
    Carroll L. Hook, on Behalf of Himself and Others, Owners of West Side Sewer Bonds, Plaintiff, v. German American Bank, The Rochester City Hospital, Samuel B. Williams and Others, Defendants.
    (Supreme Court, Monroe Equity Term,
    April, 1911.)
    Counties: County treasurer—In general: Property and fiscal management in general — Application of funds.
    Money received — In general.
    Trusts — Implied trusts — In general.
    Where commissioners charged with the duty of constructing sewers in adjacent municipalities in Monroe county, in pursuance of tlieir statutory authority issued obligations whose payment was provided for by assessments upon the property benefited, but for which payment the credit oE no municipality was pledged; and where by a subsequent legislative act the power and authority of the commissioners was terminated, and the moneys and property in their hands were turned over to the treasurer of one of the municipalities, which funds as to the custody of the same by such treasurer, according to the terms of the act, were to be deemed as funds of the county of Monroe, and the treasurer was directed to redeem and cancel such obligations and accordingly called certain of such obligations as lie was authorized by their terms to do and paid off the same, without at the time any ground for expectation that the fund would be inadequate, but it finally resulted that the fund was inadequate to pay all of said obligations in full, and the time in which further assessments might- he paid had expired, and there was no way in which those who had not been paid in full and for whose payment the remaining fund was inadequate could obtain payment except by legislative action, in an action by holders of unpaid certificates, suing in behalf of themselves • and others similarly situated, held:
    The county treasurer in whose custody the fund was placed by law was not a trustee for the certificate holders and could not maintain an action against the certificate holders who had been paid in full to recover back the amount paid- for any excess of their pro raid share of the whole fund, and there was no right in him which the unpaid bondholders could enforce, in an action in equity, to recover back such excess and thus enforce contribution for their own payment.
    The paid bondholders occupied a position analogous to that of a fortunate or diligent creditor' who secures payment while others remain unpaid through the exhaustion of the debtor’s resources; and they cannot be compelled to repay the moneys received by them in satisfaction of their claims to make good the deficiency of less fortunate holders of similar obligations.
    Nor do defendants whose obligations were paid in full by their application by the holders to the payment of assessments against them for the construction of the sewers, as was authorized by the act providing- therefor, stand in a different position from that of those who were paid in money.
    Plaintiee, who is the owner of thirteen of the bonds or certificates of indebtedness of $500 each issued by the commissioners of sewerage for the tenth, fifteenth- and twentieth wards of the city of Rochester and the town of Gates, brings this representative action, on behalf of himself and all other owners of. similar -bonds and certificates, to recover for the county treasurer of Monroe county and in his right, he having refused upon demand to bring the action, from bond or certificate holders who have had their bonds paid in full, such sums as would place all the' bondholders on a plane of equality, and also to recover from the defendant Williams, or to hold him liable for the amount 'so sought to be recovered, on the theory that he, as city treasurer, improperly and without right, paid the bonds of the defendants in full, to the prejudice of the plaintiff and other bondholders.
    The so-called West Side sewer was constructed by virtue of chapter 603 of the Laws of 1892, as amended by chapter 438 of the Laws of 1895. Pursuant to these statutes, three commissioners were appointed and the power was vested in them to acquire the lands and easements and construct the sewer and to pay the expense thereof from assessments levied and collected by them from the property benefited. The assessments were made payable in three equal payments, one in thirty days, one in one year, .and one in two years from the completion Of the assessment roll, which was to be made from the commissioners’ determination of the probable expense of the work before the commissioners entered upon the construction of the sewer. The assessments were to be a lien upon the lands assessed and a personal liability of the owner.
    By section 11 of the act the commissioners were authorized to issue certificates or evidence of indebtedness bearing interest at six per cent, per annum, in payment of any lands, easements, work, materials or other expenses' incurred by them, which certificates were to be receivable in payment of assessments at their face value, with accrued interest:
    By section 12 provision was made for further assessments from time to time, in case the first assessment was found to be insufficient to defray the cost of the work.
    By section 13, in case the commissioners should deem it necessary to raise funds for the construction of the sewer before the assessments' could be made and collected, they were, empowered “ from- time to time to borrow so much money as, in their opinion, may be necessary therefor, -and to issue evidence of indebtedness in such sums and form as they may deem proper, bearing interest 'at the rate of six per cent, per annum, payable semi-annually, the principal thereof payable in not more than ten years. Such certificates of indebtedness shall be negotiable by delivery,- and shall be receivable in payment of any assessment levied by such commissioners; and the interest thereon shall be assessed -as a part óf the expense in the construction of said sewer.”
    By section 20' the commissioners were required, upon completion of the sewer, to file with the treasurer of the city of Rochester all their books, records and papers, and to turn ever the assessment roll and all moneys on hand and all uncollected assessments and papers connected therewith. Thereupon it was provided that said treasurer should discharge all duties and possess all powers imposed upon or vested in the treasurer of said commission, -and all powers of the commissioners in reference to issuing warrants for the collection of assessments, the collection thereof and the sale of lands in default of payment. And further that, when the assessments had been collected in full and all outstanding legal obligations incurred by the commissioners paid, the treasurer was directed to return on demand to the persons assessed any surplus remaining in his hands in proportion to the amount each had paid, and that “ sixty days after said sewer shall have been completed or the final estimate for the work performed by the contractors shall have been made and approved by said commissioners, their duties and powers shall cease.”
    Prior to August, 1896, the commissioners had issued about $200,000 of bonds or certificates. These were subsequently retired by them from the proceeds of the bonds or certificates issued in August of that year. Beginning in August, 1896, the commissioners issued bonds or certificates to the total amount of $453,500. Of these, $3,000 par value were retired by the commissioners, being accepted by them in payment of assessments. Each certificate was for $500, bearing interest at 6 per cent, payable semi-annually, the principal due and payable on February 1, 1904; .and each recited that it was one of a series of one thousand bonds of $500 each of like tenor and effect, issued in pursuance of the provisions of chapter 603 of the Laws of 1892 .and the several acts .amendatory thereof and supplementary thereto. Each contained this clause: “ The said commissioners reserve the right of paying this bond at any time when interest is payable after the expiration of two years from the date hereof.” Each was signed by the commissioners and was in the following form as regards the promise of payment: “ The Commissioners of Sewerage for the tenth, fifteenth and twentieth wards in the City of Rochester and Town of Gates, Monroe County, ET. Y., hereby acknowledge themselves indebted as such commissioners to the bearer or registered owner hereof, or to the legal representative of such registered owner, as hereinafter provided, in the sum of Five Hundred Dollars in lawful money of the United States, which sum they, as such Commissioners, promise to pay to the bearer, or to the registered owner hereof, or to the legal representative of such owner, at the office of the Security Trust Company in the City of Rochester, ETew York, on the first day of February, 1904, with interest thereon -at the rate of six per centum per annum, payable semi-annually on the first clay of the months of February and August in each year as the same shall be come due and payable, at the office of the Security Trust Com pany, upon the presentation or surrender of the interest war rants or coupons hereto attached as-they severally become due and payable.”
    On.the 19th of April, 1898, the Legislature adopted chapter 315 of the laws of that year, entitled “An act to provide for the transfer to the treasurer of tire city of Rochester, of certain powers of the commissioners' of sewerage for the tenth, fifteenth and twentieth wards in the city of Rochester, and the town of Gates, Monroe county.” This act recited that the commissioners, having completed the construction of the sewer provided for in chapter 603 of the Laws of 1892, as amended, were required, within twenty days after the passage of the act, to transfer to the treasurer of the city of Rochester all records and proceedings of the commissioners, together - with the assessment-roll -and all moneys collected and all other funds in the hands of the commissioners, “ whereupon the powers and duties of the said commissioners under the said acts shall cease, except: as hereinafter provided.”
    By section 2 the treasurer was empowered to issue and offer for sale and sell assessment bonds to the amount of $400,009, or so much thereof as should be required, to bear interest at the rate of 4% per cent., and that with the proceeds of the sale of said bonds, “ together with the available moneys in his hands as the successor in office of the said commissioners, the said treasurer of the city of Rochester shall redeem and cancel the certificates of indebtedness or assessment bonds heretofore issued by the said commissioners of sewerage * *. Such redemption shall be made on the first day of August, eighteen hundred and ninety-eight, or at the earliest practicable date thereafter.”
    By section 5 said treasurer was authorized to make further assessment,. if necessary, to pay in full the bonds issued by him.
    By section 6 said commissioners were required to traits-fer to said treasurer all interest, liens or titles to any lands acquired by them on any sale for unpaid assessments, and said treasurer was empowered to dispose of the same or any titles that might beo acquired by him, the proceeds thereof, after deducting expenses, “ to be used for the redemption of the outstanding bonds issued by the said commissioners of sewerage or issued by the said treasurer.”
    The defendant Williams was city treasurer in 1898 and continued as such until January 1, 1904. He receded from the commissioners their books, records and papers and the balance of cash collected by them upon assessments not otherwise expended, and thereupon he proceeded to make collections of unpaid assessments.
    On August first of that year he called and retired about $50,000 of these bonds; and during his administration, until January 1, 1904, he paid in full from time to time from the assessment fund $100,500 of these bonds. He received and retired in payment of assessments about $100,000 of these bonds. During all this time assessments were being collected from time to time, and the fund was kept: on deposit in banks, some of it drawing interest at the • rate of' 2 per cent, per annum and some drawing no interest.
    On January 1, 1904, a new city treasurer came into office, who administered the fund from that date until about June twenty-fifth of the same year, during which time no bonds were paid, but some were received in settlement of assessments.
    On May G, 1904, the Legislature adopted chapter 620 of the laws of that year, entitled “An act to provide for the collection of the unpaid assessments for the construction of a sewer in the tenth, fifteenth and twentieth wards of the city of Rochester and the town of Gates in the county of Monroe.” This act provided for the appointment of two collectors, one for the city of Rochester and one for the town of Gates, to collect the unpaid assessments. It directed that, on the twenty-third of June, the said treasurer should deliver to the county treasurer of Monroe county all the assessment-rolls and other property relating to this sewer in his possession and all moneys on hand and required the collectors to pay over to the county treasurer all funds collected by them upon these assessments, but made no provisions for the payment of the outstanding bonds or certificates. The collectors proceeded to collect in assessments, and a fund accumulated in the hands of the county treasurer to the amount of about $90,000, when the 'Security Trust Company, the holder of some of these bonds, in the year 1907, began a proceeding by mandamus to compel the county treasurer to distribute the fund on hand among the bondholders. That proceeding (People ex rel. Security Trust Co. v. Treasurer, 191 N. Y. 15) resulted in an order by which the county treasurer was compelled to pay upon each of the outstanding bonds a portion of the fund on hand, to the amount of $158.05 upon each of the 488 bonds then outstanding. These payments reduced the principal of the outstanding bonds to $168,-610'.15. The county treasurer still has on hand $41,790.26; and there are -a few unpaid assessments from which it is- expected the collectors will realize a few hundred dollars, in addition to about $1,500 due from the State of Hew York, which will in time be paid. Thus, about $125,000 is necessary to pay the balance due of .principal on the outstanding bonds, and no interest-has been paid on these bonds since their maturity in 1904.
    Carnahan, Adams, Jameson & Pierce, for plaintiff.
    S. E. Bentley, for defendant Mary Boss Potter.
    Henry G. Danforth, for defendant Rochester City Hospital.
    Taylor, Goodwin & Mosher, for defendants German American Bank, the executors of Wm. Bartholomay and Jacob Gerling.
    G. E. Wynkoop, for defendant Horace McGuire.
    Plumb & Plumb, for defendant Plumb.
    
      Wile & Oviatt, for defendant Reed.
    B. B. Cunningham, for defendant S. B. Williams.
   Foote, J.

Plaintiff is the assignee of thirteen bonds or certificates of indebtedness -acquired by him shortly before this action was begun. He requested the county treasurer to bring an -action -against the defendants to recover from them enough of the money paid upon their bonds to -be applied upon the bonds still -outstanding to equalize all the bondholders, so that the apparent loss will fall equally upon ■all. The county treasurer having declined to bring such an action, plaintiff seeks to assert here the supposed right of the county treasurer in that respect. Hence, the recovery asked is that- defendants pay the sums required to the county treasurer, to be by him distributed to the present bondholders. This is upon the theory that the assessment fund is -a trust fund and the county treasurer is the present trustee and that the -bondholders are the beneficiaries; that a portion of the fund has been improperly or at least: inequitably diverted from the holders of the outstanding -bonds to pay the retired bonds in full, the fund not being sufficient to pay all in full.

The county treasurer derives his powers from the statute (Laws of 1904, chap. 620). By that statute two collectors are directed to be appointed, in whom are vested all the powers and duties of the city treasurer in -respect to collecting further assessments, and these collectors -are.directed to pay all moneys collected by them to the county treasurer. The city treasurer is directed to turn over to the county treasurer all assessment-rolls and other property received by him from the commissioners of -sewerage and to “ pay to the county treasurer of Monroe county all sums of money remaining in his hands -arising from the -collection of assessments for said West Side sewer.” The statute further provides that “ The money received by the treasurer of Monroe county shall be deemed as to -the custody of the same -as funds of the county of Monroe and shall be known as the West Side sewer fund, and shall be deposited with any bank or trust company authorized to receive funds for the county of Monroe.” Ho provision is made in the statute for any distribution of the fund by the county treasurer, nor -are any powers conferred on him in respect of the fund except those stated..

The Court of Appeals has held (People ex rel. Security Trust Co. v. Treasurer, 191 N. Y. 16) that the power to distribute the fund by the comity treasurer is necessarily implied for the reason that the Legislature could not divert the funds to any other purpose than payment of the outstanding certificates.

It does not follow, however, that the county treasurer has an implied ¡lower to recover from the former city treasurer moneys which he had distributed to the bondholders, or from the bondholders the moneys so distributed, and T think the county treasurer would have no standing to maintain such an action. Hence, so far as this action proceeds upon the supposed right of the county treasurer, it cannot he maintained.

But the plaintiff has also asked for general relief, and may, no doubt, have in this action such relief as plaintiff and the other bondholders, in ivhose behalf the action is prosecuted, may assert in their oavu right. Any recovery by the plaintiff from the defendant Williams, or the other defendants, must be based upon some violation of the plaintiff's rights. It must be adjudged that the city treasurer, Williams, did him some wrong in paying in full the bonds which he paid to the other defendants before a recovery can -be had against him, and that the other defendants owe some duty or obligation to plaintiff to refund either to Williams or the plaintiff the moneys received by them in excess1 of their pro rata share of the whole fund before recovery can he had of them, and this is true whether the fund is treated as a trust fund or not.

It is conceded that the city treasurer acted in entire good faith in paying the bonds which- he paid in full. He took charge -of the fund early in the year 1898. The bonds did not mature until 1904, but there was contained in each bond the option to pay it at any time after two years, and' that option became available- to the treasurer on the 1st of August, 1898. He then retired about $50,000 of 'bonds; he did not' do it us a favor to the holders of the bonds, but as -a pro-tection to the fund, for the bonds were drawing 6 per cent, interest, while he could get but 2 per cent, for part of the fund and no interest at all for the rest.

The statute which had transferred the funds to his hands (Laws of 1898, chap. 315) he construed to authorize the retirement of the bonds as fast as he was -able to- do so. This statute in section 2 authorized but did not require him to issue a new series1 of assessment bonds, bearing 4% per cent, interest, and further provided as follows: “ With the proceeds of the sale of said bonds (new assessment bonds), together with the available moneys in his hands as the successor in office of the said commissioners, the said treasurer of the city of Rochester shall redeem and cancel the certificates of indebtedness or assessment bonds heretofore issued by the said commissioners of sewerage * * Such redemption shall be made on the first day of August, eighteen hundred and ninety-eight, or at the earliest practicable date thereafter.”

This date was, as before stated, the first date on which the bondholders could be compelled to accept payment by virtue of the. option clause in the bonds. It does not appear that the city treasurer then knew or had reason to expect there won]d be -a deficiency and that the uncollected assessments would not realize enough to retire all the -bonds in full. Moreover, his- power under the statute to issue and dispose of the new 4% per cent, bonds was a continuing power, and the statute provided for a further assessment to pay such new -bonds, in case the existing assessment proved insufficient. The scheme of the statute did not contemplate a partial payment upon any bond. The bond itself did not authorize a partial payment at any time before its maturity in 1904. The privilege reserved for payment before maturity was for full payment, -and no holder could have been compelled to -accept anything less. The scheme of the statute was also to take care of any deficiency in the fund in the end by further assessment upon the property benefited, and did not contemplate or require a pro rata division of the fund at any time.

I think the treasurer’s construction of. the -statute was correct, and that it was his -duty to retire bonds in full, from and after August 1, 1898, as fast as "the assessment fund available for that purpose would permit; and, if he is chargeable with any fault, it can arise only from his failure to make and dispose of the new 4% per cent, bonds, or to take steps for the making of a further assessment.

But the plaintiff finds no fault with the treasurer in those respects, and no such question is involved here.

Has the plaintiff, a right, legally or equitably, to compel the defendant bondholders to contribute to the plaintiff and the other holders of outstanding bonds so as to put them all on a plane of equality in respect to the assessment fund ?

In considering this question, we will assume that the total amount realized from the assessments may- now be determined with reasonable certainty; that there will be a deficiency of upwards of $125,000; that the statutory provisions for a new assessment are not now available, and that, in the absence of -new legislation, the loss arising from the ' insufficiency of the original assessment will fall upon the present bondholders.

Undoubtedly, if the whole fund were now in court, it would be directed to be distributed ratably among the bondholders. The maxim Equality i-s equity ” would be applied. But may we lay hold of that maxim to compel contribution from the bondholders paid in full? The plaintiff relies largely upon certain expressions in the opinion of Chief Judge Cullen in the case of People ex rel. Security Trust Co. v. Treasurer, supra, as follows: “ There is no express direction in the statute for the payment of the certificates of indebtedness -out of the moneys collected on the assessments, but this is the plain scheme and intent of the act. The credit of no municipality was pledged for the payment of the bonds and the sole reliance of the creditor was necessarily limited to the assessment fund. * "x" * The sole security for the payment of the certificates held by the relator was the proceeds of the assessment levied for the improvement. But to such proceeds it, with the other certificate holders, had an absolute contract right of which it could not be deprived, either by subsequent legislation or any failure to enact appropriate legislation.”

This was said in a case where a certificate holder was seeking by mandamus to compel the county treasurer to distribute the fund in his hands pro rata upon the outstanding bonds. It was begun in 1907, after the bonds were long overdue. The sole question was whether the courts should compel a distribution without waiting until the few remaining assessments were collected. There was no controversy as to the relative rights of the bondholders as between themselves, but the county treasurer doubted his power under the statute to distribute the fund and so refused to act. By the terms of the statute he was the mere custodian of this fund and had no power to dispose of it in any form. The question was whether that power was implied from the nature of the fund, the previous statutes, and the object for which the fund was created. These were the questions which the court was dealing with, and the expression quoted was used in the course of the consideration of those questions and no others.

But, assuming that the expression is strictly accurate when applied to the questions presented here and that the certificate holders had and have an absolute contract right in the assessment fund of which they cannot be deprived by legislation, or otherwise, what is the nature and extent of that contract right ? It is, as I think, a right to be paid in full, exactly like the right of a creditor to have his debtor pay the debt in full. The bondholders who have been paid in full have received nothing beyond their contract right in the fund. They have been guilty of no wrong in receiving it. Many of them, it .appears, were compelled to receive payment against th'eir wishes; under penalty of having the interest cease upon their bonds. There was no contract between them and the other bondholders that was violated. Indeed, the case seems to stand, on principle, on all fours with that of the diligent or fortunate creditor who receives his pay from a debtor who afterward becomes insolvent before other creditors are paid, the only difference being that in our case the bondholders’ claim is against a fund and not an individual; not a fund limited in amount for equal distribution among a certain class, but a fund designed to pay each bond-in full; -a fund to be replenished by statutory method, if found insufficient, the surplus, if any, to be returned to the parties contributing to the fund.

It does not fall within the principle upon which courts of equity have been in the habit of compelling contribution as between sureties, copartners or tenants in common.

The rights and equities of the present bondholders are against the land benefited by the sewer. These lands have received the benefit of the plaintiff’s money; upon them rests the moral and equitable obligation to pay plaintiff’s bonds, and not upon the defendants who have received only their just due. The lack of equity in the plaintiff’s case might be more apparent if the fund had been ample for the payment of all bonds and, after defendants’ bonds were paid, the remainder of the fund had been lost through its embezzlement by some custodian.

But it is said that the plaintiff has a right of recovery upon the promise implied by law from the duty resting upon one who wrongfully withholds from another money which he cannot conscientiously retain, to account for it and restore it to the person or party equitably entitled thereto. In such a case, an action for money had and received may be maintained. But the difficulty under which the plaintiff labors is to show that the withholding of any money by the defendants is wrongful. "Why may not the defendants conscientiously retain the money they received on their bonds ? It was due them. It was not wrongful for them to receive it. They had not agreed not to receive it unless the plaintiff also received payment of his bonds. It was not received as a pro rata share of a common fund to be apportioned. It was not -a common fund in the sense that each was to share in the fund whatever its amount. ' It was rather a fund created by the owners of the land benefited by the sewer to pay the money borrowed to build the sewer. As to them, it was a common fund in which each had a pro rata share or interest. But, as to the bondholders, it was the right of .each to receive from it the full amount of his bonds and interest and no more. The statute did not require the commissioners of sewerage to issue these bonds in any particular form, or to make them all payable at the same time. They were all to be payable within ten years, but within that time they might lawfully have been made payable on their face at different periods; hence, it was not the scheme of the statute that a general fund be collected and held together until all bonds matured, for division among the bondholders.

But, if the plaintiff has a right to complain now, he . would have had the same right in principle to complain if the bonds had been made payable some in each year; and, in that case, if the plaintiff is right now, the holders of the bonds last maturing, in case of deficiency in the fund, could have recovered from those paid in due course according to their terms. So if plaintiff now has an equitable right to compel contribution from defendants, he must have that right also against the persons not defendants who have received payment of their bonds in full to the extent of upwards of $100,000 by surrendering them in payment of assessments made upon their lands for the construction of the sewer. Time, the statute authorized the bonds to be so used, but so did it authorize or contemplate that the defendants’ and all other bonds should be paid in full; and, if a deficiency in the fund works an equitable right to have the fund restored by contributions to a basis of equality among all bondholders, I perceive no sufficient reason for making a distinction between the defendants who are paid in money and the other bondholders, not defendants, who were paid by using their bonds as money to pay their assessments.

The conclusion follows that the assessment fund, whether it be technically a trust fund or not, has not been diverted from the purpose for which it was created; that there has been no violation of duty by the city treasurer, whether a technical trustee or not, and that no equitable or legal duty rests upon the 'defendant Williams, or the defendants who were bondholders, to restore or contribute to the assessment fund, or to the plaintiff and those in whose behalf he sues.

As the questions considered go to the basis of the plaintiff’s right of recovery in any form of action, it is unnecessary to consider whether the action should be at law or in equity, or what statute of limitations applies-, or the legal effect of the accounting, sopalled, of AVilTams as treasurer in the Monroe County Court, or as to whether the power to impose a new assessment for the deficiency in the fund still exists.

The plaintiff’s complaint must he dismissed, with costs' in favor of each defendant or set of defendants appearing and answering by separate attorneys.

Findings will he settled upon two days’ notice.

Complaint dismissed.  