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Township Committee of Township of Piscataway v. First National Bank of Dunellen

Decided: May 15, 1933.


For the defendant-appellant, Joseph J. Mutnick, Jr.

For the plaintiffs-respondents, John T. Keefe (Edmund A. Hayes).


The opinion of the court was delivered by

BODINE, J. The township of Piscataway on December 30th, 1929, borrowed $50,000 from the First National Bank of Dunellen upon a temporary improvement note. The instrument was payable on demand before December 31st, 1930. It appears that $17,500 was paid thereon in installments prior to July 17th, 1931. For convenience, the plaintiff will be

referred to as the Township and the defendant as the Bank. The Township being in default the Bank, after demand on June 6th, 1932, charged the Township treasurer's general account with the balance due for principal and interest upon this note. The complainant in the present action alleges that the moneys in the treasurer's general account so taken represented moneys received to meet the Township's appropriations for 1932 to pay county, state, local school and fire taxes, and could not be taken for any purpose other than that for which it was appropriated. The Township sought to recover the moneys so misapplied, as it alleges, by the Bank. It had, for sometime, carried in the Bank a general treasurer's account. The proceeds of the improvement note were deposited in this account and were used to take up a similar note in like amount discounted at another bank, which note presumably had been called for payment. On February 3d, 1930, an assessment account was opened in the Bank and the payments made upon the improvement note were taken from that account.

The Bank answering claimed the right to charge any overdue obligations against the general account of the Township, and by counter-claim also sought to recover upon four tax revenue notes, each dated January 21st, 1932, and each in the sum of $25,000. Judge Cleary struck the answer as sham, indicating that the Township treasurer was obliged to disburse moneys raised by taxation for the purposes for which they were appropriated, and that the proper functioning of a municipality could not be interfered with by the acts of its bankers any more than they could be by the sheriff making a levy under a judgment. Lyon v. City of Elizabeth, 43 N.J.L. 158.

The case came before Mr. Justice Case on motion for the entry of judgments. He entered separate judgments in favor of each party, the Township, in the meantime, having withdrawn its answer to the counter-claim. The Bank appeals from the judgment in favor of the Township, and also claims error because the court refused to allow a set-off as between the two claims.

Temporary improvement notes are for the purpose of temporarily financing a work for which a municipality may issue improvements bonds. Pamph. L. 1916, p. 525, 539. Bonds being amortized over a long period of years, a municipality usually does not raise by taxation in any one year the amount of the notes, but refinances the same by the issuance of bonds. Of course, the gradual paralysis of finance, ending perhaps in the banking holiday, accounts for the difficulties of the parties to the present action.

A township's miscellaneous revenues are available only for expenditure as appropriated. Pamph. L. 1917, p. 548. Municipalities may borrow up to a certain percentage in anticipation of taxes. Notes, so given, are met as the taxes are received. However, steps may be taken to refund the same in the anticipated taxes are not paid. The taxes anticipated, when paid, must be used to liquidate tax revenue notes.

The general scheme of municipal finance is to raise in a given year as little by taxation as possible, and to borrow all the bankers will lend upon pledge of future revenue. The result is that the fixed debt upon which interest must be paid has become larger each year and since returns from taxation have diminished temporary financing becomes, of necessity, permanent. However bad the result, the necessity that a municipality function transcends all private inconvenience.

"It would be manifestly contrary to the theory upon which a part of the sovereignty of the state is delegated to local governments to concede to an individual the right to arrest their operations. The unrestricted right in the creditor to pursue the corporation by execution could, for all practical purposes, as effectually ...

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