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State v. South Amboy Trust Co.

Decided: September 6, 1957.

STATE OF NEW JERSEY, PLAINTIFF,
v.
SOUTH AMBOY TRUST COMPANY, A CORPORATION OF THE STATE OF NEW JERSEY, DEFENDANT



On motion for summary judgment.

Hughes, J.s.c.

Hughes

[46 NJSuper Page 500] In this action of the State of New Jersey against the South Amboy Trust Company, the plaintiff has brought on a motion for summary judgment on two counts of its complaint. It suggests that under R.R. 4:58-3 the record of the pleadings, discovery proofs and affidavits palpably negates the existence of a genuine issue as to any material fact challenged, entitling the movant to judgment as a matter of law. The prerequisites for the granting of such summary relief are well-known. They require that a discriminating search of the merits in the pleadings and proofs on file clearly establish the absence of any genuine issue of material fact requiring disposition at a trial. Judson v. Peoples Bank & Trust Co. of Westfield , 17 N.J. 67 (1954). The summary judgment is not to be considered as a substitute for a plenary trial of the issue, if there be any such genuine issue (Battle v. General Cellulose Co. , 23 N.J. 538 (1957)), and is to be granted with circumspection, since its allowance defeats the asserted right of a litigant to such plenary trial of the merits. Devlin v. Surgent , 18 N.J. 148 (1955). It is for this reason that the burden of establishing, beyond a reasonable doubt and with the utmost clarity, the right to summary relief is upon the movant, and that the court must view with critical

discernment the body of proof advanced in support thereof. Monmouth Lumber Co. v. Indemnity Insurance Co. of North America , 21 N.J. 439 (1956). All inferences of doubt are drawn against the movant and in favor of trial. West Side Trust Co. v. Gascoigne , 39 N.J. Super. 467 (App. Div. 1956). Yet the right to summary judgment is a substantial one where circumstances warrant, and is more than a token procedural remedy under our rules, for it not only affords protection against groundless claims and frivolous defenses, saving the antagonists the time and expense of protracted litigation, but it also reserves judicial manpower and facilities to cases which meritoriously command attention. Asbill and Snell, "Summary Judgment Under the Federal Rules -- When an Issue of Fact is Presented ," 51 Mich. L. Rev. 1143 (1953).

It follows that in examining the record here to determine whether the issue is thus ripe for summary disposition, the court must have particular concern for the balancing of these opposing philosophies of the judicial process brought into focus by the summary judgment procedure, exercising caution to avoid a precipitate stifling of trial of the issue and yet not hesitating to afford protection against frivolous litigation. Robbins v. Jersey City , 23 N.J. 229 (1957).

The issues framed by these pleadings are immediately arresting to the attention, for they embrace a situation of such unusual nature, fortunately, that search for a comparable precedent is difficult. In pursuance of its sovereign functions the State of New Jersey empowers its State Treasurer to receive and disburse moneys of the State, R.S. 52:18-11, holding the same on deposit in national banks or in banks authorized to do business in this State, which must be located in the State, R.S. 52:18-17, 18. He is bound, inter alia , to prepare on a quarterly basis a record showing the balances of state funds on deposit with each bank, which is to be a public record, R.S. 52:18-21. With the exception of specific moneys, such as the State School Fund, certain federal appropriations and other funds of particular characteristics or source, or dedicated to particular

uses, R.S. 52:18-30, the statute requires that all moneys of the State collected or received by any state institution, board, commission, department, committee, agent or servant, from any source, shall be paid into the State Treasury, R.S. 52:18-29. Generally speaking, these moneys are expended from the State Treasury for general purposes to which they have been appropriated specifically by the proper authority, R.S. 52:18-27. This pattern applies to moneys received pursuant to laws relating to motor vehicles, R.S. 52:18-32; L. 1918, c. 153, sec. 2, p. 449. The same custodial formula applies to the fund known as the State Disability Benefits Fund created by L. 1948, c. 110, p. 602, sec. 22, although as will be seen this fund is dedicated to specific purposes. Since this statute is a focal point in the controversy here involved, its pertinent provisions should be noted:

" N.J.S.A. 43:21-46. State disability benefits fund.

(a) The State disability benefits fund, hereinafter referred to as the fund, is hereby established. The fund shall remain in the custody of the State Treasurer, and to the extent of its cash requirements shall be deposited in authorized public depositories in the State of New Jersey. There shall be deposited in and credited to the fund the amount of worker and employer contributions * * *. The fund shall be held in trust for the payment of disability benefits pursuant to this act, for the payment of benefits pursuant to subsection (f) of section 43:21-4 of the Revised Statutes, and for the payment of any authorized refunds of contributions. All moneys withdrawn from the fund shall be upon warrant signed by the State Treasurer and countersigned by the director of the commission or by such trustee of the fund as may be designated by the commission. The Treasurer shall maintain books, records and accounts for the fund * * *."

(This statute by amendment now provides for countersigning by the Director of the Division of Employment Security of the Department of Labor and Industry of the State of New Jersey.)

The defendant is an institution authorized by this State to carry on a banking business, and hence an authorized depository of state funds. Another such authorized depository is the Trenton Banking Company, and in that bank on December 21, 1949 there remained on deposit $300,000 of the disability benefits fund created by the statute. It was

intended by the State to transfer this amount of the fund, for deposit, to the defendant bank, and a warrant check was signed and issued by the State Treasurer for that purpose and was countersigned by the Director of the Commission (who was then Harold G. Hoffman, since deceased). This warrant check contained an endorsement by the Treasurer, without restriction, to the order of the defendant bank, but on its face it contained these two significant legends:

"For Transfer of funds from the Trenton Banking Company for deposit to the South Amboy Trust Company, South Amboy, N.J."

"State Disability Benefits Fund B"

This warrant came into the possession of the defendant bank, which admittedly collected the proceeds from the Trenton Banking Company.

On January 5, 1955 a new State Treasurer sought to transfer this fund from defendant bank to the said Trenton Banking Company for deposit and issued a warrant check in the amount of $300,000 for that purpose, which was appropriately signed and endorsed and which contained these legends on its face:

"For Transfer of Funds from South Amboy Trust Co. to the Trenton Banking Co., Trenton, N.J. (State Disability Benefit Fund B)"

"B STATE DISABILITY BENEFITS FUND"

The defendant (although no part of this fund had been withdrawn, as such, by the State in the interval) refused to honor this draft on the ground that the State had no such account in its bank, and it was this repudiation which was the immediate precipitating factor in this action by the State to recover such amount. But there was a reason for such refusal to honor the later warrant, and the record unambiguously suggests the basis for the bank's position. Despite its infirmities, which will be discussed hereafter, this same record reflects a story of corruption as unpleasant

to contemplate as it is difficult to believe. It establishes beyond doubt a systematic looting of state funds beginning a quarter of a century ago, and accomplished by a technique which, though not developed in the fullest detail by the proofs submitted, was manifestly (in any possible aspect) so simple and discoverable that its successful concealment over the years is quite startling.

The 1949 transfer of proceeds of the disability benefits fund account above mentioned was not the only instance in which the defendant acted as a depository of state funds. From at least April 1930 to the present time it has held on deposit many millions of dollars of the funds of the State involving at various intervals multiple accounts, including one first known as the account of "Harold G. Hoffman, Commissioner of Motor Vehicles," and later as the Motor Vehicle Fund, another account known as the State Fund, and one known as the General Treasury Fund (which still exists and in which defendant presently admits it holds $700,000 on deposit). Additionally, there was the State Highway System Fund, the Motor Fuels Tax Fund, the School Relief Fund and the Grade Crossing Elimination Fund. Finally, there is the Disability Benefits Fund, the existence of which the State declares and the defendant denies.

The Motor Vehicle Fund above referred to began with a deposit of $1,455.50 on April 5, 1930, and in the nine years of its existence there passed through it amounts in excess of $16,000,000. In 1930 said Hoffman was Commissioner of Motor Vehicles in New Jersey and he was also then treasurer of the defendant bank, having been an officer thereof since its organization in 1919. Testimony in this record indicates that he was "in charge of the bank" as early as 1924, and when he died he had been its president for some four years. During the interval he variously had been executive vice-president and vice-president. While Motor Vehicle Commissioner, according to testimony in this record, he designated the banks into which deposits were to be made, including the bank of the defendant. He rose

to be elected Governor of New Jersey in 1934, and upon the expiration of his term in 1938 he was appointed Executive Director of the Unemployment Compensation Commission. After military service from 1942 to 1946 he resumed his office as Executive Director, the title of which was changed in 1950 to Director of Division of Employment Security. On March 18, 1954 he was suspended by executive order of the present Governor of New Jersey, and on June 4, 1954 former Governor Hoffman died.

The proofs establish beyond fair question that during the interval from 1930 until at least 1949, and probably later (since the record shows activity in the General Treasury Fund therein in terms of hundreds of thousands of dollars in deposits as late as 1952), the common denominator in the relationship between the defendant South Amboy Trust Company and the State of New Jersey was Harold G. Hoffman. There is no suggestion that any one other than he, identified with the South Amboy Trust Company, was in a position of influence in the State Government.

The accomplishment of these frauds followed a simple but painstaking pattern, as indicated by the first significant shortage in funds which the State had (or thought it had) on deposit with the South Amboy Trust Company. Incident to an investigation of the status of state accounts with this bank ordered by the Commissioner of Banking and Insurance in June 1954 there were discovered, in a warehouse maintained by the State in Trenton, certain records pertaining to the motor vehicle account which has been mentioned. These included a mass of bank statements apparently regular on their face and purportedly emanating from the defendant bank. These documents and the deposition testimony in reference to them display the simple technique of the embezzlements which began to attack these funds very soon after their establishment. A bank statement reproduced in the record by defendant shows a closing balance in the motor vehicle account $60,000 higher than that shown on another bank statement purporting to continue the same balance, i.e. , that of December 3, 1931, to a second page. By June [46 NJSuper Page 506] 1933 the shortage had risen to $120,000. A bank statement purportedly issued by the South Amboy Trust Company (and reconciled by the appropriate employee of the Motor Vehicle Division in charge of the cash control books of such account, who testified to his handwritten notations thereon in his deposition taken herein) shows a closing balance in this account on June 30, 1933 of $862,764.68, whereas a bank statement in similar form on an identical South Amboy Trust Company bank statement form (but which the same witness had never seen, initialed nor used to reconcile balances) showed a balance for the same date of $742,764.68, or a difference of $120,000. It was, manifestly, by this simple device of substituting for statements issued by defendant false statements in identical form, except for figures, and the reconciling of the figures on the substituted statements with the cash ledger of the state agency, that these defalcations were covered and continued. A statement authentic in the sense that it was reconciled with the state cash ledger and initialed by the witness authorized to do so, showed a balance in this account of $956,194.01 on September 31 (sic), 1933. (The erroneous date of September 31, carelessly affixed by the perpetrator of these frauds, or his accomplice, apparently escaped the attention of the Motor Vehicle employee, who in his deposition points to his own handwritten symbol reconciling this higher (and fictitious) balance with the cash ledger record for which he was responsible.) Another statement, authentic in the sense that it purported to represent the actual balance for September 30, 1933 (but which never had been seen by such witness and was presumably diverted from his attention) shows a balance for the same date of $826,194.01, the discrepancy and shortage amounting to $130,000. Comparison of other groups of statements shows that these frauds extended to falsification of amounts of deposits as, for instance, on a statement for the month of March 1934, on which there was entered a deposit on March 10, 1934 of $26,700, whereas such deposit was shown on the same date in a parallel statement at $16,700.

The proofs establish that these shortages increased eventually to the sum of $300,000 and that their effect infiltrated other accounts of plaintiff in defendant bank. The records of the State indicate that the motor vehicle account was closed, in balance, in 1939 and it is evident that the shortages therein were covered by the use of other accounts in defendant bank. As an example, the State asserts, and its cash records show, that on July 1, 1945 the sum of $100,000 was transferred from its Grade Crossing Elimination Fund to its General Treasury Fund, both in the defendant bank. The bank asserts that the Grade Crossing Elimination Fund was in fact closed by withdrawal of the balance of $100,000 on October 30, 1943. The State asserts that no draft was used by it to transfer this money on July 1, 1945 in these intra-bank accounts, but it produces no supporting data such as a copy of an authorization for such transfer. Similarly, the bank relies on a copy of its ledger sheet to show the final transaction in this account, and the affidavit of an officer that such an intra-bank transfer would nevertheless have affected the record of daily cash transactions in the bank and hence, since not reflected therein, presumably did not occur. One would suppose that under modern banking methods, which are almost judicially noticeable, somewhat better evidence tracing this money could be produced, but unless I have overlooked it in the mass of documentary evidence before me I see no further supporting evidence as to the version of either litigant on this point.

Again, the State contends that on July 1, 1945 there was a balance in its account known as the State Fund in the defendant bank of $200,000 and that the name of such fund was changed on that date to the General Treasury account, and that to accomplish such "transfer" no draft was necessary. The bank's answer to this is that it has no record of such a transfer and that in fact the State Fund account was closed out on May 3, 1941. It produces a copy of its ledger sheet for this account (which ...


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