Court Opinion

ID: 5462732
Source: CourtListenerOpinion
Date Created: 2022-01-09 19:41:25.304963+00
Date Added: 2024-06-11T08:32:57.997235
License: Public Domain

By the Court, Mullin, P. J.
In the case of Starin v. The Town of Genoa, (23 N. Y. 439,) the Court of Appeals decided that the bonds in question in this suit, having been issued. without the consent of two-thirds of the tax-payers of the town having been obtained, were void.
That court also decided that such of the bonds as were sold to the railroad company in payment for the stock of said company subscribed for by the commissioners of said town, were void, because such an appropriation of the bonds was unauthorized by the statute.
It was also decided that the affidavit filed by the commissioners that the consent of two-thirds of the taxpayers of the town had been procured was not competent evidence of that fact, and the town, as the representative of the tax-payers was not estopped from insisting that *602the consent of the requisite number of tax-payers had not been obtained.
In this case twenty of the bonds were sold to the railroad company and purchased, by some of the defendants, of the company; as to these bonds, therefore, the case of Starin v. Town of Genoa is directly in point, and establishes conclusively the invalidity of that portion of the bonds.
It is insisted that the five bonds purchased of the commissioners and paid for in cash are valid, because the purchasers were purchasers in good faith for value and without notice.
This proposition was decided against the defendants, in Gould v. The Town of Sterling, (23 N. Y. 439.) It was there held that the failure, to obtain the consent of the requisite .number of tax-payers was fatal to the power to issue the bonds. That persons dealing with the bonds were bound to inquire, for themselves, whether the conditions precedent to the issue of them had been complied with, and that they could not be deemed bona fide purchasers without notice of the defects in the bonds.
Some of the defendants set up, by way of defence, that they purchased the bonds held by them without notice that they had been sold by the commissioners to the railroad company, and that they are for that reason bona fide holders of said bonds.
This cannot be true so long as all persons dealing with the bonds are charged with notice that they were issued without the consent of the requisite number of tax-payers being obtained. It is said by the defendants’ counsel that the want of notice of any defect in the bonds, and of good faith in the purchase, being set up in the answer and in response to the allegations in the complaint, and no proof being given on the subject, it must be taken as true, and the defendants thus circumstanced must be treated as bona fide holders without notice. *603This rule of equity pleading cannot be applied under the Code. The allegations of the answer are to be treated either as a denial of the allegations of the complaint, or as matter of affirmative defence. If the allegation in the complaint is not proved, the defendant gets the benefit of the denial by forcing the plaintiff to attempt proof of the fact alleged, and if it is not made, the defendant has the right to claim that his allegation is established.
When the answer sets up matter by way of affirmative defence he must prove it, or he gets no benefit from it.
It is said that the Court of Appeals, in Starin v. The Town of Genoa, based its decision that the plaintiff in that case was not a bona fide holder on the ground that he purchased the bonds of the railroad company at a discount. . This is a mistake. Purchasing at a discount is- not alluded to in the opinion in the case of Starin v. The Town of Genoa. It is said that the railroad company was chargeable with notice of the invalidity of the bonds, and the plaintiff having purchased of that company with full notice of the facts and circumstances under which they had been received, he was not, for that reason, a bona fide holder.
I do not find that it was suggested in the opinion in Gould v. The Town of Sterling, that the title of the plaintiff was held defective because of the purchase of the bonds for less than their par value. In both cases they were held void because of the failure to comply with the statute.
One of the principal grounds relied on to defeat a recovery by the plaintiff is that the defendants have no joint interest in the bonds, and cannot for that reason be joined. This position was put forward in the case of the N. Y. & N. H. R. R. Co. v. Schuyler, (34 N. Y. 30,) but the court overruled it, and held that those holding the stock fraudulently issued by Schuyler could be joined *604in a single action and the validity of the stock held by them severally determined.
When this case was before the General Term of the fifth district, on appeal from an order dissolving the injunction issued therein, the point was then taken that a court of equity had no power to compel the cancellation and surrender of the bonds held by the defendants ; but it was held that a court of equity had such power, and the court reversed the order dissolving the injunction upon that ground, with others. (Story's Eq. Jur. §§ 693, 700. 6 Duer, 597. 1 John. Ch. 517. 13 How. Pr. 133.)
The omission of the plaintiff to return, or offer to return, the stock to the railroad company, is relied upon as a defence to the plaintiff’s action. I am unable to perceive what the defendants have to do with that question. They have no interest in the stock ; nor right to demand a return of it; nor to ask any relief founded on its non-return. Should the company be compelled to pay back to the defendants the money received of them for the stock, it will then doubtless call on the plaintiff to account for the stock. The defendants, however, are clothed with none of the rights of the railroad company in that behalf.
The defendants Gould, Woodruff, Starin and Murdock set up, by way of defence, the statutes of limitation of six and ten years ; Howland, the statute of six years; Hutchinson and Wallace do not set up either statute.
The only provision of the Code that limits the time for bringing actions in cases like the one before us, is section 97. It provides that an action for relief not hereinbefore provided for, must be commenced within ten years after the cause of action shall have accrued. This is not an action for relief on the groupd of .fraud, on which the right of action does not accrue until the *605discovery of the fraud by the aggrieved party. (§ 91, subd. 5.)
The fraud, if there was any that entitled the plaintiff to relief,- was either in issuing the bonds without complying with the requirements of the statute, or in their sale to the railroad company in payment of stock.
The town and the tax- payers it represents must be charged with knowledge of these acts and omissions to the same extent as the defendants or others dealing with the bonds ; and if so these facts must, in the absence of proof, be presumed to have been known to the plaintiff at the time they occurred, and hence the limitation of six years would apply.
The plaintiff’s counsel insists that the cause of action did not accrue until the actions brought in this court by Starin and others, to recover on the bonds, were decided, nor until the actions brought in the federal courts for the same purpose were decided, by which the plaintiff was apprised that the federal courts would disregard the decisions of the Court of Appeals as to the invalidity of the bonds, and would hold them to be valid and binding on the town.
I am unable to find any case, since the adoption of the Code, that sanctions the idea that the bringing of an action may be postponed in cases like the present until actions are brought upon the void paper. When the bonds were transferred by the commissioners the right of action accrued, and the ten years’ limitation began to run. If I am right in this, the plaintiff’s action was barred as to all the defendants, except Hutchinson and Wallace.
Hutchinson alleges, in his answer, that the town is indebted to him in the sum of $3,000, for money borrowed, which was paid into the treasury of the town and appropriated to its use. This allegation is not denied by the plaintiff. If therefore it is a counter-claim that a defendant is authorized by section 150 of the Code to *606set up in his answer, Hutchinson was entitled to judgment for that sum.
To constitute a counter-claim, it must be a claim existing in favor of a defendant against a plaintiff between whom a several judgment might be had in the action, and arising out of the contract or transaction set out in the complaint as the foundation of the plaintiff’s claim, or connected with the subject of the action; or, in an action on contract, any other cause of action arising, on contract and existing at the commencement of the action. (Code, § ISO.)
Lending the town money has no apparent connection with the unauthorized issue of bonds, nor is it connected in any way with the subject of this action. This action is not founded on contract, and no counter-claim arising on contract is for that reason available.
Again, the referee rejected the claim, and no appeal by Hutchinson from the judgment has been taken.
The defendants’ counsel rely, with a good deal of earnestness, on the action of the Supreme Court of the United States upon bonds issued under the same statute under which the bonds in question in this suit were issued; and he calls upon us to disregard the decisions of the Court of Appeals, and to give effect to those of the United States. This we cannot do. We are bound by the decisions of the Court of Appeals, and must enforce the law as that court declares it, unless the federal court, upon appeal from the judgment of the Court of Appeals, shall reverse it; we are then bound to give effect to that decision in the case in which it is made. But whether the legal principles enunciated by the federal court shall be applied in other cases, must be asserted by the Court of Appeals ; especially when the views of the two courts differ, as to the law.
Whether the Court of Appeals will adopt the views of the federal court as to the validity of the bonds issued under the law in question, it will be for that court-to de*607termine. Until it shall so declare, we must follow the cases of Starin v. The Town of Genoa and Gould v. The Town of Sterling.
[Fourth Department, General Term, at Buffalo,
June 3, 1873.
Mullin, Talcott and M. D. Smith, Justices.]
The judgments in favor of the defendants Hutchinson and Wallace are reversed, and judgment ordered for the plaintiff that the bonds held by them be surrendered and cancelled, with costs to the appellants. The judgments in favor of the other defendants are affirmed, with costs,