| New York Court of Chancery | Sep 17, 1918
This is a motion to strike ont answers filed by defendants in lien of pleas.
Under the old practice the defence would be set up by pleaá and the pleas would be set down for hearing to test their legal sufficiency. Under the present practice the objection is made by motion to strike out. Rules 67, 68 and 75. The question is whether the answers, present a legal defence. The bill is filed upon the authority of McKinley v. Chosen Freeholders of Union County, 29 N. J. Eq. 164, and McCormick v. Mayor and Common Council of the City of New Brunswick, 83 N. J. Eq. 1, to enjoin the city of Bayonne from purchasing a water works system at a price alleged to be so excessive as to shock the conscience. In such a case the chancellor, in McCormick v. New Brwnswick, said that this court might properly inter-fere by injunction to save the city’s money from willful waste or fraudulent diversion. The answers set up that proceedings were taken by the city under the provisions of chapter 252 of the laws of 1916 (P. L. 1916 p. 525), as amended by chapter 240 of the laws of 1917 (P. L. 1917 p. 803), to raise moneys, through a bond issue, for the purchase of the water works and that all proceedings were in strict accordance with the act and that more than twenty days having elapsed after the publication of the statement signed by the clerk in accordance with the provisions of section 2 before the commencement of this suit, the complainant is barred under the provisions of section 2, subdivision 3, from questioning the validity of the ordinance or of any bonds issued in accordance therewith.
Fo bonds have actually been issued, nor do I think it would make any difference if they had been.
The purpose of the act, commonly called the Pierson act, is to provide for a uniform method of issuing bonds by municipalities. The purpose of subdivision 3 of section 2 is to prevent any action after the expiration of the twenty-day period which would cast a cloud upon the validity of the bonds. It is true that subdivision 3 forbids an attack upon the ordinance or resolution after the expiration of the period fixed, which ordinance or resolution, in the language of the subdivision, shall be conclusively presumed to have been duly and regularly passed and to comply
My conclusion is that the provisions of subdivision 3, section 2, prevent only an attack upon the regularity and validity of so much of the ordinance as provides for the issuance of bonds. Assuming that the ordinance providing for the issuance of bonds has been regularly passed and is valid, and that any bonds issued under it would be valid obligations of the municipality, there is nothing I think which will prevent a court of equity from enjoining the city from using the proceeds of the bonds in such manner as will violate any equitable right of the inhabitants of the municipality. Nor do I think that, assuming the regularity and validity of the ordinance directing the issuance of bonds, and that the city has the power to issue the bonds, there is anything to prevent a court of equity from enjoining the municipality from exercising the power which it has derived through the passage of the ordinance in an unconscionable manner, and that therefore if the bonds have not yet been issued their issue may be restrained, notwithstanding that the period provided for in subdivision 3 of section 2 within which an attack must be made upon the ordinance has expired. By so holding, the rights of holders of bonds issued under the act will be fully protected and yet the court will not be precluded from preventing a fraudulent diversion of funds. In many cases the fraud may not be discovered or be discoverable until after the expiration of the short period fixed by the statute.
I will advise an order striking out the answers filed in lieu of pleas and giving defendants ten days within which to file answers on the merits.