Court Opinion

ID: 3576636
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:28:36.192086+00
Date Added: 2024-06-11T13:42:51.547403
License: Public Domain

I differ to some extent from the conclusions reached by Judge GRAY with reference to the answer to the 19th, 23d and 27th questions certified for our determination. The 27th question is as follows: "Does the amount payable upon contract liability for work and labor to be performed or materials to be furnished under contracts for public improvements by said city of New York, to be paid for as such work is performed or the materials furnished from time to time from the proceeds of bonds, become an indebtedness of said city within the provisions of article 8, section 10, of the Constitution of the state at the time when the comptroller of said city indorses thereon his certificate as required by section 149 of the Greater New York charter, that there remains a balance of the appropriation or fund applicable thereto sufficient to pay the estimated expense of executing such contract as certified by the officer making the same?"
It appears from the finding of the referee that on the 30th day of June, 1908, the outstanding contracts, upon which money would become due in the future for labor performed *Page 206 
and material furnished, amounted to the sum of $54,000,000. and the question arises as to whether this amount should be deducted from the $106,000,000 which the referee found was the borrowing margin of the city. These contracts were entered into pursuant to the provisions of section 149 of the Greater New York charter, which, so far as material, are as follows: "No contract hereafter made, the expense of the execution of which is not by law or ordinance, in whole or in part, to be paid by assessments upon the property benefited, shall be binding or of any force, unless the comptroller shall indorse thereon his certificate that there remains unexpended and unapplied, as herein provided, a balance of the appropriation or fund applicable thereto, sufficient to pay the estimated expense of executing such contract, as certified by the officer making the same." The manner in which these contracts were executed is provided for by section 419 of the charter, and is disclosed by the testimony of the witnesses Andrews and Smith. It is substantially as follows: When an improvement has been authorized the borough president publishes a notice for ten days asking for bids. When the bids are received and opened and the lowest bidder is ascertained, the bid is transmitted to the comptroller for his approval of the sureties. His approval, if made, is transmitted to the head of the department to execute the contract. The contract when drawn and signed is transmitted to the comptroller, and if satisfactory, he indorses thereon his certificate that there is a fund applicable sufficient to pay the estimated expense of executing the contract. This, upon delivery, completes the contract and it then becomes a binding instrument between the city and the contractor. It will be observed that the certificate of the comptroller, as required by section 149, is silent with reference to the source or character of the fund which is applicable to the payment of the contract. The witness Andrews further states that "sufficient funds available," as appearing in the comptroller's certificate, does not mean cash on hand, but that it means sufficient funds have been legally authorized. It would, therefore, seem that in the absence of *Page 207 
any provision of the contract or of the statute requiring or directing the payments to be made by the issuing of bonds, that the installments, as they matured upon the contract and became due, would be payable in cash, like other obligations of the city. If all of the contracts of the city for public improvements must be paid in the issuing of long-time bonds, it would follow that the city as a corporation could not long exist without exceeding the constitutional limitation. Instead of paying for the improvements in cash as the money became due and payable thereon, the city would be compelled to issue long-time bonds therefor, thus placing the burden upon future generations which should be borne by the present generation. Many of the improvements are of a temporary character, subject to wear and decay and soon have to be replaced. If all of such contracts must be paid by the issuing of bonds, the constitutional limitation would soon be reached and thereafter the city could not enter into any contract of this character, even for the building of a schoolhouse, for if it must be paid for by the issuing of bonds, they, under the provisions of the Constitution, would be void and illegal. These contracts, as I understand, are the ordinary contracts for the construction of public buildings, wharves, bridges and streets. The contracts do not provide that the payments maturing thereon from time to time shall be made by the issuing of bonds, nor do any of the provisions of the charter require these payments to be so made. It is true that under section 222 of the charter the city may authorize the issuing of bonds to be called general fund bonds, and these bonds may be used for the payment of the obligations of the city. The witness Smith tells us that the general fund bonds, issued pursuant to section 222, are usually sold en bloc, many millions at a time, and the amounts received from such sale are passed to the credit of a fund called the proceeds of the sale of such bonds, and then, when funds are needed in the various accounts of the city, the money is transferred from this fund to the particular account to which it is required. It is, therefore, apparent that the installments, as *Page 208 
they become due and payable upon these contracts, are payable in cash, if any remains to the credit of that particular department of the city. If not, they may be paid by the issuing of revenue bonds, payable out of the taxes to be assessed and collected upon the next tax roll. Or, if the authorities of the city so determine, they may be paid by moneys transferred from the account of the proceeds of the sale of general fund bonds. It thus follows that the payment out of the proceeds of the general fund bonds is permissive and not compulsory. And any time when the constitutional limitation is reached which would prohibit the issuing of such bonds, then the city must pay its contract liabilities as they mature and become due and payable in cash or out of the revenue bonds.
There may be improvements which the statute requires to be paid for in bonds, such as the building of subways and reservoirs. There may be other contracts which the proper board may determine should be paid for in bonds. But it is not found as a fact by the referee, nor do I understand it to be established by the evidence, that these contracts are of that character. If the contracts were to the effect that the payments falling due thereon must be paid by the issuing of long-time bonds, or that the payments were required to be so made by the charter or the board of estimate and apportionment, then I think Judge GRAY would be correct in his conclusions; for then the obligations would become complete to pay in bonds by force of the contract or the statute as the payments become due. To hold otherwise might produce absurd results. Should the constitutional limitation be reached by the city before the contracts were performed in full, it would follow that the contracts theretofore completed would be valid, and those thereafter performed would be invalid, for the reason that the bonds to be issued in payment thereof would exceed the constitutional limitation. It thus might follow that the contracts made for the construction of a great public improvement, which would necessarily consume a number of years in its construction, would become void under the Constitution, while many subsequent contracts requiring less time to *Page 209 
execute would be fully completed before the limitation was reached.
The rule which should control the determination of such questions is to the effect that when a contract is made for a public improvement, which by its terms or by the provisions of the charter is required or directed to be paid with long-time bonds presently issuable, it becomes a debt within the meaning of the Constitution, even though such debts are payable in the future by installments. But in contracts for such improvements which are not required to be paid by the issuing of such bonds, but are payable in cash when the future installments become due, they are not debts within the meaning of the Constitution until the maturity of the installments, even though the municipality in its discretion may issue bonds to pay such installments. In the former case the debt is deemed to be created at once, the time of payment only being postponed. In the latter case, the indebtedness is not considered created until the consideration has been furnished. This, as I understand, is in accordance with the views of Judge Dillon as expressed in his new work on Municipal Corporations.
Inasmuch as the referee has not found facts upon which we can determine the precise character of these contracts I am inclined to the view that questions 19th, 23d and 27th, certified, should not be answered either in the affirmative or negative, but should be answered in accordance with the requirements of the rule to which I have called attention.
Orders affirmed, with one bill of costs in all cases.
Opinions by CULLEN, Ch. J., and GRAY and HAIGHT, JJ.; CULLEN, Ch. J., WERNER and HISCOCK, JJ., concur with GRAY, J., except as to the allowance of the securities in the sinking funds to meet the water debt created since the Constitution of 1894 as a deduction from the general indebtedness of the city; EDWARD T. BARTLETT and VANN, JJ., concur with HAIGHT, J.; EDWARD T. BARTLETT, HAIGHT, VANN, WERNER and HISCOCK, JJ., concur with CULLEN, Ch. J., as to the effect of the sinking funds; GRAY, J., dissents from CULLEN, Ch. J., on this point. *Page 210 
The questions certified are answered as follows:
No. 1. Question certified answered in the affirmative. All concur.
Nos. 2, 3 and 4. Questions certified answered in the affirmative. All concur.
No. 5. Question certified answered in the affirmative. All concur.
No. 6. Question certified answered in the affirmative. All concur.
No. 7. Question certified answered in the affirmative. All concur.
No. 8. Question certified answered in the affirmative. All concur.
No. 9. Question certified answered in the affirmative. All concur.
No. 10. Question certified answered in the affirmative. All concur.
No. 11. Question certified answered in the affirmative. All concur.
Nos. 12, 13 and 14. Questions certified answered in the negative. All concur.
No. 15. Question certified answered in the negative. All concur.
No. 16. Question certified answered in the negative. All concur.
No. 17. Question certified answered in the affirmative. All concur.
No. 18. Question certified answered in the affirmative. All concur.
No. 19. Question certified answered in the affirmative. Concur: CULLEN, Ch. J., GRAY, WERNER and HISCOCK, JJ. Not voting: EDWARD T. BARTLETT, HAIGHT and VANN, JJ.
Nos. 20, 21 and 22. Questions certified answered in the affirmative. All concur.
No. 23. Question certified answered in the affirmative. Concur: CULLEN, Ch. J., GRAY, WERNER and HISCOCK, JJ. Not voting: EDWARD T. BARTLETT, HAIGHT and VANN, JJ. *Page 211 
Nos. 24 and 25. Questions certified answered in the negative. All concur.
No. 26. Question certified answered in the negative. All concur.
No. 27. Question certified answered in the affirmative. Concur: CULLEN, Ch. J., GRAY, WERNER and HISCOCK, JJ. Not voting: EDWARD T. BARTLETT, HAIGHT and VANN, JJ.
No. 28. Question certified answered as follows: The real estate that furnishes the basis for valuation is what appears assessed as such in the assessment roll. All concur.
No. 29. Question certified answered in the negative. All concur.
No. 30. Question certified answered as follows: The amount becomes an indebtedness when the contract has been certified by the comptroller under section 149 of the charter. See answer to question No. 27. Concur: CULLEN, Ch. J., GRAY, WERNER and HISCOCK, JJ. Not voting: EDWARD T. BARTLETT, HAIGHT and VANN, JJ.
No. 31. Question certified answered in the affirmative. All concur.
No. 32. Question certified answered in the affirmative. All concur.
No. 33. Question certified answered in the affirmative. All concur.
No. 34. Question certified answered in the affirmative. All concur.
No. 35. Question certified answered in the affirmative. All concur.
No. 36. Question certified answered in the affirmative. All concur.
No. 37. Question certified answered in the affirmative. All concur.
No. 38. Question certified answered in the affirmative. All concur.
No. 39. Question certified answered in the affirmative. All concur. *Page 212 
No. 40. Question certified answered in the affirmative. All concur.
No. 41. Question certified answered in the affirmative. All concur.
No. 42. Question certified answered in the negative. All concur.
No. 43. Question certified answered in the affirmative. All concur.
The answers to questions 31 to 41, both inclusive, relative to the sinking funds, must be qualified by the statement that none of the securities in the sinking funds especially pledged under the Constitution for the retirement of obligations not counted against the city in ascertaining its indebtedness, can be allowed as a deduction or offset against the general debt, which under the Constitution is the subject of computation.
Ordered accordingly.