Callen v. Sherman's, Inc.

• Decision Date: 10 February 1983
• Citation: 92 N.J. 114,455 A.2d 1102
• Parties: Andrew B. CALLEN and Dicksie H. Callen, his wife, and Ralph A. Runyon, Jr., and Patricia S. Runyon, his wife, t/a Pard Realty, Plaintiffs-Appellants, v. SHERMAN'S, INC., Florence Karasik, individually, and Jules Karasik, Defendants-Respondents.
• Court: New Jersey Supreme Court

Page 114

92 N.J. 114

455 A.2d 1102

Andrew B. CALLEN and Dicksie H. Callen, his wife, and Ralph A. Runyon, Jr., and Patricia S. Runyon, his wife t/a Pard Realty, Plaintiffs-Appellants, v. SHERMAN'S, INC., Florence Karasik, individually, and Jules Karasik, Defendants-Respondents.

Supreme Court of New Jersey.

Argued Oct. 13, 1982.

Decided Feb. 10, 1983.

Leonard S. Needle, Red Bank, for plaintiffs-appellants (Zager, Fuchs, Leckstein & Kauff, Red Bank, attorneys).

Kathleen R. Wall, Asbury Park, for defendants-respondents (Sugarman & Wall, Asbury Park, attorneys).

The opinion of the Court was delivered by

POLLOCK, J.

This appeal questions the validity of statutes permitting a landlord to distrain the goods of a commercial tenant for unpaid rent. N.J.S.A. 2A:33-1 to -23. Specifically, the appeal presents two issues. The first issue is whether distraint by a municipal constable at the request of a landlord invokes the protection of due process accorded by the fourteenth amendment of the United States Constitution. Implicit in that issue is the further question of whether the acts of the constable are fairly attributable to the state and, therefore, constitute "state action." The second major issue is, if there is state action, whether the statute provides a commercial tenant with sufficient notice and opportunity to be heard to satisfy the constitutional requirement of due process.

The landlord filed a complaint seeking damages for breach of the lease, and the tenant counterclaimed asserting that the distraint was unconstitutional. Before trial, the court found that the tenant had breached the lease and it granted a partial summary judgment on liability for the landlord. At the commencement of the trial, the issues were the damages due the landlord, the liability of the landlord because of the distraint, and damages, if any, due the tenant. The court impaneled a jury and granted the landlord's motion to dismiss the counterclaim as a matter of law. In reaching that conclusion, the trial court reasoned that the actions of the landlord and constable were not state action and, therefore, that the tenant was not entitled to due process under the fourteenth amendment. With the consent of counsel, the court dismissed the jury and proceeded as the trier of fact to determine the damages due the landlord. At the conclusion of the trial, the court entered a judgment against the tenant for unpaid rent in the amount of $7,418.07.

On appeal, the Appellate Division affirmed the damages award for the landlord, but reversed the dismissal of the tenant's counterclaim and remanded the matter for a new trial on the counterclaim. The court found that the distress constituted state action and that the tenants were not afforded due process.

We granted the landlord's petition for certification to review the Appellate Division's determination of the unconstitutionality of the statutes granting a landlord the right to distrain a commercial tenant's goods for unpaid rent. 89 N.J. 443, 446 A.2d 164 (1982). Although we conclude that the statutes are unconstitutional as applied in this case, we find further, in light of all the facts, that the tenant suffered no damages because of the distraint. Consequently, we reverse the judgment of the Appellate Division, thereby reinstating the judgment of the trial court dismissing the counterclaim.

I

Plaintiffs are four individuals trading as Pard Realty, a partnership that owns a commercial building in Little Silver New Jersey. Pard Realty leased a store in the building to Sherman's, Inc. for an interior decorating retail business. Defendants Florence Karasik and her husband, Jules, principals of Sherman's, guaranteed the lease.

The lease term extended from November 15, 1975 to November 14, 1977, and the total rent was $19,200, payable $800 per month, due in advance on the fifteenth of each month. In the event of a default, the tenant continued to be liable for the monthly rent, but the lease did not provide for the acceleration of the remaining payments. The tenant failed to pay the rent due on October 15, 1976, and in late October or early November advertised with signs at the premises that it was "going out of business." Mr. Callen, on behalf of the landlord, spoke with Mr. Karasik, who said that he could not pay the arrearage and confirmed that he was, in fact, going out of business. On November 12, 1976 the landlord filed its complaint seeking the entire balance due under the lease, $10,400; in fact, however, the actual rent due by November 15 was only $1,600.

After consulting a lawyer, the landlord engaged a municipal constable who distrained the goods in the store by padlocking the premises on December 3, 1976, three weeks after the filing of the complaint. Although the tenant took no action to dissolve the distraint, it notified the United States Small Business Administration (SBA), which held a prior security interest in the personal property and fixtures of the store. The SBA informed the landlord and the constable of its security interest and of the $123,000 balance due on its loan. Pursuant to the SBA's request, the constable turned over the keys to the premises to a representative of a private auctioneer who, on December 13, conducted a public sale of the tenant's property on behalf of the SBA.

On December 15, 1976, the SBA surrendered possession of the premises to the landlord and paid $133 as rent for the period during which it controlled the store. Nothing indicates that the landlord had any knowledge of the SBA's lien on the property at the time of the distraint, and neither the SBA nor the constable is a party to the present action. Shortly after regaining possession of the premises, the landlord advertised for a new tenant, but did not lease the premises until September 30, 1977.

Furthermore, counsel have acknowledged that the certificate of incorporation of Sherman's, Inc. was revoked in 1981 for nonpayment of corporate business taxes. Furthermore, in 1980 Mr. and Mrs. Karasik filed a petition in bankruptcy that included the judgment in favor of the landlord as a liability and the equity, "if any," in the counterclaim as an exempt asset. The trustee in bankruptcy abandoned any interest in that claim, and in 1981 the Karasiks received a discharge in bankruptcy, which declared null and void all judgments.

II

Distraint of a tenant's goods by a landlord may be the sole surviving relic of the early common law's tolerance of self-help. See Commercial Credit v. Vineis, 98 N.J.L. 376, 120 A. 417 (Sup.Ct.1923). Nonetheless, since at least the thirteenth century, the common law has condoned distraint as an exception to the principle that "self-help is an enemy of the law, a contempt of the king and his court." 2 Pollock & Maitland, Hist. of Eng. Law 574 (Cambridge ed.1968). Other forms of self-help, such as replevin, generally have yielded to the contemporary belief that society is better off if adversaries who cannot otherwise settle their differences proceed before an impartial third-party such as a mediator, arbitrator or judge.

At common law a landlord was allowed only to hold property pending the payment of rents or services. Impounded goods--e.g., livestock--were considered to be in the custody of the law. A tenant could not breach the pound and remove the goods, see 3 W. Blackstone Commentaries *12-13, and the landlord could not sell the goods in satisfaction of the debt. Elkman v. Rovner, 133 N.J.Eq. 93, 98, 30 A.2d 516 (1943). See 1 Pollock & Maitland, supra, at 353. Later, statutes permitted the landlord to appraise and sell the goods under official supervision after notice to the tenant. In response to a perceived excess of power in the hands of feudal lords, other statutes were enacted to limit the ability of a lord to distrain. The Statute of Marlebridge, for example, banned unreasonable distraints, gave the tenant the right of replevin and ended distraint for services not due. Bradby, A Treatise on the Law of Distresses 8 (1808).

In New Jersey, statutes have provided for distraint since 1795, and the current act, N.J.S.A. 2A:33-1 to -23, still exhibits its feudal origins. Although neither the statutes nor the common law has ever specified the form that distraint should take, Bradby, supra, at 216-17, padlocking of the tenant's premises has long existed as an accepted method of distraint. See, e.g., Elkman v. Rovner, supra; Lipinski v. Frank, 12 N.J.Misc. 174, 170 A. 608 (1934). No notice or hearing is required before distraint, but a distraining party is liable in damages for an "unreasonable, excessive or wrongful distraint...." N.J.S.A. 2A:33-1. Thus, in Lipinski v. Frank, supra, a distraint was adjudged to be wrongful when the landlord sold for $50 goods worth $450, although the tenant owed only $45 and offered to pay the amount due.

The New Jersey statute further provides for double damages for goods wrongfully distrained and sold, N.J.S.A. 2A:33-17, but awards the landlord double costs if the tenant loses in an action for wrongful distraint. N.J.S.A. 2A:33-19. The act exempts from distraint residential premises, N.J.S.A. 2A:33-1, and other kinds of property. N.J.S.A. 2A:33-6. Unlike the early English common law, the New Jersey statute encourages the participation of a government official from beginning to end: "All sheriffs and constables shall aid in the execution of the provisions of this chapter." N.J.S.A. 2A:33-14.

Following the distraint, the goods are impounded and the tenant is liable for treble damages for wrongfully removing them. N.J.S.A. 2A:33-16. The statute expressly provides for the assistance to the landlord of a constable or peace officer where the tenant has removed or concealed property subject to distraint. N.J.S.A. 2A:33-22.

Once the landlord has effected a distraint on the premises and impounded sufficient goods, the tenant has ten days after receiving notice to commence an action to recover them. Thereafter, on two...