Crescent Investments Co. v. Commissioner of Banking and Ins.

• Decision Date: 18 July 1968
• Docket Number: No. C--2005,C--2005
• Citation: 103 N.J.Super. 11,246 A.2d 493
• Parties: CRESCENT INVESTMENTS CO., a corporation, Plaintiff, v. COMMISSIONER OF BANKING AND INSURANCE of the State of New Jersey, Defendant.
• Court: New Jersey Superior Court

Page 11

103 N.J.Super. 11

246 A.2d 493

CRESCENT INVESTMENTS CO., a corporation, Plaintiff,

v. COMMISSIONER OF BANKING AND INSURANCE of the State of New

Jersey, Defendant.

No. C--2005.

Superior Court of New Jersey Chancery Division.

July 18, 1968.

W. Louis Bossle, Camden, for plaintiff.

Arthur J. Sills, Atty. Gen., for defendant (E. Robert Levy, Deputy Atty. Gen., of counsel).

WICK, J.S.C.

This is a declaratory judgment action brought to determine the constitutionality of N.J.S.A. 17:11A--1 et seq., more commonly known as The Secondary Mortgage Loan Act of 1965. The facts are as set forth below.

Plaintiff Crescent Investments, Company was granted a license to do business pursuant to The Secondary Mortgage Loan Act of 1965, N.J.S.A. 17:11A--1 et seq. (hereinafter referred to as the 'act'). By virtue of its authority as a New Jersey licensee plaintiff entered into numerous secondary mortgage loans with certain homeowners. Following an investigation based upon charges made against plaintiff regarding its lending activities, Charles R. Howell, the Commissioner of Banking and Insurance of this State, issued an order to show cause why plaintiff's secondary mortgage loan license should not be suspended, revoked or not renewed since it had violated the various provisions of the act and certain rules and regulations promulgated thereunder.

On the return date of the order to show cause the Deputy Attorney General appeared to present the evidence in support of the charges made in said order. After the State completed its case and before plaintiff presented its, plaintiff instituted the within action by way of verified complaint and order to show cause why the Commissioner should not be enjoined from further prosecuting his order to show cause and for a declaration that sections 11 and 29 of the act are unconstitutional. Plaintiff's order was issued and an interlocutory injunction was granted until such time as the court should make a determination as to the constitutionality of these provisions.

The provisions toward which plaintiff specifically directs its attack are as follows:

N.J.S.A. 17:11A--11:

'The commissioner may suspend, revoke or refuse to renew any license issued hereunder, * * * if he shall find that the licensee or any owner, director, officer, member, partner, stockholder, employee or agent of such licensee has:

(a) made any material misstatement in the application;

(b) committed any fraud, engaged in any dishonest activities, or misrepresented or failed to disclose any of the material particulars of any secondary mortgage loan transaction to any one entitled to such information;

(c) violated any of the provisions of this act * * *;

(d) otherwise demonstrated unworthiness * * *.'

N.J.S.A. 17:11A--29:

'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.'

Plaintiff attacks these provisions as void for vagueness and overbreadth.

At the outset it should be borne in mind that declaring a statute unconstitutional is a judicial power to be delicately exercised. Harvey v. Essex County Board of Freeholders, 30 N.J. 381, 153 A.2d 10 (1959). The burden of proving a statute unconstitutional is an extremely formidable one. Levitt & Sons, Inc. v. Division Against Discrimination, etc., 31 N.J. 514, 531, 158 A.2d 177 (1960). And a party who attacks a statute as unconstitutional has a strong burden of proving it, since the validity of the statute is presumed, and a court will not declare legislation void unless its repugnancy to the Constitution is clear beyond a reasonable doubt. Supermarkets General Corp. v. Sills, 93 N.J.Super. 326, 225 A.2d 728, Ch.Div.1966). The mere fact that more precise language might have been used by the Legislature does not render a statute unconstitutionally vague. All that need be shown is that the statute adequately informs persons accused of violations thereof of the nature and cause of the accusation against them; that is, the statute must reasonably notify the licensee involved here of the conduct prohibited. Supermarkets General Corp. v. Sills, supra; United States v. L. Cohen Grocery Co., 255 U.S. 81, 41 S.Ct. 298, 65 L.Ed. 516 (1921). Thus, if the general terms of the statute, measured by common understanding, fairly and adequately convey its meaning to all concerned, the statute must be upheld. Laba v. Newark Board of Ed., 23 N.J. 364, 129 A.2d 273 (1957).

'* * * (A) statute should be interpreted by a mind sympathetic to its aims which recognizes the difficulties inherent in formulating a precise expression of legislative intent in light of the diversity of circumstances to be covered.' Lane v. Holderman, 23 N.J. 304, 323, 129 A.2d 8, 19 (1957).

'In dealing with the question of standards it is elementary that we are not confined to the specific terms of (the statutory action) but must examine the entire act in the light of its surroundings and objectives. See Carlson v. Landon, 342 U.S. 524, 72 S.Ct. 525, 96 L.Ed. 547 (1952). Nor are we restricted to the ascertainment of standards in express terms if they may be reasonably implied from the entire act.' Ward v. Scott, 11 N.J. 117, 123, 93 A.2d 385, 387 (1952).

It is within the framework set forth above that this court must examine plaintiff's complaints.

Plaintiff first attacks N.J.S.A. 17:11A--11(a), which authorizes the Commissioner to cancel a license for 'any material misstatement in the application.' Indeed, says plaintiff, it is clear that a licensee on reading this provision would naturally and properly assume that he could not lose his license for any misstatement which was not material. Yet nowhere is there a section which defines that which is material. Similarly, continues plaintiff, under subsection (b) the License may be cancelled if the licensee, or any other person named in that section, fail 'to disclose any of the material particulars of any secondary mortgage loan transaction to any one entitled to such information.' Again there is no indication of what constitutes 'material particulars' of the transaction. Plaintiff contends that although a licensee would naturally and properly assume that failure to disclose particulars which were not regarded material would be insufficient to revoke his license, nowhere is he told what are and what are not material particulars. Plaintiff further argues that although a licensee could lose his license for failure to disclose these material particulars to 'anyone entitled to such information,' nowhere is there any indication as to who in fact is so entitled. As a result, says plaintiff, men of common intelligence must guess at several meanings, and consequently the statute is not sufficiently explicit to inform plaintiff what conduct or omission on its part, or those of its employees, might render it subject to the statutory penalties.

As if this were not enough, continues plaintiff, section 11 states that the Commissioner May suspend, revoke or refuse to renew the license. Plaintiff contends that use of the word 'may,' rather than 'shall,' gives the Commissioner the power to discriminate as to whose license he will affect. Thus, for a 'material misstatement in the application,' without being told what constitutes a material misstatement, or for a failure 'to disclose any of the material particulars' of a secondary mortgage loan transaction, without guidance as to what these are, or a failure to disclose these 'to any one entitled to such information,' without having set forth who is so entitled, the Commissioner May suspend, revoke or refuse to renew a license; the result will inevitably be that the license will hang on the whim or caprice of the Commissioner.

Plaintiff also contends that the standard of defendant's authority to suspend, revoke or refuse to renew a license under N.J.S.A. 17:11A--11 is the same as the prescribed authority for him to refuse to Issue a license under N.J.S.A. 17:11A--5(b). (17:11A--5(b) specifically provides that the Commissioner may refuse to Issue a license for 'any reason for which the commissioner may suspend, revoke or refuse to renew any license under section 11 of this act.') It follows, says plaintiff, that the standards prescribed by said section 11, reading 'committed any fraud, engaged in any dishonest activities (etc.),' must necessarily relate not only to such activities as are connected with the license, but any and all such activities no matter when committed or how remote in time, whether or not connected with the license or a secondary mortgage loan, and not only as to a principal but to its shareholders, employees or agents as well. In these particulars, argues plaintiff, the statute is on its face repugnant to the Due Process clause and is a violation of equal protection of the Fourteenth Amendment of the United States Constitution, and is void for overbreadth.

Plaintiff's final contention is that section 29 of the act, precluding enforcement of any loans given without full compliance with the act, is not only vague but clearly a deprivation of property without due process of law; it impairs the obligation of contracts made under the act.

Each of the provisions attacked in plaintiff's complaint must be read in light of the overall purpose and objective of the Secondary Mortgage Loan Act. A review of the relevant legislative history discloses that various institutions of lending, both local and out-of-state, had been engaging in loan transactions with New Jersey residents in which misleading advertising was taking place and unconscionable amounts of interest as well as exorbitant fees were being exacted. These loans were secured by secondary mortgages on real estate located in New Jersey. It was to protect New Jersey residents from this misleading advertising and exorbitant charges and fees that the Secondary Mortgage Loan Act was enacted. This legislation is very...