188 A.D. 192, Schieffelin v. Hylan

Citation:188 A.D. 192
Party Name:WILLIAM JAY SCHIEFFELIN, Respondent, v. JOHN F. HYLAN and Others, Appellants.
Case Date:June 06, 1919
Court:New York Supreme Court Appelate Division, Second Department

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188 A.D. 192



JOHN F. HYLAN and Others, Appellants.

Supreme Court of New York, Second Department.

June 6, 1919

APPEAL by the defendants, John F. Hylan and others, from an order of the Supreme Court, made at the Kings County Special Term and entered in the office of the clerk of the county of Kings on the 26th day of February, 1919, granting plaintiff's motion for an injunction pendente lite.


Terence Farley [William P. Burr, Corporation Counsel, and John Lehman with him on the brief], for the appellants.

Leonard M. Wallstein, for the respondent.



The action is a taxpayer's, brought to enjoin the appropriate city authorities of New York city from issuing corporate stock of said city to the amount of $4,500,000 pursuant to a resolution passed by its board of estimate and apportionment

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on February 7, 1919. (See Gen. Mun. Law [Consol. Laws, chap. 24; Laws of 1909, chap. 29], § 51; Code Civ. Proc. § 1925.) The order appealed from granted an injunction pendente lite to that effect.

In granting the motion the justice at Special Term filed an opinion, which states and reviews at length the material law and facts; and, as I find his statements thereof to be accurate and agree with his conclusions, I shall not attempt any very detailed statement of the reasoning here. (106 Misc. 347.)

The resolution consists of a long preamble reciting the premises upon which the board assumed to act, and of a resolving part which is comparatively brief. The preamble may be thus summarized:

Chapter 226 of the Laws of 1912 amended section 10 of the Rapid Transit Act (Laws of 1891, chap. 4) by adding thereto a provision to the effect that if the Public Service Commission shall determine that a part of its expenses shall be included in determining the cost of construction of a railroad constructed under the act, then the said board, upon the requisition of the Commission, may appropriate such sum as may be requisite for such part of the expenses of the Commission and authorize the issue of corporate stock of the city for such purpose; and that the comptroller shall thereupon issue and sell such stock for that purpose. Rapid transit contracts Nos. 3 and 4 were authorized by the said board on the 18th of March, 1913, after said amendment went into effect, and provided that the cost of construction should include such expenses. From time to time since that date the Public Service Commission has made requisition upon said board for such part of its expenses; and the expenditures of the city for such expenses during the years 1915, 1916, 1917 and 1918 up to February 4, 1919, have aggregated the sum of $12,567,150.82. That Commission has furnished to the board estimates of its expenses 'chargeable to the costs of construction' for the years 1915, 1916 and 1917 amounting to $4,800,000 on contract No. 3 and $3,700,000 on contract No. 4, making an aggregate upon the two of $8,500,000; and their said expenses under said

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contracts for the rest of the period, including 1918, are not yet determined. Therefore, on account of all of such expenses, at least $4,500,000 should be covered into the city treasury 'by issue of rapid transit corporate stock, to be divided two million five hundred thousand dollars ($2,500,000) against contract No. 3, and two million dollars ($2,000,000) against contract No. 4.' The resolution then proceeds to authorize and direct such issue of corporate stock to the amount of $4,500,000, and that of the proceeds thereof $1,000,000 shall be applied to the redemption of special revenue bonds already issued for the purpose of providing funds to meet those expenses, and the balance of $3,500,000 shall be paid into 'the General Fund for the Reduction of Taxation' to reimburse the same for the said part of the said expenses which have heretofore been paid by taxation, that is, through the issue of such bonds and the payment and retirement thereof.

It appears also that during all those years the such expenses of the Commission have in fact been met year by year by the issue by said board of special revenue bonds under said section 10 of the Rapid Transit Act, as amended by said chapter 226 of the Laws of 1912. The gist of the former provision, that is, before the amendment, as related to the matter in hand, was that the board should from time to time, upon requisition of the Commission, appropriate the necessary sums to pay the expenses of the Commission (the same to be paid out upon due vouchers and auditing), and that the funds for that purpose should be provided by the issue and sale of revenue bonds of the city 'in anticipation of receipt of taxes; ' and that the amount necessary to pay the bonds, principal and interest, should be included in the next year's tax levy. (See Laws of 1909, chap. 498, amdg. said § 10.) The scheme here was plain, to pay those expenses at once, or at least after one year, by general taxation; while another section of the act, section 37, provided that the construction cost of the work should be paid by the issue of corporate stock of the city. (See Rapid Transit Act, § 37, added by Laws of 1894, chap. 752, as amd. by Laws of 1911, chap. 888; [*] Greater N.Y. Charter [Laws of 1901, chap. 466], § 169, as amd.

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by Laws of 1911, chap. 456. [a2] ) The amendment of section 10 by the act of 1912 added thereto the following distinct provision, viz.: 'If the said Commission shall determine that part of its expenses shall be included in determining the cost of construction of a railroad constructed under sections twenty-six, twenty-seven, twenty-nine or thirty-three of this act, then and in that event the said board of estimate and apportionment or other board or public body upon the requisition of the Commission duly made may appropriate such sum or sums of money as may be requisite and necessary for such part of its expenses and authorize the issue of corporate stock for such purposes, and it shall thereupon become the duty of the comptroller of said city to issue and sell corporate stock of the city for such purposes.'

The first question in controversy between the parties here is as to the construction of the amended section 10. The appellants claim that its meaning is that the board must issue corporate stock to pay the expenses of the Commission; that, in other words, the amendment leaves the former (still retained) part of the section, directing the issue and sale of revenue bonds to defray the expenses of the Commission, applicable only to that part of the expenses which is not included in the cost of construction as determined by the Commission. Indeed upon that view the issue of revenue bonds to pay the expenses so included in those costs after the amendment would be entirely unauthorized and illegal. Upon the other hand, the claim of the respondent is that the amendment left it to the choice of that board which method it should pursue in order to raise the necessary funds, whether by the issue of revenue bonds, which would apply the 'pay-as-you-go' policy, or by the issue of corporate stock which would not be paid off and retired until the end of fifty years. The learned justice at Special Term sustained the latter view and contention, and I agree with his reasoning and conclusion in that regard.

The appellants further claim that, inasmuch as those bonds in the years in question were issued illegally, the board can

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now issue corporate stock for the amounts they represented, even as to those bonds issued in years prior to 1918, which have already been paid off and retired out of the taxes as required by law. Of course, if the conclusion just above reached, that the amended section gave to the board the option to raise the requisite funds by issuing either class of securities be correct, then it is immaterial even if the latter contention of appellants be correct, because in that view the premise upon which it is based fails. It seems to me, however, that such contention is not well made. The money to pay those bonds has been raised by taxation and actually applied to that purpose. If this reasoning of the appellants be sound, then it would be competent for the board to look over the city records for any length of time, even fifty years, and if it could find therein that any sum of money in any form had been included in any tax levy to pay the purported obligations of the city illegally issued, it...

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