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King v. South Jersey National Bank

Decided: December 10, 1974.


For affirmance -- Chief Justice Hughes and Justices Jacobs, Hall, Mountain, Sullivan and Clifford. For reversal and remandment -- Justice Pashman. The opinion of the Court was delivered by Hughes, C.J. Clifford, J. (concurring). Pashman, J. (dissenting). Clifford, J., concurs in the result.


Challenging as invalid the repossession of an automobile (by a secured creditor, after default in payment) this appeal primarily suggests constitutional infirmity in N.J.S.A. 12A:9-503, a part of the New Jersey Uniform Commercial Code.*fn1 It invokes, in the name of constitutional right, the conceptual reach of the policy which would provide protection in the marketplace in cases such as typified by Fuentes v. Shevin, 407 U.S. 67, 92 S. Ct. 1983, 32 L. Ed. 2d 556 (1972), reh. den. 409 U.S. 902, 93 S. Ct. 177, 34 L. Ed. 2d 165.*fn2

The relevant facts and procedural history, uncomplicated and not in dispute, are these: the appellant, William B. King (plaintiff) purchased and received an automobile from a

dealer, entering into an installment sales contract under which he promised to pay the balance due on a monthly basis. The contract created in the dealer and assigns a security interest in the automobile to secure payment of the monthly installments as they would become due. The contract provided that in the event of default in payment the unpaid balance would become due and payable and the seller and assigns could "without notice or demand for performance or legal process, enter any premises where the goods may be found [and] peaceably take possession of them * * *." The contract also stated "[u]pon default holder shall also have all the remedies of a secured party under the New Jersey Uniform Commercial Code if it is applicable to default hereunder."

Upon delivery of the automobile and execution of the contract, the seller assigned the latter to the respondent South Jersey National Bank (the Bank). Plaintiff defaulted in an overdue monthly payment (which had been called to his attention by notice) and the Bank thereupon invoked the acceleration clause of the contract and peaceably exercised its right to repossess the automobile without notice to plaintiff, as the contract authorized it to do. Plaintiff later offered to make good on the defaulted payment, but this was rejected and he was informed the car would be returned only if he paid the full balance remaining due.

The Bank sent plaintiff a notice that the automobile would be sold at public auction.*fn3 On the same day plaintiff filed a complaint in the Chancery Division and obtained an order temporarily restraining the sale pending a hearing. Before the hearing date was reached a consent order was entered returning the automobile to plaintiff under certain conditions not here pertinent. Plaintiff then filed an amended complaint containing three counts, (1) for damages for tortious conversion

of the automobile, (2) for damages for the unlawful conversion of personal property which was in the automobile*fn4 and (3) seeking declaratory judgment that N.J.S.A. 12A:9-503, supra, was unconstitutional on its face and as applied and that the acceleration clause in the retail installment sales contract was unconscionable.

After answer filed and pretrial conference held, the Bank moved for summary judgment and plaintiff countered with a similar motion. The trial court granted summary judgment for the Bank, dismissing the first and third counts of the complaint, thus upholding the constitutional validity of the repossession and its incidents and negating the claim of unconscionability. Plaintiff appealed from this summary judgment order and this Court granted his motion for certification under R. 2:12-2 while the appeal was pending unheard in the Appellate Division, 63 N.J. 561 (1973).

Count one (unlawful conversion) falls unless count three (invalidity of seizure and unconscionability of contract) is upheld, and hence our attention is directed to the validity of the allegations of the latter count. Aside from the claim that the acceleration clause in the contract was unconscionable (which we shall mention briefly hereafter), plaintiff's denunciation of the repossession and his plea for judicial repudiation of N.J.S.A. 12A:9-503, supra, were predicated entirely upon the proposition made in one charge of his amended complaint:

14. Repossession of said vehicle by defendant was allegedly authorized by and taken pursuant to N.J.S.A. 12A:9-503.

By a pretrial stipulation the Bank made clear its contention contra, that its retaking was based on its private contractual rights and not under the authority of N.J.S.A.

12A:9-503, supra, and hence without the assistance or cooperation or involvement of the state.

This refinement of the constitutional issue, i.e., the distinction between private or individual action and "state action" subject to the equal protection and due process clauses of the Fourteenth Amendment, was clearly understood by the trial court. Its opinion supporting summary disposition fully and accurately dealt with the "essential dichotomy between discriminatory action by the State, which is prohibited by the Equal Protection Clause, and private conduct, 'however discriminatory or wrongful,' against which that clause 'erects no shield.'" Moose Lodge No. 107 v. Irvis, 407 U.S. 163, 172, 92 S. Ct. 1965, 1971, 32 L. Ed. 2d 627, 637 (1972); Shelley v. Kraemer, 334 U.S. 1, 13, 68 S. Ct. 836, 842, 92 L. Ed. 1161, 1180 (1948);*fn5 The Civil Rights Cases, 109 U.S. 3, 3 S. Ct. 18, 27 L. Ed. 835 (1883). The same philosophy obviously applies to the Due Process Clause.

Thus the court determined, as had been held in a comparable case (Messenger v. Sandy Motors, Inc., 121 N.J. Super. 1 (Ch. Div. 1972)) that the repossession was a private contractual matter rather than a state action, and so was immune from constitutional attack. This conclusion is supported by an overwhelming majority of federal and state courts which have held (many in very recent times) that "self-help" repossession is not an act under color of state laws and thus no state action is involved.*fn6 [66 NJ Page 169] Before discussing the argument that the statute mentioned and the action allegedly taken under it came within the "state action" theory, we note the claim that the acceleration clause of the contract was unconscionable. Our scrutiny of the factual record shows nothing that would justify us in declaring that such a clause, universally acceptable in such transactions and in the business world is, or in its exercise in this case was, unconscionable. In the absence of extraordinary circumstances demonstrating oppression or grossly unfair dealing or the like not here present, or conflict with the public policy of the state (cf. Unico v. Owen, 50 N.J. 101 (1967)), the court should not declare unconscionable the provisions for acceleration and for self-help repossession deliberately

agreed to in the contract between the parties in this case.

On the main issue it must first be noticed that the right of self-help repossession of property under circumstances such as involved here, far from being a right created (and thus the fruit of "state action") by N.J.S.A. 12A:9-503, supra, or that statute's predecessor, Section 16 of the Uniform Conditional Sales Act codified by N.J.S.A. 46:32-22, has roots deep in the common law and has been recognized for centuries. 2 Pollock & Maitland, The History of English Law 573 (2d ed. 1952), 2 Blackstone, Commentaries on the Laws of England 857-858 (4th ed. T. Cooley 1899). Nor did the Uniform Commercial Code or its predecessor statute distort such a common law right, as had the Florida and Pennsylvania statutes (invalidated in Fuentes, supra) which had so radically altered the ancient replevin remedy that, as Justice Stewart said "they bear very little resemblance to it." [407 U.S. at 78, 92 S. Ct. at 1993, 32 L. Ed. 2d at 569]

The New Jersey Study Comment pertaining to N.J.S.A. 12A:9-503 mentions:

This section carries forward the provisions of R.S. 46:32-22 of the Uniform Conditional Sales Act * * *. Pursuant to this section the secured party may take possession ex parte if such can be done without breach of peace * * *.

By the same token the Uniform Commercial Code Comment to N.J.S.A. 12A:9-503 suggests that:

Again, the New Jersey Study Comment to N.J.S.A. 12A:9-504 (outlining safeguards to the debtor in connection with the disposal of the secured property) suggests that:

The primary purpose of inclusion of such safeguards in the Uniform Conditional Sales Act was protection of the buyer, Pacific Discount Co., Inc. v. Jackson, 68 N.J. Super. 331 (App. Div. 1961) rev'd on other grounds, 37 N.J. 169 (1962); Bancredit Inc. v. Meyers, 62 N.J. Super. 77 (App. Div. 1960); Commercial Credit Corp. v. Lawley, 47 N.J. Super. 207 (App. Div. 1957); Plainfield Motor Co. v. Salamon, 13 N.J. Misc. 570, 180 A. 428 (D. Ct. 1935), and similar recognition of the need for buyer protection in the Uniform Commercial Code portrays the same purpose. But neither statute enlarged the basic common law right of self-help repossession.*fn7

If, then, the substance of the challenged statute and its predecessor amounted to no more than codification of existing law (albeit they provided additional post-seizure safeguards to the original buyer in connection with notice of

sale, disposition of proceeds and the like), it seems obvious that no new right was created by the mere delineation of this procedure in the statute. Codification is merely a legislative reorganization of existing law into acceptable statutory form. Legislative energy is expended, but only to the end that the law should remain the same. Nothing has been created or destroyed (at least with regard to the challenged section 12A:9-503) and such legislative activity clearly does not constitute "state action" under the Fourteenth Amendment. It is in effect a passive perpetuation of the common law and as such does not "significantly" involve the state in the denial of due process rights. As was the case at common law, the state is totally removed from the repossession process, at least until after the event, when certain additional safeguards come into play for the protection of the original buyer, junior creditors and subsequent owners.

The concept that codification of the common law amounts to state action "encouraging" forms of private conduct, simply because of the fact of legislation, has been authoritatively rejected. Turner v. Impala Motors, 503 F.2d 607 (6th Cir. 1974); Nichols v. Tower Grove Bank, 497 F.2d 404 (8th Cir. 1974); Nowlin v. Professional Auto Sales, Inc., 496 F.2d 16 (8th Cir. 1974), cert. den., U.S. , 95 S. Ct. 328, 42 L. Ed. 2d 283 (1974); Bond v. Dentzer, 494 F.2d 302 (2d Cir. 1974); Shirley v. State Nat'l Bank, 493 F.2d 739 (2d Cir. 1974), cert. den. - U.S. , 95 S. Ct. 329, 42 L. Ed. 2d 284 (1974); Adams v. Southern Cal. First Nat'l Bank, 492 F.2d 324 (9th Cir. 1973), cert. den., U.S. , 95 S. Ct. 325, 42 L. Ed. 2d 282 (1974); Bichel Optical Labs., Inc. v. Marquette Nat'l Bank, 487 F.2d 906 (8th Cir. 1973).

In Messenger, supra, Judge Herbert properly adopted the philosophy expressed in a brief amicus curiae which had been filed in Adams v. Egley, 338 F. Supp. 614 (S.D. Cal. 1972), rev'd sub nom. Adams v. Southern Cal. First Nat'l Bank, supra. This brief, filed by Professor Mentschikoff on behalf of the permanent editorial board for the Uniform Commercial

Code, stated with regard to Section 12A:9-503, supra, that:

It cannot be that codifying a generally understood practice of ancient and honorable lineage and surrounding it with safeguards renders the practice unconstitutional.*fn8

The same was otherwise stated by the Second Circuit Court of Appeals in Shirley, supra, and Bond, supra, in rejecting the proposal that mere codification "encouraged" the existing practice:

Codification did not encourage the practice one whit. * * * [T]he legislation made it less attractive by providing greater safeguards * * *. [ Shirley, supra, 493 F.2d at 744]

The Fourteenth Amendment was not intended to impose upon the sovereign states a new, inflexible, doctrinaire pattern of affirmative rectitude. Rather, it sought to preserve values and rights sensed to be inherent in the human condition, making sure that the states, as viable as was considered

to be their membership in the federal union, would never dare by law or other action to interfere with the equal sharing of those benefits, nor withdraw any except by due process.*fn9 Thus it is that the Amendment erects no shield (The Civil Rights Cases, supra) against private action however wrongful, leaving to the individual states the freedom to deal therewith according to their lights. The Amendment, rather, immunizes the people from state action which might affirmatively and significantly impinge upon fundamental rights, so thought to be inherent in their nature rather than created by any constitution or other human work.

Seen in this way, it is clear that the source of state action which may interfere with basic rights is broad in concept, including each branch of government having capacity so to encroach, whether legislative, judicial or executive.*fn10 The source of such prohibited action may even be the people themselves, and in such case they too will be restrained, as from adopting an amendment to a state constitution deemed offensive to the Fourteenth Amendment (Reitman v. Mulkey, 387 U.S. 369, 87 S. Ct. 1627, 18 L. Ed. 2d 830 (1967)).*fn11

The nature of any such state action, however, to fall within the proscriptive orbit of the Fourteenth Amendment, is more constricted. It must be affirmative and significant before it becomes vulnerable. Thus the failure of a state to legislatively suppress a private wrong, or to alter common law rights which existed at the birth of the Fourteenth Amendment, does not fall within its interdiction. Mere passivity in state action is not proscribed. State action is not invoked; it is restrained. So, as shield rather than sword, does the Amendment secure to the people due process and equal protection of the laws.

Thus state neutrality, such as here demonstrated in 12A:9-503, supra, neither commanding nor forbidding the action contracted for between the parties, is far from the state encouragement of the private wrong condemned in Reitman, supra, that being in the area of racial discrimination, conduct particularly sensitive and offensive and at which the Fourteenth Amendment was significantly aimed.*fn12 Nor did the Bank in its repossession purport to be exercising a state function, as sometimes causes an action taken by a private organization, regulated by the state and given much power, to seem to be acting under color of state law, thus becoming accountable under the Fourteenth Amendment. Burton v. Wilmington Parking Authority, supra; PUC D. Columbia v. Pollak, 343 U.S. 451, 72 S. Ct. 813, 96 L. Ed. 1068 (1952); Marsh v. Alabama, 326 U.S. 501, 66 S. Ct. 276, 90 L. Ed. 265 (1946); Smith v. Allwright, 321 U.S. 649, 64 S. Ct. 757, 88 L. Ed. 987 (1944); Coleman v. Wagner College,

supra. Governmental regulation of the Bank here, however, did not reach such extreme stage, nor confer such an image of state power and thus the state was not even an apparent participant. Moose Lodge No. 107 v. Irvis, supra.

Nor is support for plaintiff's argument to be found in several of the cases*fn13 cited by him for they are inapposite, involving either actions of state officials acting in concert with a private individual, private parties acting under semblance or pretense of being the state's agents, or a law or state-enforced custom which requires or compels private wrongful acts, none of which elements exists in the present case. The Bank's authority to repossess, as stated, was based on a contractual right, a private act taken by the Bank to protect its security interest in personal property that was subject to the installment sales contract entered into by plaintiff.

Again, certain of the statutory sequelae of the completed repossession are pointed to in support of the concept of state involvement therein, such as the steps ordained for re-sale (N.J.S.A. 12A:9-504, supra), the providing of a mechanism for the issuance of an ownership certificate for a repossessed vehicle (N.J.S.A. 39:10-15), procedures for the use of state forms and personnel to effect title changes, and availability of the court system to obtain and enforce deficiency judgments. None of these factors is relevant to the nature of the repossession and would be operative, in the case of a motor vehicle, even had it been repossessed after notice and a judicial hearing. All are insufficient to significantly involve the state in the challenged seizure. Moose Lodge

No. 107 v. Irvis, supra; Adams v. Southern Cal. First Nat'l Bank, supra; Kirksey v. Theilig, 351 F. Supp. 727 (D. Colo. 1972); Nichols v. Tower Grove Bank, supra.

But plaintiff belatedly suggests that a statute codifying the common law, even though it does not (as we have seen) constitute "state action" within reach of Fourteenth Amendment condemnation, may nevertheless (under a more relaxed view) constitute action offensive to the New Jersey Constitution and, hence, be amenable to correction by the Court. He cites in particular Article I, par. 1 of our 1947 Constitution*fn14 and Article I, par. 7*fn15 thereof.

The power of the Court to enforce rights recognized by the New Jersey Constitution, even in the complete absence of implementing legislation, is clear. Robinson v. Cahill, 62 N.J. 473 (1973), cert. den. sub nom. Dickey v. Robinson, 414 U.S. 976, 94 S. Ct. 292, 38 L. Ed. 2d 219 (education, N.J. Const. (1947), Art. VIII, ยง 4, par. 1); Cooper v. Nutley Sun Printing Co., Inc., 36 N.J. 189, 196 (1961) (collective bargaining, N.J. Const. (1947), Art. I, par. 19); Gray v. Serruto Bldrs., Inc., 110 N.J. Super. 297, 306 (Ch. Div. 1970) (racial discrimination in housing, N.J. Const. (1947), Art. I, par. 1, par. 5). Just as the Legislature cannot abridge constitutional rights by its enactments, it cannot curtail them through its silence, and the judicial ...

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