Tulare Irrigation District v. Shepard/Opinion of the Court

'The doctrine successfully invoked in the court below by the defendant, that where a municipal incorporation is wholly void ab initio, as being created without warrant of law, it could create no debts and could incur no liabilities, does not, in our opinion, apply to the case of an irregularly organized corporation which had obtained, by compliance with a general law authorizing the formation of municipal corporations, an organization valid as against everybody except the state acting by direct proceedings. Such an organization is merely voidable, and if the state refrains from acting until after debts are created, the obligations are not destroyed by a dissolution of the corporation, but it will be presumed that the state intended that they should be devolved upon the new corporation which succeeded, by operation of law, to the property and improvements of its predecessor.' It cannot be said that this corporation was created without warrant of law. There was a valid law and there was a bona fide attempt to organize under it, and the most that can be said is that there was a failure to comply with all the directions of the statute by which a corporation de jure might be organized.

It is contended, however, that there is an exception to the general rule in such a case as this, because the proceedings of the corporation may result in the levy of an assessment upon lands of private owners within the district, and such owners are therefore permitted to raise at any time the question of the illegality by reason of the want of notice of the organization of the corporation. The case in 117 Cal. 382, 49 Pac. 354, supra, also the cases of Reclamation Dist. No. 537 v. Burger, 122 Cal. 442, 55 Pac. 156, and ''Fallbrook Irrig. Dist. v. Bradley'', 164 U.S. 112, 170, 41 L. ed. 369, 392, 17 Sup. Ct. Rep. 56, are cited to show the illegality of an organization without notice. On the other hand Reclamation Dist. No. 124 v. Gray, 95 Cal. 601, 30 Pac. 779, holds that the landowner could not collaterally attack the validity of the organization of the district. It is true there was a validating statute passed in that case, and the assessment was made after the date of the passage of such act, but the act assumed to cure the irregularities of an organization prior thereto. In Swamp Land Dist. No. 150 v. Silver, 98 Cal. 51, 32 Pac. 866, it was again held that no attack upon the organization could collaterally be made, even in an action to recover an assessment. But whatever may be the decisions in California, the plaintiffs in error claim that this court in ''Fallbrook Irrig. Dist. v. Bradley'', 164 U.S. 112, 41 L. ed. 369, 17 Sup. Ct. Rep. 56, supra, has held that there must be notice to the landowner and an opportunity to contest the question of alleged benefits to his property by the organization of the irrigation district, or else the organization is invalid and the landowner can show it in a collateral action and at any time the question may arise. It is not denied that the statute provides for a notice and an opportunity to be heard, but the allegation simply is there was not any notice in fact.

The Fallbrook Case held that the statute did provide for notice and opportunity to show that the land would not be benefited by being included in the district. It did not hold that under all circumstances the landowner could, at any time, show the absence of notice even against a bona fide purchaser of bonds subsequently issued, and we think that the landowner may be prevented from showing want of notice in such a case as the one presented herein,-a bona fide holder of bonds for full value without notice, and a landowner sleeping upon his rights.

The case of New York Cable Co. v. New York, 104 N. Y. 1, 43, 10 N. E. 332, is cited to the point that where it is sought to take the property of an individual under powers granted by the state to a corporation to be formed in a particular manner therein directed, the constitutional protection of the rights of private property requires that the powers granted be strictly pursued and all the prescribed conditions performed, and that hence, if the corporation be simply a de facto, and not a de jure, corporation, it cannot take private property in invitum. The case simply asserts the principle that the right of eminent domain cannot be exercised by a corporation de facto, and that the question of valid organization could be raised when such a corporation sought to condemn lands. That is one of the exceptions to the general rule in regard to a corporation de facto. When a corporation seeks to devest title to private property and to take it for the purposes of its incorporation, it must then show that it is a corporation de jure, for the law has only given the right to take private property to that kind of a corporation. But even in such case it may happen that a party would be precluded from setting up the defense by matters in pais amounting to an estoppel or an admission.

It is enough to say here, however, that this action by an individual plaintiff against a corporation de facto, to recover a money judgment for a debt due the plaintiff, bears no similarity to a proceeding by a corporation to condemn land for its own use, in which case it must be a corporation de jure.

In this case we have the fact that the plaintiff is a bona fide purchaser of the coupons, for value and without notice of any defect in their validity, and an examination of the statute shows provision for the determination by the board of supervisors of the fact that the district has been duly organized. The record shows the entry of an order by the board of supervisors, by which that board declared the territory embraced in the limits therein described to be an irrigation district, duly organized under the name and style of the Tulare irrigation district, situated in the county of Tulare and state of California. A copy of this order was filed in the office of the county recorder, and after the date of such filing the statute declares the organization shall be complete. Section 15 of the statute provides that when the bonds shall be issued 'said bonds shall express on their face that they were issued by authority of this act, stating its title and date of approval.'

It thus appears that the statute confided to and imposed upon the board of supervisors the duty of inquiry by proof as to compliance with the statute and required a decision by it in regard thereto, and when the provisions of the statute had been complied with, and the corporation organized, the duty was imposed upon the board (§ 3) to 'declare such territory duly organized as an irrigation district under the name and style theretofore designated.' All this was done. The board of supervisors made its determination; it was the body provided for and appointed by the statute to make it, and it was to be made by an order duly entered and a copy of it filed with the county recorder, thus making a full and complete record of the fact of the determination by the board of the question of organization confided to the board for decision by the statute itself. The proof shows that officers were duly elected, entered upon the duties of their various offices, and that an election was held and the district determined to issue bonds. The landowners acquiesced in the action of the board of supervisors from the time of the presentation of the petition to that body, so far that none questioned the validity of the organization by quo warranto or otherwise, and no suit of any kind was instituted to prevent the issue of the bonds. Not only were no steps taken to prevent their issue or test the right of the district to issue them, but their sale was made after a public election, and the proceeds arising therefrom were used to create and build the irrigation system, which is still in active operation and now in the possession of the company. Interest has been paid on the bonds thus issued (which issue was not later than 1893) up to 1896. Assessments to pay the interest arising during that time have been levied and collected from the owners of lands in the district. Under these circumstances and by reason of the statute and the recitals in the bonds we think the landowner is estopped from setting up the defense of the want of notice, as against the plaintiff in this case, because he is a bona fide holder for full value without notice, and because the landowners acquiesced in the issue of the bonds and have received the full benefit of their proceeds.

The bonds in this case contained a recital in accordance with the provisions of the statute, as follws: 'This bond is one of a series of bonds amounting in the aggregate to $500,000, caused to be issued by the board of directors of said Tulare irrigation district, by authority and pursuant to the provisions of an act of the legislature of the state of California entitled 'An Act to Provide for the Organization and Government of Irrigation Districts and to Provide for the Acquisition of Water and Other Property, and for the Distribution of Water Thereby for Irrigation Purposes, Approved March 7, 1887,' and also by authority of and in accordance with the vote of the qualified electors of said irrigation district at a special election held on the 7th day of June, 1890.' The provision in the statute, that the bonds should express on their face that they were issued by authority of the act, stating its title and date of approval, was evidently for the purpose of giving them greater negotiability. A recital as directed by the statute, that the bond was issued by the authority of the statute, and also pursuant to the provisions thereof, and in accordance with the vote of the qualified electors, was a statement upon which a purchaser would have the right to rely, and to assume therefrom that all prior acts necessary to be done to give the bond validity had been done, because otherwise the bond would not be issued under the authority and pursuant to the provisions of an act which provided for certain things to be done when they were not done in the particular case in hand.

But even if the recital were not broad enough to conclude the party who issued the bonds, which we do not at all admit, yet as the statute invested the board of supervisors with power to decide whether the district had been duly organized, the exercise of that power by the board, and its determination that the district had been legally and duly organized (such determination being evidenced by the order duly recorded as provided for in the statute), was a finding of fact upon which the purchaser had a right to rely, as it was the record provided by the statute, made by a body directed by it to determine the very fact in question, and in such cases the finding is conclusive in favor of a bona fide holder of bonds. Coloma v. Eaves, 92 U.S. 484, 23 L. ed. 579; Venice v. Murdock, 92 U.S. 494, 23 L. ed. 583.

In Bissell v. Jeffersonville, 24 How. 287, 16 L. ed. 664, the common council of the city had authority to subscribe for stock in a railway company and to issue bonds for such subscription upon the petition of three fourths of the legal voters of the city. The common council made a determination that the petition presented contained three fourths of such legal voters, and the bonds were thereupon issued. The bonds having been issued, the city defaulted in the payment of the interest, and an action was brought to recover such instalments in the circuit court of the United States for the district of Indiana. After the plaintiff had given evidence from the records of the common council that it had determined that three fourths of the legal voters of the city had petitioned for the issuing of such bonds, the defendant offered parol testimony to show that three fourths of the legal voters of the city did not so petition. The evidence was admitted under objection, and under the rulings the jury returned a verdict in favor of the defendants, and the case was brought here for review. This court, upon that question, through Mr. Justice Clifford, said (page 296, L. ed. p. 670):

'Unless three fourths of the legal voters had petitioned, it is clear that the bonds were issued without authority, as by the terms of the explanatory act it could only apply to a case where the common council of a city had contracted the obligation or liabilities therein specified upon the petition of three fourths of the legal voters of such city; and if no such petition had been presented, or if it was not signed by the requisite number of the legal voters, the law did not authorize the common council to ratify and affirm the subscription. That fact, however, had been previously ascertained and determined by the board to which the petition was originally addressed.'

The court then considered the effect of the determination by the common council as between the defendant and the holders for value of the bonds without notice of the supposed defects in the proceedings under which they were issued and put upon the market, and stated as follows (p. 299, L. ed. p. 672):

'Jurisdiction of the subject-matter on the part of the common council was made to depend upon the petition, as described in the explanatory act, and of necessity there must be some tribunal to determine whether the petitioners, whose names were appended, constituted three fourths of the legal voters of the city, else the board could not act at all. None other than the common council, to whom the petition was required to be addressed, is suggested, either in the charter or the explanatory act, and it would be difficult to point out any other sustaining a similar relation to the city so fit to be charged with the inquiry, or one so fully possessed of the necessary means of information to discharge the duty. Adopting the language of this court in the case of Knox County v. Aspinwall, 21 How. 544, 16 L. ed. 210, we are of the opinion that 'this board was one, from its organization and general duties, fit and competent to be the depositary of the trust confided to it.' Perfect acquiescence in the decision and action of the board seems to have been manifested by the defendants until the demand was made for the payment of interest on the loan. So far as appears, they never attempted to enjoin the proceedings, but suffered the authority to be executed, the bonds to be issued, and to be delivered to the railroad company, without interference or complaint. When the contract had been ratified and affirmed, and the bonds issued and delivered to the railroad company in exchange for the stock, it was then too late to call in question the fact determined by the common council, and a fortiori it is too late to raise that question in a case like the present, where it is shown that the plaintiffs are innocent holders for value.'

The statute in the present case distinctly provides for the determination of the question of fact by the board of supervisors, and for the embodying of such determination in an order, to be entered and a certified copy to be filed with the county recorder. It is not left to inference as to which is the body to make the determination.

In Anderson County v. Beal, 113 U.S. 227, 28 L. ed. 966, 5 Sup. Ct. Rep. 433, the question arose as to whether there had been the requisite length of notice of the election to determine the question whether or not the bonds should be issued. The statute required that at least thirty days' notice of the election should be given, and it was thereby made the duty of the board of county commissioners to subscribe for the stock and issue the bonds after such assent of the majority of the voters had been given. Subsequently in a suit against the board of county commissioners on coupons due on the bonds that had been issued and which had been bought by a bona fide purchaser, the record showed an order for the election made thirty-three days before it was to be held, and that subsequently to the election the board canvassed the returns and certified that there was a majority of the voters in favor of the proposition, and that the board had made such vote the basis of their action in subscribing to the stock and issuing the bonds to the company. The bonds recited on their face that they were issued 'in pursuance to the vote of the electors of Anderson county of September 13, 1869.' It was held that the statement in the bonds as to the vote was equivalent to a statement that the vote was one lawful and regular in form, such as the law then in force required as to prior notice, and that, as respected the plaintiff, evidence by the defendant to show less than thirty days' notice of the election could not avail. At page 238, L. ed. p. 970, Sup. Ct. Rep. p. 438, the court said:

'The bond recites the wrong act, but if that part of the recital be rejected, there remains the statement that the bond 'is executed and issued' 'in pursuance to the vote of the electors of Anderson county of September 13, 1869.' The act of 1869 provides that when the assent of a majority of those voting at the election is given to the subscription to the stock, the county commissioners shall make the subscription, and shall pay for it, and for the stock thereby agreed to be taken, by issuing to the company the bonds of the county. The provision of § 51 is 'that when such assent shall have been given' it shall be the duty of the county commissioners to make the subscription. What is the meaning of the words 'such assent?' They mean the assent of the prescribed majority, as the result of an election held in pursuance of such notice as the act prescribes. The county commissioners were the persons authorized by the act to ascertain and determine whether 'such assent' had been given; and necessarily so, because, on the ascertainment by them of the fact of 'such assent,' they were charged with 'the duty'-that is the language-of making the subscription, and the duty of issuing the bonds. They were equally charged with the duty of ascertaining the fact of the assent. The record evidence of their proceedings shows that their order for the election was made thirty-three days before the election was to be held; that they met 'pursuant to law for the purpose of canvassing returns of the election;' that they discharged that duty and certified that there was a majority of votes in favor of the proposition; that in November, 1869, they resolved that, 'in accordance with the vote, heretofore had and taken, of the electors of said county to that effect,' they subscribed for the stock; and that in July, 1870, in their order authorizing the bonds to be delivered by Joy to the company, they recited that the bonds were issued 'according to the provisions of the vote of the electors of said county.' In view of all this, the statement by the commissioners, in the bonds, that it is issued 'in pursuance to the vote of the electors of Anderson county of September 13, 1869,' is equivalent to a statement that 'the vote' was a vote lawful and regular in form, and such as the law then in force required, in respect to prior notice. The case is therefore brought within the cases, of which there is a long line in this court, illustrated by Coloma v. Eaves, 92 U.S. 484, 491, 23 L. ed. 579, 581, and which hold, in the language of that case, that 'where legislative authority has been given to a municipality or to its officers to subscribe for the stock of a railroad company, and to issue municipal bonds in payment, but only on some precedent condition, such as a popular vote favoring the subscription, and where it may be gathered from the legislative enactment that the officers of the municipality were invested with the power to decide whether the condition precedent has been complied with, their recital that it has been, made in the bonds issued by them and held by a bona fide purchaser, is conclusive of the fact, and binding upon the municipality; for the recital is itself a decision of the fact by the appointed tribunal.' This doctrine is adhered to by this court. Dixon County v. Field, 111 U.S. 83, 93, 94, 28 L. ed. 360, 364, 4 Sup. Ct. Rep. 315.'

In Andes v. Ely, 158 U.S. 312, 39 L. ed. 996, 15 Sup. Ct. Rep. 954, the doctrine was affirmed that where an officer is charged by law with the duty to decide certain facts, his decision thereon is conclusive and takes the form of a judgment, only to be reviewed by a higher court. At page 324, L. ed. p. 1002, Sup. Ct. Rep. p. 959, the court said: 'Whether the various steps were taken which in this particular case justified the issue of the bonds was a question of fact; and when the bonds on their face recite that those steps have been taken it is the settled rule of this court that, in an action brought by a bona fide holder, the municipality is estopped from showing the contrary.'

In Provident Life & T. Co. v. Mercer County, 170 U.S. 593, 42 L. ed. 1156, 18 Sup. Ct. Rep. 788, where the fact whether a condition precedent had been performed before the issuing of the bonds was confided for decision to a trustee, it was held that his decision that the condition precedent had been complied with was conclusive in favor of a bona fide holder, even though the condition had in fact not been performed.

And in the case of Watte v. Santa Cruz, 184 U.S. 302, ante, p. 327, 22 Sup. Ct. Rep. 327, decided at this term, many authorities upon this question are cited in the opinion by Mr. Justice Harlan. Those authorities need not be repeated here, a reference to them as contained in that opinion being all that is necessary.

The case of Ogden City v. Armstrong, 168 U.S. 224, 42 L. ed. 444, 18 Sup. Ct. Rep. 98, had nothing to do with the principles governing the law relating to bona fide owners of municipal bonds, or with the effect of recitals contained in such bonds. It was a case of an alleged invalid assessment levied to collect the cost of paving one of the public streets in the city. There was a direct attack made upon the validity of the assessment, founded upon an alleged lack of jurisdiction on the part of the common council. The action was maintained under a well-recognized head of equity jurisdiction, on the ground that the assessment, valid on its face, constituted a cloud upon the plaintiff's title, which required evidence aliunde to remove.

In addition to the strength of the position of the plaintiff in the action as a bona fide purchaser and holder of the bonds, the position of the defendants merits due consideration. Regarding the individual defendants, it is scarcely possible to believe that they were not aware of the proceedings above recited, taken to organize the corporation, and thereafter to issue its bonds, even though it should be admitted that the published notice was not legally sufficient to comply with the statute. They were the owners of land within the proposed district. The proceedings were all of a public nature, and two public elections were held within the district before the bonds were issued. Of these facts, already detailed, we say it is impossible to believe that the individual defendants did not have knowledge at the time of their occurrence, and yet they took no action to prevent the issuing of the bonds, or to call in question by the slightest hint the validity of the organization of the district as a corporation. On the contrary, they entirely acquiesced in all the proceedings leading up to their issue, in obtaining the moneys therefrom, in the expenditure thereof for the purpose for which the bonds were issued, and in paying during several years the assessments made upon the lands within the district for the purpose of paying the interest on the bonds which had been issued. After all this had been done, we can properly use the language found in the opinion in Bissell v. Jeffersonville, 24 How. supra, at page 299, 16 L. ed. 672: 'It was then too late to call in question the fact determined by the common council, and a fortiori it is too late to raise that question in a case like the present, where it is shown that the plaintiffs are innocent holders for value.'

Assuming the insufficiency of the notice of the intended presentation of the petition to the board of supervisors, the defendant landowners could have applied to the attorney general for the commencement of an action in the nature of a quo warranto, to raise and decide the questions, after the board had decided the organization was duly formed. Or they could have themselves commenced an action to restrain the proposed issue of bonds on the ground there was no valid corporation, and therefore no valid body to issue them. Their interest as landowners in the district would be sufficient to permit them to maintain such action. On the contrary, they did nothing, and in view of all the facts above detailed, and giving due effect to the provisions of the statute referred to and the determination of the supervisors, together with the recitals in the bonds, it is clear to us that they waived their right to thereafter object on the ground stated, as against a bona fide holder of the bonds for value. As to the defendant corporation, it seems so clear that it cannot be heard to set up the invalidity of the bonds on the ground that it was not legally incorporated, that we do not think it necessary to further discuss the question. Taylor, Corp. 4th ed. § 146, and cases cited in note.

We have given no weight to the two judgments taken under the confirmation act of the California legislature, the first of which was entered before the bonds were issued, and confirmed the validity of the organization, while the second was entered years after the bonds were issued, and refused to confirm the organization. In the view we take of this case it is unnecessary, and it is therefore needless for us to here discuss or determine the question of the effect which ought to be given them under other circumstances. The plaintiff below occupies an unassailable position upon the facts of the case as a bona fide purchaser, without reference to either judgment.

We are of opinion there is no error in the record, and the judgment of the court below is therefore affirmed.