Penn Mutual Life Insurance Company v. Austin/Opinion of the Court

The jurisdiction of this court to review the decree of the trial court is denied, the contention being that, if an appeal from the decision of the trial court was desired, it should have bee had in the circuit court of appeals, and cannot be here obtained.

By the fifth section of the act of March 3, 1891, creating the circuit courts of appeals (26 Stat. 826), jurisdiction is conferred upon this court to review by direct appeal any final judgment rendered by the circuit court 'in any case in which the constitution or law of a state is claimed to be in contravention of the constitution of the United States.' There can be no doubt that the case at bar comes within this provision. The complainants in their bill in express terms predicated their right to the relief sought upon the averment that certain ordinances adopted by the municipal authorities of the city of Austin, and an act of the legislature of the state of Texas referred to in the bill, impaired the obligations of the contract which the bill alleged had been entered into with the complainants by the city of Austin, and that both the law of the state of Texas and the city ordinances were in contravention of the constitution of the United States. No language could more plainly bring a case within the letter of a statute than do these allegations of the bill bring this case within the law of 1891.

Not only were the averments of the bill, as to the invalidity of the state law, adequate, but, so, also, were the allegations as to the nullity of the city ordinances. These ordinances were but the exercise by the city of a legislative power which is assumed had been delegated to it by the state, and were therefore, in legal intendment, the equivalent of laws enacted by the state itself. City Ry. Co. v. Citizens' St. Ry. Co., 166 U.S. 557, 17 Sup. Ct. 653, and cases there cited. The argument by which it is sought to support the contention that a right to review the case by direct appeal does not exist, not only disregards the letter of the statute, but is unsound in reason. It says that the right to the direct appeal can alone rest on the proposition 'that the constitution or a law of the state of Texas conflicts with appellants' contract, and contravenes the federal constitution; in other words, it must affirmatively appear upon the face of complainants' bill that there was involved in this case a federal question, the determination of which was essential to a correct decision of the case.' But the words of the statute, which empower this court to review directly the action of the circuit court, are that such power shall exist wherever it is claimed on the record that a law of a state is in contravention of the federal constitution. Of course, the claim must be real and colorable, not fictitious and fraudulent. The contention here made, however, is not that the bill, without color of right, alleges that the state law and city ordinances violate the constitution of the United States, but that such claim as alleged in the bill is legally unsound. The argument, then, in effect, is that the right to a direct appeal to this court does not exist where it is claimed that a state law violates the constitution of the United States, unless the claim be well founded. But it cannot be decided whether the claim is meritorious, and should be maintained, without taking jurisdiction of the case. The authorities referred to as supporting the position indicate that the argument is the result of a confusion of thought, and that it arises from confounding the power of this court to review on a writ of error the action of a state court with the power exercised by this court, under the act of 1891, to review by direct appeal the final action of the circuit court where, on the face of the record, it appears that the claim was made that the statute of a state contravened the constitution of the United States. These classes of jurisdiction are distinct in their nature, and are embraced in different statutory provisions. Having jurisdiction of the cause, there exists the power to consider every question arising on the record. Horner v. U.S., 143 U.S. 570, 12 Sup. Ct. 522.

Conceding, without deciding, the legality and binding f rce of the contract as averred in the bill, and that the obligations which it created were materially impaired, not only by a law of the state of Texas, but also by the ordinances passed by the city, and the execution of such ordinances, all as alleged; conceding, moreover, without so deciding, that the Austin Water, Light & Power Company was the successor in law of the original corporations, and hence responsible for all their obligations and entitled to all their rights; and, further, conceding that the complainants, as bondholders, have the capacity to assert the impairment of the contract made by the city of Austin with the City Water Company,-it yet becomes at the outset necessary to decide whether granting, arguendo, all these propositions, the complainants are entitled to the relief which they seek; that is to say, whether they can be heard to invoke the interposition of a court of equity. As a prerequisite to the solution of this question, it is necessary to determine precisely the remedy which it is the purpose of the bill to obtain in order to redress the wrongs which it alleged to exist. While the prayer of the bill asks that the validity of the contract be recognized, and while it also prays that the legality of the commutation of taxation created by the city ordinance be decreed, these prayers are made but the foundation or premise for the real relief which the bill invokes; that is, the exercise of the power to enjoin, in order thereby to perpetually restrain, the city of Austin from completing the waterworks by it commenced, and from levying on the property of the Austin Water, Light & Power Company and taxation to be used to complete the new waterworks. The preliminary inquiry, therefore, is whether the complainants have so exercised their rights as to entitle them to prevent the city from completing the waterworks.

In Speidel v. Henrici, 120 U.S. 377, 387, 7 Sup. Ct. 610, 612, the court said, speaking, through Mr. Justice Gray:

'Independently of any statute of limitations, courts of equity uniformly decline to assist a person who has slept upon his rights and shows no excuse for his laches in asserting them. 'A court of equity,' said Lord Camden, 'has always refused its aid to state demands, where the party slept upon his rights, and acquiesced for a great length of time. Nothing can call forth this court into activity but conscience, good faith, and reasonable diligence. Where these are wanting, the court is passive and does nothing. Laches and neglect are always discountenanced; and therefore from the beginning of this jurisdiction there was always a limitation to suits in this court." In Galliher v. Cadwell, 145 U.S. 368, 371, 12 Sup. Ct. 873, 874, speaking through Mr. Justice Brewer, it was said:

'The question of laches turns, not simply upon the number of years which have elapsed between the accruing of her rights, whatever they were, and her assertion of them, but also upon the nature and evidence of those rights, the changes in value, and other circumstances occurring during the lapse of years. The cases are many in which this defense has been invoked and considered. It is true that by reason of their difference of fact no one case becomes an existing precedent for another, yet a uniform principle pervades them all.'

In Hammond v. Hopkins, 143 U.S. 224, 250, 12 Sup. Ct. 418, 427, through Mr. Chief Justice Fuller, the court said:

'No rule of law is better settled than that a court of equity will not aid a party whose application is destitute of conscience, good faith, and reasonable diligence, but will discourage stale demands, for the peace of society, by refusing to interfere where there has been gross laches in prosecuting rights, or where long acquiescence in the assertion of adverse rights has occurred.'

In Willard v. Wood, 164 U.S. 502, 524, 17 Sup. Ct. 176, 181, the court said:

'But the recognized doctrine of courts of equity to withhold relief from those who have delayed the assertion of thei claims for a reasonable length of time may be applied in the discretion of the court, even though the laches are not pleaded or the bill demurred to. Sullivan v. Railroad Co., 94 U.S. 806, 811; Lansdale v. Smith, 106 U.S. 391, 394, 1 Sup. Ct. 350; Badger v. Badger, 2 Wall. 87, 95.'

In Lane & Bodley Co. v. Locke, 150 U.S. 193, 14 Sup. Ct. 78, and Mackall v. Casilear, 137 U.S. 566, 11 Sup. Ct. 178, it was held that the mere assertion of a claim, unaccompanied with any act to give effect to the asserted right, could not avail to keep alive a right which would otherwise be precluded because of laches. Indeed, the principle by which a court of equity declines to exert its powers to relieve one who has been guilty of laches, as expressed in the foregoing decisions, has been applied by this court in so many cases besides those above referred to as to render the doctrine elementary. Whitney v. Fox, 166 U.S. 637, 647, 648, 17 Sup. Ct. 713; Gildersleeve v. Mining Co., 161 U.S. 573, 582, 16 Sup. Ct. 663; Abraham v. Ordway, 158 U.S. 416, 423, 15 Sup. Ct. 894; Ware v. Galveston City Co., 146 U.S. 102, 116, 13 Sup. Ct. 33; Foster v. Railroad Co., 146 U.S. 88, 102, 12 Sup. Ct. 28; Galliher v. Cadwell supra, where the earlier cases are fully reviewed; Hoyt v. Latham, 143 U.S. 553, 12 Sup. Ct. 568; Hanna v. Moulton, 138 U.S. 486, 495, 11 Sup. Ct. 408; Richards v. Mackall, 124 U.S. 183, 189, 8 Sup. Ct. 437.

The reason upon which the rule is based is not alone the lapse of time during which the neglect to enforce the right has existed, but the changes of condition which may have arisen during the period in which there has been neglect. In other words, where a court of equity finds that the position of the parties has so changed that equitable relief cannot be afforded without doing injustice, or that the intervening rights of third persons may be destroyed or seriously impaired, it will not exert its equitable powers in order to save one from the consequences of his own neglect. The adjudicated cases, as said in Galliher v. Cadwell, 145 U.S. 372, 12 Sup. Ct. 874, 'proceed on the assumption that the party to whom laches is imputed has knowledge of his rights, and an ample opportunity to establish them in the proper forum; that by reason of his delay the adverse party has good reason to believe that the alleged rights are worthless or have been abandoned; and that, because of the change in condition or relations during this period of delay, it would be an injustice to the latter to permit him now to assert them.' The requirement of diligence, and the loss of the right to invoke the arm of a court of equity in case of laches, is particularly applicable where the subject-matter of the controversy is a public work. In a case of this nature, where a public expenditure has been made, or a public work undertaken, and where one, having full opportunity to prevent its accomplishment, has stood by and seen the public work proceed, a court of equity will more readily consider laches. The equitable doctrine in this regard is somewhat analogous to the legal rule which holds that where one who has the title in fee to real estate, although he has not been compensated, 'remains inactive and permits them (a railway company) to go on and expend large sums in the work, he will be estopped in maintaining either trespass or ejectment for the entry, and will be regarded as having acquiesced therein and be restricted to a suit for damages.' Roberts v. Railroad Co., 158 U.S. 11, 15 Sup. Ct. 756, and authorities there cited. As said in Galliher v. Cadwell, 145 U.S. 373, 12 Sup. Ct. 875: 'But it is unnecessary to multiply cases. They all proceed upon the theory that laches is not, like limitation, a mere matter of time, but principally a question of the inequity of permitting the claim to be enforced,-an inequity founded upon some change in the condition or relations of the property or the parties.'

Do the facts in the case before us bring it within the rule of laches as xpounded in the foregoing authorities? The rights of the water company, under its contract, were created long prior to the year 1890. Before that year the waterworks plant was constructed, and from it the inhabitants of the city of Austin were being supplied with water. The violation of the contract relied upon as impairing its obligations originated in 1890. The first step was the passage of an ordinance submitting to the voters of the city of Austin the proposition whether the bonded debt of the municipality should be increased by the issue of $1,400,000 of negotiable bonds, the proceeds arising from the sale of such bonds to be used in erecting the new waterworks. There was nothing clandestine in the conduct of the municipality, since its action was dependent on a municipal election. The holding of the municipal election followed, and, after it had taken place, occurred the passage of the ordinance, directing the issue of the new bonds, providing that they were to be secured by the water rates to be collected from the new waterworks which were to be constructed. From the time of the submission to the vote, and of ordinances issuing the bonds and directing the work to be done, all in 1890, until this bill was filed, in 1895, no legal steps whatever appear by the bill to have been taken to prevent the consummation of the wrong which the bill alleges was necessarily to result from the action of the municipal authorities. During all this period it does not appear from the bill that the trustee representing the bondholders was ever called upon by them to take any steps whatever to protect their interest. It cannot be said that the bondholders were ignorant of the action and purposes of the city of Austin, since the bill avers that, conscious of the fact that their rights were to be impaired by the action of the city, they repeatedly called upon the Austin Water, Light & Power Company to take action on the subject, but that that corporation refused so to do, and that the bondholders continued to object to the proposed action of the city without doing anything whatever to protect their legal rights. The bill alleges the issue by the municipal authorities of the series of bonds provided for, since it says, in referring to the tax levied upon the property of the Austin Water, Light & Power Company, that for the purpose 'of providing for the interest and sinking fund on the bonds of the said city of Austin, issued for said purpose [that is, the new waterworks], the said city of Austin has levied a tax. * *  * ' The exact amount of the new bonds which have been issued is not specifically set out in the bill, but it is inferrable from the allegations, to which we have just referred, that the whole series have been issued by the city, since the bill alleges that the taxation has been levied for the purpose of paying the bonds provided by the ordinance. Moreover, that either the whole or a large portion of the bonds have been issued is plainly deducible from other averments in the bill. The ordinance, which is an exhibit to the bill, provides that to pay for the work proposed the bonds should be discounted from time to time, as required by the necessities of the situation; that the proceeds arising from their sale should be put to a special found, and be warranted against by the proper city officer to pay for the work. And the bill avers that the city at great expense has nearly completed a costly dam across the Colorado river as a part of the work provided. The bill, therefore, presents a case where there has arisen during the existence of the delay a material change in the situation of the parties, and, besides, is one where rights of third parties have intervened. It cannot be said, under the case made by the bill, that the power of a court of equity can be exerted to forbid the finishing of the waterworks structure, which the bill alleges has been largely completed, without seriously impairing the rights of the bondholders under the ordinances in question. One of the methods of paym nt stipulated, as we have seen, for these bonds, was the revenue to be derived from the new waterworks, and of course no such revenues can ever result if the waterworks are never to be finished. It is certain, then, that, if the completion of the new waterworks be restrained by an injunction, the interest of the new bondholders will be seriously affected, and that this result will be brought about by a decree of a court of equity rendered in the enforcement of asserted rights of complainants, who, if they had taken timely action, could have adequately protected themselves from injury without resulting wrong to the rights of many other persons.

It being clear, under such circumstances, that the complainants were not entitled to the relief which they sought, it of course follows that the court below did not err in sustaining the demurrer and dismissing the bill for want of equity. We think, however, that the dismissal should have been without prejudice, and the decree below is therefore modified in that particular, and, as so modified, it is affirmed.