Broadway Sav. Inst. v. Town of Pelham

BROWN, P. J.

In excluding the testimony offered by the appellant the court decided that the facts pleaded in the answer were immaterial to the controversy between the parties, and, if proved, would not have constituted a defense to the action. In substance it held that the town was bound by the recital in the certificates issued by the supervisor, and by his representations as to the genuineness of the signature of the town clerk. We may therefore examine the case upon the assumption that, if the evidence offered by the appellant had been admitted, the jury would have determined the facts to be as set forth in the answer; and for the purposes of this appeal we shall presume that the several certificates sued upon were issued without authority or direction of the board of town officers named in the statute; that the signature of the town clerk thereto was forged; that the aggregate amount of the certificates sold to plaintiff was largely in excess of the unpaid taxes for the year 1891; and that for the actual amount of unpaid taxes for that year genuine certificates had been issued and sold and paid by the town. The proposition that the recitals in the certificates were conclusive upon the appellant as to the facts therein stated cannot be sustained under the decisions of this state. So much has been written in the judicial opinions on this subject that it is unnecessary to do more than to cite the authorities, and in our own state it is settled that one who purchases instruments of the character of those in suit, although he does so in good faith, must see to it that they are authorized by the statute under which they purport to have been issued. Starin v. Town of Genoa, 23 N. Y. 439; People v. Mead, 36 N. Y. 224; Town of Venice v. Woodruff, 62 N. Y. 463; Cagwin v. Town of Hancock, 84 N. Y. 532; Craig v. Town of Andes, 93 N. Y. 405. The facts are also insufficient to bring the case within the rule applied by the supreme court of the United States in the cases cited by the plaintiff. Commissioners v. Aspinwall, 21 How. 541; Town of Coloma v. Eaves, 92 U. S. 484; Northern Bank of Toledo v. Porter Tp. Trustees, 110 U. S. 608, 4 Sup. Ct. 254. In those cases it was decided that the facts which a municipal corporation issuing bonds was not permitted against a bona fide holder to question in face of a recital in the bond of their existence were those connected with or growing out of the discharge of the ordinary duties of such of its officers as were invested with authority to execute them, and which the statute conferring the power made it their duty to ascertain and determine before the bonds were issued. Northern Bank of Toledo v. Porter Tp. Trustees, p. 617, 110 U. S., and p. 254, 4 Sup. Ct. In Anthony v. Jasper Co., 101 U. S. 693, it was said:

“Purchasers oí municipal bonds are charged with notice of the laws of the state granting power to make the bonds they find on the market. This we have always held. If the power exists in the municipality, the bona fide holder is protected against mere irregularities in the manner of its execution; but, if there is a want of power, no legal liability can be created.”

I know of no authority in that court to the effect that a municipal corporation is not permitted to assert and prove against a bona fide holder of its bonds the fact that they were not authorized by any legislative authority. In Northern Bank of Toledo v. Porter Tp. Trustees, supra, the authority of the township to make a subscription to the railroad was, by the statute, made dependent upon the fact that county commissioners had not been authorized to make a subscription. The bonds in suit recited that they had been issued “in pursuance of the provisions of the several acts of the general assembly of the state of Ohio, and of a vote of the qualified electors in said township,” and it was contended by the plaintiff that the town was estopped by that recital from asserting as a defense the fact that the condition upon which the authority of the town to make the bonds depended did not exist. This contention was overruled, and the bonds were declared invalid, the court saying: “The question of legislative authority in a municipal corporation to issue bonds cannot be concluded by mere recitals.” When an instrument refers on its face to a statutory power, every holder is made chargeable thereby with notice of the statute and its limitations. The rule of law governing cases of this character is very clearly stated in the case of The Floyd Acceptances, 7 Wall. 676, as follows:

“In each case a person dealing with the agent, knowing that he acts only by virtue of a delegated power, must, at his peril, see that the paper on which he relies comes within the power under.which the agent acts. And this applies to every person who takes the paper afterwards, for it is to be kept in mind that the- protection which commercial usage throws around negotiable paper cannot be used to establish the authority by which it was originally issued. Whenever negotiable paper is found on the market, purporting to bind the government, it must necessarily be by the signature of an officer of the government; and the purchaser of such paper, whether the first holder or another, must, at his peril, see that the officer had authority to bind the government.”

In numerous cases the supreme court of the United States have held that mere informalities or irregularities in the fulfillment of a condition precedent to a grant of power to an agent, or in the exercise of that power, when granted, would not render the bonds invalid in the hands of an innocent holder; but no case has gone to the extent of upholding the bonds when there was a total want of power in the agent who issued them. The rule applied by that court is limited to instances in which the officer issuing the bonds is also permitted by the statute to determine whether a fact made a condition precedent to the exercising of his power exists. In such a case his recital is a decision, and binds the municipality.

Authority to issue the certificates in suit depended (1) upon a return by the town collector of unpaid taxes to the supervisor; (2) a direction to the supervisor from the board of town officers named in the statute to borrow upon the credit of the town a sum not exceeding the amount of unpaid taxes. These were conditions precedent to the power of the supervisor to act, and, unless both concurred, the supervisor was without legal authority to borrow money upon the credit of the town, and to issue its certificates of indebtedness. Neither fact existed in this case, and consequently the certificates were void. The recital in the certificates that these conditions existed could not bind the town under the rule applied in the supreme court of the United States, for the reason that neither the supervisor nor town clerk was charged by the statute with the duty of determining those facts. If the condition did not exist, then the power granted by the statute did not become operative, and it could not be said that there was legislative authority for the borrowing of the money. On this precise point the distinction exists between the case at bar and Gifford v. Town of White Plains, 25 Hun, 606, upon which plaintiff relies. In Gifford’s Case the condition required by the statute existed. There was a return by the collector, and a direction by the town board to the supervisor to borrow the money. But the amount named in the resolution of the town board was subject to reduction by the supervisor to the extent of the amount of money in his hands applicable to the payment of the unpaid taxes. What that amount was no one knew but the supervisor, and he necessarily, by the resolution of the town board, was made the person to determine it. Issuing a certificate in proper form was held to be equivalent to a declaration by the supervisor that he had not exceeded his authority. It was a decision which bound the town, and so long, therefore, as the total amount of the certificate did not exceed the amount authorized by the town board, or the amount stated in the collector’s return, a bona fide purchaser of the certificate was protected. And the plain distinction between the two cases is that in that case there was legislative authority and in the case before us there is none.

The statute further made it the duty of the town clerk to keep a record of the certificates, and the amount and time of their payment. This record was open to inspection, and an examination of it would have disclosed to the plaintiff the fact, not only that the particular certificates in suit were unauthorized, but also that the power of the town officer had been exhausted by borrowing the actual amount of the unpaid taxes upon other genuine certificates. We think the plaintiff is chargeable with notice of this provision of the statute, and its failure to make an examination of the record deprives it of the standing of an innocent holder of the securities. Thompson v. Town of Mamakating, 37 Hun, 400; Id., 106 N. Y. 674, 13 N. E. 937. In respect to the amount of the certificates, no distinction can be drawn between the case at bar and that last cited. In that case it appeared that the town was authorized by statute to issue bonds to the amount of $175,000. The bond sued upon was in excess of that amount, and had been issued by mistake. Although the plaintiff was a purchaser for value, without notice of the defect, the right to recover was denied upon the ground that he was chargeable with notice of the limitation put by the statute upon the power of the town commissioners, and was bound to ascertain, at his peril, that all the conditions requisite to the execution of their power had been observed and performed. In this case, if it had appeared, as defendant offered to show, that the total amount of unpaid taxes for the year 1891 was less than $3,000, the plaintiff, under the authority of the case cited, was chargeable with notice that the certificates, amounting to $4,000, purchased on the 18th of May, were unauthorized by statute, and were, for that reason, void.

We are of the opinion that the evidence offered by the appellant to sustain the allegation of the answer was admissible, and if the facts therein alleged, and which we have assumed in this opinion to be true, had been established, the conclusion would necessarily have followed that the certificates were void. The conclusion we have reached renders it unnecessary to consider the question as to the forgery of the town clerk’s signature. If the condition did not exist under which the legislature had alone authorized the town to borrow money and issue certificates, the genuine signature of the town clerk, if signed to them, could not give to them validity. The judgment must be reversed, and a new trial granted, with costs to abide the event. All concur.