A state, being the creator of municipal organizations, is the
proper party to impeach the validity of their creation, and if it
acquiesces in the validity of a municipal corporation, the
corporate existence thereof cannot be collaterally attacked; this
rule is recognized in Texas.
Page 167 U. S. 647
An absolute repeal of a municipal charter is effectual so far as
it abolishes the old corporate organization, but when the same, or
substantially the same inhabitants are erected into a new
corporation, whether with extended or restricted territorial
limits, such new corporation is treated as in law the successor of
the old one, entitled to its property rights, and subject to its
liabilities; this view of the law has been accepted and followed by
the Supreme Court of Texas.
The disincorporation by legal proceedings of the City of San
Angelo did not avoid legally subsisting contracts, and, upon the
reincorporation of the same inhabitants and of a territory
inclusive of the improvements made under such contracts, the
obligations of the old devolved upon the new corporation.
The Texas Act of April 13, 1891, c. 77, as construed by the
supreme court of the state, must be regarded, as respects prior
cases, as an act impairing the obligation of existing
contracts.
Under the facts disclosed by this record, the new corporation is
subject to the obligations of the preceding corporation, as
existing legal obligations, in manner and form as they would have
been enforceable bad there been no change of organization.
This was an action brought by Augustus F. Shapleigh, a citizen
of the State of Missouri, against the City of San Angelo, a city
incorporated on February 10, 1892, under the laws of the State of
Texas. The plaintiff's amended petition, filed in the Circuit Court
of the United States for the Western District of Texas on March 9,
1895, contained two counts, the the first asking judgment for the
amount of certain unpaid coupons for interest on bonds issued by a
municipal organization styled "the City of San Angelo," which, from
January 18, 1889, to December 15, 1891, exercised the powers of an
incorporated city within the territorial limits inclusive of all
the territory afterwards embraced within the limits of the
defendant corporation, and the second count seeking to recover, as
money had and received to the use of the plaintiff, the amount paid
by him for the bonds.
The essential allegations of the first count were that, on
January 18, 1889, the County Judge of the County of Tom Green,
Texas, made an entry upon the records of the commissioners' court
of the said county setting forth that the inhabitants of the Town
of San Angelo, in that county, were then and there incorporated as
a city, within certain described boundaries, that on the said date,
the city contained more
Page 167 U. S. 648
than one thousand inhabitants, that immediately after that date,
an election was held in the city pursuant to an order of the county
judge at which election a mayor, a marshal, and five aldermen were
chosen, who thereupon organized a government for the city, and
entered upon the performance of their duties as such officers,
that, on May 16, 1889, the city council passed an ordinance
entitled
"An ordinance authorizing the issuing of bonds for the purpose
of improving the streets and public highways in the City of San
Angelo, and to provide for the interest and create a sinking fund
for the principal of said bonds,"
empowering the mayor and secretary of the city to execute, under
the corporate seal, coupon bonds of the denomination of $1,000
each, and to negotiate the same, and providing that, for the
payment of interest on the bonds, and to create a sinking fund for
the redemption of the same, there should be levied and collected an
annual
ad valorem tax on all property within the city at
the rate of twenty-five cents on the $100 of valuation; that in
pursuance of the ordinance the mayor signed and the secretary
countersigned ten bonds, and the mayor sold the same, sealed with
the corporate seal of the city; that attached to each of the bonds
were forty coupons, each for the sum of $30, or one semiannual
installment of interest; that, before the bonds were issued the
mayor forwarded the same to the Comptroller of public accounts of
the State of Texas, who registered the same in a book kept for the
purpose in his office, and endorsed upon each of the bonds his
certificate that the same was so registered; that at the time the
bonds were issued the assessed value of the property in the city
amounted to $1,500,000, and that the bonds were issued and their
proceeds used for the purpose of making streets in the city. It was
further stated that, at the fall term, 1890, of the district court
of the said county, the county attorney, at the instance of a
citizen and taxpayer of the city, filed an information against the
mayor and the members of the city council of said city alleging
that the city was never legally incorporated, and that the
defendants were unlawfully exercising the functions of such
officers, and praying that the defendants might be cited to appear
and show
Page 167 U. S. 649
cause why they should not be ousted from office and that the
incorporation of the city might be declared null and void, that
thereupon proceedings were had in the said court which resulted in
the entry of a decree on December 15, 1891, ousting the said
defendants from their said offices and declaring the incorporation
of the City of San Angelo null and void. It was further alleged
that on February 10, 1892, the defendant city was duly incorporated
within certain described boundaries; that the territory of the new
corporation was all embraced within the boundary lines of the old
organization, and, although smaller in area than the territory of
that organization, included all the lands thereof actually occupied
and inhabited as a town, and all the streets and public buildings
of the old city. The plaintiff averred that he was the bearer and
owner of sixty of the coupons attached to the said bonds, which
were due and unpaid, and asked judgment for the sum of $1,800, with
interest on the amount of each of the coupons from the maturity
thereof.
In the second count, the plaintiff repeated the above
allegations and further alleged that, prior to December 15, 1891,
the City of San Angelo, as first organized in 1889, sold and
delivered the said ten bonds to certain persons residing in St.
Louis, Missouri, for the sum of $10,000; that the proceeds of the
sale were used by the said City of San Angelo in making its
streets; that thereafter the said persons sold, for valuable
consideration, some of the bonds to the plaintiff, and the
remaining ones to certain other persons, from whom the plaintiff
subsequently purchased the same; that the plaintiff thus became the
owner of all of the bonds, and of the entire claim against the
defendant on account thereof as for money had and received to the
plaintiff's use. Upon this cause of action the plaintiff asked
judgment for the sum of $10,000, with interest.
The defendant filed its second amended answer on April 2, 1895,
which contained various averments of fact, a denial of all the
essential allegations of the petition, defenses in the nature of
pleas of
non est factum and of the statute of limitations,
and a demurrer, of which nine special causes were stated. Two of
the causes of demurrer were as follows:
Page 167 U. S. 650
"2d. Because the said amended petition shows that the
corporation which is alleged to have issued the bonds the interest
of which is the subject matter of this suit had been, before the
institution of the same, declared null and void by a court of
competent jurisdiction, and, as shown by the allegations of said
fact, was null and void, and that said corporation, as organized in
1889, has therefore ceased to exist, and was in fact void, and said
petition fails to show or aver that any subsequent corporation has
ever assumed the debt sued upon, or become liable for the payment
of same, or that the requisite number of qualified voters of the
City of San Angelo ever at any election voted in favor of, or
received any property of, the old corporation, or ever voted to
assume or pay for the debt of the old or defunct corporation of the
City of San Angelo, and said petition wholly fails to show that the
necessary and proper elections, and each of them, were held as a
prerequisite to any liability of said defendant."
"4th. Because said amended petition shows that the territory
included in the corporation of 1889 was entirely different from
that embraced in the new corporation of 1892, and which is covered
by the defendant in this suit, and fails to state any facts which
would make said last incorporation liable for said bonds and
interest or the debts of the old and first incorporation mentioned
therein."
Replication having been filed by the plaintiff, to which the
defendant demurred, the case was heard in the said circuit court
upon the demurrer to the amended petition, and on April 5, 1895,
the demurrer as to the second and fourth specifications was
sustained. The plaintiff elected to abide by the amended petition,
and subsequently, judgment having been entered in favor of the
defendant, he sued out a writ of error, bringing the case here.
MR. JUSTICE SHIRAS, after stating the facts in the foregoing
language, delivered the opinion of the Court.
Page 167 U. S. 651
In January, 1889, the City of San Angelo was existing and acting
as an organized municipal corporation, with a mayor, a board of
aldermen, and other functionaries. In pursuance of an ordinance of
the city council, in May, 1889, there were issued the bonds in
question in this case. It was not denied that the proceedings were
regular in form, that the bonds were duly executed and registered
as required by law, that the proceeds of their sale were properly
applied to improving the streets and public highways of the city,
and that the plaintiff was a
bona fide holder for
value.
As things then stood, it is plain that the city could not have
set up to defeat its obligations any supposed irregularity or
illegality in its organization. The state, being the creator of
municipal corporations, is the proper party to impeach the validity
of their creation. If the state acquiesces in the validity of a
municipal corporation, its corporate existence cannot be
collaterally attacked.
This is the general rule, and it is recognized in Texas:
"If a municipality has been illegally constituted, the state
alone can take advantage of the fact in a proper proceeding
instituted for the purpose of testing the validity of its
charter."
Graham v. City of Greenville, 67 Tex. 62.
But in 1890, at the fall term of the District Court of Tom Green
County, an information was filed by the county attorney against
named persons who were exercising and performing the duties,
privileges, and functions of a mayor and city council of the City
of San Angelo, claiming the same to be a city duly and legally
incorporated under the laws of the state and alleging that said
city was not legally incorporated, and that said named persons were
unlawfully exercising said functions. Such proceedings were had
that, on December 15, 1891, the said district court entered a
decree ousting the said persons from their said offices and
adjudging that the incorporation of said City of San Angelo be, and
the same was thereby, abolished and declared to be null and void.
The record does not distinctly disclose the ground upon which the
court proceeded in disincorporating said city, but enough appears
to justify the inference that the incorporation included
Page 167 U. S. 652
within its limits unimproved pasture lands, outside of the
territory actually inhabited, and that the incorporation was
declared invalid for that reason.
Subsequently, on February 10, 1892, the City of San Angelo was
again incorporated, excluding the unimproved lands but including
all the improved part of the prior incorporation, and in which
existed the streets and highways in the construction of which the
proceeds of the said bonds had been expended.
What was the legal effect of the disincorporation of the City of
San Angelo and of its subsequent reincorporation as respects the
bonds in suit? Did the decree of the District Court of Tom Green
County abolishing the City of San Angelo as incorporated in 1889
operate to render its incorporation void
ab initio, and to
nullify all its debts and obligations created while its validity
was unchallenged? Or can it be held, consistently with legal
principles, that the abolition of the city government as at first
organized, because of some disregard of law and its reconstruction
so as to include within its limits the public improvements for
which bonds had been issued during the first organization, devolved
upon the city so reorganized the obligations that would have
attached to the original city if the state had continued to
acquiesce in the validity of its incorporation?
Such a question was presented in
Broughton v.
Pensacola, 93 U. S. 266, and
was answered in the following language:
"Although a municipal corporation, as far as it is invested with
subordinate legislative powers for local purposes, is a mere
instrumentality of the state for the convenient administration of
government, yet, when authorized to take stock in a railroad
company and issue its obligations in payment of the stock, it is to
that extent to be deemed a private corporation, and its obligations
are secured by all the guaranties which protect the engagements of
private individuals. The inhibition of the Constitution which
preserves against the interference of a state the sacredness of
contracts applies to the liabilities of municipal corporations
created by its permission, and, although the repeal or modification
of the charter of a corporation of that kind is not within the
inhibition, yet
Page 167 U. S. 653
it will not be admitted, where its legislation is susceptible of
another construction, that the state has in this way sanctioned an
evasion of or escape from liabilities the creation of which it
authorized. When, therefore, a new form is given to an old
municipal corporation, or such a corporation is reorganized under a
new charter, taking, in its new organization, the place of the old
one, embracing substantially the same corporators and the same
territory, it will be presumed that the legislature intended a
continued existence of the same corporation, although different
powers are presumed under the new charter, and different officers
administer its affairs, and, in the absence of express provision
for their payment otherwise, it will also be presumed in such case
that the legislature intended that the liabilities as well as the
right of property of the corporation in its old form should
accompany the corporation in its reorganization. . . . The
principle which applies to the state would seem to be applicable to
cases of this kind. Obligations contracted by its agents continue
against the state, whatever changes may take place in its
Constitution of government. 'The new government,' says
Wheaton,"
"succeeds to the fiscal rights, and is bound to fulfill the
fiscal obligations, of the former government. It becomes entitled
to the public domain and other property of the state, and is bound
to pay its debts previously contracted."
"So a change in the charter of a municipal corporation, in whole
or part, by an amendment of its provisions or the substitution of a
new charter in place of the old one, should not be deemed, in the
absence of express legislative declaration otherwise, to affect the
identity of the corporation or to relieve it from its previous
liabilities."
Mount Pleasant v. Beckwith, 100
U. S. 520.
In
Mobile v. Watson, 116 U. S. 289, it
was held that when a municipal corporation with fixed boundaries is
dissolved by law, and a new corporation is created by the
legislature for the same general purposes, but with new boundaries,
embracing less territory but containing substantially the same
population, the great mass of the taxable property, and the
corporate property of the old corporation which passes without
consideration
Page 167 U. S. 654
and for the same uses, the debts of the old corporation fall
upon the new as its legal successor, and that powers of taxation to
pay them, which it had at the time of their creation, and which
entered into the contracts, also survive and pass into the new
corporation.
There are other cases declaring the same views, but which it is
needless to cite. The conclusions reached by this Court may be thus
expressed: the state's plenary power over its municipal
corporations to change their organization, to modify their method
of internal government, or to abolish them altogether is not
restricted by contracts entered into by the municipality with its
creditors or with private parties. An absolute repeal of a
municipal charter is therefore effectual so far as it abolishes the
old corporate organization, but when the same or substantially the
same inhabitants are erected into a new corporation, whether with
extended or restricted territorial limits, such new corporation is
treated as in law the successor of the old one, entitled to its
property rights, and subject to its liabilities. Dillon's
Mun.Corp., vol. 1, ยง 172, 4th ed.
This view of the law has been accepted and followed by the
Supreme Court of the State of Texas.
The City of Corpus Christi, organized under the laws of the
State of Texas, entered into a contract with Morris & Cummings,
a private firm or partnership, whereby the latter were to make
certain improvements and works in the Bay of Corpus Christi and the
city was to issue bonds in payment, with authority to the holders
to collect tolls on vessels passing through the bay until the bonds
were paid. The contract was so far executed that the improvements
were made and the bonds issued and delivered. Subsequently, by an
act of the legislature of the state, the act incorporating the City
of Corpus Christi, and all other acts relating to the incorporation
and franchises of the same, were repealed. It was contended that
this repeal operated to extinguish all right on the part of Morris
& Cummings to collect tolls for the use by vessels of the
channel they had constructed; but the court held that, while the
power of the legislature to alter or repeal
Page 167 U. S. 655
an act chartering a municipal corporation is undoubted, yet that
this power cannot be exercised to the injury of creditors of the
corporation or of persons holding contracts with it, especially
when fully performed on their part, so as to entitle them to the
compensation provided for in the contract, citing
Mount
Pleasant v. Beckwith, 100 U. S. 514;
that the repealing act must be considered in reference to the
provision of the Constitution of the United States forbidding the
states to pass laws impairing the obligation of a contract, and
also to a similar provision in the state constitution; that the
same obligation to perform its contracts rests upon a corporation
as upon a natural person; that, while the legislature may deprive
the corporation of its charterial rights, and forbid its exercising
any of the governmental powers, it must not be presumed that it
intended also to absolve it from its liabilities to creditors, or
to contractors whose rights to compensation have become vested, and
that, accordingly, the act of the legislature repealing the charter
of the City of Corpus Christi cannot be construed to interfere with
the right of Morris & Cummings to collect tolls, without
violating both the Constitution of the United States and of Texas.
Morris v. State, 62 Tex. 728, 730.
This decision was published in 1884, before the transactions in
the present case.
The conclusion which is derivable from the authorities cited and
from the principles therein established is that the
disincorporation by legal proceedings of the City of San Angelo did
not avoid legally subsisting contracts, and that, upon the
reincorporation of the same inhabitants, and of a territory
inclusive of the improvements made under such contracts, the
obligation of the old devolved upon the new corporation.
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
Page 167 U. S. 656
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.
We come now to consider the legal effect of the act entitled "An
act to amend article 541, chapter 11, title 17, of the Revised
Civil Statutes of the Texas," approved April 13, 1891. That act was
in the following terms:
"Section 1. When any corporation is abolished, as provided in
the preceding article, or if any
de facto corporation
shall be declared void by any court of competent jurisdiction, or
if the same shall cease to operate and exercise the functions of
such
de facto corporation, all the property belonging
thereto shall be turned over to the county treasurer of the county,
and the commissioners court of the county shall provide for the
sale and disposition of the same and for the settlement of the
debts due by the corporation, and for this purpose shall have the
power to levy and collect a tax from the inhabitants of said town
or village in the same manner as the said corporation would be
entitled to under the provisions of this chapter,
provided
that, when any town or city shall reincorporate under chapters
1 to 11 of title 17 of the Revised Statutes upon a majority of the
legal voters taxpaying property holders of said town or city, all
property, real and personal, of the old or
de facto
corporation, shall be vested in the new one,
and provided
further that the new corporation shall assume all the legal
indebtedness, contracts and obligations of the old corporation,
provided, where cities and towns have reincorporated under
chapters 1 to 11 of title 17 of the Revised Civil Statutes, prior
to the adoption of this act, upon a majority vote of the tax paying
property owners of said city or town, all property, real and
personal, of the old or
de facto corporation shall be
vested in the new one.
And provided further
Page 167 U. S. 657
that the new corporation shall assume all the legal
indebtedness, contracts and obligations of the old
corporation."
"Section 2. In all cases where the commissioners court shall be
vested with the authority conferred on them by this act, it shall
be the duty of such court to appoint a suitable person to perform
the duty of tax collector, whose duty it shall be to collect the
tax within the territory comprised in the dissolved corporation
until such legal indebtedness of such corporation has been paid off
or until such city or town has been reincorporated, and shall fix
his bond in sufficient penalties to protect any fund collected,
provided that such appointee may be removed at any time
for carelessness or insufficiency or other good cause."
Gen.Laws Texas, 1891, c. 77, p. 95.
The provisions of this act might be reasonably interpreted as
consistent with the principles heretofore stated, and as providing
a method of enforcing the rights of creditors. But it appears that
the Supreme Court of Texas has construed the act as requiring a
vote of the taxpaying voters in favor of assuming the debt before
the new incorporation can be held for it.
White v. Quanah,
28 S.W. 1065.
If this, indeed, be so -- and it is difficult to reconcile such
a view with those previously expressed by that court -- then it
would follow, as we think, that said act, so construed, must be
regarded, as respects prior cases, as an act impairing the
obligations of existing contracts. If the law before the passage of
the act of 1891 was that by a voluntary reincorporation and a
taking over of the property rights of the old corporation, the
existing obligations devolved upon the new corporation, it would
plainly not be a legitimate exercise of legislative power, as
affecting such prior obligations, to substitute an obligation
contingent upon a vote of the taxpayers.
When the bonds in question were issued and became the property
of the plaintiff, he was entitled not merely to the contract of
payment expressed in the bonds, but to the remedies implied by
existing law.
Bronson v.
Kinzie, 1 How. 311;
Seibert v. Lewis,
122 U. S. 284;
Barnitz v. Beverly, 163 U. S. 118.
Page 167 U. S. 658
It is unnecessary to restate what is fully expressed in those
cases.
As the City of San Angelo was organized under a general statute,
which provided for the offices of mayor and secretary for all
cities organized under it, 1 Sayles' Civil Statutes, Title 17, c. 2
and 11, and if our conclusion be sound that said city, acting as a
municipal corporation, though irregularly formed, was competent to
contract for municipal purposes, and that the obligations of such
contracts devolved by operation of law upon the new corporation,
the official action and character of the mayor and secretary in
signing and sealing the securities cannot be challenged. Such
objection raises merely the same question in another form.
Norton v. Shelby County, 118 U.
S. 425, is not to the contrary. There, certain persons
who undertook to act as county commissioners were adjudged to be
usurpers as against others who were lawful officers, and it was
held that, as the act of the legislature which created the board of
commissioners was unconstitutional, there were no
de jure
offices, and therefore no
de jure officers. But the
general rule was recognized that,
"where an office exists under the law, it matters not how the
appointment of the incumbent is made so far as the validity of his
acts are concerned. It is enough that he is clothed with the
insignia of the office, and executes its powers and functions."
We conclude that the circuit court erred in sustaining the
defendant's general exception and special exceptions 2 and 4, and
that the judgment of that court must be reversed, and a new trial
awarded. But it is proper that we should observe that we do not
desire to be understood as holding that the plaintiff can maintain
that count of his amended petition whereby he claims to recover the
principal amount of bonds which have not matured. The theory of
that count apparently is that the liability of the defendant is of
an equitable character, and that the outstanding obligations of the
old corporation can be regarded as presently due.
When we hold that the new corporation, under the facts disclosed
by this record, is subject to the obligations of the
Page 167 U. S. 659
preceding corporation, we mean subject to them as existing legal
obligations, in manner and form as they would have been enforceable
had there been no change of organization.
The judgment of the circuit court is reversed, and the cause
is remanded for further proceedings not inconsistent with this
opinion.
