Town of Ontario v. Hill — 31 A.D. 324

Majority

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The Town of Ontario, Appellant, v. Francis A. Hill and The Union Bank of Rochester, New York, Respondents.

Headnote

Town bonds—issued hy the supervisor thereof and hypothecated hy him to secure a loan to himself— action by the town to compel their surrender — a bona fide pledgee permitted to hblcl the bonds for the debt.

A town, the supervisor of which was authorized to issue town bonds to retire the existing bonded indebtedness of the town, brought an action against the supervisor and a bank to which the supervisor had transferred certain town bonds issued by him, alleging that the town had received no value for such bonds, and demanding judgment that the defendants surrender them for cancellation.

Upon the trial it appeared that the bonds in question were apparently issued while the supervisor was retiring the old bonds, but it also appeared that the supervisor had not kept formal or particular accounts of the bonds actually retired, or of the bonds actually issued, and it was difficult to determine from the evidence what bonds he retired and the terms and conditions of the negotiations for the surrender of the old bonds and the delivery of the new bonds.

It also appeared that the defendant bank held the bonds in question as collateral "security for a loan made to the supervisor in good faith, but just how, or when, the supervisor acquired title to the bonds pledged to the bank was difficult to determine from the evidence.

The court nonsuited the plaintiff.

Held, that as the right of the supervisor to hold and own the bonds as against the town was not made clear by tfie evidence, the judgment of nonsuit as to the supervisor should be reversed;

That the judgment of nonsuit, as to the bank, should be modified by providing that, upon receiving the amount of its loan and interest and the costs of the action, it should deposit the bonds in question in the county clerk’s office to await the event of the action.

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Appeal by the plaintiff, The Town of Ontario, from a judgment of the Supreme Court in favor of the defendants, entered in the office of the clerk of the county of Wayne on the 8tli day of November, 1897, upon the decision of the court rendered after a trial at Monroe Special Term, dissolving an injunction theretofore granted restraining the defendant, The Union Bank of Rochester, from selling, or otherwise disposing of, or attempting to collect, the refunding bonds of the plaintiff, Nos. 81 and 84, for §100 each, and No. 154 for §500, delivered to it by the defendant Hill; and also dismissing the plaintiff’s complaint and allowing the defendant, The Union Bank of Rochester, to recover costs.

The three bonds mentioned were more particularly described in the complaint. At the town meeting in 1887, the defendant Hill was elected supervisor of the plaintiff town, and continued to be re-elected until the 5th of March, 1889, when his successor was elected. In the complaint it is alleged that, between April 15, 1887, and September 1, 1896, Hill, while such supervisor, or after his term of office had expired, without right or authority of law, executed in his name, as supervisor of said town, a large number of instruments, partly lithographed or printed, and partly in writing, in the form of and purporting to be refunding bonds of said town, and alleged to be issued in virtue of the acts of the Legislature to take up, pay and retire the bonded indebtedness of the town, and that he put the same into circulation for use and used some of them as collateral security for loans made to himself, for which instruments the town of Ontario received no value. It is alleged that the instruments were negotiable in form, payable to bearer, and had attached thereto lithographed upon the same sheet wdth each bond a large number of coupons maturing each six months from and after April 1, 1887, some of them (bonds) being in the amount of §100 and others in the amount of $500. The plaintiff alleges that among such instruments issued without right or authority by the defendant Hill, were two bonds of the denomination of §100 each, numbered 81 and 84, and one bond of the denomination of $500, numbered 154, each with coupons, which bonds are alleged to be in the possession of the defendant, The Union Bank of Rochester ; and the plaintiff alleges that said bonds are asserted by the bank to be held, as pledged to it, as collateral security for a loan made by it

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to the defendant Francis Hill in the sura of $500; that the bank asserts that the instruments are valid obligations of the plaintiff, and that the plaintiff alleges that each of said instruments are invalid, illegal and wholly void as against the plaintiff because the said defendant took the same charged with knowledge that the same were not issued for the benefit of said town, but for the private benefit of said defendant Hill. The complaint asked that the defendants be required to surrender the bonds to the plaintiff to he canceled and destroyed.

The answer of the Union Bank alleged that it held the said three several bonds, and averred that they were valid and denied that it took the same charged with knowledge that the same were not issued for the benefit of said town.

The answer of the defendant Hill admitted several of the allegations of the complaint, and among others that the three several bonds mentioned therein “ are in possession of the Union Bank of Rochester as collateral security for a loan made by said bank to Francis A. Hill; ” and alleged that all bonds issued by him were issued by authority of law and legally, and avers that the town received full value for the same “ by the return of the original bonds which the bonds were issued to refund.”

S. I). Bentley and Charles T. Saxton, for the appellant.

Henry G. Danforth, for the respondent, The Union Bank of Rochester, N. Y.

T. W. Collins, for the respondent, Francis A. Hill.

In chapter 316 of the Laws of 1886 authority was given to supervisors of towns, as to the then indebtedness of the town, to pay up and retire, by the issue of new bonds “for like amounts,” such indebtedness. It was provided, however, “ that such new bonds shall be issued only when existing bonds can be retired by the substitution therefor of such new bonds or can be paid up by money realized on the sale of such new bonds, but where the said bonded indebtedness shall become due within two years from the issue of the said new bonds, then such new bonds may be issued or sold to

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provide money in advance, with which to pay up such existing bonds, when they shall become due and payable.”

In the following year the Legislature passed chapter 158 of the Laws of 1887, which contained the following language: “Section 1. The supervisor of the town of Ontario, in the county of Wayne, is hereby authorized and empowered to do all acts necessary in paying up, retiring and cancelling the present bonded indebtedness of said town, and said supervisor is hereby authorized, empowered and designated as the proper officer or person to sign, execute, issue and deliver new bonds of said town for the purposes above set forth, and under and pursuant to the provisions of chapter three hundred and sixteen of the laws of eighteen hundred and eighty-six.”

The respondent Hill, under the authority given by the two chapters above cited, undertook to retire the bonded indebtedness of his town. In doing so apparently he did not adopt the most formal and particular method of keeping an account of the bonds actually retired, or the new bonds and coupons actually issued, and it is difficult to determine from the evidence adduced at the trial precisely what amount of bonds he retired and took up, and the terms and conditions which were applied by him to the negotiations for the surrender of old bonds, and the delivery of new bonds. The three bonds in question were apparently issued while he was retiring the old bonds, and were subsequently taken by him to the Union Bank and pledged for a loan of $500, then and there made to him in good faith. Before the loan was made an officer of the bank sought such information as he could avail himself of, as to the regularity and validity of the bonds proffered to the bank, and the evidence satisfactorily indicates that the bank, in good faith, loaned the $500 and took in pledge therefor the three several bonds amounting to $700, and that, at the time of the commencement of this action, the whole $500 debt remained unpaid, and that the bonds SO' taken by the bank were held by it as collateral security for its loan so made. Its loan was made directly to Hill. Just how or when he acquired title to the bonds pledged to the bank is difficult to determine by the evidence submitted at the trial. The evidence, however, is satisfactory that the Union Bank is a bona fide pledgee of the three several bonds, and the views expressed in the opinion of the trial judge in that regard are satisfactory, but the right of Hill

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to hold and own the bonds as against the town is not made clear by the evidence.

We think the judgment should be modified as to the Union Bank, so that instead of dismissing the plaintiff’s complaint, it should be declared that the Union Bank, upon receiving the amount of its loan and interest and the costs of this action, should surrender the three bonds mentioned in the complaint, and that the judgment as to the Union Bank, as so modified, be affirmed.

We think the judgment as to Ilill, so far as it dismisses the plaintiff’s complaint, should be reversed and a new trial ordered, with costs to the appellant to abide the event.

All concurred.

Judgment as to the Union Bank modified, so that the same shall declare that the bank is entitled to hold the three several bonds as collateral security for the §500 debt and interest, and that upon the payment of that sum, and the costs of this action, the said bank shall deposit said bonds with the county clerk of Wayne county to be disposed of as directed by the final judgment in this action, and, as so modified, judgment affirmed, with costs of the appeal to the respondent Union Bank.

Judgment as to the defendant Hill reversed and a new trial ordered, with costs of the appeal to the appellant to abide the event.