Greene v. County of Niagara

Laughlin, J.: This appeal. involves the validity of chapter' 614 of the Laws of 1900, entitled “An Act for the relief of William.C.' Greene as receiver of the Merchants Bank of Lockport.” Section 1 of this act authorized an application by Greene as receiver to a Special Term of the Supreme Court for the appointment of a referee to-, ascertain and report the amount of moneys advanced by the -bank to Arnold as county "treasurer in excess of the amount on deposit to his credit in said bank, for the purpose of paying, and which •was used ■ to pay obligations of the County, and whether there' existed any equities which should be considered by way of reduction of such amount and to report thereon, Section 2 of- the act authorized the court t.O'appoint a. referee for such purpose; and up'on the coming in of his report, if it should appear that any sum of money was advanced by the bank to the treasurer, to pay obligations of the county in excess of the deposits in the bank to the credit -of the treasurer, and that there was no legal or equitable offset, to confirm the report. Section 3. made it the duty of the board of supervisors to audit; allow and pay the claim with interest from the date of the closing, of the bank. Section 4 provided that- the county should receive notice of the application and be. entitled to be heard, — 477 — and that the Statute of Limitations should not he a bar to the proceedings therein authorized. The constitutionality of this act is first challenged upon the ground that it comes within the condemnation of section 16 of article 3 of the State Constitution, which provides that “No private or local bill which may be passed by the legislature" shall embrace more than one subject, and that shall be expressed in the title.” The title of this act is both misleading and deceptive. It might be inferred therefrom that it was designed to grant some relief .personal to the receiver. The only relief granted is to the creditors and stockholders of the bank. The receiver is authorized, for their benefit, to recover from the county of Niagara, in the manner therein provided, moneys alleged to have been drawn from the bank by the county treasurer in excess of his account as such, and used by him for the payment of obligations of the county. _ The sole purpose, object and effect of the act was to create a liability, which previously had no existence in law or equity, in favor of the receiver for the benefit of the creditors and stockholders whom he represented. . The county of Niagara as such had no previous dealings with this bank; no contract obligations existed between them. Neither the supervisors nor the taxpayers of the county could have been apprised by the title of this act that their interests were in any manner to be affected thereby. The county, through its board of supervisors, at the first opportunity, resists the enforcement of the claim under this special act, and upon the motion for thé appointment of a referee it presented affidavits fully showing that it had waived none of its rights and had no notice or knowledge of the pendency of this act in the Legislature. If is both a" private and a local act, and the subject is not fairly expressed in the title. The case of Brewster v. City of Syracuse (19 N. Y. 116) is distinguishable. There the act was passed for the relief of a contractor with the city. The city did not resist the enforcement of the law. The question was presented by a taxpayers’ action and the city demurred, The court held that the general subject was expressed in the title, but it was apparently influenced in that determination by the fact that the question was raised by a taxpayer who was not a party to the contract, and that the city, if it did not favor the passage of the law, acquiesced therein. — 478 — The validity of the act: is also challenged upon the ground that in effect thereby the Legislature grants á new trial to the receiver of the bank upon. issues which have been previously tried and .determined adversely to him in the courts of the State. The petiticn shows that the county treasurer overdrew his account the sum of $6,428.83 prior to the 6th day of October, 1893, when the bank ceased to do business, and that no part of this sum has been repaid to the bank. The pleadings, the decision of the referee and judgment roll, in an action brought by William 0. Greene, as receiver of this bank, against the county of Niagara and Timothy E. Ells-worth and others, were read in opposition to the appointment of the referee as well as affidavits. It appeared that Arnold was cashier of this bank as well as county treasurer, and that the bank was one of the depositaries of county funds; that prior to February 23,1892, the bank wrongfully borrowed from Arnold, as county treasurer, county funds to the extent of $9,550, he taking a note and draft as .seen-, rity therefor; that, at the tiine of the failure of the bank, he .still held these securities and delivered them to Senator Ellsworth, who, thinking the county might be entitled thereto, declined to deliver them to the president of the bank, who presented a formal, written assignment thereof subsequently made by Arnold to the bank as security for the balance of overdrafts made by Arnold as county treasurer and honored by the bank ; that within, a few days thereafter the president of the bank individually delivered to Senafr r Ellsworth an amount of money equal to the amount which Arnold had loaned the bank from the county funds, and as collateral for which he held these securities ; that subsequently the moneys so paid were deposited by Ellsworth, as trustee, in the National Exchange Bank of Locltport, by stipulation of the parties, subject to the order of the court in the action brought by Greene, as receiver, against the county; that thereafter said action was brought by the receiver of the bank to recover said moneys by virtue of the assignment of said securities by Arnold to. the bank as collateral for his overdrafts as county treasurer or to have it decreed that it was entitled to said securities or the proceeds thereof to the extent necessary to indemnify it on account of said overdrafts. It appears .that the amount of the overdrafts claimed by the receiver of the bank in that suit corresponds exactly with the amount of the .overdraft, referred to in — 479 — the petition presented under this special act. It further appears that these overdrafts were permitted by the president within about two weeks of the time the bank closed, when he knew not only that Arnold was a defaulter to the county by reason of the previous loan to the bank, which rendered these overdrafts necessary, but after-Arnold had confessed that he was also a defaulter to the bank in the sum of about $30,000. In that suit the county claimed that, although Arnold illegally loaned its money on these securities, yet, nevertheless, the bank having received the money, the securities inured to the benefit of the county and that it should be reimbursed- from the proceeds thereof the amount of its money thus wrongfully appropriated by Arnold and the bank. The ease was tried before a referee, who sustained the contention of the bank, but his decision was overruled by this court, which held that the securities inured to the benefit of the county. The opinion of this court expressly recognized that, if equity required it, the moneys advanced on such overdrafts might be applied in reduction of the moneys of the county thus wrongfully loaned. This court intimated, however, that the facts as presented by the record did not establish a case for such equitable relief in favor of the bank, (Greene v. County of Niagara, 8 App. Div. 409.) On a new trial before another eminent lawyer as referee the equitable claims of the bank to such application of said overdrafts seem to have been fully considered, and the decision expressly decides that the overdraft would not have become necessary had it not been for the illegal loan of the county moneys to the bank, which it had not repaid, and that, notwithstanding the fact that the moneys drawn on the overdraft were used to pay an indebtedness of the county to the Erie County Penitentiary, to the Willard Asylum, and to pay State taxes, the county was equitably entitled to the proceeds of these securities without deduction on account of such overdrafts. This decision was. affirmed by this court and by the Court of Appeals. (Greene v. County of Niagara, 31 App. Div. 634; 161 N. Y. 651.) It will be observed that the county had no legal title to the securities involved in that litigation or to the moneys paid in redemption thereof. Upon principles of equity, it was kadjudged that the securities were held for the benefit of the county. It, therefore, appears that the action resolved itself into a suit in equity pure and — 480 — simple and that the court determined the equities between the county and the bank. This is manifest from the decision of the referee and from the points of counsel on the argument in this court and in the Court of Appeals. It is evident that if the bank had been an innocent party iii allowing these overdrafts, the court could and would in that suit have applied the amount of such overdrafts in reduction of the prior loan from Arnold to the bank and for which the securities were given. Upon the facts disclosed there was no legal or equitable claim on the part of the bank either to that fund or against the county for money had and received as the loan was' not procured in good faith for the benefit of the county, but to cover up and prevent the discovery of the county treasurer’s defalcation. (First Nat. Bank of Ballston Spa v. Board Supervisors, 106 N. Y. 488 ; Clark v. Board Supervisors, 107 id. 553 ; Power v. Village of Athens, 99 id. 592, 603 ; Craft v. South Boston Railroad, 150 Mass. 207, 210, and cases cited; McDonald v. Mayor, 68 N. Y. 23; Parr v, Village of Greenbush, 72 id. 463.) It noW further appears without controversy that the county has settled and adjusted its claim against the sureties upon 'Arnold’s official bond for his defalcation. But, regardless of this, if the county should be compelled to reimburse the bank the amount of the overdraft, it would have no redress against the sureties. Pi-esumably it was fully protected against any defalcation on the part of Arnold by his official bond. After Arnold became a defaulter both as cashier of the bank and as county treasurer, the managing officer of this bank allowed him to overdraw his accounts, thus enabling him to cover up the defalcation to that extent and. to relieve himself and his sureties from liability to the county., But for this the county might have sooner discovered the defalcation and have protected itself' by proceedings against. Arnold and his sureties. The officers of the bank negotiated the loan from Arnold with full knowledge that they were obtaining the trust funds of the county and that such loan was unauthorized. The equities are with the county and the taxpayers thereof. The effect of the act under consideration is to relevy a tax upon the innocent taxpayers of the , county of Niagara, which they have once paid, to indemnify the creditors and stockholders of tliis private banking corporation against a loss for which the officers with whom they intrusted the manage — 481 — ment of the bank were solely responsible. The securities and the fund involved in the previous litigation between the receiver and the county legally belonged to the bank. They had been merely pledged as security for the loan of county funds obtained by the bank. If the bank had been an innocent party, it would have been entitled to redeem those securities and to have the overdrafts made by Arnold as county treasurer which it honored applied to that end. The court, however, on a full consideration of the facts, decided that in equity the county was entitled to retain the entire fund and awarded judgment accordingly. In these circumstances, was it competent for the Legislature to, in effect, overrule the decision of the court and grant a rehearing of the bank’s claim to equitable relief ? There are decisions of the Court of Appeals wherein that court has declared that the power of the Legislature to raise money by taxation upon the entire State, or upon a political subdivision thereof, and to appropriate such moneys in the settlement of equitable claims or for. charitable purposes, or even to dispose of the same gratuitously, is practically unlimited. (Town of Guilford v. Supervisors, 13 N. Y. 143 ; Brewster v. City of Syracuse, 19 id. 116; People ex rel. Witherbee v. Supervisors, 70 id. 235 ; Cole v. State, 102 id. 48; O’Hara v. State, 112 id. 146; Mayor v. Tenth National Bank, 111 id. 446; Wrought Iron Bridge Co. v. Town of Attica, 119 id. 204.) Upon the facts, however, these were all proper cases for equitable relief, and those in which the extreme doctrine was announced were all decided under laws enacted prior to the adoption of sections 10 and 11 of article 8 of the Constitution in 1814. These sections have been readopted in séction 10 of article 8 of the present Constitution and constitute the first two sentences thereof, which read as follows: “No county, city, town or village shall hereafter give any money or property, or loan its money or credit to or in aid of any individual, association or corporation, or become directly or indirectly the owner of stock in, or bonds of, anv association or corporation; nor shall any such county, city, town or village be allowed to incur any indebtedness except for county, city, town or village purposes. This section shall not prevent such county, city, town or village from making such provision for the aid or support of its poor as may be authorized by law.” — 482 — In view of these provisions of constitutional law, by which the people have wisely limited the power of the Legislature, the former decisions are no longer controlling authorities. The question at bar must be decided upon a construction of. the Constitution as it existed when the special act was passed. It is no longer competent for the Legislature to impose a tax upon a county, city or town, to pay a claim which is neither founded in law or equity and which is in no sense for a public purpose. (Matter of Jensen, 28 Misc. Rep. 378; affd., 44 App. Div. 509, 513 ; Matter of Straus, Id. 425 ; Roberts v. State, 30 id. 106; affd., 160 N. Y. 217; Bush v. Board of Supervisors, 159 id. 212; Cooley Const. Lim. [6th ed.] 283, subd. 1; 286, subd. 4; Dillon Mun. Corp. §§.75, 76, and note.) It may be conceded that it is competent for the Legislature by virtue of its sovereign political and governmental control over counties, cities and towns, and by virtue of its power,of taxation, to direct a municipal corporation which has received an equivalent, to pay a claim not legally binding or enforcible at law or in equity for want of some informality in its creation, or even want of power on the part of the officials in incurring the obligation. Most of the cases that arise are of that nature. This, however, is not á case of that character. It is elementary law that it is. not competent for the Legislature to annul a decision of the court, or to grant a new trial of a rehearing or to open a judgment after the time to appeal therefrom has expired, or existing remedies have been exhausted. That' o is judicial and not legislative power, and judgments are contracts within the protection of the Constitution. (Germania Savings Bank v. Suspension Bridge, 159 N. Y. 368, 369; Burch v. Newbury, 10 id. 374; People v. Carnal, 6 id. 463 ; Ely v. Holton, 15 id. 595; Gilman v. Tucker, 128 id. 190; Baldwin v. Mayor, 42 Barb. 549; Mills v. Charleton, 29 Wis. 400; Lawson v. Jeffries, 47 Miss. 686; Merrill v. Sherburne, 1 N. H. 199; Regents of University v. Williams, 9 Gill & J. 365 ; Yeatman v. Day, 79 Ky. 186; Sanders v. Cabaniss, 43 Ala. 173 ; DeChastellux v. Fairchild, 15 Penn. St. 18; Young v. State Bank, 4 Ind. 301.) While the legislative control over counties, cities and towns in matters political and governmental is doubtless unlimited, yet these municipalities in matters affecting their property and private contract rights enjoy practically the same immunity from legislative — 483 — aggression for the benefit of private corporations or individuals as is accorded to business corporations and private citizens. (People v. Ingersoll, 58 N. Y. 1; People ex rel. D., W. & P. R. R. Co. v. Batchellor, 53 id. 128; Weismer v. Village of Douglas, 64 id. 91; Hardenbergh v. Van Keuren, 16 Hun, 17 ; Board of Education v. Blodgett, 155 Ill. 441; Park Comrs. v. Detroit, 28 Mich. 228 ; Grammar School v. Bailey, 62 Vt. 467; Hampshire v. Franklin, 16 Mass. 76, 84; Jackson County v. La Crosse County, 13 Wis. 490 ; Milam County v. Bateman, 54 Tex. 153 ; State v. Foley, 30 Minn. 350 ; Loan Association v. Topeka, 20 Wall. 655.) We are of opinion that the county of Niagara acquired a vested right by the decision of the court in the former action by the receiver of the bank against it, and that it was not competent for the Legislature to subject it to a new trial of the legality or equity of the claim of the bank. It follows, therefore, that the special act of the Legislature under consideration was unconstitutional and void and conferred no authority for the appointment of the referee by the court. The order should be reversed, with ten dollars costs and disbursements to appellant, and the application denied, with ten dollars costs. All concurred.