City of Buffalo v. Strong & Co.

Fuld, J. The City of Buffalo brought this action against the holders of its water bonds dated October 10, 1908, for a judgment declaring that such bonds are callable at any time before their maturity in 1958 at the option of the city. In its complaint — which set forth the text of the bonds as well as the text of the state and local action which led to their issuance — the city alleged that, although its common council had provided, by budgetary appropriations, sufficient funds for the recall and repayment of those bonds, it “ cannot, without great peril to its financial standing and credit,” recall the bonds for payment, without a prior determination that it has the right so to do. All of the present holders of the bonds, which are registered, were named as defendants. — 135 — Answers having been filed, several of the defendants moved for judgment on the pleadings, asserting as basis therefor that the city’s right to call the bonds had long since expired. Though the trial court agreed with defendants that there was no triable issue, it held that the city was entitled to the declaration which it was seeking — that the bonds were subject to call at the option of the city at any time between October 10, 1928 and their maturity date in 1958.1 Upon appeal, the Appellate Division likewise ruled that no triable issue existed; however, it held that the city’s option had to be exercised, if exercised at all, during the year 1928 and granted judgment in favor of the defendant bondholders. The bonds, aggregating $500,000, appear to have been issued in denominations of $1,000. The text of the individual bonds insofar as material reads in this way: “ The CITY OF BUFFALO in the State of New York for value received hereby promises to pay to the holder hereof registered according to the provisions endorsed hereon the sum of ONE THOUSAND DOLLARS on the 10th day of April 1958 with interest thereon at the rate of 4 per cent per annum payable semi-annually on the 10th days of October and April of each year both principal and interest being payable at the office of the Comptroller of the City of Buffalo or at the Gallatin National Bank of the City of New York as the purchaser hereof may elect. The City reserves the right to recall or repay this bond at the expiration of twenty years from its date of issue. This bond is issued by virtue and in pursuance of chapter 203 of the Laws of 1906 as amended by chapter 724 of the Laws of 1907 and of a resolution of the Common Council of the City duly passed and approved.” The controversy turns upon the meaning of the clause wherein “ The City reserves the right to recall or repay this bond at the expiration of twenty years from its date of issue.” — 136 — Chapter 724 of the Laws of 1907, which authorized the city to issue bonds in the sum of $2,500,000 for the improvement of its water supply — of which the bonds here in question are a part — provided as follows: ‘ ‘ They shall be sold or awarded as provided in section four hundred and ninety-two of the charter of said city; such bonds to bear interest at a rate not exceeding four per centum per annum, payable semi-annually at the office of the comptroller of the city of Buffalo or at the Gallatin national bank of the city of New York, as the purchaser may elect, the principal to be payable at the same place at the end of a term of fifty years from date of issue; provided, however, that the common council may, in its discretion, reserve in the resolution ordering the sale of said bonds, or any of them, the right to repay or recall said bonds, or any of them, at the expiration of twenty years from the date of issue.” (Emphasis supplied.) The reservation in the bonds of the right to call them “ at the expiration of twenty years from its date of issue ” is in the language of the statute. We are therefore required to determine the meaning, not of a private contract — as to which extrinsic evidence might in a proper case be appropriate — but of a legislative act. Consequently, it follows that the courts below were correct in granting judgment on the pleadings. By comparison with the text of modern bonds, the language of the bond before us is indeed laconic. (Cf. 3 Fletcher, Corporation Forms Annotated [3d ed., 1938], §§ 2602, 2916, 2917.) The contention of plaintiff city is that “ at the expiration of ” is equivalent to “ at any time after ’ ’, and that it was therefore authorized to call the bonds at any time after October 10, 1928. Defendant bondholders, on the other hand, claim that “ at the expiration ” pin-pointed and designated a single day, namely, October 10,1928, and that the city had the right to call the bonds on that day alone, or, at most, within a reasonable time after that day. We agree with the city — which, we note, urged the same construction as it now does at least as long ago as 1936. (See East Side Sav. Bank of Rochester v. City of Buffalo, supra, 104 N. Y. S. 2d 110.) The manifest purpose of a call provision in a municipal bond is to enable the city either to employ its own funds to end the obligation to pay interest, or to take advantage — 137 — of an opportunity to borrow at lower rates. But a call privilege limited to a single moment of time twenty years hence is the thinnest of sporting chances and has no place in either intelligent borrowing or intelligent investment. Defendant bondholders have not referred to a single instance of any other bond, either private or governmental, with a call provision such as they claim this to be, and our own research has failed to discover any. To attribute such an intention to the legislature is inherently unreasonable. That body evidently considered that it had effected a reasonable compromise and balance between the desires of the borrower and those of the lender, by assuring the latter an indefeasible right to interest for twenty years and by giving the former the freedom to terminate its obligation thereafter. All the other signs point in the same direction. For example, the right to call all or part of the bonds evidently contemplated the possibility that the bonds might be retired in installments, and therefore negatives the suggested limitation to a single exercise of the right at one point of time. Moreover, the discretion left to the common council to include or omit the call provision assumed that the call provision had some substance and might, for that reason, be unacceptable to prospective investors — a discretion that would be wholly incongruous if the call provision meant only what the bondholders now claim. Since the sale of the bonds with the call provision included was successful, we conclude that the purchasers accepted the risk of the termination of their investment in accordance with ordinary call practice. The bondholders place great emphasis on a change in the language of the enabling legislation. The bond issue was originally authorized by chapter 203 of the Laws of 1906, which specified a rate not to exceed 3%% and required that the right be reserved to “ repay at any time after the expiration of twenty years all or any part of these bonds.” Apparently, the interest rate proved too low and, the following year, by chapter 84 of the Laws of 1907, the statute was amended to provide for a rate not to exceed 4%. The city then proceeded to sell some of the bonds so authorized, but failed to include any provision entitling it to call them prior to their maturity. Once again, the legislature was appealed to, and by chap — 138 — ter 724 of the Laws of 1907, it changed the language of the authorization to read as quoted above, and at the same time validated the bonds' already sold. Defendants point to the phraseology in the original 1906 measure — “at any time after the expiration of twenty years ” — and contrast it with the language in the later 1907 act — “ at the expiration of twenty years ” — urging that the change was meaningful. We are unable to conclude that any change of substance was intended. Other language alterations there were, and they plainly carried with them no legal consequences: the earlier statute described the option as one “ to repay ”, the later language, as a right “ to repay or recall ”. We perceive no basis for attaching any greater significance to the one change than to the other. And, indeed, the legislature appears to have been of the same opinion; chapter 349 of the Laws of 1909, which amended the legislation just discussed, recites that one of its purposes was “ to make said act more certain.” The amendment empowered the city to increase the authorized issue to $3,500,000, and, in addition, inserted in the repayment clause the words “ any time after ”, so that it read “ at any time after the expiration of twenty years from the date of issue.” While that legislative construction may be “ without binding force ” (City of New York v. Village of Lawrence, 250 N. Y. 429, 447), it does confirm the conclusion that we reach, without reliance upon the amendment, that no change was effected by the 1907 legislation that is here of relevance. Our attention has been called to a number of cases wherein the expression “ at the expiration ” or some similar language was used — in some of which it was held to mean the ‘ ‘ particular day ” specified or a “ reasonable time ” thereafter (e.g., Lester v. Jewett, 11 N. Y. 453, 454; Maier v. Rebstock, 92 App. Div. 587, 589; Thompson v. Fairleigh, 300 Ky. 144), and, in others, “ at any time after ” the date specified (e.g., Ex parte Szumrak, 278 F. 803; In the Goods of Thomas Ruddy, L. R. 2 P. & M. 330). Study of those decisions establishes only that the phrase can have no absolute or inalterable signification and that it takes on meaning and color from the context and setting in which it is found. (Cf. Surace v. Danna, 248 N. Y. 18, 21; Towne v. Eisner, 245 U. S. 418, 425; Cabell v. Markham, 148 F. 2d 737, 739.) As already indicated, it is our conclusion — 139 — that, in its present context, the design of the option was to render the bonds callable at any time after they had been outstanding for twenty years. The judgment appealed from should be reversed, with costs in this court and in the Appellate Division, and judgment directed adjudicating and declaring the rights of the parties in accordance with the views expressed in this opinion. Footnotes [1] The same result had been reached in 1936 in a decision at trial term, from which no appeal had been taken, involving another issue of bonds under the same authorization. (See East Side Sav. Bank of Rochester v. City of Buffalo, 104 N. Y. S. 2d 110.)