Calhoun v. . Millard

24 N.E. 27, 121 N.Y. 69, 30 N.Y. St. Rep. 759, 76 Sickels 69, 1890 N.Y. LEXIS 1376

• Court: New York Court of Appeals
• Decided: April 15, 1890
• Status: Published

Opinion

Andrews, J.

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 and 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 and Middletown railroad. The complaint sets forth that the bonds were issued without authority and were void for the reason, among others, that the proper consents 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 ana 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 canceled.

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 case 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 bondholders, that an adjudication obtained under such circumstances ought not to stand in the way of a re-examination by the court of the grounds upon which it proceeded, and. if we were now satisfied either that upon the facts presented in that case the question of law was erroneously decided, or that facts not disclosed on the trial of the Craig Case, but now brought out, would, if then disclosed, have led to a different result, the circumstances stated would emphasize the duty of the court to correct its error, or to conform the judgment in the present case to the new circumstances.

It is claimed that material facts bearing upon the validity of the bonds, not shown on the trial of the Crcdg 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 affects 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 débito jusUtias, such as a party has to recover an amount due on a contract or for damage 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 adjudication. It is apart from our presént 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 decided cases. We refer to a few of the decisions in this court upon the subject. (Heywood v. City of Buffalo, 14 N. Y. 540; Town of Venice v. Woodruff, 62 id. 462; Town of Springport v. Teutonia Savings Bank, 75 id. 397.)

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 ease of the Town of Springport v. Teutonia Savings Bank (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, howrever, 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 towm jirocured 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. Attica cmd Arcade Railroad Co. (79 N. Y. 171), affirmed a judgment cancelling town bonds issued in aid of the Attica and Arcade Railroad Company, on the ground that they were issued without ■authority. The bonds in that case were delivered by town commissioners to tlie 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), sustained a decision of the Special Term of the Supreme Court decreeing the cancellation of town bonds on the ground of a defect in the petition by which the proceedings to bond the town were initiated. The road in aid of which the bonds were issued had never been constructed, and, after paying interest on the bonds for a single year, the town repudiated its liability and commenced an action for their cancellation.

The present case, for the first time in the history of the litigations growing out of the town-bonding acts in 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 action. 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 the bonds, and they were so paid and retired. The railroad in aid of which the bonds were issued was never put in operation. J3ut 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 chapter 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 chapter 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 a 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-, defense 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 afterward permitted them to be dealt with by the public as valid securities, and had recognized their validity by frequent payment of interest, and by payment of a portion of the principal, these acts would have constituted a ratification of the unauthorized obligations and have precluded the obligor from denying their validity. Under the-decisions in this state similar acts on the part of a town or other municipality recognizing the validity of bonds issued, under the bonding acts, would not estop the municipality issuing them from denying their validity on the ground that, essential conditions provided in the bonding acts had not been complied with. By our decisions the obtaining of consents,, to the extent and in the mode prescribed in the acts, is of the very substance of the power conferred upon municipal corporations to issue bonds for the purposes contemplated, and bonds issued without the requisite consents are held to have been issued without authority. Municipal corporations, since they possess no general authority to issue such bonds, cannot, by recognition or subsequent ratification, validate obligations which they had no power to create. This point was involved in Craig v. Town of Andes, where the question of estoppel was raised and overruled, and the decision on this point accords with the tenor of the cases in this state. ( Weismer v. Village of Douglas, 64 N. Y. 105 : Cagwin v. Town of Hancock, 84 id. 542; Starin v. Town of Genoa, 23 id. 439.) The dismissal of the complaint in this action cannot, therefore, rest upon the ground of estoppel or ratification, but the acts of the town, its long acquiescence, without action or protest, in the bonding proceedings, its repeated recognition of the validity of the bonds by payments, are pertinent considerations where the court is called upon, after a long delay, to exert its equitable powers in decreeing their surrender and cancellation.

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’s Eq. Jur. § 1520.) The principle is stated with great force and clearness by Lord Camden in Smith v. Clay (2 Ambl. 645): “ ¡Nothing can call forth this comt 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 years has not elapsed since the cause of action accrued. The ten years’ limitation was primarily designed to shield defendants (B. & N. Y. C. R. R. Co. Dudley, 14 N. Y. 352), and it must be true that a court, in the exercise of its equitable jurisdiction, could not entertain or enforce a cause of action barred by the statute, and not within any exception, acting upon any general equitable considerations. But, in enforcing purely equitable remedies, depending upon general equitable principles, unreasonable and inexcusable delay is an element in the plaintiff’s case, which a court of equity always takes into consideration in exercising- its discretion to grant or refuse relief, and is not a mere collateral- incident. Where there is a remedy at law, whereby the plaintiff can prosecute or defend his legal right, the refusal of relief leaves the parties where they were. 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 óf tné statute period of limitation, is in the nature of- a defense, and is not, we think, taken away by the statute. There may oe 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 ease 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 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 apparantly 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, svpra.)

The judgment denying relief for the cancellation of the bonds, is incidentally supported by the opinion in Craig v. Town of Andes, wherein, the learned judge by whom it was pronounced, referring to the judgment in the present case in the Supreme Court, said: “ JSTor is the correctness of that decision in question here, for a court of equity might, in its discretion, refuse to interfere, and leave the party to his legal rights.” And in Alvord v. S. S. Bank (98 N. Y. 599), Judge Finch recognizes the doctrine that a court of equity would not lend its aid in a case of inexcusable laches of the party seeking relief. The denial of relief in this ease may result practically in the enforcement of the bonds in question, and also of other town bonds issued and held under similar-circumstances. But in contrasting the relative conduct and situation of the town and the taxpayers on the one side, and the purchasers of bonds on the other, we cannot say that such a result will be repugnant to any principle of justice or equity.

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 chapter 531 of the Laws of 1881. This act, which superseded the original legislation on the subject, initiated by chapter 161 of the Laws of 1872, is entitled “An Act for the Protection of Taxpayers,” and in its first section authorizes an action to be prosecuted by taxpayers against officers, agents, commissioners or other persons acting on 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 characters as taxpayers, seek to prevent the supervisor of the town of Andes from performing the duty imposed upon him by the act of 1879, and from applying the money to the purpose for which it was raised. We are of opinion that the payment by the supervisor of the interest on the bonds out of the fund 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 tovm. 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 the 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 company within the town of Andes, and this agreement was performed. It is not claimed 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 the 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 woxxld 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 ex rel. v. Brown, 55 N. Y. 180; First Nat. Bank v. Wheeler, 72 id. 201.) Ye 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 xxpon 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 the other, the town commissioners, after they had received it, refused to pay it to the bondholder's, 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 defense was interposed pxxrsuant to resolutions of the town meeting of the town whose bonds were in question.

The money, the payment of which is sought to be restrained in this action, had been collected in usual course from the taxable property of the town of Andes. Neither the town nor the taxpayers intervened to prevent its collectioxr. 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 coniine our judgment to a case of money raised to pay a claim apparently valid, which has been so treated by the town and its 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 left where it is, as there would be no debt in fact or in form to which it could be applied. (Metzger v. Attica & Arcade R. R. Co., supra.)

We think the judgment should be .affirmed.

All concur.

Judgment affirmed.