Schierstead v. City of Brigantine

Citation148 A.2d 591,29 N.J. 220
Decision Date16 February 1959
Docket NumberNo. A--24,A--24
PartiesOscar A. SCHIERSTEAD, Plaintiff-Appellant, v. CITY OF BRIGANTINE, a municipal corporation of the County of Atlantic and State of New Jersey, and Elias G. Naame, Defendants-Respondents.
CourtUnited States State Supreme Court (New Jersey)

Josiah E. DuBois, Jr., Camden, for appellant.

Elias G. Naame, Atlantic City, for defendant Elias G. Naame, pro se.

Henry P. Megargee, Jr., Asst. City Sol. of Brigantine, Atlantic City, for City of Brigantine (John Lloyd, Jr., City Sol. of Brigantine, Atlantic City, attorney).

William L. Boyan, Deputy Atty. Gen., for Atty. Gen., amicus curiae (David D. Furman, Atty. Gen.).

The opinion of the court was delivered by

JACOBS, J.

The plaintiff appealed to the Appellate Division from the Law Division's action in dismissing his complaint, entering judgment for the defendants, and denying his motion for leave to amend. We certified the appeal on our own motion under R.R. 1:10--1(a).

In 1931 the Legislature adopted the Municipal Finance Commission Act which was intended to meet the then public emergency arising from defaults in the payment of municipal obligations and the resulting impairment of public credit. See L.1931, c. 340, p. 830. It provided in section 101 that whenever it was made to appear to a justice of the Supreme Court, from a petition by the holder of a bond or note issued by a municipality, that payment was in default for over 60 days, the justice could conduct a summary investigation and enter an appropriate order creating the Municipal Finance Commission for the municipality with all of the powers set forth in the act. See R.S. 52:27--2, N.J.S.A. In section 103 the Legislature also provided for the creation of the commission where the municipality itself adopted a resolution saying it could not meet its note and bond obligations; although this section did not originally provide, as did section 101, for a summary investigation and order by the Supreme Court justice, it was later so amended. See L.1933, c. 330, p. 860; R.S. 52:27--3, N.J.S.A.

Section 403 (now R.S. 52:27--4, N.J.S.A.) set forth that the commission shall continue in force and exercise its powers and perform its duties until all bonds or notes or other indebtedness which has fallen due, and all bonds of notes which shall fall due within one year, and the interest thereon, have been paid or funded or refuded (excepting tax anticipation or tax revenue notes or bonds of the current year) at which time 'its authority under this act shall cease,' and that thereafter the Commissioner of Municipal Accounts (later the Director of the Division of Local Government) shall have power to continue the employment of the auditor as provided in section 301 (R.S. 52:27--6, N.J.S.A.) and exercise the power of the commission under section 209 (R.S. 52:27--22, N.J.S.A.), until the debt of the municipality is within statutory limitations, at which time 'his authority under this act shall cease.' In June 1932 the act was amended (L.1932, c. 236, p. 519) and shortly thereafter bondholders of the City of Brigantine filed a petition resulting in an order by Justice Donges which placed the City of Brigantine under the control and supervision of the Municipal Finance Commission. In 1933 the act was again amended (L.1933, c. 330, p. 859) and was supplemented by a provision (now R.S. 52:27--5, N.J.S.A.) to the effect that where a justice of the Supreme Court has 'heretofore or hereafter made an order annulling, vacating and discharging' any order theretofore made by him under the act, the commission shall cease to continue in the municipality and shall not exercise any powers or perform any duties therein, provided, however, that the commission 'shall have heretofore or hereafter determined by resolution that it is not functioning' in the municipality. L.1933, c. 375, p. 1059. The introducer's statement indicated that the purpose of the supplement was to remove a question which had been raised as to the power of a justice to revoke an order issued by him under the act (see Senate No. 460 (1933)); apparently the question had been raised in connection with In re Armstrong where Justice Bodine had on June 1, 1933 entered an order finding the City of Garfield to be in default on its bonds but 'cancelled, annulled, vacated, and discharged' his order on the following day.

The Municipal Finance Commission Act was amended from time to time thereafter and, as amended, is still in effect. See R.S. 52:27--1 et seq., N.J.S.A. It has been passed upon in many judicial decisions. See Hourigan v. North Bergen Township, 113 N.J.L. 143, 149, 172 A. 193, 785 (E. & A. 1934); Rippel v. City of Asbury Park, 118 N.J.L. 45, 190 A. 489 (Sup.Ct.1937); Shay v. Delaware Township, 122 N.J.L. 313, 5 A.2d 53 (Sup.Ct.1939), affirmed, 124 N.J.L. 124, 11 A.2d 261 (E. & A. 1940); Faitoute Iron & Steel Co. v. City of Asbury Park, 316 U.S. 502, 504, 62 S.Ct. 1129, 86 L.Ed. 1629, 1632 (1942). In Hourigan, Justice Heher noted that the act conferred powers upon the commission 'somewhat akin to those exercised by receivers of insolvent corporations' (13 N.J.L. 143, 172 A. 196) (see Hetrick v. Roberts, 117 N.J.L. 584, 585, 190 A. 504 (Sup.Ct.1937), affirmed, 118 N.J.L. 586, 194 A. 557 (E. & A. 1937)), that it was designed to prevent financial collapse and paralysis of municipal functions, and that it was a valid exercise of the State's police powers; and in Faitoute Justice Frankfurter noted that New Jersey had 'adapted the underlying principles of an equity receivership to the solution of the problem of insolvent municipalities' (316 U.S. 502, 62 S.Ct. 1130) and that its legislation did not violate the contract clause of the Federal Constitution.

In Schierstead v. City of Brigantine, 20 N.J. 164, 167, 119 A.2d 5, 7 (1955), the plaintiff attacked a contract of sale which Brigantine had entered into with Mr. Walker and which the Municipal Finance Commission had approved under R.S. 52:27--29.1, N.J.S.A. That statutory provision authorizes the governing body of any municipality 'in which the commission is or may be functioning' to sell, with the commission's consent, any municipal real estate at public or private sale. The plaintiff did not contend that the Municipal Finance Commission Act was invalid in its entirety but did urge that R.S. 52:27--29.1, N.J.S.A. was invalid 'as an unconstitutional delegation of power'; this court, in an opinion by Justice Wachenfeld which referred to Hourigan and Faitoute and their expressions of the legislative policy, held that, when read as a whole, the act contained enough to withstand the contention that the delegation lacked the required norm or standard.

In 1956 Brigantine offered for public sale certain lands located at the south end of the city; the plaintiff obtained a temporary restraint which was followed by a modification or clarification of the conditions of sale and by a public sale which resulted in a bid of $30,000 by the defendant Naame, subject to the approval of the Municipal Finance Commission. On July 13, 1956 Brigantine accepted Naame's bid, subject to the approval of the commission, but on August 17, 1956 it rescinded its approval and the commission never acted on the matter. On September 14, 1956 Naame filed a complaint in the Chancery Division seeking specific performance but his action was dismissed under an agreement in which Brigantine undertook to sell the land pursuant to R.S. 52:27--29.1, N.J.S.A. to Naame for the sum of $100,000 subject to the conditions set forth in the agreement and the approval of the commission. The city's resolution authorizing this agreement was adopted on June 21 1957 and the approval of the commission was granted by a resolution adopted on July 10, 1957. Thereafter, on August 9, 1957 the plaintiff, a resident and taxpayer of Brigantine, filed a Law Division complaint in lieu of prerogative writ in which he alleged (1) that Brigantine's resolution approving the private sale to Naame was illegal and not for the best interests of the taxpayers of Brigantine, and (2) that the Municipal Finance Commission did not on July 10, 1957, and for a long time prior thereto, have any authority to exercise powers under R.S. 52:27--1 et seq., N.J.S.A., and demanded judgment (1) that the resolution authorizing the private sale to Naame be declared void, and (2) that Brigantine 'be declared to be not subject to the authority of the Municipal Finance Commission and establishing the date when such authority ceased.'

In October 1957 motions were made by the defendants for dismissal of the complaint and for summary judgment. An affidavit by the plaintiff asserted (1) that Brigantine's records disclosed that it had refunded all of its bonds or notes and had made provisions for a cash debt service fund, and (2) that the plaintiff had caused an offer to be made to Brigantine by G. Ernest Dale to purchase the lands for $125,000. An affidavit by George C. Skillman, Director of the Division of Local Government, asserted (1) that the Municipal Finance Commission has functioned in Brigantine from September 15, 1932 up to and including the date of the affidavit, (2) that no application has been made by the city or any other person to annul the 1932 order which originally provided that the commission shall function in Brigantine, (3) that the commission had at no time determined by resolution that it is not functioning in Brigantine, and (4) that the commission had never ceased to function in any municipality where it had ever operated except (a) by court order or (b) by formal application on the part of the municipality followed by (c) consent and concurrence of the commission.

In the Law Division the plaintiff contended that Brigantine was in sound financial condition, that the authority of the Municipal Finance Commission had automatically terminated upon fulfillment of the conditions expressed in R.S....

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