The Tulare Irrigation District, in California, issued and sold
its bonds for the purpose of constructing its irrigation works. The
proceeds were used for that purpose by the corporation, and the
works were by means thereof constructed. The corporation then
refused to pay the bonds, and denied its liability on them upon the
ground that it was never legally organized as a corporation, and
hence had no legal right to issue any bonds.
Held, on the
authority of
Douglas County Commissioners v. Bolles,
94 U. S. 104, that
common honesty demanded that a debt thus incurred should be paid,
and that there was nothing in the facts in this case to set aside
the application of that principle; that, if anything could
constitute a
de facto corporation the defendant is one,
and that, being thus a
de facto corporation, none but the
state can question its existence.
Under the circumstances stated in the opinion of the court, the
landowner is estopped from setting up the defense of the want of
notice, as against the plaintiff in this case.
This is a writ of error to the Circuit Court of the United
States for the Southern District of California, sued out for the
purpose of reviewing a judgment of that court in favor of the
defendant in error in an action brought by him against the
irrigation district only, to recover interest due on certain
coupons
Page 185 U. S. 2
attached to bonds issued by the district for the purpose of
raising money to build its irrigation works. It appeared from the
complaint that the plaintiff was a resident of Michigan, and that
the Tulare Irrigation District had at all times since September 2,
1889, been a corporation duly incorporated under the laws of the
State of California, and since that time had been acting as such
corporation; that, under the laws of such state, the irrigation
district duly issued its bonds for the amount of $500,000, with
coupons attached; that the plaintiff was a
bona fide
purchaser and holder of certain of those coupons, and that he had
paid full value for the same, in the usual course of business, and
before any of them were due or dishonored, and in good faith and
without any notice of any defect or invalidity of the same or any
of them. Judgment for $13,185 and interest was demanded. The
defendant demurred to the complaint, the demurrer was overruled, 94
F. 1, and the defendant then answered.
The answer, among other things, set up various alleged
irregularities and omissions which occurred in the attempted
formation of the irrigation district, on account of which, as
contended, the corporation never was legally formed and never had
power to issue bonds, and whatever bonds may have been issued were
for those reasons void. The individual defendants at this stage
applied to the court for an order permitting them to intervene in
the action as parties therein, and to unite with the defendant
corporation in resisting the claims of the plaintiff in this
action. The court thereupon ordered that the petitioners' complaint
in intervention should be filed without prejudice to the
plaintiff's motion to strike out the same. They then filed what
they termed their complaint in intervention in this action (which
is nothing more than an answer to the complaint), in which they set
up that the defendant Kelly was a citizen of the United States and
a resident of the State of Massachusetts, and that, ever since
January 1, 1889, he had been, and was at the time of the
commencement of the suit, the owner of the land which is described
and which was situate within the boundaries of the County of
Tulare, California, and within the boundaries of the alleged Tulare
Irrigation District; that Jauchius, the other defendant,
Page 185 U. S. 3
was a citizen of the United States and a resident of the State
of California, and that he, ever since January 1, 1889, had been
the owner of certain other described real property also situate in
the district, and they alleged that they were interested in the
subject matter of the action and in the success of the defendant;
that, if the bonds and coupons mentioned in the plaintiff's
complaint were adjudged valid claims against the district, then the
property of interveners in the district would be assessed and taxes
levied thereon to pay the claim of the plaintiff. They then set up
substantially the same defenses that were pleaded by the irrigation
district in its answer; also, that to permit the collection of the
bonds would take defendants' property without due process of law
and in violation of the federal Constitution.
The chief defect as set up in both pleadings and specially
argued here was in regard to the organization of the district, the
defect being an alleged insufficiency of the notice of the intended
presentation of the petition to the board of supervisors, by reason
of which, as averred, no legal notice was given, and therefore all
subsequent proceedings were void and of no effect. Subsequently to
the service of the answer, Jauchius died, and his executor was made
a party in his place.
The case came to trial upon a stipulation to waive a jury, was
submitted upon an agreed statement of facts, and thereafter the
court made its general findings in favor of the plaintiff, assessed
his damages at the sum of $13,185, and ordered judgment against the
irrigation district for that sum.
It was stipulated that any of the facts contained in the
statement might be offered in evidence by any party to the action,
and when so offered, the party not offering the same might object
to such facts or any of them upon legal grounds which might exist
against their admissibility. The statement of facts contained
twenty-one paragraphs. The first twelve were offered in evidence on
the part of the plaintiff and received by the court under the
defendant's objection and exception. The facts thus admitted showed
that, under the provisions of the irrigation act of the State of
California approved March 7, 1887, an effort was made in the County
of Tulare to form an irrigation district
Page 185 U. S. 4
to be known as "Tulare Irrigation District," and such
proceedings were had in that behalf that what purported to be a
certified copy of an order of the board of supervisors of that
county was duly filed with the county recorder on September 14,
1889; that order recited that the Board of Supervisors of Tulare
County, State of California, met as a board of canvassers on
Monday, September 2, 1889, for the purpose of determining the
result of the special election held in Tulare County on August 24,
1889, to vote upon the subject of the organization of the Tulare
Irrigation District and officers therefor, by which it appeared
that there were 484 votes cast in favor of forming the district,
and 7 against it. The order then continued as follows:
"And we further declare the territory embraced in the following
described limits, to-wit: [describing territory], an irrigation
district duly organized under the name and style of 'Tulare
Irrigation District,' being situate in the County of Tulare, State
of California."
This declaration was made in accordance with section 3 of the
act to form irrigation districts. The order further declared the
election of the directors in the various divisions of the
district.
The material sections of the act under which the attempt to form
the district was made are to be found set forth in the case of
Fallbrook Irrigation District v. Bradley, 164 U.
S. 112,
164 U. S.
116.
The persons declared by the order of the board of supervisors to
have been elected as officers of the district immediately
thereafter assumed to organize as such officers, and thereupon
entered upon their duties the same as though said district had been
legally organized and as though they had been legally elected as
such officers, and they and their successors in office have ever
since continued to act as such officers and to maintain the name of
"Tulare Irrigation District," and in its name have caused the
defendant to act as though it was in every respect legally
organized as an irrigation district under the act of the
legislature, and in that behalf it has at all such times had the
name "Tulare Irrigation District" printed upon a sign above a door
in front of an office in which the archives and papers of said
defendant are kept, and its board of directors have met from time
to time in such room from the time of such purported organization
thereof until the present weekly and sometimes oftener,
averaging
Page 185 U. S. 5
twice a month. In June, 1890, pursuant to the provisions of the
statute, an election was held within the district to determine
whether its bonds should be issued, resulting in favor of issuing
the same, and in the years 1891, 1892, 1893 its board of directors
purported to issue bonds of such Tulare Irrigation District in the
sum of $500,000, being 1,000 bonds of the face value of $500 each,
and levied assessments on the property embraced in said district,
purporting to act in so doing under the act of the legislature, and
previous to July 1, 1896, it assessed, levied, and collected taxes
upon the lands in such district of over $100,000, and paid the same
out through its treasurer as interest upon such bonds; the proceeds
arising from the sale of the bonds have been used by the district
in constructing a system of canals, ditches, and laterals through
the lands of the district, by means of which such lands have been
irrigated; it has engaged in litigation as plaintiff in suits
before the issuing of such bonds, and therein alleged that it was a
corporation under the provisions of the act of the legislature, and
from the time of its purported organization until the present time,
whatever it has done and performed, it has done and performed in
the same manner as if it had been legally organized as such
district, in full compliance with the law, and so continues to act
and hold itself out as a corporation organized under that law. No
one ever brought suit or took any action to prevent the issuing of
any of the bonds, nor was any suit or action ever brought to annul
or cancel or have declared void any of the bonds until after the
year 1896. No action in the nature of a
quo warranto was
ever commenced, nor any other proceeding, to test the validity of
the organization of the district.
The plaintiff at the commencement of the action was the holder
and owner of the coupons upon which action was brought, and became
the holder of the coupons on which he brought his action under the
circumstances detailed in the agreed statement of facts, showing
that he was a
bona fide holder for value without
notice.
The plaintiff also offered, and the same was received, in
evidence the judgment roll in
In the Matter of Tulare
Irrigation District, in the superior court of Tulare County,
which was a
Page 185 U. S. 6
proceeding under what is called the California Confirmation Act
in regard to irrigation districts, and which is mentioned in
Tregea v. Modesto Irrigation District, 164 U.
S. 179,
164 U. S. 181.
The proceedings under this confirmation act showed a judgment of
the court confirming the validity of the organization of the
district. This was duly objected to, and received under the
exception of the defendants. After some oral evidence had been
given in regard to the execution of the bonds by the officers of
the district, the plaintiff rested.
The defendants then offered separately each of the remaining
paragraphs from thirteen to twenty-one, both inclusive, in the
agreed statement of facts, and each, under the objection of the
plaintiff and exception of the defendants, was excluded. From the
facts thus offered, it appears that a petition addressed to the
Board of Supervisors of Tulare County was on July 1, 1889, filed
with the board at a regular meeting; that this petition was printed
and published prior thereto for two weeks during the month of June,
1889, and in a newspaper printed and published in Tulare County.
The petition contained a statement that the petitioners were
freeholders owning land within the district which was described in
the petition, and that it was all situated within Tulare County,
and that the petitioners desired to provide for the irrigation of
the same; that the proposed district as described was susceptible
of one mode of irrigation from a common source and by the same
system of works, by conveying the waters of Kaweah River by means
of dams thereon and by main and distributing canals therefrom. The
petitioners prayed that the district described in the petition be
organized into an irrigation district under the Act of the
Legislature of California approved March 7, 1887. The petition then
gave the boundaries of the proposed district, and asked that it be
designated as the Tulare Irrigation District. The petition was
signed at the end thereof, each petitioner stating the number of
acres owned by him. Following these signatures was a paper like
this:
"
NOTICE"
"Pursuant to the statutes in such cases made and provided,
notice is hereby given that the above and foregoing petition
Page 185 U. S. 7
will be presented to the Board of Supervisors in and for the
County of Tulare at their first regular meeting in the month of
July, 1889, to-wit, on Monday the 1st day of July, 1889 at which
time any person or persons desiring so to do may present their
objections, if any they have, why said petition should not be
granted."
The signatures to the petition were not repeated at the end of
the notice. This notice was in the same type as the petition, and
in the newspaper it was enclosed, with the petition, between two
black lines across the column, the first at the head of the
petition and the last at the end of the notice.
The alleged defect in this publication consists in the fact
that, although the petition was printed in full and the names of
the signers with the number of acres owned by them follow the
petition, yet, as the notice of the presentation of the petition
follows the signatures to such petition, and the notice is not
signed by the petitioners, it lacks those essential signatures, and
for that reason is not a valid notice, and becomes in law no notice
whatever.
The defendants also offered in evidence a second judgment in the
Matter of the Tulare Irrigation District setting aside the former
judgment of confirmation and refusing to confirm the validity of
the organization of the district. The judgment was excluded upon
the objection of the plaintiff. All these offered facts having been
excluded, the court made a general finding in favor of the
plaintiff. The individual defendants now contend that the court, in
granting judgment for the plaintiff, did in effect permit the
taking of their property without due process of law in violation of
the Constitution of the United States.
MR. JUSTICE PECKHAM, after making the foregoing statement of
facts, delivered the opinion of the Court.
Page 185 U. S. 8
It is agreed in the statement of facts in this case that the
moneys received from the sale of the bonds in suit were applied to
building and constructing the irrigation works now in use by the
defendant corporation. It has therefore received the full
consideration for which the bonds were issued, has built its works
with the proceeds, and uses such works for the purposes intended.
Notwithstanding these facts, it now refuses to pay the bonds or the
interest thereon, and, while acting as a corporation at all times,
still sets up that it was never legally organized, and hence had no
legal right to issue any bonds.
In the case of
Douglas County v. Bolles, 94 U. S.
104,
94 U. S. 110, a
case involving facts somewhat similar, this Court said: "Common
honesty demands that a debt thus incurred should be paid." That
sentiment has lost no force by the lapse of time, and we think it
applies in its full strength to this case. Unless there be some
settled rule of law which prevents a recovery in this action, the
judgment under review should be affirmed.
The sole ground of defense which has been urged at the bar has
been an alleged defect in the notice of the intended presentation
of the petition to form the district to the Board of Supervisors,
the defect consisting in the omission to add at the end of the
notice the names of the signers to the petition which immediately
precedes it.
Section 2 of the Act approved March 7, 1887, commonly called the
"Wright Act" of the California Legislature, provides that the
petition for the organization of an irrigation district shall be
presented to the board of supervisors of the county in which the
lands are situated, signed by the required number of freeholders
mentioned in the first section, which petition must describe the
proposed boundaries of the district and pray that the same may be
organized under the provisions of the act. The petition must be
presented at a regular meeting of the board of supervisors, and be
published for at least two weeks before the time at which the same
is to be presented in some newspaper printed and published in the
county where the petition is to be presented, "together with a
notice stating the time of the meeting at which the same will be
presented."
Page 185 U. S. 9
In this case, a proper petition complying with the provisions of
the act was made and signed by the requisite number of freeholders.
The petition, with the signatures of such freeholders appended, was
published in the proper newspaper, together with a notice as
provided for in the act, but the signatures of the freeholders
which were appended to the petition were not reproduced at the end
of the notice. The petition, signatures, and notice were published
in the same column and as one entire proceeding, separated from the
rest of the contents of the newspaper by a black line across the
column immediately preceding the petition, and another black line
across the column at the end of the notice. In this way, it was
separated from all other matter in the paper. It is now urged that
this failure to reprint the signatures to the petition at the end
of the notice rendered it of no effect in law, and that the result
was the same as if no notice at all had been published. It is
therefore argued that the action of the Board of Supervisors when
the petition was in fact presented and proof taken in regard to the
facts stated therein, in accordance with the published notice, was
without legal effect, and the determination of the board of
supervisors, after a hearing before it, that some of the lands
described in the petition would be benefited by irrigation,
including those of the individual plaintiffs in error, was wholly
without validity, because the board acquired no jurisdiction over
the subject on account of the absence of notice; the board, having
no jurisdiction, could make no valid determination as to the
organization of the district; the district could issue no valid
bonds, and the fact of the absence of notice could be shown as a
defense to bonds that were issued, no matter under what
circumstances the defense should arise. It was then contended that
to permit a recovery would result in the taking of the property of
the individual defendants by means of an assessment and without due
process of law.
It is not urged here that the plaintiff below was not a
bona
fide purchaser for full value without notice of any defective
organization or want of power in the corporation to issue the
bonds. Upon the stipulation of facts, no such defense could
prevail. The whole force of the defense rests, therefore, upon
Page 185 U. S. 10
this alleged defective notice because of the failure to reprint
the names of the signers to the petition at the end of such notice.
Is this such a defect as to practically amount to an absence of
notice so that the board of supervisors could acquire no
jurisdiction upon presentation of the petition? Certainly the
notice could mislead no one. It gave full and detailed information
in regard to the time and place at which the petition would be
presented to the board of supervisors. It cannot be claimed that
the notice itself did not give all the information provided for by
the statute, and it warned all persons who might desire so to do to
present their objections at the time and place named, why the
petition should not be granted. Anyone on reading the notice
obtained thereby all necessary knowledge to enable him to attend at
the time and place mentioned and present any objection that he
might have against the granting of the petition. The petition which
preceded the notice was signed by a sufficient number of
landowners, and the notice which followed the signatures to the
petition evidently formed part of the proceeding inaugurated by the
signers to the petition to take the necessary steps to organize an
irrigation district. The whole thing, petition, names of signers
thereto, and notice, was published the statutory time and also
posted as required. As published, it evidently formed but one
proceeding, and the notice was part thereof. Could anyone fairly
misunderstand the fact that the notice was part of the action of
the signers to the petition, and, when precisely in accordance with
the terms stated in the notice, the petition was publicly presented
to the board of supervisors, was not the statute sufficiently
complied with to give jurisdiction to that body to proceed to
determine the facts in accordance with the provisions of the
statute? Was not the notice fairly and substantially authenticated
as a notice given by the signers to the petition?
In the case of
In re Central Irrigation District Bonds,
117 Cal. 382, the Supreme Court of that state has held that the
publication of a notice similar to this, unsigned and
unauthenticated, was invalid, and the defect could not be cured by
proof of actual notice or knowledge on the part of those to be
affected thereby. It is urged that this decision of the supreme
court
Page 185 U. S. 11
of the state should be followed by us because it is in effect
the construction given by the state court to a statute of the
state. We are not entirely persuaded that this claim is well
founded. It might, on the contrary, be urged with much force that
the decision was based upon principles of general law as to whether
a notice presupposes by its very terms, and makes absolutely
necessary in all cases, a signature at the end thereof, and it
might be claimed that the case came within the principle decided in
Venice v. Murdock, 92 U. S. 494, where
this Court refused to follow the prior decisions of the Court of
Appeals of the State of New York made in cases arising upon a New
York statute and under a similar state of facts on the ground that
those decisions did not present a case of statutory construction.
See also Thompson v. Perrine, 103 U.
S. 806. And again, the bonds in question here were
issued not later than 1893, while the decision of the California
state court was not made until June, 1897, and, there being no
other decision of the state court upon the particular point, it
might be reasonably maintained that the matter should be regarded
as open to be decided in accordance with our own views of the
subject.
We do not deem it necessary to decide the question here, because
there are other facts upon which we can base our judgment without
impugning the decision of the state court. Assuming, therefore, for
the purpose of this case, though not deciding, that the notice was
insufficient, and did not fully comply with the statute, it will be
seen that the case above referred to does not decide that the
question of the defective organization could be raised as against
bona fide holders of bonds issued by the district. The
action in that case was commenced under a California statute
providing for the taking of proceedings to confirm the validity of
the organization of an irrigation district, and although the
statute under which an irrigation district is to be formed provides
for a determination of the fact of due organization by the board of
supervisors, yet the proceedings under the confirmation act are
expressly directed to be had to review the determination of that
board, so that there is express statutory authority to go behind
that determination in that proceeding.
Page 185 U. S. 12
But, assuming that the failure to sign the notice resulted in a
failure to organize a
de jure irrigation district, and
that, in a direct proceeding such as is provided for by the
Confirmation Act, or in a
quo warranto action, the
determination of the board of supervisors could be reviewed, it
does not follow that such determination could be reviewed in a
collateral action on the part of a
bona fide holder of
bonds to recover the principal or interest thereon. In the case
spoken of, the Supreme Court of California, while deciding upon the
invalidity of the organization, refused to pass upon the question
whether the bonds of the district were void for the reason that
proper notice was not given, and the court, in refusing to decide
the question, remarks that
"it is not proper because some of the bonds (it is insisted) had
been sold and had passed into the hands of
bona fide
purchasers before the institution of this proceeding. . . . After
the issue and before the sale of any bonds, it may well be of
advantage to the district and to intending purchasers that the
judgment of a court should be invoked to pass upon the regularity
of the action of the district officers, but after sale, different
questions present themselves. The bonds are negotiable; public
corporations are estopped from setting up many defenses of
irregularity against the innocent holders of such negotiable
securities. Whether or not the holder be an innocent purchaser and
a purchaser without notice is itself a question which cannot be
determined in this proceeding. From all these considerations and
others which will readily suggest themselves, it is proper, in
cases where bonds of a district have been actually sold before
institution of confirmation proceedings, to refuse consideration to
questions of the regularity of such sales, leaving their
determination to that forum before which appropriate action may be
brought to test the questions, for it is only in such an action
before such a court that there will be found full and unquestioned
jurisdiction of the subject matter, and of all the necessary
parties, as well as power to determine all objections and
defenses."
We may therefore proceed to the inquiry as to the liability of
the corporation to a
bona fide holder of its bonds without
further reference to the above case.
Page 185 U. S. 13
The supreme court of the state has held that irrigation
districts were public municipal corporations,
Central
Irrigation District v. De Lappe, 79 Cal. 351;
In re Madera
Irrigation District Bonds, 92 Cal. 296;
Quint v.
Hoffman, 103 Cal. 506, and the statute providing for their
creation has been held to be one that should be liberally
construed. 79 Cal. 351,
supra. The Supreme Court of
California and this Court have also decided that the irrigation act
is a valid statute, and that it violates neither the state nor the
federal Constitution.
Fallbrook case,
164 U.
S. 112,
164 U. S. 159,
and cases cited.
Even though the irrigation district failed to become organized
as a
de jure corporation, it may still have been acting as
a corporation
de facto. That there may be such a
corporation cannot be doubted.
Baltimore & Potomac Railroad
Company v. Fifth Baptist Church, 137 U.
S. 568,
137 U. S. 571;
Shapleigh v. San Angelo, 167 U. S. 646,
167 U. S. 655;
see also cases decided by the federal courts in
California,
Miller v. Perris Irrigation District, 85 F.
693, again reported in 99 F. 143;
Herring v. Modesto Irrigation
District, 95 F. 705; also
Lamming v. Galusha, 81 Hun.
247, affirmed by the Court of Appeals on the opinion of the court
below in 151 N.Y. 648;
Stout v. Zulick, 48 N.J.L. 599;
Snider's Sons Co. v. Troy, 91 Ala. 224;
American Salt
Co. v. Heidenheimer, 80 Tex. 344; Taylor on Corporations, 4th
ed., sec. 146.
From the authorities, some of which are above cited, it appears
that the requisites to constitute a corporation
de facto
are three: (1) a charter or general law under which such a
corporation as it purports to be might lawfully be organized; (2)
an attempt to organize thereunder, and (3) actual user of the
corporate franchise. The case at bar contains these requisites.
There was a general valid law under which a corporation such as the
defendant is claimed to be could be formed, there was undoubtedly a
bona fide attempt to organize thereunder, and there has
been actual user of the corporate franchise. In the progress of the
attempt to organize the district, the determination of the board of
supervisors was made, under the provisions of the statute,
declaring the body to be a duly organized irrigation district.
Subsequently officers were elected
Page 185 U. S. 14
and took office and have ever since discharged the duties
thereof under the statute, and a special election was held to
determine the question of issuing bonds, and the bonds were issued
pursuant to the result of such election, and suits have been
commenced in the name of the corporation. In brief, if anything can
constitute a
de facto corporation, the defendant herein
constitutes one.
The case of
Norton v. Shelby County, 118 U.
S. 425, contains no doctrine in opposition. In that
case, the state court of Tennessee had held that the so-called
Board of Commissioners of Shelby County, organized under the Act of
March 9, 1867, had no lawful existence, that it was an unauthorized
and illegal body, and its members were usurpers of the functions
and powers of the justices of the peace of the county, that their
action in holding a county court was void, and that their acts in
subscribing to the stock of the Mississippi Railroad Company and
issuing bonds in payment therefor were void. Those acts the
bondholders had endeavored to sustain by claiming that they were
the acts of
de facto officers, and that, under such
circumstances, it was not material whether the board of
commissioners had a lawful existence or not. This Court held there
could be no
de facto officer where the office itself had
no legal existence. If there be no office to fill, there can be no
officer either
de jure or
de facto, and as the
act attempting to create the office never became a law, the office
itself never came into existence; it was a misapplication of terms
to call one on officer who holds no office, and a public office
could exist only by force of law.
In the case now before us, there was a valid law providing for
the creation of just such a corporation as the defendant claimed to
be. There was a
bona fide attempt to organize under it,
and there had been a user of the franchise, and within the
authorities already cited, a corporation
de facto was
thereby constituted.
Being a
de facto corporation, the general rule is that
none but the state can call its existence in question. The courts
of California agree that such is the rule.
People v. Montecito
Water Co., 97 Cal. 276;
Quint v. Hoffman, 103
Page 185 U. S. 15
Cal. 506,
supra; see also Cooley on Constitutional
Limitations, 4th ed., p. 312;
Swartwout v. Michigan Air Line
Railroad, 24 Mich. 389, 393. The rule as stated by Cooley is
as follows:
"In proceedings where the question whether a corporation exists
or not arises collaterally, the courts will not permit its
corporate character to be questioned if it appear to be acting
under color of law, and recognized by the state as such. . . . And
the rule, we apprehend, would be no different if the Constitution
itself prescribed the manner of incorporation. Even in such a case,
proof that the corporation was acting as such under legislative
action would be sufficient evidence of right, except as against the
state, and private parties could not enter upon any question of
regularity. And the state itself may justly be precluded on the
principle of estoppel from raising such an objection where there
has been long acquiescence and recognition."
It was held in
Shapleigh v. San Angelo, 167 U.
S. 646,
supra, that none but the state could
impeach the validity of the creation of a municipal organization,
and that, if it acquiesced therein, the corporate existence could
not be collaterally attacked. The Court, through MR. JUSTICE
SHIRAS, said:
"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. "
Page 185 U. S. 16
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.,
supra, also the cases
of
Reclamation District v. Burger, 122 Cal. 442, and
Fallbrook Irrigation District v. Bradley, 164 U.
S. 112,
164 U. S. 170,
are cited to show the illegality of an organization without notice.
On the other hand,
Reclamation District v. Gray, 95 Cal.
601, 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 District v. Silver, 98 Cal. 51, 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 Irrigation District v. Bradley,
164 U.S.,
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
Page 185 U. S. 17
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 Company v. Mayor, &c.,
104 N.Y. 1, 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 divest 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
Page 185 U. S. 18
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 (section 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
Page 185 U. S. 19
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 follows:
"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
Page 185 U. S. 20
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;
Venice v. Murdock, 92 U. S.
494.
In
Bissell v.
Jeffersonville, 24 How. 287, 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
installments 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
65 U. S.
296):
"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
Page 185 U. S. 21
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.
65 U. S.
299):
"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, 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,
Page 185 U. S. 22
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, 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
113 U. S. 238,
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
Page 185 U. S. 23
provision of section 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,
92 U. S. 491, 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
Page 185 U. S. 24
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,
111 U. S.
93-94."
In
Andes v. Ely, 158 U. S. 312, 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
158 U. S. 324, 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 & Trust Company v. Mercer County,
170 U. S. 593,
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
Waite v. Santa Cruz, 184 U.
S. 302, 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, 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
Page 185 U. S. 25
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
65 U. S.
299:
"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
Page 185 U. S. 26
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 on Corporations, 4th ed., sec. 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.
