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 *Page 413 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 He entered separate judgments in favor of each party, the Township, in the meantime, having withdrawn its answer to the counter-claim.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. *Page 414
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 annul a city charter as its absolute repeal." Lyon v. City of Elizabeth, 43 N.J.L. 161.
The general account of a municipality is unlike an individual's general balance, which the bankers may apply on any overdue note. It is, in reality, a trust fund into which the current revenues are placed for disposition in accordance with the appropriations previously made. The safety and health of the citizen are of prime importance and neither can be endangered because a creditor wants his due. The municipality *Page 415 can no more carry on without its general funds than it could without any other particular piece of property dedicated to public use. The creditors of a municipality must wait till their debt is raised by taxation. Lyon v. City of Elizabeth,43 N.J.L. 158.
Mr. Justice Case, quite properly, in his opinion said: "Chapter 243, Pamph. L. 1927, being a supplement to the Municipalities act of March 27th, 1917, provides that `whenever an action has been or hereafter may be commenced, by any municipality, in any court of law of this state against any person, persons or corporation, it shall be lawful for such person, persons or corporation having any claim or demand against the plaintiff to set up such claim or demand by way of set-off or counter-claim, subject to rules, and the same shall be considered upon the trial of any such action.' This statute has been complied with. The defendant did set up its demand by counter-claim and the counter-claim was not only considered but has been allowed as a substantive cause of action upon which judgment should be entered. I cannot think that the defendant may arbitrarily and without judicial process seize upon and apply in partial satisfaction of the debt municipal property that it would be unable to reach by execution after successfully reducing its claim to judgment. For that, in essence, is what defendant's contention amounts to. The striking of defendant's answer was a determination that defendant did not have the right to appropriate the deposit; it is to protect plaintiff's rights in that respect that plaintiff is now successfully in court; yet defendant, by the form of the judgment, seeks precisely the advantage that it sought to accomplish by seizing the funds. A judgment creditor may not ham-string a municipality in its governmental functions by taking, under execution, property necessary for public purposes. Lyon v. City of Elizabeth,43 N.J.L. 158. It seems to be clear that defendant, when it shall have entered its judgment, and issued execution, may not levy upon the public property of the township. In the application of this principle I am unable to distinguish between funds raised by taxation for specific public purposes and chattels *Page 416 or real property used for such purposes. Fire houses and fire apparatus are of little use without the funds to operate them; likewise, school houses without money to pay teachers and purchase supplies. The practice in this state has uniformly been to issue execution against the municipality, not to seize and sell its public property, but for the pupose of laying a foundation for a mandamus proceeding. Lyon v. Elizabeth,supra; Palmer v. Freeholders of Essex, 77 N.J.L. 143;Friedman v. Borough of Waldwick, 8 N.J. Mis. R. 370. Indeed, on the data before me, it appears that the funds appropriated by the Bank were, in large measure, moneys that were simply passing through the Township, as a tax collecting agency, to other governmental units, including the school district, the county and even the state itself."
The municipalities' general funds are raised by taxation and are allocated before receipt, for particular purposes, including the transmission of taxes to other governmental units. The citizen pays taxes, for the most part, for police, fire protection, and the education of the young. To take moneys intended to be devoted to a continuance of governmental functions cannot be done unless we overlook the purposes for which the funds were dedicated. As soon as there is an unused balance in the general account of a municipality it is placed in a surplus revenue account and may be then used for the purposes contemplated by law. The general funds of a municipality are, in fact, a trust fund to carry on the obligations of government and are, as every banker knows, allocated for particular purposes. The bank can no more take these funds for a purpose for which they were not dedicated than it could take trust funds to pay the debt of the individual who happened to be trustee.
A contrary rule perhaps exists in Pennsylvania-GeorgesTownship v. Union Trust Co., 143 Atl. Rep. 10, and in theUnited States v. The Bank of Metropolis, 15 Peters 377. The reasoning in these cases is inapplicable to the municipal needs of this state. The so-called general municipal funds are devoted to particular purposes. Banks lending to municipalities have, as security for their advances, special funds to *Page 417 be thereafter raised: for improvement notes the proceeds of bonds to be thereafter issued and sold, or assessments to be thereafter levied and collected; for tax revenue notes, the taxes to be thereafter collected. The general funds are recognized as a current means of carrying on the work of the municipality in accordance with the declared purpose for which the moneys were collected.
To give the effect appellant claims for rule 67 of the Supreme Court would, by indirection, accomplish the complete ham-stringing of municipal activity. The court never so intended, nor could it by such action have overruled Lyon v. City ofElizabeth, 43 N.J.L. 158.
The judgment is affirmed.