Town of Cherry Creek v. Becker

The leading propositions are:

First. Did the proceedings, pursuant to which the bonds were issued, confer jurisdiction to issue them ?

Second. Were the bonds saved from the operation of the Constitutional Amendment of January 1, 1875, which denied to municipal corporations the power to incur liability for such purposes ?

Other questions are also presented, which will have such, consideration as they may seem to require.

The petition of April 8, 1872,. embraces within its terms, all that the statute required. Laws of 1871, chap. 925, § 1.

The petition was verified by one of the petitioners, and in like manner was the petition of date April 26, 1872, verified. And the trial court found that the petitioners, whose names were subscribed to each of such petitions were a majority of the tax-payers of the town of Cherry Creek, who were taxed or assessed for property, not including

And such finding was permitted by the evidence. But the petitioners whose names were subscribed to the latter petition identical with those who made the first petition did not constitute a majority of the tax-payers whose names appeared upon such assessment-roll. In the first petition the amount of bonds which the petitioners expressed a desire to have issued was twenty-five thousand dollars, and in the other petition the amount so desired was nineteen thous- and dollars in addition, making forty-four thousand dollars. If the two petitions are to be treated as one or the latter as merging the former, there was no authority given to issue bonds to the amount of forty-four thousand dollars,, because the same persons constituting a majority of such tax-payers did not unite in the two petitions, neither one of which was sufficient to authorize the issue of that amount of bonds. The right to do so, if it was given by the proceeding, must rest upon both petitions. And assuming that each of them was valid, the proceeding, so far as it was single and applicable to both, may have been irregular for the reason arising out of the want of identity of the requisite number of tax-payers in both to constitute a majority of all the tax-payers on the roll, and subject to reversal on review, but the bonds issued would not be void for such irregularity, as there was no want of jurisdiction. It is, however, suggested, that the second petition was defective and ineffectual, because by it the desire of the petitioners as expressed was that the bonds be invested in the stock of the railroad company, instead of the expression of it that the bonds or the proceeds thereof be so invested as provided by the statute. Ibid.

The statutory proceeding was in derogation of the common law, and so far as requisite to confer jurisdiction, the statute must be quite strictly pursued to_ give it support. People ex rel. Rogers v. Spencer, 55 N. Y., 1 ; Town of Wellsboro v. N. Y. & C. R. R. Co., 76 N. Y., 182 .

But the investment of the bonds in the stock was within the power given by the statute, and we are not prepared to hold that such limitation of the desire expressed was a defect in the petition impairing its jurisdictional character,

o In Horton v. Town of Thompson ( 71 N. Y., 513 ), the bonds referred to were issued under a statute which provided for borrowing money and issuing bonds for that purpose, and with the money to purchase the stock of the railroad company, and required the money so borrowed to be expended in the construction of the road. There was, under that statute, no power to invest the bonds in the stock of the company. In the proceeding before the county judge

The only bonds involved in this action, so far as appears, were those held by the respondent, amounting to $5,100.

The first petition gave jurisdiction and authorized adjudication which would permit the issue of bonds amounting to $25,000. And it may be observed that the judgment in terms directed the issue of no amount of bonds. It was simply an adjudication that the petitioners in each of the petitions represented a majority of the tax-payers, and of the taxable property upon the last preceding assessment roll of the town. And the judgment record as filed was made up of the two petitions, the orders of the county judge, the proceedings before him and the judgment annexed. We think however that the adjudication was not in excess of jurisdiction but that in any view which may be taken of the union in one proceeding of the two petitions it was at most mere error or irregularity available on review only of the proceeding. It is objected that the judgmentis defective and ineffectual because it specifies no relief, and declares no amount for which the' bonds may be issued. The adjudication is as broad as the requirement of the statute which provides that if it shall appear satisfactorily to the judge that the petitioners and such other tax-payers as may appear before him and express a desire to join in the petition, represent a majority of the tax-payers and a majority of the taxable property on such assessment roll “he shall so adjudge and determine and cause the same to be entered of record in the office of the clerk of the county * * * and such judgment and the record thereof shall have the same force and effect as other judgments and records in courts of record in this state.” Laws of 1871, chap., 925, § 2. The two petitions constitute part of the record of adjudication and by it the power of the commissioners and its extent to issue bonds are represented. The judgment subscribed by the county judge was entered in the judgment roll book in the office of the clerk of the county. And the contention that the omission of the clerk to sign the judgment rendered it ineffectual is not sustained. Assuming that such was his duty, the omission to do so was a mere irregularity and is not available as a defense in this action. Blashfield v. Smith, 27 Hun 114 . We think the plaintiff’s claim made for relief9 is not supported by jurisdictional infirmity of the proceedings oefore the county judge, and the record of adjudication.

Inasmuch as the bonds were not delivered to the railroad company until after the 1st day of January, 1875, the question arises whether they were invalidated by the constitutional provision which becoming operative on that day

This had the effect to prevent the bonds becoming obligations against the town unless they were saved by some valid contract made before that time. Upon that subject it appears that on August 9, 1873, the bonding commissioners of the town entered into an agreement with the railroad company that when the company should have finally located- and constructed its proposed railroad through the town of Cherry Creek ready for the rolling stock, they would immediately subscribe in the name of the town to the capital stock of the company to the amount, of $44,000, and pay for it by delivering to the company the bonds of the town in the like amount. And the company agreed to receive such subscription, and in payment therefor the bonds of the town, and issue and deliver to the commissioners certificates representing such amount of capital stock as so subscribed and paid for. And on August 26, 1874, they entered into another contract whereby the commissioners agreed to and then did subscribe to $44,000 of the capital stock of the railroad company, and agreed to issue the town bonds for a like amount and deliver them in escrow to a third party named and to authorize him to deliver them to the company when it should have complied with terms of the contract of August 9, 1872, before mentioned, and the company agreed to immediately issue a certificate of such capital stock to the town, and deliver it to such third party in escrow to be delivered to the commissioner when he should deliver the bonds to the company, which it would accept in full payment for the stock. And it was further agreed that in case the company should fail to comply with the terms and conditions of the contract of August 9, 1872, within two years, the bonds should be redelivered to the commissioners, and the stock certificate to the company by the person with whom they were so placed in escrow. Pursuant to this contract the bonds of the town, of date August 25, 1874, amounting to $44,000, and the certificate of stock of the company for like amount of date August 27, 1874, were delivered to such third party in escrow, who by. the direction of the parties to the contract delivered the bonds to the company and the certificate of stock to the commissioners on the 1st day of April, 1875.

The parties treated the railroad as then completed through the town of Cherry Creek, and although the evidence in that respect is somewhat in conflict, the trial court so found

The railroad was located within the meaning of the provision of the first petition, in that respect, through the town in October, 1872, and was afterwards constructed substantially on that line. These contracts if it was within the power of the commissioners to make them, would seem to have been effectual to protect their performance against the provision of such constitutional amendment, as the state cannot impair the obligation of contracts. U. S. Const., art. 1, § 10.

The commissioners assumed to make the contracts under the provision of the statute, which provided that it was competent for a railroad company in aid of whose railroad “bonds shall have been authorized to be issued by any municipal corporation * * * to enter into an agreement with the commissioners * * * limiting and defining the times when and the proportions in which said bonds or their proceeds shall be delivered ” to such company. And that they should not be compelled to do so until such agreement should be executed, if so required by them. Laws of 1870, chap. 507. But a later statute provided that the petition might be absolute or conditional, and if conditional the acceptance of a subscription founded on the petition should bind the railroad company accepting it to the observance of the condition, “ provided, however, that non-compliance with any condition inserted in such petition shall not invalidate the bonds created in pursuance of such petition.” Laws of 1871, chap. 925, § 1. When such power was given to the commissioners none had been vested by the statute in the petitioners to-create conditions by the terms of their petition. And without the aid of the statute it seems they had no such power. Craig v. Town of Andes, 93 N. Y., 405 .

The conditions inserted in the petition were so far controlling that the commissioners could make no contract with the company inconsistent with them. Falconer v. B. and J. R. R. Co., 69 N. Y., 491 . But the fact that the first petition in question did contain the provision that $5,000 of the bonds be issued when the road was located through the town did not, we think, deny to the commissioners the power by contraqt with the company to post

There is, however, a more serious difficulty having relation to the effect upon the contracts of the last provision of the first petition, that the remaining $10,000 of bonds were to be issued when the road should be completed, assuming that such completion be construed to embrace the entire line of the road, and that such line extended from Jamestown to the state of Pennsylvania. The articles of association of the railroad company do not appear in the case, but it seems to have been alleged in the complaint, and not denied in the answer, that the Buffalo and Jamestown Bail-road Company was incorporated for the purpose of constructing a railroad from Buffalo to the Pennsylvania state line. The road was constructed from Buffalo to Jamestown, and no farther. The distance from the latter place to the state line is twelve to fifteen miles. The trial court treated the road as completed. And it may be that the purpose in view of the petitioners, by the expression before mentioned of the petition, was that the last issue of bonds could be made when the road was completed through the town, although it does not seem to so appear. This clause is part of the following provision of the petition, viz.: “And it is required that said commissioners issue said bonds upon the express condition that said railroad shall be constructed through said town of Cherry Creek, and to be issued in amounts as follows: “ Five thousand dollars when said road is located through said town; ten thousand dollars when said road is graded through said town, and the remaining ten thousand when said road is completed.” The question now under consideration is, whether the contracts of August, 1872 and 1874, were valid in respect to the time stipulated by them to deliver the bonds to the company.

That the road was completed about the first of April, 1875, within the meaning of this provision of the petition seems to have been assumed by the trial court, and apparently is by the defendant’s counsel. And there was evidence upon the trial to the effect that the road was then completed. The adoption of this view assuming that when the contracts were made it was contemplated by the parties to them, that the performance by the company of the work of construction required by their terms would have the

It is, however, urged by the learned counsel for the plaintiff, that these contracts come within the doctrine of Falconer v. B. and J. R. R. Co. ( 69 N. Y., 491 ; 103 U. S., 821 ), and, therefore, cannot save the bonds from the invalidating effect of such amendment to the constitution. In that case the condition upon which the commissioners were authorized by the petition to issue bonds and invest them or their proceeds in the stock of the railroad company, was that the road should be located and constructed through the village of Jamestown, and that before that event, the bonds should not be delivered to the company, or sold. And by the contract there made, the commissioners agreed with the company that when the road should be located and constructed through such village, they would subscribe for the stock of the company, and deliver to it the bonds, and the company agreed to accept such subscription and the bonds in payment for the stock. And in the contract,reference is made to the petition and proceedings upon it, and it is declared that the commissioners did not agree to perform the conditions of the contract except as they were “empowered and authorized so to do by said petition and proceeding and the statute in such case made and provided.”

Afterwards, and in 1874, the commissioners issued the bonds and placed them in the custody of two persons, and at the same time delivered to those persons their written statement to the effect that if the company should, on or before January, 1876, have constructed the railroad through the village of Jamestown, and delivered the certificate of stock upon the subscription thereto by the commissioners, the bonds should be delivered to the company, otherwise, be returned to the commissioners. The contract was held ineffectual, because the condition in the petition denied to the commissioners the power to subscribe for the stock of

The distinction between the Falconer Case and that of County of Moultrie v. Rockingham Ten Cent Savings Bank ( 92 U. S., 631 ), to some extent disappears in its application to the case at bar. In the case last cited, the Board of Supervisors of Moultrie County were by statute authorized to subscribe to the capital stock of a railroad company, to a certain amount, and to issue bonds of the county therefor, provided that the bonds should not be issued until the road should be open for traffic between certain points mentioned.

The board of supervisors in 1869 undertook to subscribe to the stock which was accepted by the company and it by contract appropriated the bonds which it would receive. And in 1873 the road was opened to traffic between such points, and the bonds were delivered to the company, but because the constitution of the state of Illinois was so amended in July 1870 as to prohibit the loaning of the credit or money of any county to or in aid of a railroad company or the subscription by a county to the stock of any such company, the question was presented whether the liability of the county was created by the issue of the bonds subsequently to the adoption of such constitutional provision, and it was held that there was a contract exist

On the review of the Falconer Case, in the United States court, it was distinguished from the Moultrie Case by the fact that the commissioners had not only not subscribed to the stock of the company but by the terms of the petition they had no power to do so until the road was constructed through Jamestown. That is not so in the case at bar. The petition does not in terms qualify the power of the commissioners to so subscribe, nor does it make the right to do so dependent upon the lapse of any time or the occurrence of any event, but provides that it may be done upon such terms and conditions as shall be agreed upon between the railroad company and the commissioners. And the conditions following relate solely to the issuing of the bonds.

And it may be observed in support of the contract and its effect that the right of the railroad company to require a subscription to its stock by commissioners appointed under the statute was dependent upon contract, without which it could not compel the subscription by them. People ex rel. D. etc., R. R. Co. v. Batchellor, 53 N. Y., 128 ; Williams v. Duanesburgh, 66 N. Y., 129 . These views lead to the conclusion approached with some hesitation that there were elements in the contracts which saved the issue of the bonds from the operation of the constitutional provision in question. And it would seem that effect so far as necessary may be given to the provision of the statute that “the acceptance of a subscription founded on such petition shall bind the railroad company, excepting the same to the observance of the condition or conditions specified in such petition provided, however, that non-compliance with any con

The commissioners agreed to and did make such subscription and the company agreed to and did make its certificate of the stock as before mentioned. It follows that if we are correct in respect to the validity and survival of such contract, the bonds issued pursuant to the proceedings founded upon the second petition, assuming it to have been valid, and at least $15,000 issued pursuant to the first petition, whatever view may be taken of its provisions relating to the completion of the road, may be deemed to have been lawfully issued. The trial court found that the defendant was a bona fide holder of the bonds amounting to $5,100, held by him, and such conclusion is supported by the evidence. The bonds are in terms negotiable. Such bonds are treated as negotiable in character in such sense as to furnish under some circumstances protection to a bona fide holder when otherwise he would not be entitled to it. Bank of Rome v. Village of Rome, 19 N. Y., 20 ; Brainerd v. N. Y. and H. R. R. Co., 25 id., 496, 499.

It is held, and such is the rule in this state, that the term bona fide holder in its extent and legal effect as relates to commercial paper is not applicable to municipal bonds as they can be created only upon authority conferred by statute with notice of which any person taking them is chargeable.

And as a consequence, the liability of the municipality is dependent upon their being issued pursuant to proceedings conducted in compliance with the statute. Cagwin v. Town of Hancock, 84 N. Y., 532 ; Craig v. Town of Andes, 93 id., 405.

That rule is not necessarily extended farther than that by the doctrine of the cases to which our attention has been called. And it is contended by the defendant’s counsel that without the aid of those contracts the defendant as a bona fide holder of the bonds is protected because they bear date prior to January 1, 1875, and must in his behalf be deemed to have been issued lawfully pursuant to the authority at the time of their date given by the statute and the proceedings founded upon it. While it may be that when the proceedings were such as to furnish legal authority pursuant to statute to issue such obligation the bona fides of the holder for value would give him protection provided the bonds were in fact issued at a time when the law permitted them to issue, which the date would prima facie represent, we cannot hold that their date would be conclusive evidence in behalf of such holder, but think when it was made to appear that they were issued and delivered without any then existing authority of law, the validity of the bonds

The railroad has been operated since April, 187-5, and from the first of that month until January, 1881, nearly six years, interest upon the bonds was paid semi-annually,, the money for which was raised by taxation in the town of Cherry Creek. Upon this state of facts it is contended that as against the defendant, a bona fide holder of the bonds, the plaintiff is estopped from effectually asserting that the-bonds are invalid. That proposition is not adopted here. It is difficult to see how the taxpayers of the town can be-thus estopped bv the action of its officers in levying taxes for the purpose of paying such interest and applying the money to such purpose. Such action was not approved by any assembly of the taxpayers, nor was it dependent upon their direction. But those facts may be entitled to some significance upon the question (also urged in behalf of the defendant) of loches as against a bona fide holder of the bonds, and whether upon equitable considerations the relief asked for should not be withheld. Alvord v. Syracuse Savings Bank, 98 N. Y., 599 , 610.

We do not put our determination upon this proposition or express any opinion upon it. The further contention of the defendant’s counsel is that the defendant’s remedy, if any exist, is at law by way of defense. This proposition is, not supported.

The question of the legality of the proceedings which resulted in the adjudication of the county judge, and in relation to the authority to issue the bonds, as claimed by the-plaintiff, was somewhat dependent on facts extrinsic the record, and the doctrine of the case of Town of Venice v. Woodruff ( 62 N. Y., 462 ) is not, and that of Town of Springport v. Teutonia Savings Bank ( 75 N. Y., 397 ) is applicable in that respect to the consideration of the question as represented by evidence on the part of the plaintiff.

And if the question-of pleading was raised at the trial the omission to allege such defense is another answer to such contention. Town of Mentz v. Cook, 108 N. Y., 504 ; 13 N. Y. State Rep., 845.

These views make the result dependent upon the validity of the contracts between the commissioners and the railroad company, and lead to the conclusion that the judgment should be affirmed.

Babke P. J.; Haight and Dwight, JJ., concur.