Oxford Consumer Discount Co. of North Philadelphia v. Stefanelli, A--469

• Decision Date: 24 February 1969
• Docket Number: No. A--469,A--469
• Citation: 250 A.2d 593,104 N.J.Super. 512
• Parties: OXFORD CONSUMER DISCOUNT COMPANY OF NORTH PHILADELPHIA, a Corporation, Plaintiff-Respondent, v. Anthony E. STEFANELLI and Theresa A. Stefanelli, Defendants-Appellants, and Arthur J. SILLS, Attorney General of New Jersey, Intervenor, and FIRST MERCANTILE CONSUMER DISCOUNT COMPANY, Intervenor. . Petition for Rehearing
• Court: New Jersey Superior Court — Appellate Division

Page 512

104 N.J.Super. 512

250 A.2d 593

OXFORD CONSUMER DISCOUNT COMPANY OF NORTH PHILADELPHIA, a Corporation, Plaintiff-Respondent, v. Anthony E. STEFANELLI and Theresa A. Stefanelli, Defendants-Appellants and Arthur J. SILLS, Attorney General of New Jersey, Intervenor and FIRST MERCANTILE CONSUMER DISCOUNT COMPANY, Intervenor.

No. A--469.

Superior Court of New Jersey, Appellate Division.

Petition for Rehearing Argued Dec. 16, 1968.

Decided Feb. 24, 1969.

Arnold K. Mytelka, Newark, for intervenor First Mercantile Consumer Discount Co. (Clapp & Eisenberg, Newark, attorneys, Alfred C. Clapp, Newark, of counsel).

Morris L. Weisberg, Philadelphia, Pa., admitted pro hac vice, for plaintiff-respondent (Herman J. Ziegler, East Orange, attorney).

Clive S. Cummis, Newark, for amicus curiae, Middle Atlantic Finance Ass'n (Alan J. Gutterman, and Steven S. Radin, Newark, on the brief).

Annamay T. Sheppard, Newark, for defendants-appellants (Edward Carl Broege, Jr., Newark, on the brief).

Joseph A. Hoffman, First Asst. Atty. Gen., for Attorney General, intervenor (Arthur J. Sills, Atty. Gen., attorney, Stephen Skillman and Douglas J. Harper, Deputy Attys. Gen., on the brief).

Jack B. Kirsten, Newark, for amici curiae, Paul V. Durkin and Ellen Durkin (Kirsten & Solomon, Newark, attorneys).

Before Judges CONFORD, LABRECQUE and HALPERN.

The opinion of the court was delivered by

CONFORD, S.J.A.D.

On September 11, 1968 this court held the Secondary Mortgage Loan Act of 1965 (N.J.S.A. 17:11A--1 et seq.; L.1965, c. 91) to be, in the main, a valid enactment, constitutionally applicable in relation to the enforcement of the obligation on a secondary mortgage loan to New Jersey borrowers, secured by real property situated in this State, although the loan agreement was executed in Pennsylvania and the loan repayable in that state a lender which was a Pennsylvania corporation carrying on a loan business in that state under authority of a licensing statute there in effect. Oxford Consumer Dis. Co. of No. Phila. v. Stefanelli, 102 N.J.Super. 549, 246 A.2d 460. We consequently barred recovery by plaintiff lender of any part of the loan or interest due thereon, finding that the loan agreement called for interest in excess of that allowed by the New Jersey act and was violative of the act in one other respect. We acted under the mandate of section 29 of the act, which provides that no obligation arising out of a secondary mortgage loan (as defined by the act) shall be enforceable in the courts of this State unless negotiated and made in full compliance with the provisions of the act. Certain other allegations by defendants as to violations of the act were not passed upon, as they involved disputes of fact which had not been duly tried.

Thereafter, we denied an application by the plaintiff for rehearing. At the same time, however, we granted a petition of First Mercantile Consumer Discount Company ('First Mercantile'), another Pennsylvania small loan company, for leave to intervene in the cause for the purpose of permitting it to be heard to contend on petition for rehearing that the September 11, 1968 decision of the court should be held not to have retroactive effect as to loan transactions, entered into before the effective date of that decision by Pennsylvania corporations licensed in the State of Pennsylvania to make such loans, where the loans were not only made there but were also repayable there and in all other respects in conformity with Pennsylvania law.

We allowed the intervention, although such action on appeal is quite rare and granted only in extraordinary circumstances--see Hurd v. Illinois Bell Telephone Company, 234 F.2d 942, 944 (7 Cir. 1956); McKenna v. Pan American Petroleum Corporation, 303 F.2d 778, 779 (8 Cir. 1962)--on the basis of the following showing.

First Mercantile and another Pennsylvania loan company had been sued by certain of their New York borrowers, prosecuting a class action in the Chancery Division, for an injunction to restrain enforcement of all secondarymortgage loans made on the security of New Jersey realty by such corporations, although the loan agreements of plaintiffs in those actions were all executed and provided to be repaid in Pennsylvania. Pending the appeal in the instant case we had granted First Mercantile leave to appeal an order of the Chancery Division permitting the continued prosecution of the suit as a class action.

First Mercantile filed proofs on its petition for intervention in the present case, showing it had made secondary mortgage loans secured by New Jersey realty amounting to approximately $5.5 million all of which would be uncollectible if our decision of September 11, 1968 were applied retrospectively; that such a result would be catastrophic, causing insolvency of First Mercantile's parent corporation, throwing 50 of its employees out of work, and jeopardizing loans of about 8 million to these corporations made by various banks, insurance companies and other lenders; that unless an early judicial declaration as to the inapplicability of the decision retrospectively to Pennsylvania lenders in First Mercantile's position were forthcoming, its many New Jersey borrowers would repudiate their obligations and cause ruin to the company; and that it had made loans on secondary mortgages on New Jersey realty, notwithstanding enactment of the New Jersey act in 1965, on the basis of advise of both Pennsylvania and New Jersey counsel that these loans were Pennsylvania transactions subject to Pennsylvania law and not subject to the Secondary Mortgage Loan Act of 1965 or any other New Jersey law.

Upon inquiry by the court, Amicus curiae Middle Atlantic Finance Association advises that nine of its Pennsylvania members had made out-of-state secondary mortgage loans secured by New Jersey real estate, prior to September 11, 1968, aggregating $4,460,881.96 (not inclusive of loans by First Merchantile but including loans by plaintiff). An undeterminable additional amount of such loans has been made by other Pennsylvania members of that organization.

In addition to the original parties and Amicus, Paul V. Durkin and Ellen Durkin, plaintiffs in the aforementioned pending class action against First Mercantile, have been admitted herein as Amici curiae to file a brief and to argue in opposition to the position of that intervenor. Plaintiff supports the position of intervenor, having considerable stake in the issue by virtue of other loans outstanding affected by our September 11, 1968 decision. However, as noted, we have already denied its petition for rehearing of this case in relation to the effect of the decision in relieving the Stefanelli defendants of liability, taking the view that the latter are entitled to retain the fruits of their victory regardless of our conclusion as to the pending request for restrictive application of the decision to other loans. See Goldberg v. Traver, 52 N.J. 344, 347, 245 A.2d 334 (1968). The Stefanellis nevertheless join the Attorney General and the Durkins in opposition to the position of the intervenor.

The proponents of intervenor's position rest their basic argument on the alleged unfairness and injustice of applying the September 11, 1968 holding to loans made prior thereto so as to wipe out all their equity in these loans, but they concede ¹ that they should justly be confined to recovery of the principal sums and to such interest and other charges (so far as agreed to in the loan transaction) which do not exceed the maximum permitted by New Jersey or Pennsylvania law, whichever is lower. Cf. Ditmars v. Camden Trust Co., 10 N.J. 471, 494--498, 92 A.2d 12, 35 A.L.R.2d 822 (1952). The Attorney General adamantly opposes judicial extension of any consideration to intervenor and contends for literal application of section 29 of the act, barring any recovery at all on secondary mortgage loans violative of the act in any respect, whenever made. He takes the position that the public policy declared by the Legislature should not be modified to any degree because the principle of prospective application of judicial decisions is not properly invocable in the existing circumstances.

Intervenor and plaintiff contend that they reasonably relied, after adoption of the act in 1965, upon what they urge was the then generally held view that loans made in a particular state by a lender organized in that state, to be repayable there, were governed as to validity by the law of that state, even if secured by lien on real estate situated elsewhere. That general principle enjoys some color of support in Proposed Official Draft of the Restatement, Conflict of Laws (1968), § 195, 'Contracts for Repayment of Money Lent,' comment (a). (This section and comment are also found in earlier drafts.) The contention is, further, that the reliance by this court in its decision of September 11, 1968, on § 6(1) of the 1967 Restatement draft, as to the controlling effect of a direction as to choice of a law contained in a statute of the forum, was novel and surprising in that there is no express provision in the New Jersey act as to choice of law and in that this court found an implied direction in the act for control of the questioned transaction by the provisions of the act--an implication which intervenor's advisers should not be blamed for not having also drawn from the act. See 102 N.J.Super., at pp. 563--564, 246 A.2d 460. It is argued that average, competent counsel would not have predicted this court's decision on the choice of law question but rather would have concluded that Pennsylvania law controlled as to the validity of the loan in the circumstances presented.

It is further maintained by the supporters of the intervenor's position that none of the Pennsylvania corporate lenders could have complied with the requirement of section 3 of the act that holders of at least 50% Of the stock in corporate applicants for lending licenses should...