remainder of the act, and that plaintiff continues to be barred from recovery on the note, under section 29, by virtue of violations in this transaction of other still viable provisions of the statute. We agree.

This enactment has no specific severability clause. But that fact is not determinative of the question, particularly in the light of the general, overall severability clause in B. 8. 1:1-10. The governing principle in all cases is whether it can be concluded that the Legislature “designed that the enactment should stand or fall as a unitary whole,” State by McLean v. Lanza, 27 N. J. 516, 527 (1958). It was further there said:

“[E]ven if there be no such express declaration of separability, an unconstitutional provision in a statute does not affect the validity of a separate article or clause of the enactment, if otherwise valid, unless the two are so intimately connected and mutually dependent as reasonably to sustain the hypothesis that the Legislature would not have adopted the one without the other. Where the principal object of the statute is constitutional, and the objectionable provision can be excised without substantial impairment of the general purpose, the statute is operative except insofar as it may contravene fundamental law. And the question is to be considered in the light of the settled principle that a permissible doubt as to validity is to be resolved in favor of the enactment.” (at p. 528)

In particular reference to a regulatory ordinance it has been stated that the ultimate test is whether the ordinance, “stripped of those provisions which are invalid, remains a comprehensive and cohesive regulatory ordinance with appropriate sanctions for its enforcement.” Cranberry Lake Quarry Co. v. Johnson, 95 N. J. Super. 495, 517 (App. Div. 1967), certification denied 50 N. J. 300 (1967). We deem this applicable as well to a regulatory statute.

Applying the indicated criteria, we have no doubt that the statute would have been intended by the Legislature to stand, even with the residence requirement of section 3 deleted as void. The legislative background data demonstrates an urgent sense of the necessity in the public interest of close regulation of the operations of the secondary mortgage lending industry to the extent of their effect upon New Jersey residents. All of the statutory policing regulations and the substantive provisions governing permissible interest rates, other charges and other provisions of loan contracts are left functionally intact and operative notwithstanding invalidation of the shareholder-residence requisite of section 3. We therefore hold the statute survives the excision of section 3. See Miskell v. Termplan Incorporated of Houston, supra, 381 S. W. 2d, at p. 131.

VI. Conflict of Laws

Plaintiff contends that appropriate choice-of-law principles require the application of Pennsylvania rather than New Jersey law to the question of the validity of this loan; and since the transaction was valid under Pennsylvania law recovery is not to be denied because of transgressions of the New Jersey act. Strong reliance is placed on section 346EL, “Contracts for the Repayment of Money Lent,” as set forth in Restatement, Conflict of Laws 2d, Tentative Draft No. 6 (1960). This section was substantially adhered to in the reformulation thereof in the Proposed Official Draft, Part II (1968), as § 195 thereof, reading:

“§195. Contracts for the Repayment of Money Lent.

The validity of a contract for the repayment of money lent and the rights created thereby are determined, in the absence of an effective choice of law by the parties,' by the local law of the state where the contract requires that repayment be made, unless, with respect to the particular issue, some other state has a more significant relationship to the transaction and the parties, in which event the local law of the other state will be applied.”

Comment (b) states that in determining whether there is a state with a more significant relationship to the transaction and to the parties, resort should be had to the principles set forth in section 6 (to be found in Proposed Official Draft, Part I (1961)). Subsection ‘(1) thereof, which we think determinative of the instant issue, reads:

“(1) A court, subject to constitutional restrictions, will follow a statutory directive of its own state on choice of law.”

When there is no such directive, various other principles may come into play, including “the relevant policies of the forum.” Subsection (2) of section 6. As we deem subsection (1) the guideline which we should follow, not merely because it is embodied in the Proposed Official Draft but for the reason that it is inherently sound, we need not explore the alternative contention of defendants that conflicts principles ordinarily applicable will bow where the result would strongly offend a public policy of the forum state or where the preponderance of the significant contacts with the transaction are situate there. See HIMC Investment Company v. Siciliano, 103 N. J. Super. 21 (Law Div. 1968), where the instant act was held applicable to a transaction entered into in Pennsylvania on the basis of such principles, but where 'New Jersey contacts were more pronounced than here. See Kievit v. Loyal Protect. Life Ins. Co., 34 N. J. 475, 492-493 (1961).

Defendants contend that section 6, subsection 1, of the Restatement, supra, finds present application in that New Jersey has expressly ordained that the Secondary Mortgage Loan Act should apply to all such loans where the secondary mortgage exacted is on property situate in this State, no matter where the loan contract is executed — in other words, settled the choice of law problem involved. They refer to Rule 1 of the regulations promulgated by the Commissioner of Banking and Insurance, which is to that effect. However, we cannot agree that the Commissioner would have authority under his delegated rule-making power (under section 30, to make such rules “as shall be necessary to the establishment and maintenance of a standard of fair, equitable and honest conduct in the transaction of secondary mortgage loans”) to promulgate a choice-of-law rule if the statute contained no such provision, express or implied. This is a rule of substantive law, not an administrative implementation of regulatory policies broadly reflected in the language of the statute itself. “The distinction is between the making and the execution of the law.” Abelson’s, Inc. v. New Jersey State Board of Optometrists, 5 N. J. 412, 423-424 (1950).

But we do agree with the alternative argument of defendants that the statute, in the light of its avowed objectives, particularly as illuminated b3r the legislative history, evinces an unmistakable intent that any secondary mortgage loan, as'defined in the act, made by a New Jersey resident involving New Jersey realty be subject to the act notwithstanding execution of the loan documents out of the state and in favor of a foreign corporation. One of the primary evils cited in the investigation preceding adoption of the law, as indicated above, was the enticing of needy New Jersey residents to loan companies in the Philadelphia area. While, it is true that the text of the statute does not express any conditions or qualifications of its applicability in terms of the place of making of the loan, the residence of the lender corporation or the borrower, or even the location of the mortgaged property, the manifest purpose of the legislators in enacting, and of the Governor in approving, this statute’ was to protect New Jersey residents from overreaching mistreatment of them by out-of-state as well as local lenders taking back secondary mortgages on New Jersey residential real property.

Legislative intent can be discerned by background circumstances revealing the evil sought to be remedied and as thus illuminated may be read into the statute by implication with the same effectiveness as though expressly declared therein. State v. Gill, 47 N. J. 441, 444 (1966); Alexander v. N. J. Power & Light Co., 21 N. J. 373, 379 (1956).

In the official comment (b) to section 6 of the Restatement, Conflict of Laws 2d (1967), supra, the reporter says:

“b. Intended range of application of statute. A court will rarely find that a question of choice of law is explicitly covered by statute. That is to say, a court will rarely be directed by statute to apply the local law of one state, rather than the local law of another state, in the decision of a particular issue. On the other hand, the court will constantly be faced with, the question whether the issue before it falls within the intended range of application of a particular statute. The court should give a local statute the range of application intended by the legislature when these intentions can be ascertained and can constitutionally be given effect. If the legislature intended that the statute should be applied to the out-of-state facts involved, the court should so apply it unless constitutional considerations forbid.” (Emphasis added.)

We have no difficulty, applying these precepts, in ascertaining the legislative intention in this instance to be a® formulated above and thus as settling (subject to constitutional questions) the choice-of-law issue here under discussion by implied legislative fiat.

Plaintiff calls to its aid decisions elsewhere which in varying unrelated contexts have held loans or other contracts made outside the forum state to be unaffected by local statutes regulating the doing of business or access to local courts, frequently on federal constitutional grounds, and it argues the Legislature must be presumed not to have intended an unconstitutional result. But this contention begs the present issue—i. e., the actual intent of the New Jersey Legislature as to the subjection to this law of out-of-state loans to New Jersey borrowers, secured by mortgages on New Jersey lands. We deal with the constitutional problems separately hereinafter.

VII. Equal Protection

Plaintiff asserts that the definition of a secondary mortgage loan in the statute establishes an arbitrary classification among holders of promissory notes, not required by the public policy of the State and consequently depriving plaintiff of the equal protection of the laws guaranteed by the Fourteenth Amendment. The position is that there is no rational basis for creating for the special treatment of this act, out of the whole category of mortgage lenders, those whose obligation is secured by a secondary mortgage; nor any basis for including mortgages which are only partially the collateral taken for the loan. But we think it obvious that there is. The investigations which preceded adoption of the act revealed that there was a characteristic syndrome pervading the area of transactions infected by the evil sought to be ameliorated. This consisted of the situation of moderately circumstanced persons owning a home or small multifamily dwelling, already heavily encumbered by a first mortgage, and who, being unable to raise money to meet pressing needs from conventional lenders at ordinary interest rates, were compelled to go to high-interest and premium-exacting lenders who typically tightened their security by exacting a secondary mortgage on the borrower's home.

Tbe question is not whether the act dealt with all facets of the evil but whether, in the light of the end sought, it rationally dealt with any distinct, phase of it calling for attention and differentiable on a reasonable basis from any others. David v. Vesta Co., 45 N. J. 301, 314-317 (1965), and cases cited therein. In view of the background data, and mindful of the heavy presumption of constitutionality of legislation, we are satisfied that the legislative classification here impugned is valid.

VIII Due process and Interstate Commerce

Plaintiff and amicus curiae lay major emphasis on the argument that application of the act to the instant transaction creates an undue burden on interstate commerce, in violation of the commerce clause of the United States Constitution. It is also argued that applying the act to loans made outside the state denies due process. It will be convenient to consider these positions together, as the pertinent considerations intermesh.

The complexity of the problems and the infinite variety of factual and policy considerations presented in the whole area of transactions having multi-state aspects has produced much confusion and many divided and inconsistent rulings in the courts, state and federal, over the validity of the efforts of states to regulate' local aspects of interstate transactions. “The question as to what is the proper dividing line between the respective powers of Congress and those of the states to regulate commerce has been declared to be the most perplexing and confusing topic in American constitutional law.” 15 G. J. 8. Co'mrñerce § 5, p. 388. That the powers of Congress in regulation of interstate commerce, when exercised, are paramount to and preemptive of those of the states, is elementary. Id., § 6, p. 390. Of more tenuous substance is the rubric that even as to areas not entered by Congress state regulation of the -subjects of interstate commerce must not “interfere” with, or place “undue burdens” upon such commerce. Id., § 10, pp. 403-404.

The matter was succinctly stated in Neeld v. Giroux, 24 N. J. 224 (1957) (involving stoppage of interstate cargo of cigarettes to investigate possible violation of the New Jersey cigarette tax law) :

“A state may protect its local interest by reasonable measures which do not unduly interfere with interstate commerce, in the absence of federal legislation occupying the area.” (at p. 228)

And, in upholding legislation regulating the price of milk moving in interstate commerce, the court said, in National Dairy Products Corp. v. Hoffman, 40 N. J. 475 (1963):

“* * *[TJlie problem is not whether such [interstate] commerce is interfered with but whether the proved interference constitutes an undue or excessive burden on that commerce. Incidental interference or indirect burdens, which find their source and justification in a reasonable exercise of the police power of a state affected by the transaction, are not transgressive of the United States Constitution, in the absence of some controlling or superseding federal enactment or regulation. Regulation of the price of milk was directed by the Legislature to meet the requirement of local conditions and to protect the public interest from what it found to be the a'dverse effects of those conditions.” (at p. 488)

There can hardly be any question that, prima facie, state regulation of consumer loan practices deleteriously affecting substantial numbers of the citizenry is a fit and proper exercise of local police power notwithstanding any incidental effect on interstate commerce. See Metropolitan Finance Corp. v. Matthews, 265 Wis. 275, 61 N. W. 2d 502 (Sup. Ct. 1953), sustaining state licensing procedures for collection agencies in application to an out-of-state firm doing essentially interstate commerce, where the court quoted the following highly instructive language of the Supreme Court in United States v. South-Eastern Underwriters Asso., 322 U. S. 533, 64 S. Ct. 1162, 88 L. Ed. 1440 (1944):

“It is settled that, for Constitutional purposes, certain activities of a business may be intrastate and therefore subject to state control, while other activities of the same business may be interstate and therefore subject to federal regulation. And there is a wide range of business and other activities which, though subject to federal regulation, are so intimately related to local welfare that, in the absence of Congressional action, they may be regulated or taxed by the states. In marking out these activities the primary test applied by the Court is not the mechanical one of whether the particular activity affected by the state regulation is part of interstate commerce, but rather whether, in each case, the competing demands of the state and national interests involved can he accommodated." (at p. 548, 64 S. Ct., at p. 1171, emphasis added)

Similarly, in Union Brokerage Co. v. Jensen, 322 U. S. 202, 64 S. Ct. 967, 88 L. Ed. 1227 (1944), Mr. Justice Frankfurter wrote:

“Whatever may be the generalities to which these cases give utterance and about which there has been * * * relatively little disagreement, the fate of state legislation in these cases has not been determined by these generalities but by the weight of the circumstances and the practical and experienced judgment in applying these generalities to the particular instances.” (at p. 211, 64 S. Ct., at p. 973)

These, we think, are the approaches which should guide us here. New Jersey’s strong interest in protecting its citizens from victimization by lenders operating on the other bank of the Delaware, pursuing their activities through cooperative relations with brokers (whether or not technically agents or independent contractors) who effectively negotiate with the borrowers in this State, .should outweigh any incidental effect upon the interstate aspects of the transaction, and save the local legislative remedy for the existing abuses from invalidation under either the commerce or due process clauses.

A significant modern decision relevant to this discussion is Robertson v. People of State of California, 328 U. S. 440, 66 S. Ct. 1160, 90 L. Ed. 1366 (1946). Involved was the validity of a state statute requiring any insurance agent, broker or solicitor to obtain a state license, in its application to one soliciting for a foreign insurance company not admitted to do business in the state. The court treated the regulation as one of a series stated in the statute to be “designed and reasonably adapted to protect the public from fraud, misrepresentation, incompetence and sharp practice which falls short of minimum standards of decency in the selling of insurance by personal solicitation and salesmanship.” (at p. 447, 66 S. Ct., at p. 1164). In sustaining the validity of the statute whether the agent’s acts were regarded as “in” commerce or only as “affecting” it (at p. 448, 66 S. Ct. 1160), the court cited previous Supreme Court decisions sustaining, in the absence of contrary action by Congress, the licensing of agents or brokers for the sale of interstate transportation in order to prevent fraud; trainmen engaged in interstate commerce, to secure their competence; the sale on commission of interstate consignments of farm produce to secure honest dealing and financial responsibility; and the activities of custom brokers to secure responsibility in the state courts on claims arising locally. Ibid.

It would seem that in comparison with the instances just stated, the instant situation is, a fortiori, free from constitutional interdiction on commerce grounds. Indeed, in other phases of its arguments plaintiff contends that this transaction was wholly an intrastate Pennsylvania transaction.

The closest indication available as to how the United States Supreme Court would react to the commerce argument in a case such as this is afforded by the court’s dismissal of the appeal in Fairfax Family Fund, Inc. v. California, 382 U. S. 1, 86 S. Ct. 34, 15 L. Ed. 2d 6 (1965), “for want of a substantial federal question.” The appeal there was from a judgment of the California District Court of Appeal and denial of hearing thereon by the Supreme Court of that state, opinion reported in People v. Fairfax Family Fund, Inc., 235 Cal. App. 2d 881, 47 Cal. Rptr. 812 (1965).

In that ease the state Attorney General sought an injunction against the conduct by defendant, a Kentucky corporation, of its small loan business in California without securing a license required by the California statute regulating that type of business. Defendant operated entirely by mail between its home office in Kentucky and borrowers resident in other states, maintaining no employees or offices in California—in other words, a straight interstate business. The California court rejected the argument of defendant, based upon the commerce clause, and buttressed by citation of the so-called “drummer” cases, e. g., International Text-Book Co. v. Pigg, 217 U. S. 91, 30 S. Ct. 481, 54 L. Ed. 678 (1910); but see Fli Lilly & Co. v. Sav-On-Drugs, Inc., 366 U. S. 276, 81 S. Ct. 1316, 6 L. Ed. 2d 288 (1961), that the state could not exact a license requirement from a foreign corporation doing purely interstate business with residents of that state. The court noted that the Small Loan Law of California “is legislation designed for the public welfare. It is primarily to protect the citizens of this state from fraudulent and unconscionable conduct of those in the lending business * * * and as such, is a matter of local concern * * *. The degree of regulation contained in the laws of this state with reference to loan sharks is not disproportionate to the evils which exist if the lenders are left to their own devices without licensing and without any regulation by the state” (47 Cal. Rptr., at p. 814); and “Fairfax should not be allowed to escape state regulation merely because it is also engaged in interstate commerce” (Id., at p. 815). Proper regulation of the business was thought to be impossible without the license requirement. Ibid.

Plaintiff and amicus curiae present us with an extended attack upon the soundness of the California opinion in Fair-fax Family Fund but fail to deal with the tangible fact that the United States Supreme Court dismissed the loan company’s appeal therefrom for want of a substantial federal question. A clue to the reasoning behind the short per curiam of the Supreme Court lies in the more extended discussion in the dissenting opinion of Mr. Justice Douglas. That emphasizes the “drummer” cases as representative of the there asserted view that “our decisions have heretofore precluded a State from exacting a license of a firm doing an exclusively interstate business as a condition of entry into the State” (382 U. S., at p. 2, 86 S. Ct., at p. 34). The dissent also suggests the reliance of the appellee (and presumably of the court majority) on Robertson v. People of State of California, supra, 328 U. S. 440, 66 S. Ct. 1160, which we have shown above to have manifested a liberal and sympathetic view of state efforts at essential regulation of local incidents of interstate business as against criticism for interference with interstate commerce. In sum, we cannot but construe the dismissal in Fairfax Family Fund as strongly suggestive of the validity, in the context of a state statute regulating consumers’ loan practices, of New Jersey’s exaction from plaintiff of its qualification for a license, as well as of the application to it of the other regulatory provisions in The Secondary Mortgage Loan Act of 1965, insofar as commerce grounds are concerned.

The act is even-handed and non-diseriminatory (after excision of section 3) in its application to all domestic and foreign corporations engaging in loan transactions within the statutory scope, as interpreted above. By reasonable construction of the act, necessitated by the due process clause, plaintiff need not give up its general office in Philadelphia but must maintain a branch office in New Jersey and there maintain records of its transactions involving secondary mortgages on New Jersey realty for inspection by the Commissioner. In this and the other regulations of the statute mentioned in the briefs there is no invidious discrimination against plaintiff either as a foreign corporation or as engaging in interstate commerce.

In view of the fact that the cases teach ns that each species of business must be appraised separately in the light of its own local regulatory requirements and of the nature of its peculiar interstate ramifications, and having the benefit of the dismissal in Fairfax Family Fund, we need not tarry long in dealing with the other commerce cases cited by plaintiff and amicus curiae. These have to do with altogether different situations. They cite Allgeyer v. State of Louisiana, 165 U. S. 578, 17 S. Ct. 427, 41 L. Ed. 832 (1897), which invalidated a Louisiana statute which penalized the entry by domestic corporations into agreements calling for execution out of the state of insurance contracts covering property in the state with companies not in compliance with the insurance laws of the state. First, the fact situation presented there was totally dissimilar from that here. Second, the decision has subsequently been questioned and confined in its application. See Osborne v. Ozlin, supra, 310 U. S., at p. 66, 60 S. Ct. 758, 84 L. Ed. 1074; Hoopeston Canning Co. v. Cullen, 318 U. S. 313, 318-319, 63 S. Ct. 602, 87 L. Ed. 777 (1943); cf. Howell v. Rosecliff Realty Co., Inc., 52 N. J. 313, at 322-323 (1968) (sustaining local taxation of premiums on insurance written out of the state on property situated here).

Plaintiff also relies on a series of cases holding that a state may not require of a foreign corporation its taking steps to qualify to do business there as a condition of its right to sue there (generally, or on a contract made there) if it does no business in that state except of an exclusively interstate nature. See, typically, International Text-Book Co. v. Pigg, supra. But some of the cases in that field have exhibited considerable readiness to find the local requirement valid where there was some semblance of local contacts by the foreign corporation apart from its purely interstate business. See Union Brokerage Co. v. Jensen and Eli Lilly & Co. v. Sa-v-On-Drugs, both supra. It is apparent that entirely different local policy questions and regulatory problems are posed in the instant case, and that the sanctions imposed also vary markedly from those in the foreign corporation-registration eases cited. Furthermore, there were here local contacts of importance which preceded and survived the loan transaction itself. There was a mortgage recorded in New Jersey on land situate therein and ordinarily enforceable only by legal action there. Payments on the loan were to emanate from a borrower resident in that state, exerting an effect on its economy, and, if excessive, possibly on its public resources. Cf. Howell v. Rosecliff Really Co., Inc., supra, 52 N. J., at p. 327. And finally, plaintiff’s penetration of the New Jersey borrowing market was, in this case, as rendered indisputable by the affidavits, accomplished through the intermediation of a broker operating here. For purposes of the preceding observations, it makes no difference whether or not that broker was, technically, an employee of plaintiff. Cf. Howell v. Rosecliff Realty Co., Inc., supra, at 326, 327.

In any event, as noted above, the dismissal for lack of a substantial federal question in the Fairfax Family Fund case, supra, in the face of the International Text-Book line of decisions just discussed and relied upon in the dissent in Fairfax Family Fund, establishes to our satisfaction that that line of authority does not require a holding here of unconstitutionality on commerce grounds.

In the light of the foregoing discussion, we also find entirely insubstantial the due process argument so far as it rests, as presented, on the circumstance that the loan documents were executed out of the State.

IX. Full Faith and Credit

Finally, plaintiff contends that refusal to apply Pennsylvania law to this transaction would violate the full faith and credit clause of the Constitution. We determined in VI, above, that the Legislature has, by clear implication, decreed that the Secondary Mortgage Loan Act of 1965 should apply to a loan transaction with these incidents whatever its freedom from violation of any law of the state where the papers were signed. But plaintiff says that for the New Jersey Legislature to so ordain violates the full faith and credit clause. We think well settled principles augur a contrary conclusion.

It is clear that the full faith and credit clause does not require a forum state to enforce a contract valid under nonforum law where enforcement would subvert the public policy of the forum state. See Bradford Electrical Light Co., Inc. v. Clapper, 286 U. S. 145, 160, 52 S. Ct. 571, 76 L. Ed. 1026 (1932); Klaxon Company v. Stentor Electric Manufacturing Company, 313 U. S. 487, 61 S. Ct. 1020, 85 L. Ed. 1477 (1941); Alaska Packers Ass’n. v. Industrial Accident Comm., 294 U. S. 532, 55 S. Ct. 518, 79 L. Ed. 1044 (1935).

In the instant case, giving this transaction the protective umbrella of the Pennsylvania statute would not only offend New Jersey policy in a most sensitive area, but would negate a New Jersey statute embodying that policy in terms read above by this court to control the very transaction involved. In Casteel v. Casteel, 45 N. J. Super. 338 (App Div. 1957), we spoke to the issue as follows:

“Every state is entitled to enforce in its own courts the policy of its own statutes on subjects properly the incidents of its jurisdiction, and the full faith and credit clause of the United States Constitution does not require otherwise unless the conflicting statute or judgment of another state is shown, on some rational basis, to have a superior basis for recognition. Alaska Packers Association v. Industrial Accident Commission, 294 U. S. 532, 547, 548, 55 S. Ct. 518, 79 L. Ed. 1044 (1935).” (at p. 354)

The Pennsylvania statute does not have a claim for recognition to validate this transaction superior to that of the New Jersey statute for subjection of the transaction to its requirements. The freedom of'plaintiff ordinarily to contract how and with whom it will does not rationally outweigh the decree of the New Jersey Legislature, born of the baneful background circumstances related above, that whoever, wheresoever resident, would lend to residents of New Jersey on the security of a secondary mortgage on property in that State must comply with the regulatory requisites it has laid down at peril of losing its right of recovery on such a loan in New Jersey courts.

We find the contention grounded on denial of full faith and credit to lack merit.

X. Cancellation of the Mortgage

Pending argument of the appeal, plaintiff, on June 7, 1968, caused the mortgage it took from defendants to be cancelled and discharged of record, and we have granted its motion to add the evidence of that fact to the record. Plaintiff’s position is that the discharge of the mortgage relieves the transaction of any coverage by the act. This contention is akin to one of the main grounds on which it prevailed below — that the note and mortgage are separate and distinct and that in an action on the note alone, as here, the taking of the mortgage and any legal incidents thereof are irrelevant to plaintiff’s right of recovery thereon.

Both of the stated points miss the policy objective of the act. This was to prevent the talcing of secondary mortgages on residences as security for a loan unless preceded and accompanied by compliance with the statutory regulations, and this for reasons sufficiently explained hereinabove. The legislative policy is prophylactic as well as curative. Only by the application of the stringent sanctions set forth in the act did the Legislature conceive that entry into such unauthorized transactions could be adequately deterred. To allow a lender to get by with the exaction of a secondary mortgage as security for a loan violative of the act, and to defeat the application of sanctions, when challenged, by then cancelling the mortgage, would be to defeat the effectiveness of the sanction as a deterrent.

XI. Violations Calling for Sanctions

Section 29 of the act reads:

“No obligation arising out of a secondary mortgage loan shall be enforceable in the courts of this State unless such loan was negotiated and made in full compliance with the provisions of this act.”

Defendants’ position is that they were entitled to summary judgment under section 29 on the ground of a number of asserted violations of the act, some of which were the subject of factual dispute on the cross-motions for summary judgment and others not.

The asserted violations involving disputed issues of fact were:

(a) fraud and misrepresentation as to any mortgage being involved in the transaction; (b) being compelled to purchase insurance; (c) exaction by plaintiff’s agent of an unauthorized brokerage fee through the enforced purchase of a television set.

If the case for plaintiff’s violation of the act depended upon any of the foregoing, the matter would have to be remanded for trial of the factual issues. In view of our conclusion as to the effect of some of the undisputed violations, this will be unnecessary.

The asserted undisputed failure to obtain a license; violations of the Act itself are: (a) the plaintiff’s; (b) exaction of excessive interest; (c) inclusion in the not of a power of attorney to confess judgment.

Defendants also project violation by plaintiff of the Commissioner’s regulation 5(d), requiring the lender to give the borrower notice in writing of his right to independent counsel before signing the papers. There is no dispute that no such notice was given. As to this contention, however, we seriously doubt that a sanction as heavy as preclusion of the right to sue to recover anjr part of the loan is applicable to violation of a regulation of the Commissioner as distinguished from violation of the act. The pertinent section (29) speaks only in terms of failure of “compliance with the provisions of this act.” Elsewhere in the statute, by contrast, there is reference to violation of “this act or any rules or regulations promulgated pursuant thereto.” Section 14. See also section 11 (c).

Nor could we, in the circumstances here presented, forfeit plaintiff’s entire chose in action for failure to have obtained a license. Under section 3 it would have been futile for plaintiff to have applied for a license, as it did not qualify thereunder. To date there has been no reported decision at all, declaring the section invalid. It would be grossly unfair, therefore, to penalize plaintiff by depriving it of its right of action on the note on this ground. However, all “persons” (as defined in the act, section 1(6)) engaging in transactions covered by the act henceforth are herewith put on notice that the licensing provisions as well as all other valid provisions of the act and regulations are applicable to them.

The remaining undisputed violations of the act — taking of excessive interest and incorporating in the note a power of attorney to confess judgment —• will necessarily require the sanction of section 23 to be imposed. The fact that plaintiff did not act on the power of attorney to confess judgment is of no more consequence than its voluntary cancellation of the mortgage, and for the same reasons as stated above in that regard. The note may therefore not be the subject of an action to recover thereon in the courts of this State.

The judgment is reversed and the cause remanded for entry of final judgment in favor of defendants.

       Reference herein to section numbers of the Act will identify corresponding numbers in N. J. S. A. E.g., section 1 is N. J. S. A. 17 :11A—1.

       Plaintiff states that (.he comparable allowable rate under the Pennsylvania act is 17.38%.

       The amount of the instant loan complied with the $3,500 limitation since the act provides that that limitation may be exceeded by the amount of interest or other charges authorized by the act. Section 6213, subd. E.

       Compare section 22 (c) of the New Jersey act which provides the borrower shall not be “compelled” to purchase fire, life or title insurance.

       It of course does not matter that in this particular transaction the loan terms may not have been as egregious as the generality of the practices which led to enactment of the statute. If the act applies, and is valid, it must be given even-handed effect in all cases within its coverage.

       Having disposed of the particular constitutional challenges raised herein, we note that the act has also recently been held free from invalidity on grounds of vagueness in various particulars. Crescent Investments Co. v. Commissioner of Banking and Insurance, 103 N. J. Super. 11 (Ch. Div. 1968).

       Ground (a) depends on whether the sanction of nonenforcement can be applied to a statutory ground for' suspension or revocation of a license under section 11, such as commission of any fraud, engaging in any dishonest activities or misrepresentation, as distinguished from any absolutely prohibited act. We need not decide the question.


source: Caselaw Access Project

author: Per Curiam.

license: Public Domain

text:
    STATE OF NEW JERSEY, PLAINTIFF, v. JOSEPH V. MORIARTY, DEFENDANT. FRANK J. FARLEY, TREASURER OF THE COUNTY OF HUDSON, AND COUNTY OF HUDSON, PETITIONERS-RESPONDENTS, v. $168,400.97, AND FRANK S. TURBETT, JR., DISTRICT DIRECTOR OF INTERNAL REVENUE AND UNITED STATES OF AMERICA, CLAIMANTS-APPELLANTS. STATE OF NEW JERSEY, BY ARTHUR J. SILLS, ATTORNEY GENERAL OF NEW JERSEY, PLAINTIFF, v FRANK J. FARLEY, TREASURER OF THE COUNTY OF HUDSON, AND COUNTY OF HUDSON, DEFENDANTS.
    Superior Court of New Jersey Appellate Division
    Argued September 9, 1968—Decided
    September 16, 1968.

      Before Judges Goldmann, Kolovsky and Carton.
    • Mr. David M. 8atz, Jr., United States Attorney, argued the cause for claimants-appellants (Mr. Mitchell Bogovin, Assistant Attorney General, and Messrs. Lee A. Jackson, Crombie J. D. Garrett and Bennet N. Hollander, Department of Justice, attorneys; Mr. Kenneth P. Zauber, Assistant United States Attorney, of counsel).

      Mr. Isadore Glauberman, Special Counsel, argued the cause for respondents (Mr. William F. Kelly, Jr., Hudson County Counsel, attorney; Mr. Sheldon A. Weiss, on the .brief).
   Per Curiam.

We affirm essentially for the reasons stated by Judge Rosen in 97 N. J. Super. 458 (Law Div. 1967), deeming ourselves bound by what was said in Spagnuolo v. Bonnet, 16 N. J. 546, at page 558 et seq., and particularly page 560 (1954), as to the interpretation to be given N. J. 8. 2A :152-6 to 11, inclusive. Ih this connection we observe that § 6321 of the Internal Revenue Code of 1954 (26 U. 8. G. A., § 6321)'provides that the Government’s jeopardy assessment “shall be a lien * * * upon all property and rights to property, .whethér .-feah or personal, belonging to such.person.”-- (Italics ours) Under Spagnuolo title to the monies in question was no longer in Moriarty at the time the jeopardy assessment was made, but was then in the County of Hudson. v'


text:
    STAVOLA CONTRACTING COMPANY, INC., A CORPORATION OF THE STATE OF NEW JERSEY, PLAINTIFF, v. DARIO CONSTRUCTION COMPANY, INC., A CORPORATION OF THE STATE OF NEW JERSEY, DEFENDANT. MACH LUMBER, CREDITOR-APPELLANT, v. ALPHONSE J. DALTON AND HELEN P. DALTON, DEFENDANTS-RESPONDENTS.
    Superior Court of New Jersey Appellate Division.
    Argued September 9, 1968
    Decided September 17, 1968.

      Before Judges Coneord, Kilkenny and Mintz.

      Mr. Francis A. Margalotti argued the 'cause for appellant (Mr. Bernard H. Weiser, attorney).

      Mr. William Himelman argued the cause for respondents (Messrs. Klatslcy, Himelman & Siegfried, attorneys).
   Per Curiam.

The judgment is affirmed essentially for the reasons stated in the opinion rendered by Judge Lane in the Chancery Division. 98 N. J. Super. 328 (1967).

We add the following. On the assumption of the correctness of claimant’s contention that the restraint prohibited filing the lien claim or an enforcement action, claimant nevertheless had from September 28, 1967 to October 23, 1967, before the time bar of the statute foreclosed it, within which either to request leave to file the claim and action, or to request modification of the restraint so as to eliminate the-.supposed prohibition of such filing. Its failure timely to take either step militates against its present plea advanced on purported grounds of fairness and equity of entitlement to the relief it now seeks.


author: Collester, J. A. D.

text:
    ANNA MOCKLER AND ERWIN MOCKLER, HER HUSBAND, PLAINTIFFS-APPELLANTS, v. JOHN RUSSMAN, ET AL., DEFENDANTS-RESPONDENTS.
    Superior Court of New Jersey Appellate Division
    Argued April 1, 1968
    Decided September 18, 1968.

      Before Judges Coneord, Collester and Labrecque.

      Mr. Donald B. Sorkow argued the cause for appellants (Messrs. Sorkow and Sorkow, attorneys).

      Mr. John P. Markey argued the cause for respondents (Messrs. Markey and Whitham, attorneys)-.
   The opinion of the court was delivered by

Collester, J. A. D.

In this personal injury automobile negligence action plaintiffs Anna Moekler and her husband Erwin Moekler appeal from a judgment entered in the Law Division following a jury verdict of no cause for action in favor of defendants John Bussman and Joseph Lorusso. Plaintiffs’ motion for a new trial was denied.

Mrs. Moekler was injured on January 24, 1966 when a school bus owned by Bussman and operated by Lorusso struck the rear of her car which was stopped in the northbound lane of Washington Avenue, a two-lane road, at the intersection of Hickory Avenue in Bergenfield. She brought suit to recover damages for her injuries and her husband joined per quod.

The accident occurred at about 8:15 a. m. and it is undisputed that a thin layer of snow covered the roads in the area causing them to be slippery. Mrs. Moulder had stopped her car in the intersection of Hickory Avenue preparatory to turning left to enter her employer’s parking lot. Her directional signal was operating and she was awaiting a break in the southbound traffic on Washington Avenue before making her turn. While thus stopped she observed through her rearview mirror defendants’ bus as it approached and struck her car in the rear. Mary Heil, a school crossing guard who was standing on the corner of the intersection, saw the collision. She said that the school bus was not going very fast and estimated its speed to be about 10 to 20 miles an hour, “if that.”

Defendant Lorusso testified that he had been driving the school bus since 7 a. m. and knew that the roads were slippery due to the covering of a thin layer of snow. He had made a stop at the Dumont School and had three student passengers in the bus, one of whom he had picked up two blocks before he stopped at the school. He intended to pick up three more students who were awaiting him at the intersection of Hickory and Washington Avenues and thereafter intended to drive his passengers to the Holy Angels School. He said that he had not skidded when he had stopped the bus previous to the accident. Lorusso testified that he first saw plaintiffs’ car stopped at the Hickory Avenue intersection when he was about a block and a half to its rear on Washington Avenue. He said he was driving at a speed of about 10 miles per hour and when he reached a point 50 feet to the rear of plaintiffs’ car he applied his brakes. He testified that the bus skidded and that although he turned his wheel to the right in an attempt to steer it between the Mockler car and the right hand curb, the bus kept going straight and struck the rear of plaintiffs’ vehicle.

• Plaintiffs first contend that the verdict was against the weight of the evidence and that the trial court erred in denial of their motion for a new trial. They argue that defendant Lorusso knew of tbe hazardous road conditions because he had been driving the school bus for some time before the accident; that having observed plaintiffs’ stationary vehicle when he was one and a half blocks to its rear he negligently failed to apply his brakes until he was 50 feet behind it, and that when he applied his brakes and turned his wheel to the right in an attempt to pass plaintiffs’ car he was guilty of negligence —■ otherwise the accident would not have happened. They assert that the test of whether Lorusso was operating the bus in a reasonable and prudent manner under- the circumstances existing was whether he could stop the bus without striking plaintiffs’ stopped vehicle. Implicit in their argument is the contention that the skidding of the bus, where the driver had knowledge of the slippery condition of the road, of and by itself was conclusive evidence of negligence.

It has been generally held by courts in other jurisdictions that the skidding of an automobile is not in itself sufficient to justify an inference of negligence on the part of the operator of the motor vehicle. Smith v. Baltimore Transit Co., 214 Md. 560, 136 A. 2d 386, 390 (Ct. App. 1957); James v. Von Schuckman, 115 Conn. 490, 162 A. 3, 4 (Conn. Super. Ct. 1932); Hoch v. Doughty, 224 A. 2d 54, 56 (Me. Sup. Jud. Ct. 1966); Davin v. Levin, 357 Pa. 554, 55 A. 2d 364, 55 A. 2d 364 (Sup. Ct. 1947); L’Ecuyer v. Farnsworth, 106 Vt. 180, 170 A. 677 (Vt. Sup. Ct. 1934). See also Annotation, “Automobiles—Skidding,” 58 A. L. R. 264, 266 (1929); 113 A. L. R. 1002, 1005 (1938); 2 Stevenson, Law of Negligence, § 662, pp. 1007-08 (1954). Should the rule be otherwise every automobile driver would be compelled to stay off the public roads when such roads happened to be slippery. It is common knowledge that the sudden and unexpected skidding of an automobile is one of the natural hazards of driving on icy roads and that it may befall even the most cautious of drivers. If such a driver is operating his car as would a reasonably prudent person under the circumstances, he is not to be held negligent merely because his car skidded, resulting in damage or injury to another. However, skidding may be evidence of negligence if it appears that it was caused by the failure of the driver to take reasonable precautions' to avoid it, when conditions of which he knew or should have known made such a result probable in the absence of such precautions.

It is well-settled law that a recovery for damages cannot be had merely upon proof of the happening of an accident. Negligence is never presumed; it, or the circumstantial basis for the inference of it, must be established by competent proof presented by plaintiff. Whether such proof exists is preeminently a question of fact for the jury. Murphy v. Terzako, 14 N. J. Super. 254, 259 (App. Div. 1951).

In the instant ease there was testimony that while Lorusso knew the roads were slippery he had not skidded when he stopped the bus on previous occasions that morning. It was undisputed that he was operating his bus at a speed not in excess of 10 to 20 miles per hour when he applied his brakes 50 feet to the rear of plaintiffs’ car, and that despite his efforts to avoid a collision the bus skidded into the rear of that vehicle. Other than these facts there was no evidence that Lorusso could, with the exercise of proper diligence, have foreseen that his bus would skid into the rear of plaintiffs’ ear when he applied the brakes.

The question for determination by the jury was whether Lorusso exercised the care that a reasonably prudent person would have exercised under the circumstances confronting him. The verdict returned by the jury indicated that the jury found that he had exercised such care and that the accident was caused not by any negligence on the part of Lorusso but solely by the slippery condition of the road.

The verdict of the jury may not be set aside as against the weight of the evidence unless it clearly and convincingly appears that it is the result of mistake, partiality, prejudice or passion. B. B. 4:61-1. We may not disturb the order of the trial court denying a motion for a new trial on such ground unless it is clearly manifest that such action was without basis in law, or fact, or both, with the result that there was a denial of justice under the law. R. R. 1:5-3(a), made applicable to this court by R. R. 2:5, delineates our scope of review. We, too, may not set aside a verdict as against the weight of the evidence unless, having given due regard to the opportunity of the trial court and the jury to pass upon the credibility of the witnesses, it clearly and convincingly appears that the verdict was the result of mistake, partial^, prejudice or passion. The limited scope of our review in passing on the propriety of the jury’s verdict and the trial court’s denial of a new trial has been set forth in Kulbacki v. Sobchinsky, 38 N. J. 435, 446, 452 (1962). See Ardis v. Reed, 86 N. J. Super. 323, 329-30 (App. Div. 1965), affirmed o. b. 46 N. J. 1 (1965).

From our review of the record and the legitimate inferences to be drawn from the testimony we cannot say that the jury could not properly have concluded that Lorusso could not have foreseen that the icy condition of the road would cause the bus to skid and hence was not guilty of negligence. We are satisfied that the verdict of the jury was not contrary to the weight of the evidence and that it does not clearly and unequivocally appear that the court’s denial of plaintiffs’ new trial motion was a manifest denial of justice under the law.

In view of the foregoing, we also find no error in the court’s denial of plaintiffs’ motion for a judgment at the close of the proofs. Inferences that the accident did not occur through the fault of the bus driver are supported by the facts. The issue of liability was a matter solely for determination by the jury.

Plaintiffs further allege that the court erred in its charge to the jury. They first contend that the court erred in refusing their request to charge that part of N. J. S. A. 39:4-89 which states:

“The driver of a vehicle shall not follow another vehicle more ■•closely than is reasonable, and prudent, having duo regard to tlie speed of the preceding vehicle and the traffic upon, and condition of, the highway.”

We find no error in the court’s action. We agree with the trial court that the statute is inapplicable to the facts of this case — that it pertains to a situation where both vehicles involved in an accident are in motion upon the highway.

Plaintiffs claim "that having refused to charge the language of N. J. 8. A. 39 :4^89, the court erred by not including in its charge language such as:

“Such an event (a rear-end collision) does not ordinarily occur without negligence,”
or
“Usually the driver of the rear car is at fault if he collides with a stationary car in front.”

No request to charge such language was submitted' to the court and therefore this contention can only be considered if the court’s failure to so charge constituted plain error. R. R. .1:5-3(b). While such or similar statements were made by the court in its discussion of a nine-car accident in Stackenwall v. Washburn, 42 N. J. 15 (1964) at page 30, we have not been presented with any authority which indicates that the failure to so charge would constitute plain error. We find no plain error here.

Plaintiffs next contend that the court committed plain error by not instructing the jury on the doctrine of res ipsa loquitur and allege that the court affirmatively excluded the inference of defendants’ negligence which could be drawn from the facts by charging the jury that plaintiffs had the burden of proving that the driver of the school bus was guilty of negligence. Reliance is placed on Vespe v. DiMarco. 43 N. J. 430 (1964).

We do not agree. The court’s charge did not exclude from the jury’s consideration any inferences of negligence which might be drawn from the facts. At the conclusion of plaintiffs’ case the defendants came forward and offered evidence in explanation of the cause of the accident. No limitations were placed on the jury’s right to infer negligence from evidence relating to the speed and control of the school bus. There is no reason why the jury could not draw that inference without, as well'as with, a specific instruction authorizing them to do so. Vespe v. DiMarco, supra, at p. 437. The court’s charge that the plaintiffs had the burden of proving negligence was a correct statement of the law. Even if the court had charged the doctrine of res ipsa loquikor, the operation of that rule of evidence does not shift the burden of proof.. Bornstein v. Metropolitan Bottling Co., 26 N. J. 263, 269 (1958). Here no request was submitted to the court to charge the doctrine of res ipsa loquitur. In its charge the court discussed the facts, defined negligence without referring to the doctrine and submitted the issue of negligence to the jury. The jury undoubtedly considered all the evidence and the legitimate inferences to be drawn therefrom before reaching the verdict. We find no plain error. Cf. Vespe v. DiMarco, supra, at p. 439.

Finally, plaintiffs allege that the trial court committed plain error by charging that defendant Lorusso had a duty to exercise only reasonable care and failing to charge “a special and greater degree of care commensurate with the increased danger.” We hold there was no plain error. In Stackenwalt v. Washburn, supra, where visibility of the automobile driver was limited due to heavy fog, the court stated:

“There can be no doubt that the question of negligence in each case may properly be left to the jury with the general instruction * * i: of reasonable care under existing circumstances.” (42 N. J., at p. 24)

A similar charge was given by the court in the instant case.

Affirmed.


author: Lewis, J. A. D.

text:
    ANTHONY TARTAGLIO, ET AL., PLAINTIFFS-APPELLANTS, v. DEPARTMENT OF INSTITUTIONS AND AGENCIES, DIVISION OF PUBLIC WELFARE, DEFENDANT-RESPONDENT.
    Superior Court of New Jersey Appellate Division
    Argued June 3, 1968—Supplemental Briefs June 26, 1968,
    July 22, 1968, July 26, 1968 and July 31, 1968—
    Decided September 19, 1968.

      Before Judges Gaulkin, Lewis and Kolovsky.

      Mr. Robert P. Subranni argued the cause for appellants (Mr. Leonard PL. Wallach, of the Legal Services Project, Atlantic Human Eesources, Inc., Office of Economic Opportunity, attorney).

      Mr. Eugene T. Urbaniah, Deputy Attorney General, argued the cause for respondent (Mr. Arthur J. Sills, Attorney General of New Jersey, attorney).
   The opinion of the court was delivered by

Lewis, J. A. D.

Plaintiffs, a family of seven, appeal from a determination of the Department of Institutions and Agencies (Department) affirming the action of the Atlantic County Welfare Board (Board) in discontinuing payments under the Assistance for Dependent Children (ADO) program created by N. J. S. A. 44:10-1 et seq., and 42 U. S. G. A. § 601 et seq.

The wife, mother of five children, after obtaining a divorce from their father, married her present husband, Anthony Tartaglio. Before the remarriage she received welfare assistance. Subsequently, there was a rebudgeting by the Board of the family income and expenses which took into consideration the stepfather’s earnings; the Board found that there was a monthly surplus of $75.66. Accordingly, it determined that the children were ineligible for continued assistance. On appeal to the Department a “fair hearing” was held, pursuant to N. J. S. A. 44:7—18 and 44:10—2, which culminated in that agency’s affirming the decision of the Board. We here note that due process is satisfied in administrative proceedings if a fair hearing is accorded before the order becomes effective. In re Masiello, 25 N. J. 590 (1958); New Jersey Zinc Co. v. Board of Review, 25 N. J. 235 (1957).

On appeal to this court plaintiffs’ principal arguments are based upon the contention that the Board was not authorized to take the stepfather’s earnings into consideration because the stepfather is not required by law to support his stepchildren, citing Schneider v. Schneider, 25 N. J. Misc. 180, 52 A. 2d 564 (Ch. 1947), and Falzo v. Falzo, 84 N. J. Super. 343 (App. Div. 1964). Compare Paragian v. Paragian, 48 N. J. Super. 207, 209-213 (J. & D. R. Ct. 1957), and Williamson v. Williamson, 183 Ky. 435, 209 S. W. 503, 505, 3 A. L. R. 799 (Ct. App. 1919). Neither the Board nor the Department purported to impose a legal obligation on the stepfather to support his stepchildren and, indeed, it was not within their power to do so.

The record before us reveals that plaintiffs are living together as a family unit; the stepfather considered the stepchildren dependents for purposes of withholding tax exemptions; he assumed the role of a spouse and father to his wife’s offspring, and he was willing to assume “as much of the responsibility as he could.”

In Connecticut where the statutes, as in New Jersey, do not impose an obligation of support upon a stepfather, a denial of financial- assistance to dependent children of a mother who had remarried was sustained, the court stating:

“The mother, the stepfather and her children are a family unit the resources of which should be considered. For the state to furnish aid, there should be an actual need. Need should not be created where none exists, based on the absence of a legal obligation on the part of the stepparent to support his stepchildren.” Ladd v. Welfare Commissioner, 3 Conn. Cir. 504, 217 A. 2d 490, 492 (Cir. Ct. App. Div. 1965).

People v. Owens, 231 Cal. App. 2d 691, 42 Cal Rptr. 153, 157 (D. Ct. App. 1965), is to the saíne effect. It has been held that even absent a formal marriage, the income of one assuming the role of a spouse is includable in budgeting the family needs. See County of Kern v. Coley, 229 Cal. App. 2d 172, 40 Cal. Rptr. 53, 56-58 (D. Ct. App. 1964); People v. Rozell, 212 Cal. App. 2d 875, 28 Cal. Rptr. 478, 480-481 (D. Ct. App. 1963); People v. Shirley, 55 Cal. 2d 521, 524, 11 Cal. Rptr. 537, 539, 360 P. 2d 33, 92 A. L. R. 2d 413 (Sup. Ct. 1961). But of. Reich, “Individual Bights and Social Welfare: The Emerging Legal Isssues,” 74 Yale L.J. 1245 (1965).

In the instant matter, the decision of the Department refers specifically to its rules and regulations, identified as the “Categorical Assistance Budget Manual,” which, in pertinent part, provides:

“When an ADO family consists of a natural or adoptive parent, eligible child (ren) and a stepparent (the family may or may not also include ineligible child (ren)) * * * need shall be determined on the basis of the family budget unit. Need exists if the income of all members of the family is less than the sum of basic and special circumstance requirements for all family members * * *. Need does not exist if the income of the family equals or exceeds the sum of the basic and special circumstance requirements for all family members.” See. 706.2, subsec. (c) (2) (a)

The Department adopted rules and regulations pursuant to N. J. S. A. 44:10-3 which authorizes their adoption, generally, “to secure for the State of New Jersey the maximum Federal financial participation that is available with respect to a program of assistance for dependent children” and to otherwise accomplish the purposes of the act and, specifically, to provide that in determining need for financial assistance, there shall be taken into consideration all income and resources “of the dependent child and of the parent, parents, or other relatives with whom such child is living.” N. J. 8. A. 44:10-1, Subsection (c)(2), in defining “dependent child,” includes a child living with a “stepfather,” and subsection (d)(1) provides that “parent or relative with whom a dependent child is living” means a person related to the dependent child in the manner described in subsection (c) (2).

The New Jersey enactment, N. J. 8. A. 44:10-1 et seq., implements federal legislation dealing with “Grants to States for Aid and Services to Needy Families with Children.” 42 TJ. 8. O. A. § 601 et seq. Section 602 (a)(7) requires that a state agency, in determining need, shall take into consideration the income and resources “of any child or relative claiming aid to families with dependent children, * * * ” and section 606(a) states that the term “dependent child” means a needy child

“(1) who has been deprived of parental support or care by reason of the death, continued absence from the home, or physical or mental incapacity of a parent, and who is living with his father, mother, grandfather, grandmother, brother, sister, stepfather, stepmother, stepbrother, stepsister, uncle, aunt, first cousin, nephew, or niece * * (Emphasis supplied) (This section is incorporated by reference in section 606 (c) which defines the term “relative with whom any dependent child is living.”)

We note also that under section 604 federal payments may be discontinued if the state fails to comply substantially “with any provision required by section 602(a).”

It is thus clear that the applicable administrative rules and regulations, the authority for which is not challenged, reflect an adherence to the express policy of the federal and state legislation to include, in a family budget formula, the income of a stepfather who assumes a spousal relationship. The wisdom of such legislation, even if it should be considered debatable, is not to be questioned by the judiciary. See Dacunzo v. Edgye, 19 N. J. 443, 454 (1955). Accord, Galvan v. Press, 347 U. S. 522, 528, 74 S. Ct. 737, 98 L. Ed. 911, 920 (1954).

Moreover, the department concluded its determination with the observation that it would be appropriate for plaintiffs to reapply for assistance “whenever any significant reductions in income or increases in requirements should occur in this family situation.” Note, N. J. 8. A. 44:7-22, 44:10-2.

We find King v. Smith, 392 U. S. 309, 88 S. Ct. 2128, 20 L. Ed. 2d 1118 (1968), to be factually and legally distinguishable. The issue in that case was the validity of the State of Alabama’s “substitute father” regulation “which denies AFDC [Aid to Families With Dependent Children] payments to the children of a mother who ‘cohabits’ in or outside her home with any single or married able-bodied man.” 88 S. Ct., at p. 2130, 20 L. Ed. 2d, at p. 1122. There the so-called substitute father of applicant’s four children was a married man who had a family of his own consisting of a wife and nine children with whom he lived and who were dependent upon him for support. He went to applicant’s home on “weekends and had sexual relations with her”; further, he was “not willing or able” to support her children. 88 S. Ct., at pp. 2132, 2132, 2133, 29 L. Ed. 2d, at pp. 1124, 1125. The Alabama regulations with which the court dealt denied payments to applicant’s children solely and per se because she cohabited with a man who was not her husband. The determination of the regulations’ applicability turned on whether or not the man “cohabit[ed]” with the mother. In effect, the classification was held arbitrary since a denial of aid to otherwise eligible beneficiaries because of their mother’s sexual behavior was a reason unrelated to any purpose of the statutes. New Jersey does not have a “substitute father” regulation which denies AEDC payments to the children of a mother who cohabits with a man.

The order of the Department is affirmed.


author: Gaulkin, S. J. A. D.

text:
    JOHN FOLLARI, PLAINTIFF-APPELLANT, v. STATE OF NEW JERSEY, DEPARTMENT OF CIVIL SERVICE, DEFENDANT-RESPONDENT.
    Superior Court of New Jersey Appellate Division
    Argued September 9, 1968
    Decided September 19, 1968.

      Before Judges Gaulkin, Collester and Labrecque.

      Mr. Frank J. Guccio argued the cause for plaintiff (Messrs. Oalissi, Gelman, Guccio & Klinger, attorneys).

      Mr. Theodore A. Winard, Deputy Attorney General, argued the cause for defendant (Mr. Arthur J. Sills, Attorney General, attorney).

      Messrs. Chandless, Weller <§ Kramer, appearing for the City of Garfield, filed a Statement in Lieu of Brief stating that the City joined in the brief and argument of plaintiff.
   The opinion of the Court was delivered by

Gaulkin, S. J. A. D.

This is an appeal from a decision , of the Civil Service Commission placing the position of building inspector of the City of Garfield in the classified service, thereby making it subject to competitive examination.

Garfield is a city of the second class, organized under B. 8. 40:10J-1 et seq. (Acts Saved from Repeal). In 1959 Garfield adopted the provisions of the Civil Service Act. On April 19, 1966 Garfield adopted the Standard Building Code of New Jersey by reference, N. J. S. A. 52:270-54; N. J. S. A. 40:49-5.1. On April 4, 1967 Follari was appointed building inspector, effective June 1, 1967. The appointment was made by the mayor, and confirmed by the city council.

Civil Service approved the appointment as a temporary one in the competitive division, pending an open competitive examination. Follari and Garfield objected to the classification, claiming that the post belonged in the unclassified service, for which no examination is required, and that Follari was entitled to tenure under B. 8. 40 ¡171-168. Civil Service rejected these contentions and ordered the examination. Follari took the examination but, upon his motion, we enjoined Civil Service from certifying the results pending the outcome of this appeal.

Follari and Garfield (hereafter appellants) claim that Garfield’s building inspector is in the unclassified service as head of a department, N. J. 8. A. 11:22-2(d), or as an “appointment of the mayor,” N. J. 8. A. ll:22-2(c). We disagree and affirm the decision of Civil Service.

Follari is the only employee in the alleged “department.” However, appellants point to section B-103.0 of the Standard Building Code which provides that “the building official shall appoint such number of officers, technical assistants, inspectors and other employees as shall be necessary for the administration of this code and as authorized by the appointing authority.” Appellants argue that this establishes the building inspector’s right to hire and exercise control over subordinates, even though (as appellants admit) it does not give him the right to discharge them. Consequently, say appellants, the position of the building inspector substantially meets the test allegedly laid down in Milton v. Dept. of Civil Service, 71 N. J. Super. 135 (App. Div. 1961), for determining whether one is the head of a department.

To begin with, in Milton we did not lay down a definitive test. We merely said that “A review of the decisions shows that the following factors have been considered as indicating whether or not a position is that of head of a department * * (at p. 140). Each ease must still be considered upon its own facts and merely because those facts do or do not literally comport with the factors mentioned in Milton will not automatically answer the question whether a position is that of head of a department.

Beyond that, this case does not exhibit the factors mentioned in Milton. The mere fact that the Standard Building Code gives the building inspector the right to appoint such subordinates as the municipality might authorize is immaterial, for here the municipality authorized none. It must be remembered that the Standard Building Code is a form designed to be available for use by all New Jersey municipalities, large and small. Therefore the mere adoption of its general words provides no basis for evaluation of a position unless and until the words are implemented by action of the municipality. Here Garfield has not authorized the appointment of any subordinate to the building inspector, and there are no employees of any kind in his alleged “department” other than himself. In Milton the officer in question had 55 subordinates under him. In addition, he had the right to fire as well as to hire employees, which Garfield’s building inspector does not have.

Appellants argue that Follari would not be “a subordinate of another officer of the municipality,” which was also one of the factors mentioned in Milton. However, standing alone that is of little importance. In small communities there rarely are members of the governing body or other officers with the training which would enable them to supervise the technical details of the work of building, plumbing, health and similar inspectors. This does not make them heads of departments. Cf. Mara v. Parsippany-Troy Hills Twp., 24 N. J. 113, 119 (1957). On the other hand, building inspectors in all municipalities, large and small, must keep records and report to the appointing authority as to their activities and account for fees collected. Under the Standard

Building Code, the Garfield building inspector must do likewise. Sections B-113.6, B-113.6(a), R-113.6(b). Similarly, here it is of little moment that the work of the building inspector is important (the work of all building inspectors is important) or that he is provided with an office in the main building.

It is true that Follari was appointed by the mayor with the consent of the council, as the city’s ordinance (not the Standard Building Code) provides. However, R. 8. 40:171-55 provides that “in all cities of this state” the “board of aldermen or common council” shall have the right to appoint a building inspector. We know of no statute which gives that right to a mayor. N. J. 8. A. 40:171-168 speaks of building inspectors, at least in second-class cities, as being “appointed or elected by municipal boards.”

It is true that Garfield’s ordinance gives the appointing power to the mayor, subject to approval by the council, and the council did approve, but the council had no right to cede its appointing power to the mayor. The exemption from the classified-competitive service granted by the Civil Service Act, N. J. S. A. ll:22-2(c), extends only to appointments which a mayor has the right to make. Here the mayor had no such right.

We must also note that, even if Garfield’s building inspector were in the unclassified service and the Civil Service Act did not apply, Follari was not legally appointed. The Standard Building Code fixes the qualification of the “building official” (§B-105.0) and provides that at least ten days prior to his appointment “other than by civil service, the appointing authority shall formally submit [his] qualifications to the State Board of Standards for its review and approval” § B-105.1. It is admitted that this was not done. Therefore it may be that Follari has no standing to prosecute this appeal. Even so, we elected to decide the basic questiop because of its general public importance.

Affirmed.


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

text:
    IN THE MATTER OF THE ESTATE OF EDWARD WARREN COFFIN, DECEASED. NATIONAL NEWARK & ESSEX BANK, PLAINTIFF, v. AUDREY N. BOLLIN, EXECUTRIX UNDER THE WILL OF AUDREY NEWITT, PROPONENT-DEFENDANT-APPELLANT, AND THE FIRST CHURCH OF CHRIST, SCIENTIST, IN BOSTON, MASSACHUSETTS, PROPONENT-DEFENDANT-APPELLANT, AND EDWARD W. COFFIN, JR., CAVEATOR-DEFENDANT-RESPONDENT.
    Superior Court of New Jersey Appellate Division
    Argued September 9, 1968
    Decided September 19, 1968.

      Before Judges Sullivan, Foley and Lewis.

      Mr. Alfred G. Clapp, argued the cause for proponent-defendant-appellant Audrey N. Bolin, Executrix under the Will of Audrey Newitt and proponent-defendant-appellant First Church of Christ, Scientist, in Boston, Massachusetts (Messrs. Clapp & Fisenberg, attorneys; Messrs. Arnold K. MyteTka & Robert P. Gormanj of counsel).

      Mr. Robert C. Lawrence, III, attorney for proponent-defendant-appellant First Church of Christ, Scientist, in Boston, Massachusetts.

      Mr. Jay R. Benenson argued the cause for caveator-defendant-respondent Edward Warren Coffin, Jr. (Messrs. Furst, Furst, Feldman A Benenson, attorneys; Mr. Jonathan Kohn, on the brief).
   The opinion of the court was delivered by

Sullivan, S. J. A. D.

This is an appeal from a judgment of the County Court denying probate to decedent’s will, dated August 25, 1962, on the ground that, at the time the will was executed, the decedent lacked testamentary capacity because he was suffering from the insane delusion that caveator was not his son. For reasons hereinafter stated, we reverse and direct that the will be admitted to probate.

The burden of establishing lack of testamentary capacity is on the one who contests the will being offered for probate. This burden must be sustained by clear and convincing evidence. In re Hoover, 21 N. J. Super. 323, 325 (App. Div. 1952). Furthermore, it is incumbent upon the caveator to establish lack of capacity at the time the will was executed. Gellert v. Livingston, 5 N. J. 65, 76 (1950). Indeed, he must show that the disputed will was the product of the decedent’s insanity. In re Strittmater, 140 N. J. Eq. 94, 95 (E. & A. 1947).

An insane delusion which robs an individual of testamentary capacity is a false belief based upon incidents "existing only in the diseased imagination of the deluded party.” Davenport v. Davenport, 67 N. J. Eq. 320, 368 (Ch. 1904). A mere mistake of fact, or p belief based on false or insufficient evidence, is not an insane delusion. Middleditch v. Williams, 45 N. J. Eq. 726, 735 (Prerog. 1889), rev’d on other (procedural) grounds, 47 N. J. Eq. 585 (E. & A. 1890); In re Haness, 98 N. J. Eq. 645, 651 (Prerog. 1925). Rather, an insane delusion is a false and fixed belief not founded on reason and incapable of being removed by reason. 1 Page on Wills, § 141, p. 290, 291 (3d Ed. 1941).

We have carefully reviewed the record and find that the totality of the proofs does not establish that at the time the will was executed decedent was suffering from an insane delusion which robbed him of testamentary capacity. Decedent’s belief over the years that caveator was not his son was based on some evidence. Decedent had information, including information given him by his wife, as to her relations with other men, which led him to believe that he was not the father of her child. See: In re Hargrove’s Will, 262 App. Div 202, 28 N. Y. S. 2d 571 (Sup. Ct. App. Div. First Dept. 1941), aff'd 288 N. Y. 604, 42 N. E. 2d 608 (Ct. of App. 1942). He might have been mistaken in his belief but that did not make it an insane delusion. Moreover, the record demonstrates that decedent did not persist in his belief after he met caveator and apparently saw a strong physical resemblance. See: 1 Page on Wills, supra. In short, neither the elements, nor the indicia, of an insane delusion were made to appear.

The judgment denying probate is reversed and the matter remanded with direction to admit decedent’s will to probate.

The appeal also challenges as excessive the fee awarded caveator’s counsel. Since the allowance probably reflected the fact that the trial court had sustained caveator’s position, the allowance must be set aside. On the remand, the trial court is to make a new allowance to caveator’s counsel in the light of the final outcome herein directed.


text:
    CATHERINE GORDON, EXECUTRIX OF THE ESTATE OF CORA REYNOLDS, DECEASED, PLAINTIFF-RESPONDENT, v. ARTHUR ROBINSON, ADMINISTRATOR OF THE ESTATE OF WALTER EVERETT, DECEASED, DEFENDANT-APPELLANT.
    Superior Court of New Jersey Appellate Division
    Argued September 16, 1968
    Decided September 24, 1968.

      Before Judges Gaulkin, Collestee and Labbecque.

      Mr. Nathan W. Davis, Jr. argued the cause for defendant-appellant.

      Mr. William J. Hughes argued the cause for plaintiff-respondent (Messrs. Loveland, Hughes & Garrett, attorneys).
   The opinion of the court was delivered by

Gaulkin, S. J. A. D.

On October 3, 1966 Cora Reynolds filed with defendant Robinson a claim against the estate of Walter Everett “for board, lodging, care, and other general services during the 312 weeks immediately preceding the death of Walter Everett, at a consideration of $10. per week— $3,120.00.” ■ ■

Cora Reynolds died October 15, 1966 and plaintiff qualified as executrix of her will on October 26, 1966. Defendant rejected the claim on March 14, 1967, whereupon plaintiff instituted this action. After defendant filed an answer denying the indebtedness, plaintiff moved for summary judgment on the ground that defendant had failed to dispute the claim within three months after its presentation to him, as required by N. J. S. 3A :24-6, and therefore he was barred from disputing it. The trial judge agreed and granted plaintiff’s motion. Defendant appeals.

It is not clear from the record whether the judgment was entered against defendant individually or as administrator of the estate. Plaintiff’s counsel stipulated before us that the judgment was intended to be against defendant as administrator, and we shall so treat it. The pleadings are to be considered amended, wherever necessary, to show that the action and the. judgment were against defendant as administrator. However, our decision would be the same if the judgment were against him personally. We reverse.

N. J. S. 3A :24-6 provides, insofar as here pertinent:

“Within :? months after the presentation to him of a claim, the executor or administrator shall allow or dispute it or allow it in part and dispute it in part, and give notice in writing to the creditor, liis agent or attorney, of that which he allows or disputes. * *

We hold that this provision is directory, not mandatory. We hold that the failure of an executor or administrator to dispute a claim within three months after it is filed does not, standing alone, bar him or the estate from challenging it. Such failure may subject the executor or administrator to criticism or such other punitive action by the court as the circumstances may warrant, hut it does not per se insulate the claim against contest.

The purpose of the quoted provision and the related sections of chapter 24 of Title 3A is to speed np the settlement of estates. The pressure exerted by this chapter is principal^ upon claimants. Whatever penalties and disadvantages'are set forth in the article are all visited upon dilatory claimants. N. J. S. 3A :24-6 (second paragraph); N. J. S. 3A. :24-7. Nowhere in said chapter 24 is it expressly stated that estates or their representatives are to he penalized for the late rejection of claims. In short, we find nothing in the statute which indicates that the Legislature intended to build such a procrustean bed for estates or their representatives as plaintiff claims. Even dilatory claimants are not barred absolutely, N. J. S. 3A :24—8, 9, but may get a second chance, N. J. S. 3A :24-10, 11.

Plaintiff relies heavily upon certain language in DeLisle v. Reeves; 96 N. J. Eq. 416 (E. & A. 1924), but that case has no bearing upon the case at bar. DeLisle was an action by a creditor to collect a judgment recovered against the decedent before he died; it was brought after the administrator omitted this claim from the final accounting, although the claimant had given notice of it and the administrator had not disputed it. The holding of the case was simply that if an account is settléd without the inclusion of a creditor’s claim, after he has given notice of it, the account will be reopened. The DeLisle case does not say that a claim which is not rejected becomes incontestable. Since in DeLisle the claim was upon a judgment recovered against decedent in his lifetime, there was no dispute as to its validity.

Plaintiff argues that the judgment should be affirmed because of defendant’s laches. Pier counsel argues that when the claim was filed, Cora Reynolds was seriously ill; had defendant rejected the claim promptly, steps could have been taken to perpetuate her testimony; now Cora Reynolds is dead and she is the only one who could have testified to the merits of the claim. However, she died only 12 days after filing the claim. Laying aside the question whether laches of an executor or administrator can ever preclude the estate from contesting a claim, the facts here do not support plaintiff’s contention. Defendant had three months within which to act; Cora Reynolds died only 12 days after the claim was filed;' even if defendant had rejected the claim within the 12 days (which he was not obliged to do) it would have been well nigh impossible to institute suit and take her testimony within that time.

Reversed.


text:
    AMERICAN HARDWARE MUTUAL INSURANCE COMPANY, PLAINTIFF-APPELLANT, v. ERNEST MULLER, INDIVIDUALLY AND d/b/a ERNIE’S AUTO SALES; DAVID S. MULLER AND DONNA LEE MULLER, DEFENDANTS, AND CARL G. LADD, A MINOR BY WILLIAM T. LADD, HIS GUARDIAN AD LITEM, AND WILLIAM T. LADD, IN HIS OWN RIGHT, INTERVENORS, CROSS-CLAIMANTS-RESPONDENTS, v. DONNA LEE MULLER AND AMERICAN HARDWARE MUTUAL INSURANCE COMPANY, DEFENDANTS-RESPONDENTS.
    Superior Court of New Jersey Appellate Division
    Argued September 16, 1968
    Decided September 24, 1968.
    Before Judges Gaulkin, Collestek and Labbecque.

      Mr. William S. Zink argued the cause for plaintiff-appellant (Messrs. Bleakly, Stockwell, Zink & McGeary, attorneys).

      Mr. Robert E. Bailey argued the cause for defendants-respondents (Messrs. Halpin & Bailey, attorneys).

      Mr. George A. Streitz argued the cause for the intervenors, cross-claimants-respondents.
   Per Curiam.

Plaintiff American Hardware Mutual Insurance Company sought a declaratory judgment exonerating it from liability under a garage liability policy issued by it to defendant Ernest Muller, individually and doing business as Ernie’s Auto Sales. The facts are fully set forth in the opinion of the Chancery Division reported in 98 N. J. Super. 11-9.

We affirm the judgment substantially for the reasons set forth in the opinion of Judge Wick.