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American Budget Corp. v. Furman

Decided: April 14, 1961.


Mintz, J.s.c.


Plaintiffs seek a declaratory judgment adjudging unconstitutional L. 1960, c. 177 (N.J.S.A. 2A:99A-1 et seq.), enacted January 11, 1961, referred to as the Debt Adjusters Law. Defendant Attorney General of the State of New Jersey counterclaims for injunctive relief against the plaintiff corporation, and for the appointment of a receiver as prescribed by the statute.

Plaintiff corporation applied for an interlocutory injunction to enjoin defendants from enforcing the statute pending a final determination of its validity. At the oral argument on that motion counsel stipulated that the issue be considered as though presented on motion and cross-motion for summary judgment adjudicating the constitutionality of this legislation, and that final judgment be entered on the basis of the oral argument, pleadings, affidavits and briefs filed.

Plaintiff corporation was organized in 1957. Since its inception it has carried on the business of debtor counselling and now has contracts with approximately 1,000 debtors for the performance of said services. The complaint alleges that at the time of seeking the aid of plaintiff corporation many debtors had exhausted all other possible avenues of assistance, that many had maximum loans from several small loan companies and were being harassed by creditors. The plaintiff corporation undertakes to render the service of managing and budgeting the applicant's income for the purposes of liquidating the applicant's debts. It charges an initial fee and monthly carrying charges, both payable over a period of the contract, averaging 10% to 12% of the funds it handles if completed in one year, and 6% if completed within two years. Its services include working out a minimum living budget for the debtor and establishing a feasible program of pro rata liquidation of all the debtor's obligations based upon the available funds.

The subject statute (L. 1960, c. 177) reads as follows:

"1. As used in this act

(a) 'person' means an individual, partnership, corporation and association;

(b) 'debt adjuster' means a person who acts or offers to act for a consideration as an intermediary between a debtor and his creditors for the purpose of settling, compounding, or in anywise, altering the terms of payment of any debts of the debtor; and, to that end, receives money or other property from the debtor, or on behalf of the debtor, for payment to, or distribution among, the creditors of the debtor.

(c) 'debtor' means an individual, and includes 2 or more individuals who are jointly and severally, or jointly or severally indebted.

2. Any person who shall hereafter act or offer to act as a debt adjuster in this State shall be guilty of a misdemeanor.

3. The Superior Court shall have power, in an action brought in the name of the State by the Attorney General, to enjoin any person from acting or offering to act as a debt adjuster; and, in such action, may appoint a receiver for the property and money employed in the transaction of business by such person as a debt adjuster, to insure, so far as may be possible, the return to debtors of so much of their money and property as has been received by the debt adjuster, and has not been paid to the creditors of the debtors.

4. The following persons shall not be deemed debt adjusters for the purposes of this act: any attorney-at-law of this State; any person who is a regular, full-time employee of a debtor, and who acts as an adjuster of his employer's debts; any person acting pursuant to any order or judgment of court, or pursuant to authority conferred by any law of this State or of the United States; any person who is a creditor of the debtor, or an agent of 1 or more creditors of the debtor, and whose services in adjusting the debtor's debts are rendered without cost to the debtor; and any person who, at the request of a debtor, arranges for or makes a loan to the debtor, and who, at the authorization of the debtor, acts as an adjuster of the debtor's debts in the disbursement of the proceeds of the loan, without compensation for the services rendered in adjusting such debts.

5. This act shall take effect immediately."

The introductory statement appended to the act recites that "The purpose of this bill is to bar debt adjusters from transacting business in this State."

Plaintiff corporation urges that the act is prohibitory rather than regulatory of a legitimate business, namely, that of debt adjuster. Consequently, it violates the due process and equal protection clauses of the Federal Constitution, which the Fourteenth Amendment makes applicable to the states, and Art. 1, ยง 1 of the State Constitution, which provides that all persons have natural and unalienable rights,

among which are those "of acquiring, possessing, and ...

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