Calhoun v. Delhi & Middletown Railroad

This action was commenced January 6, 1882’ by the plaintiffs, certain taxpayers of the town of Andes, in the county of Delaware, in behalf of themselves and all other taxpayers in said town, against the Delhi & Middletown Railroad Company, the supervisor of said town, and certain other defendants, holders of bonds to the amount of about $50,000, dated September 1, 1871, part of $98,000 of bonds, with interest coupons attached, purporting to have been issued by commissioners in behalf of said town, under and in pursuance of chapter 907, of the Laws of 1869, in aid of the construction of the Delhi & Middletown Railroad. The complaint sets forth that the bonds were issued without authority and were void for the reason, among others, that the proper consent^ required by the act of 1869 were not obtained, and demanded equitable relief, first, that the defendant Ballantine, supervisor of said town, be restrained and enjoined from paying the interest falling due on such bonds March 1 and September 1, 1882, out of the sum of $6,650, in his hands, levied and collected for the payment of such interest, and second, that the bonds held by the individual defendants be decreed to be delivered up and cancelled.

The question of the validity of the bonds of the town of Andes, issued under the act of 1869, was presented to and adjudicated by this court in the ease of Craig v. Town of Andes, 93 N. Y., 405 . It was there decided, for reasons disclosed in the prevailing opinion, that the bonds were void. That action was brought after the commencement of the present one, to recover interest on certain of the bonds, which fell due March 1, 1882. It now appears from the evidence in this action that the Craig suit was brought at the instance of Ballantine, the supervisor of the town, and the trial judge found “ that the coupons on which the action was brought were paid for out of the moneys of said town, and said action was prosecuted by attorneys paid by said town and was defended by attorneys paid by said town; said town paying all the expenses thereof, and the suit was brought and defended for the purpose of procuring the bonds of said town to be declared invalid.”

We fully assent to the claim of the counsel for the bond

It is claimed that material facts bearing upon the validity of the bonds, not shown on the trial of the Craig case, were proved on the trial of the present one, prominent among which is the fact which now appears, that the railroad in aid of which the bonds were issued had been in fact legally located on the identical route specified in the conditional consents, prior to May 6, 1871, the date of the presentation of the petition and consents to the county judge. But we deem it unnecessary to determine whether the new facts presented affect the principle of our former decision, for the reason that we think the judgment below dismissing the complaint in this action was properly rendered, assuming the invalidity of the bonds.

It will be convenient to consider separately the two purposes of this action, viz: the surrender and cancellation of the bonds held by the individual defendants, and the separate and distinct relief by injunction to prevent the defendant, Ballantine, from applying the money in his hands to the payment of interest. The jurisdiction of a court of equity to compel the surrender and cancellation of written instruments obtained by fraud, or which being void for any reason may, if outstanding, subject the plaintiff to loss or injury, is very ancient and has been frequently exercised. The plaintiff seeking this relief invokes the equitable powers of the court, and the court grants or refuses it in the exercise of a sound discretion, according to the circumstances of the particular case.

The granting of this relief cannot be claimed as a matter of “absolute right ex debito justitice, such as a party has to recover an amount due on a contract or for damages for a tort” The existence of jurisdiction, and the fact that plaintiff makes out that the instrument of which he seeks the surrender and cancellation is void, are not conclusive of his right to a final decree in his favor. The court may, nevertheless, refuse to exercise the jurisdiction, and leave the party to his defense at law when the instrument is sought to be enforced against him. But in entertaining or declining jurisdiction the court does not act capriciously, but is guided by principles which have gradually been evolved in the course of adj udication. It is apart from our present purpose to arrange or classify the cases upon the subject. The general grounds of jurisdiction, and the circumstances which justify equitable interference, or, on the other hand, the denial of equitable relief, are set forth in the text books and illustrated by

The facts in the present case present several elements which have entered into the consideration of the court in granting relief for the cancellation of written instruments. The bonds of the town of Andes are, as we have assumed, void, and since the commencement of this action they have been so adjudicated, but the adjudication is an estoppel only as between the parties to the action in which it was made. The other bondholders are not concluded, and may contest over again the question of the validity of the bonds. There exists also the further element that the bonds are not void on their face, and that in a suit brought thereon the proof of the adjudication of the county judge that the requisite consents- had been obtained would presumptively establish performance of the condition as to consents in the bonding act, and cast upon the -town the onus of disproving it, and showing that,, in fact, the requisite consents had not been given. Craig v. Town of Andes, 93 N. Y., 410 .

It also appears by the record that the bonds are held by numerous parties, each of whom might bring an action at law to enforce them, unless prevented by the equitable interposition of the court for their cancellation. In the case of the Town of Springport v. Teutonia Savings Bank, supra; S. C., 84 N. Y., 403 , the-court sustained an action for the cancellation of town bonds, upon facts substantially similar to those presented in this case, with the important exception, however, that there the town had acted promptly in repudiating the bonds and in seeking to review the proceedings under which the right to issue them was claimed. In that case the adjudication of the assessor was made March 13, 1871. The town procured a writ of certiorari to review and set aside the bonding proceedings, April 13, 1871, and they were set aside in that proceeding by the judgment of this court in June, 1873. The defendants purchased the bonds in September, 1871, pending the litigation on the certiorari, and in January, 1875, the suit for cancellation was commenced. The town had paid no interest on the bonds and refused in any way to recognize their validity.

This court, also, in the case of Metzger v. The Attica & Arcade Railroad, 79 N. Y., 171 , affirmed a judgment cancelling town bonds issued in aid of the Attica h Arcade Railroad Company, on the ground that they were issued without authority. The bonds in that case were delivered by town commissioners to the railroad company in exchange for its stock, March 21, 1874. The suit for cancellation was commenced in January, 1876, less than two years thereafter. The commissioners were joined with the railroad company as defendants in the action, and the complaint alleged collusion between the defendants to impose the bonds upon the town. The bonds had not been transferred by the company and the town had paid no interest.

The case of the Town of Mentz v. Cook, 108 N. Y., 504 ; 13 N.

The present case for the first time in the history of the litigations growing out of the town bonding acts in the aid of railroads in this state, presents the question whether the equitable remedy for cancellation may be refused by reason of long delay and acquiescence on the part of the town and its taxpayers, accompanied meanwhile by frequent acts recognizing the validity of the obligations of which cancellation is sought, although the delay in bringing the action has not continued for the full statutory period of limitation of equitable actions. It is important to state the material facts bearing upon the question. The adjudication of the county judge that the persons who signed the petition in the bonding proceedings constituted a majority of the taxpayers of the town of Andes in number and amount of taxable property, was made May 22, 1871. The bonds (except a part not now material) were issued and delivered to the railroad company in exchange for its stock between June 13 and December 10, 1872. They were payable in thirty years from date, with semi-annual interest at seven per cent. In each year for nine years and more a tax was levied on the town to pay the interest on the bonds, and it was regularly paid as it accrued up to September 1, 1881, and in 1878 the town meeting voted a tax of $3,000 to pay that amount of bonds, and they were so paid and retired. The railroad in aid of which the bonds were issued was never put in operation. But the company during 1872, 1873 and 1874, expended in grading and other construction, within the town of Andes, a sum greater than the amount of bonds issued by the town. In 1874 a town meeting was held pursuant to chap. 453, of the Laws of 1874, to determine whether the town commissioners should be authorized to sell the stock taken in exchange for the bonds, and it was decided that such authority should not be given. In 1875, on a new vote being taken under chap. 153, of the Laws of 1875, a sale was authorized. The stock was not sold, and in December, 1881, was practically extinguished by a sale of the railroad under foreclosure. This action was commenced December 6, 1881, more than ten years after the adjudication of the county judge and nine years and more, but less than ten years after the issue of the bonds. The trial judge found that the individual defendants purchased the bonds held by them in good faith, paying therefor not less than par and accrued interest, without notice of any claim by the officers or taxpayers of the town that there was any defence thereto or any suspicion of their invalidity.

It cannot be doubted that if obligations of an individual having general power to contract had been issued without his authority, but he had afterwards permitted them to be dealt with by the public as valid- securities, and had recognized their validity by

It is, and always has been, the practice of courts of equity to remain inactive where a party seeking their interference has been guilty of unreasonable laches in making his application. Story Eq. Jur., § 1520. The principle is stated with great force and clearness by Lord Camden, in Smith v. Clay, Ambl., 645. “Nothing can call forth this court into activity but conscience, good faith and reasonable diligence. Where these are wanting the court is passive and does nothing. Laches and neglect are discountenanced and therefore, from the beginning of this court, there was always a limitation to suits in this court.”

Courts of equity, it has been said, act not so much in analogy to, as in obedience to statutes of limitation of legal actions, because where the legal remedy is barred, the spirit of the statute bars the equitable remedy also.

In the present case the cause of action for the cancellation of the bonds was not barred by the ten years statute applicable to equitable actions. But a period of nine years had elapsed after the bonds were issued, before the commencement of the action. But we apprehend that the period of limitation of equitable actions fixed by the statute is not, where a purely equitable remedy is invoked, equivalent to a legislative direction that no period short of that time shall be a bar to relief in any case, or precludes the court from denying relief in accordance with equitable principles for unreasonable delay, although the full period of ten

If there are special circumstances which may change the situation of the plaintiff to his injury, unless the equitable remedy is interposed, this fact may be considered. But the right of the court to deny relief upon equitable grounds, for long delay, although short of the statute period of limitation, is in the nature of a defence, and is not we think taken away by the statute. There may be a well founded distinction between the case of an application for an equitable remedy in aid of, or to enforce a legal right not barred by the statute, and the case where an exclusively equitable remedy is sought, such as to restrain proceedings at law, or upon the principle quia timet, to deprive an adversary of the muniment of his alleged legal right, which he inequitably retains. In cases of the latter class, long delay or acquiescence, although short of the statute period for the limitation of equitable actions, ■ may be a ground for refusing relief. Pom. Eq. Jur. § 817. The cancellation of securities is a purely equitable remedy and cannot be claimed as an absolute right, nor is it applied for or awarded in aid of a legal right or title.

We conclude, therefore, that it was within the power of the court to dismiss the complaint, so far as relief was sought for a cancellation of the bonds, on the ground of delay in bringing the action. The circumstances justified the conclusion on this branch of the case. The town and the taxpayers permitted the bonds to be dealt with and taken by the savings banks and others, for nearly ten years, not only without, so far as appears, a word of warning or protest, but by affirmative acts of recognition encouraged investment therein as safe and valid securities. The bonds, resting on the adjudication of the county judge, were apparently valid. The legislature has still the power to ratify them and make them valid obligations of the town. Williams v. Town of Duanesburgh, 66 N. Y., 129 ; Horton v. Town of Thompson, 71 id., 513; Rogers v. Stephens, 86 id., 623. They are now in the hands of bona fide holders, that is, of persons who have paid value for them without notice. The fact that if the plaintiffs are defeated here, the bonds may be sued upon and enforced in another jurisdiction, constitutes no equitable reason for maintaining the action. Town of Venice v. Woodruff, supra.

The judgment denying relief for the cancellation of the bonds

The right of the plaintiffs to maintain the action, so far as it .seeks to enjoin and restrain the defendant Ballantine from paying the interest on the bonds for the year 1882, out of money in his hands, levied and collected for that purpose, depends upon the question whether such payment, if made, would be an illegal act or constitute waste under chap. 531 of the Laws of 1881. This act, which superseded the original legislation on the subject initiated by chap. 161 of the Laws of 1872, is entitled “An act for the protection of taxpayers,” and in its first section authorized an action to be prosecuted by taxpayers against officers, agents, commissioners or other persons acting in behalf of any county, town, village or municipal corporation, “ to prevent any illegal act on the part of any such officers, agents, commissioners or other persons, or to prevent waste or injury to any property, funds or •estate of such county, town, village or municipal corporation.”

By act, chapter 234 of the Laws of 1879, the office of railroad commissioner in the several towns in Delaware county was .abolished, and the duties appertaining thereto were imposed upon the supervisors of the several towns. It was made the duty of the supervisor of each town to report to the board of supervisors, each year, the amount of interest on railroad bonds of the town falling due in that year, and the act provides “ that the said amount shall be raised by tax as now provided by law, and paid by the •collectors of the taxes to the said supervisors, and by them applied in payment of the interest and coupons aforesaid.” The defendant, Ballantine, as supervisor of the town of Andes, in the fall of 1881, reported to the board of supervisors of Delaware county the amount required to be raised to pay the interest falling due on the railroad bonds of the town, for the year 1882, viz.: the sum of $6,650, and the board of supervisors, at its annual session in the fall of 1881, included in its warrant for the collection of taxes in the town of Andes the sum so reported, and this .amount was duly collected and paid over to the supervisor pursuant to the direction of such warrant, for the purpose of paying the interest on the bonds, and the sum so collected remains in his hands. The plaintiffs in their character as taxpayers seek to prevent the supervisor of the town of Andes from performing the

We are of opinion that the payment by the supervisor of the interest on the bonds, out of the funds, would neither be an illegal act, nor constitute waste within the statute of 1881. The bonds were, under the adjudication of the county judge, presumptively valid obligations of the town. When the money in question was raised, their validity had not been impeached by any judicial decision. The town had, for a long time, recognized their validity. The taxpayers acquiesced for many years in the measures taken to raise money by taxation to pay the interest on the bonds. ,In 1874 and 1875, in their collective capacity in town meetings, they voted upon the question of the sale of the stock held by the town, at elections held under acts of -the legislature in these years, which acts, while they did not have the effect of legalizing the bonds which were the consideration for the stock authorized to be sold, nevertheless assumed their validity.

The bonds were not illegal or void in the sense that they were fraudulently issued or issued without consideration. They were exchanged for stock, and the railroad company concurrently with the subscription therefor entered into an agreement with the railroad commissioners that the proceeds of the bonds should be used for the construction and equipment of the railroad within the town of Andes, and this agreement was performed. It is not claimeu that there was any fraud or collusion in the bonding proceedings. The bondholders are innocent holders for full value of the securities thus issued. It is very clear, we think, that neither the town nor the taxpayers would be permitted to recover back money actually paid by the town to the bondholders as money illegally paid and received. It was paid upon presumptively valid obligations, under a claim of right on their part to receive it, and if payments actually made by the officers of the town would be valid and binding, it would not, we think, be an illegal act on the part of the supervisor, under the act of 1881, to apply the money now in his hands according to the direction of the statute, simply for the reason that the validity of the bonds is now questioned.

The question of the duty of the officer holding money raised to pay interest on bonds issued under the town bonding acts to make such payment, notwithstanding some omission or defect in the bonding proceedings, which rendered the bonds invalid, has been considered by this court in several cases. People v. Brown, 55 N. Y., 180 ; First National Bank v. Wheeler, 72 id., 201 . We held in each of these cases that an officer who had in his-hands money collected to pay interest on town bonds, could not be permitted to question their validity when called upon to pay it over to those entitled to it under the statute. In one case the collector of the town refused to pay the money collected by him to the town commissioners, as required by the act, and in the other, the town commissioners, after they had received it, refused to pay it to the bondholders, and in the case last cited the action of a bondholder to compel such payment was sustained. In both cases the defense was made that the bonds were void, and in both the

The money, the payment of which is sought to be restrained in "this action, has been collected in usual course from the taxable property of the town of Andes. Neither the town nor the tax- . payers intervened to prevent its collection. -So far as appears the taxpayers paid the money voluntarily and have no recourse to recover it back. The money does not belong to them, nor in a strict sense is it the property of the town. It was raised for a special purpose, and it can be applied legally to no other. The act of 1881 should have a broad and liberal construction to accomplish the purposes of its enactment. But it is difficult to perceive how that can be treated as an illegal act, or as constituting waste, the performance of which may be compelled by mandamus. We do not doubt that taxpayers may by means of this statutory action .arrest the payment of money collected to pay fraudulent or collusive claims against a town having neither a legal nor equitable foundation. We confine our judgment to a case of money raised to pay a claim apparently valid, which has been so treated by the town and i^ taxpayers, having implied legislative sanction, and where no fraud is imputed. In such case we think the taxpayers cannot arrest the payment under the act of 1881. If in this case judgment was given for a cancellation of the bonds, then it might follow that the fund would be léft where it is, as there would be no debt in fact or in form to which it could be applied. See Metzger v. Attica & Arcade R. R. Co., supra.

We think the judgment should be affirmed.

All concur.