Hook v. German American Bank

71 Misc. 552, 129 N.Y.S. 491

• Court: New York Supreme Court
• Decided: April 15, 1911
• Status: Published

Opinion

Foote, J.

Plaintiff is the assignee of thirteen bonds or certificates of indebtedness -acquired by him shortly before this action was begun. He requested the county treasurer to bring an -action -against the defendants to recover from them enough of the money paid upon their bonds to -be applied upon the bonds still -outstanding to equalize all the bondholders, so that the apparent loss will fall equally upon ■all. The county treasurer having declined to bring such an action, plaintiff seeks to assert here the supposed right of the county treasurer in that respect. Hence, the recovery asked is that- defendants pay the sums required to the county treasurer, to be by him distributed to the present bondholders. This is upon the theory that the assessment fund is -a trust fund and the county treasurer is the present trustee and that the -bondholders are the beneficiaries; that a portion of the fund has been improperly or at least: inequitably diverted from the holders of the outstanding -bonds to pay the retired bonds in full, the fund not being sufficient to pay all in full.

The county treasurer derives his powers from the statute (Laws of 1904, chap. 620). By that statute two collectors are directed to be appointed, in whom are vested all the powers and duties of the city treasurer in -respect to collecting further assessments, and these collectors -are.directed to pay all moneys collected by them to the county treasurer. The city treasurer is directed to turn over to the county treasurer all assessment-rolls and other property received by him from the commissioners of -sewerage and to “ pay to the county treasurer of Monroe county all sums of money remaining in his hands -arising from the -collection of assessments for said West Side sewer.” The statute further provides that “ The money received by the treasurer of Monroe county shall be deemed as to -the custody of the same -as funds of the county of Monroe and shall be known as the West Side sewer fund, and shall be deposited with any bank or trust company authorized to receive funds for the county of Monroe.” Ho provision is made in the statute for any distribution of the fund by the county treasurer, nor -are any powers conferred on him in respect of the fund except those stated..

The Court of Appeals has held (People ex rel. Security Trust Co. v. Treasurer, 191 N. Y. 16) that the power to distribute the fund by the comity treasurer is necessarily implied for the reason that the Legislature could not divert the funds to any other purpose than payment of the outstanding certificates.

It does not follow, however, that the county treasurer has an implied ¡lower to recover from the former city treasurer moneys which he had distributed to the bondholders, or from the bondholders the moneys so distributed, and T think the county treasurer would have no standing to maintain such an action. Hence, so far as this action proceeds upon the supposed right of the county treasurer, it cannot he maintained.

But the plaintiff has also asked for general relief, and may, no doubt, have in this action such relief as plaintiff and the other bondholders, in ivhose behalf the action is prosecuted, may assert in their oavu right. Any recovery by the plaintiff from the defendant Williams, or the other defendants, must be based upon some violation of the plaintiff's rights. It must be adjudged that the city treasurer, Williams, did him some wrong in paying in full the bonds which he paid to the other defendants before a recovery can -be had against him, and that the other defendants owe some duty or obligation to plaintiff to refund either to Williams or the plaintiff the moneys received by them in excess1 of their pro rata share of the whole fund before recovery can he had of them, and this is true whether the fund is treated as a trust fund or not.

It is conceded that the city treasurer acted in entire good faith in paying the bonds which- he paid in full. He took charge -of the fund early in the year 1898. The bonds did not mature until 1904, but there was contained in each bond the option to pay it at any time after two years, and' that option became available- to the treasurer on the 1st of August, 1898. He then retired about $50,000 of 'bonds; he did not' do it us a favor to the holders of the bonds, but as -a pro-tection to the fund, for the bonds were drawing 6 per cent, interest, while he could get but 2 per cent, for part of the fund and no interest at all for the rest.

The statute which had transferred the funds to his hands (Laws of 1898, chap. 315) he construed to authorize the retirement of the bonds as fast as he was -able to- do so. This statute in section 2 authorized but did not require him to issue a new series1 of assessment bonds, bearing 4% per cent, interest, and further provided as follows: “ With the proceeds of the sale of said bonds (new assessment bonds), together with the available moneys in his hands as the successor in office of the said commissioners, the said treasurer of the city of Rochester shall redeem and cancel the certificates of indebtedness or assessment bonds heretofore issued by the said commissioners of sewerage * * Such redemption shall be made on the first day of August, eighteen hundred and ninety-eight, or at the earliest practicable date thereafter.”

This date was, as before stated, the first date on which the bondholders could be compelled to accept payment by virtue of the. option clause in the bonds. It does not appear that the city treasurer then knew or had reason to expect there won]d be -a deficiency and that the uncollected assessments would not realize enough to retire all the -bonds in full. Moreover, his- power under the statute to issue and dispose of the new 4% per cent, bonds was a continuing power, and the statute provided for a further assessment to pay such new -bonds, in case the existing assessment proved insufficient. The scheme of the statute did not contemplate a partial payment upon any bond. The bond itself did not authorize a partial payment at any time before its maturity in 1904. The privilege reserved for payment before maturity was for full payment, -and no holder could have been compelled to -accept anything less. The scheme of the statute was also to take care of any deficiency in the fund in the end by further assessment upon the property benefited, and did not contemplate or require a pro rata division of the fund at any time.

I think the treasurer’s construction of. the -statute was correct, and that it was his -duty to retire bonds in full, from and after August 1, 1898, as fast as "the assessment fund available for that purpose would permit; and, if he is chargeable with any fault, it can arise only from his failure to make and dispose of the new 4% per cent, bonds, or to take steps for the making of a further assessment.

But the plaintiff finds no fault with the treasurer in those respects, and no such question is involved here.

Has the plaintiff, a right, legally or equitably, to compel the defendant bondholders to contribute to the plaintiff and the other holders of outstanding bonds so as to put them all on a plane of equality in respect to the assessment fund ?

In considering this question, we will assume that the total amount realized from the assessments may- now be determined with reasonable certainty; that there will be a deficiency of upwards of $125,000; that the statutory provisions for a new assessment are not now available, and that, in the absence of -new legislation, the loss arising from the ' insufficiency of the original assessment will fall upon the present bondholders.

Undoubtedly, if the whole fund were now in court, it would be directed to be distributed ratably among the bondholders. The maxim “ Equality i-s equity ” would be applied. But may we lay hold of that maxim to compel contribution from the bondholders paid in full? The plaintiff relies largely upon certain expressions in the opinion of Chief Judge Cullen in the case of People ex rel. Security Trust Co. v. Treasurer, supra, as follows: “ There is no express direction in the statute for the payment of the certificates of indebtedness -out of the moneys collected on the assessments, but this is the plain scheme and intent of the act. The credit of no municipality was pledged for the payment of the bonds and the sole reliance of the creditor was necessarily limited to the assessment fund. * "x" * The sole security for the payment of the certificates held by the relator was the proceeds of the assessment levied for the improvement. But to such proceeds it, with the other certificate holders, had an absolute contract right of which it could not be deprived, either by subsequent legislation or any failure to enact appropriate legislation.”

This was said in a case where a certificate holder was seeking by mandamus to compel the county treasurer to distribute the fund in his hands pro rata upon the outstanding bonds. It was begun in 1907, after the bonds were long overdue. The sole question was whether the courts should compel a distribution without waiting until the few remaining assessments were collected. There was no controversy as to the relative rights of the bondholders as between themselves, but the county treasurer doubted his power under the statute to distribute the fund and so refused to act. By the terms of the statute he was the mere custodian of this fund and had no power to dispose of it in any form. The question was whether that power was implied from the nature of the fund, the previous statutes, and the object for which the fund was created. These were the questions which the court was dealing with, and the expression quoted was used in the course of the consideration of those questions and no others.

But, assuming that the expression is strictly accurate when applied to the questions presented here and that the certificate holders had and have an absolute contract right in the assessment fund of which they cannot be deprived by legislation, or otherwise, what is the nature and extent of that contract right ? It is, as I think, a right to be paid in full, exactly like the right of a creditor to have his debtor pay the debt in full. The bondholders who have been paid in full have received nothing beyond their contract right in the fund. They have been guilty of no wrong in receiving it. Many of them, it .appears, were compelled to receive payment against th'eir wishes; under penalty of having the interest cease upon their bonds. There was no contract between them and the other bondholders that was violated. Indeed, the case seems to stand, on principle, on all fours with that of the diligent or fortunate creditor who receives his pay from a debtor who afterward becomes insolvent before other creditors are paid, the only difference being that in our case the bondholders’ claim is against a fund and not an individual; not a fund limited in amount for equal distribution among a certain class, but a fund designed to pay each bond-in full; -a fund to be replenished by statutory method, if found insufficient, the surplus, if any, to be returned to the parties contributing to the fund.

It does not fall within the principle upon which courts of equity have been in the habit of compelling contribution as between sureties, copartners or tenants in common.

The rights and equities of the present bondholders are against the land benefited by the sewer. These lands have received the benefit of the plaintiff’s money; upon them rests the moral and equitable obligation to pay plaintiff’s bonds, and not upon the defendants who have received only their just due. The lack of equity in the plaintiff’s case might be more apparent if the fund had been ample for the payment of all bonds and, after defendants’ bonds were paid, the remainder of the fund had been lost through its embezzlement by some custodian.

But it is said that the plaintiff has a right of recovery upon the promise implied by law from the duty resting upon one who wrongfully withholds from another money which he cannot conscientiously retain, to account for it and restore it to the person or party equitably entitled thereto. In such a case, an action for money had and received may be maintained. But the difficulty under which the plaintiff labors is to show that the withholding of any money by the defendants is wrongful. "Why may not the defendants conscientiously retain the money they received on their bonds ? It was due them. It was not wrongful for them to receive it. They had not agreed not to receive it unless the plaintiff also received payment of his bonds. It was not received as a pro rata share of a common fund to be apportioned. It was not -a common fund in the sense that each was to share in the fund whatever its amount. ' It was rather a fund created by the owners of the land benefited by the sewer to pay the money borrowed to build the sewer. As to them, it was a common fund in which each had a pro rata share or interest. But, as to the bondholders, it was the right of .each to receive from it the full amount of his bonds and interest and no more. The statute did not require the commissioners of sewerage to issue these bonds in any particular form, or to make them all payable at the same time. They were all to be payable within ten years, but within that time they might lawfully have been made payable on their face at different periods; hence, it was not the scheme of the statute that a general fund be collected and held together until all bonds matured, for division among the bondholders.

But, if the plaintiff has a right to complain now, he . would have had the same right in principle to complain if the bonds had been made payable some in each year; and, in that case, if the plaintiff is right now, the holders of the bonds last maturing, in case of deficiency in the fund, could have recovered from those paid in due course according to their terms. So if plaintiff now has an equitable right to compel contribution from defendants, he must have that right also against the persons not defendants who have received payment of their bonds in full to the extent of upwards of $100,000 by surrendering them in payment of assessments made upon their lands for the construction of the sewer. Time, the statute authorized the bonds to be so used, but so did it authorize or contemplate that the defendants’ and all other bonds should be paid in full; and, if a deficiency in the fund works an equitable right to have the fund restored by contributions to a basis of equality among all bondholders, I perceive no sufficient reason for making a distinction between the defendants who are paid in money and the other bondholders, not defendants, who were paid by using their bonds as money to pay their assessments.

The conclusion follows that the assessment fund, whether it be technically a trust fund or not, has not been diverted from the purpose for which it was created; that there has been no violation of duty by the city treasurer, whether a technical trustee or not, and that no equitable or legal duty rests upon the 'defendant Williams, or the defendants who were bondholders, to restore or contribute to the assessment fund, or to the plaintiff and those in whose behalf he sues.

As the questions considered go to the basis of the plaintiff’s right of recovery in any form of action, it is unnecessary to consider whether the action should be at law or in equity, or what statute of limitations applies-, or the legal effect of the accounting, sopalled, of AVilTams as treasurer in the Monroe County Court, or as to whether the power to impose a new assessment for the deficiency in the fund still exists.

The plaintiff’s complaint must he dismissed, with costs' in favor of each defendant or set of defendants appearing and answering by separate attorneys.

Findings will he settled upon two days’ notice.

Complaint dismissed.