Wells v. Town of Salina

• Decision Date: 25 February 1890
• Citation: 119 N.Y. 280,23 N.E. 870
• Parties: WELLS v. TOWN OF SALINA.
• Court: New York Court of Appeals Court of Appeals

119 N.Y. 280

23 N.E. 870

WELLS

v.TOWN OF SALINA.¹

Court of Appeals of New York.

Feb. 25, 1890.

Appeal from supreme court, general term, fourth department.

In the year 1870 the town of Salina, under chapter 570 of the Laws of 1868, issued its bonds to the amount of $120,000, payable 20 years thereafter, with interest at 7 per cent., payable on the 1st days of August and February of each year. By the terms of section 4 of the act of 1868, the railroad commissioner of the town, an officer created under section 1 of the act, was required ‘to report to the board of supervisors of the county wherein said town or village is situated, within three days after the commencement of their regular session in each year, the amount of money required to pay the principal and interest on the bonds thus issued, due or to become due, and payable during the next ensuing year, after deducting any sums received as dividends on the stock of said company, held by said town or village, which must be first applied to the payment of such principal and interest; and the said board of supervisors shall thereupon cause to be assessed, levied, and collected upon such of the real and personal property of the said town or village, at the same time and in the same manner as other taxes, such amount of money as shall be thus reported as necessary to pay such principal and interest; and such amount, when collected, shall be paid to and applied by the commissioner to the payment of the said principal and interest of the bonds aforesaid.’ In pursuance of this provision, the railroad commissioner of the town of Salina, with moneys raised for that purpose, paid the interest upon the bonds as it became due, to and including August 1, 1880. On December 1, 1880, he presented to the clerk of the board of supervisors a report, directed to the board, in which, in conformity with the provisions of the act, he stated the amount required to pay the principal and interest to become due during the next ensuing year. That report was taken by the supervisor of Salina, and no action was taken thereon by the board of supervisors. On the 27th of January, 1881, Francis Alvord, who was then supervisor of the town, and Leman B. Pitcher, commenced an action as individuals and taxpayers, in behalf of themselves and all other tax-payers of this town who might come in and contribute to the expense of the action, against various of the bondholders and the railroad commissioner of the town, to restrain the latter from performing the acts required of him by the statute, and the former from enforcing their securities. At the same time an injunction was served upon the defendants, restraining the railroad commissioner from paying any of the bonds or coupons, and from taking any measures for raising money for the payment of such interest. Judgment was demanded in that action, among other things, that the bonds mentioned in the complaint be declared void, and surrendered up to be canceled; that all the proceedings for issuing the bonds be adjudged invalid and void; that the statute under which they were issued be declared unconstitutional and void; that the defendants be enjoined from selling, transferring, or disposing of any of said bonds in their possesion, custody, or control during the pendency of the action, and until the further order of the court, without giving to the purchaser or purchasers thereof notice of the pendency of the action.

The next annual meeting of the town of Salina, after the commencement of that action, was held on February 15, 1881, and a resolution was there duly adopted which, after reciting the commencement of the action by Alvord and Pitcher as taxpayers of the town of Salina, on behalf of themselves and all other tax-payers of the town who would contribute to the expense of the action, requested, authorized, and required the supervisor of the town, and his successor or successors in office, ‘to assume the direction and conduct of such action, and the prosecution of the same, if permitted by said plaintiffs, and to prosecute the same to a final judgment, and to pay all the expenses of such prosecution, and to employ counsel and to borrow upon the credit of the town all such sums of money, from time to time, as may be necessary for the prosecution of said action.’ At a town meeting held in February, 1882, another resolution was adopted, ‘authorizing and requiring the supervisor to borrow, on the credit of the town, not to exceed $8,400; the amount so raised by him to be used, in his discretion, for the payment of the expense already incurred by the litigation then pending, for the purpose of setting aside and canceling the bonds issued by the town in aid of the Syracuse Northern Railroad Company, and for the purpose of defending the same against any suit or proceeding which might be brought against the town; and the town board was authorized and required to put that amount into the abstract of town accounts, to be presented to the board of supervisors at its next annual session, to be levied on the town with other taxes.’ In pursuance of the first resolution, for the purpose of raising money to defray the expenses of that action, the supervisor, on behalf of the town, made three promissory notes,-one dated March 9, 1881, for $1,500; one dated December 21, 1881, for $500; and one dated December 31, 1881, for $1,500; and in pursuance of both resolutions he made another note, for $500, dated April 29, 1882. Upon these notes, $4,000 was borrowed of the plaintiff's testator, Samuel H. Hinsdale, and the money so borrowed was used to defray the expenses of the action named. That action was brought to trial, and the complaint was dismissed. An appeal was then taken on behalf of the plaintiff to the general term of the supreme court, where the judgment was affirmed, and a further appeal was then taken to this court, where the judgment was finally affirmed. Alvord v. Bank, 98 N. Y. 599. Thereafter this action was commenced against the town to recover on the four notes made on behalf of the town by its supervisor, as above stated, and to recover the money loaned to the town thereon. The action was put at issue and brought to trial before a judge without a jury, who ordered judgment in favor of the plaintiff. The defendant appealed to the general term, and from affirmance there to this court.

Louis Marshall, for appellant.

Tracy, McLennan & Ayling, for respondent.

EARL, J., ( after stating the facts as above.)

The action commenced by Alvord and Pitcher, if successful, would necessarily have inured to the benefit of the town and all its tax-payers; and we will therefore assume that the electors of the town at the town-meetings in 1881 and 1882 had the power to direct the supervisor, with the consent of the plaintiffs in that action, to assume the control, direction, and prosecution thereof on behalf of the town, and that that action may therefore be treated as if it had been actually commenced in the name of the town or its supervisor. We will also assume that the electors at the town-meetings had the power to direct money to be raised for prosecuting that action; and, furthermore, that the $4,000 was borrowed to defray the expenses of that action, and was actually used for that purpose; and yet we are constrained to hold that this action cannot be maintained. Business corporations, unless restrained by their charters, possess the power to borrow money, and issue securities therefor. Generally, they could not carry on their authorized and legitimate business without such a power; and hence it must be presumed that the legislature intended that they should possess it. But towns and other municipal corporations are organized for governmental purposes, and their powers are limited and defined by the statutes under which they are constituted. They possess only such powers as are expressly conferred or necessarily implied. They are clothed with the power of taxation, and can thus raise all the money needed for ordinary municipal purposes; and until the money can thus be raised, as it can be at brief intervals, experience has demonstrated their ability to obtain upon credit all the materials and services needed without a resort to loans of money upon credit. It is the general, if not the universal, law of this country, and of England, that municipalities are not empowered to borrow money for municipal purposes, unless expressly authorized to do so by statute, or, in the absence of a statute, unless the power is necessarily implied from some special duty imposed, for the discharge of which the power to borrow is not only convenient, but necessary. We do not find, in the statutes of this state, that the power to borrow money has been expressly conferred upon towns, or is necessarily implied. This, we think, will clearly appear from a brief examination of the statutes. It is provided in part 1, c. 11, tit. 1, art. 1, § 2, Rev. St., that ‘no town shall possess or exercise any corporate powers, except such as are enumerated in this chapter, or shall be specially given by law, or shall be necessary to the exercise of the powers so enumerated or given.’ Among the powers enumerated are the following: ‘To make such contracts, and to purchase and hold such personal property, as may be necessary to the exercise of its corporate or administrative powers.’ This provision clearly does not authorize the borrowing of money upon the credit of the town, unless it can be shown that such borrowing was necessary ‘to the exercise of its corporate or administrative powers.’ In title 2, art. 1, Id., it is provided that the electors of a town, at the annual town-meeting, shall have power ‘to direct the institution or defense of suits at law or in equity, in all controversies between such town and corporations, individuals, or other towns,’ and ‘to direct such sum to be raised in such town for prosecuting or defending such suits as they may deem necessary.’ What is here...