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D''ercole v. Mayor and Council of Borough of Norwood

Decided: November 16, 1984.


On appeal from the Superior Court of New Jersey, Law Division, Bergen County.

McElroy, Dreier and Shebell. The opinion of the court was delivered by McElroy, P.J.A.D.


This appeal arises from a complaint in lieu of prerogative writ filed by appellant to challenge the validity of an ordinance adopted by the Borough of Norwood. The ordinance authorized the borough to enter into a 20 year lease of a firehouse owned by defendant, Norwood Fire Company No. 1, the borough's volunteer fire company.

Plaintiff-appellant contends the ordinance is invalid because it authorized a transaction by which the borough effectively guaranteed the fire company's mortgage, a transaction plaintiff apparently regards as impermissible under N.J.Const. (1947) Art. VIII, § III, par. 2. Plaintiff also asserts the borough lacked statutory authority to sign a long-term lease and that the lease was violative of N.J.S.A. 40A:11-15 and N.J.S.A. 40A:4-57. Lastly, plaintiff urges that because a petition was filed protesting the ordinance, a public referendum was required by N.J.S.A. 40:49-27. We affirm the judgment entered in favor of the defendants.

The facts are simple and are not in material dispute. The firehouse is the only fire safety facility in the borough. It has always been owned by the fire company and in the past was leased to the borough to house the borough's fire fighting equipment as well as equipment and materials used by the borough's public works department. The last written lease was for a term from January 1, 1977 to December 31, 1979. Thereafter

the borough remained as tenant without a written lease. Eventually it became apparent that the building was inadequate for borough purposes. The volunteer fire company proposed that it would build an addition of 2,100 square feet and in order to obtain a $100,000 mortgage for this project, sought assurances that the borough would lease the enlarged facility. It proposed the long-term lease. The borough council agreed to lease and decided to build a separate garage for the public works department at another location.

On June 7, 1983 the council passed an enabling ordinance which authorized a 20 year lease commencing July 1, 1983 and terminating June 30, 2003. The lease required rental payments in accordance with a schedule which totaled $265,230.31 over the 20 year term. The ordinance provided that payments under the lease "shall be made annually from budget appropriations in the manner prescribed by law pursuant to the provisions of the Local Budget Law of the State of New Jersey."

This matter was considered by the trial court on oral argument, briefs and certifications of plaintiff, who was a former councilman, and Barry Scott, a councilman who served when the ordinance authorizing the 20 year lease was passed. These documents devote much space to arguing the merits of the lease agreement in contrast to other means of housing the fire company, the public works department and the volunteer ambulance organization. None of these arguments has any relevance to the purely legal questions posed by this appeal. It is apparent that the problem of housing for the fire company has been a political issue in the borough for a number of years. We note that there has been a change in the makeup of the council and the present governing body now adopts plaintiff's arguments. The only true respondent on appeal is the fire company. It is not the function of this court to weigh the respective merits of the ordinance and lease here considered against other feasible methods of resolving the housing requirements of the fire company and to substitute its judgment for

that of the borough's elected officials. Viera v. Town Coun. Tp. Parsippany-Troy Hills, 156 N.J. Super. 19, 22 (App.Div.1977).

Plaintiff's certification reveals that at about the same time it adopted the firehouse lease ordinance the borough passed a bonding ordinance for the construction of a building for the use of the public works department. When this ordinance was submitted to a public referendum it was rejected by the electorate and then rescinded by the council. On July 6, 1983 plaintiff presented a petition bearing statutorily sufficient signatures protesting the lease ordinance and sought to have the question submitted to public referendum. The council refused to do so.

Although plaintiff's brief does not directly cite the State Constitution, it is apparent that his argument that the lease was an "impermissible guaranty by the municipality of the fire company's long term mortgage debt" must be premised upon N.J.Const. (1947), Art. VIII, § III, par. 2. That segment of the Constitution provides:

No county, city, borough, town, township 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 security for, or be directly or indirectly the owner of, any stock or bonds of any association or corporation.

It is clear that the wherewithal to finance the fire company's addition to the fire house was the $100,000 mortgage and that the long-term lease would facilitate the loan of that sum. From this premise springs plaintiff's contention that the lease was an impermissible indirect guaranty by the borough of the indebtedness of the fire company. The argument only possesses facial appeal. Unlike the factual situation in DeLorenzo v. Hackensack, 9 N.J. 379 (1952), upon which plaintiff relies, the lease here considered is an ordinary lease limited to the usual rights and obligations of such a document. There is in this case no implicit guaranty by the borough of its credit as there was in DeLorenzo. In that case the city, under the guise of a lease had committed itself to subsidize the parking authority's operations by annually providing the difference between that which

the authority earned in its operation of the parking lot and that which the authority was obligated to pay on its bonds. Moreover, the question in DeLorenzo required analysis of the arrangement there entered in light of specific statutes, not here applicable. The question was whether L. 1948, c. 198 and other legislation permitted the type of participation there attempted by the municipality. Upon analysis, the Court concluded that despite statutory provision for loans or grants to the authority, there was no legislative authorization for municipal guaranty of payment of the authority's bonds. DeLorenzo, 9 N.J. at 386-389. Indeed, the statute there reviewed contained an express statement that the bonds of the authority were not to be a debt of the municipality. Id. at 387. Clearly, the case is inapposite both as to its facts and its legal principles.

Equally, Gallo v. Weehawken, 181 N.J. Super. 385 (Law Div.1981) furnishes no support to plaintiff's argument. Gallo dealt with the ability of Weehawken to extend credit to support a bond issue of the Weehawken Municipal Port Authority. Neither the authority nor the private lessees who were to be tenants of the authority's refrigeration plant and warehouse project had sufficient credit to support the authority's bond issue. There, as in DeLorenzo, a lease was covertly used to circumvent a specific statutory prohibition of municipal guaranty of the authority's bonds. Id., 9 N.J. at 388. The present case demonstrates no such problem and involves no similar statutory prohibition.

DeLorenzo and Gallo are only similar to this case because all three cases involve a lease. Any factual analogy fades when one considers the lease here involved does not constitute a municipal guaranty of the fire company mortgage. It only incidentally may make that mortgage commercially feasible in the sense that the lessor may borrow money on the strength of rental expectancies but it places no obligation on the borough to pay the fire company mortgage. The benefit the fire company ...

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