tural or horticultural purpose; for the reorganization of the wards of the cities and for elections therein. It appeared from the census of 1885 that only the city of Des Moines was affected by the act of 1890, and that in the added territory were one city and seven incorporated towns. The provisions of the act by which the municipal governments, other than the city of Des Moines, were to become extinct, and the entire territory to become one corporation and municipality were observed, so that in April, 1890, the change was complete, since which time the city of Des Moines has been thus constituted and has exercised throughout the territory the rights and functions of a city government, including the levy and collection of taxes, establishing, opening, vacating, changing, and improving streets, the making of contracts, and the creating and payment of debts. plate the situation to result from a judgment[174] The court then cited several cases in which the doctrine of laches had been applied to sustain a municipal government where the organization, as attempted, was illegal. See State v. Leatherman, 38 Ark. 81; Jameson v. People, 16 Ill. 257 [63 Am. Dec. 304]; People v. Maynard, 15 Mich. 463; and also the following from Cooley on Constitutional Limitations (page 312, 4th ed.): These details, while appearing in the re 173]port in 96 Iowa, are not set up in the complainant's bill, but their substance is shown in the allegations therein made, that the town has ceased to exercise all the functions of government and taxation, and the city of Des Moines and the board of public works are themselves exercising the functions of government over the town territory. After the court in the quo warranto case had determined that the act was local legislation, and of that class prohibited by the Constitution, and therefore void, the opinion therein continues as follows: "In proceedings where the question of whether a corporation exists or not arises collaterally, the courts will not permit its corporate character to be questioned, if it appears 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 any question of regularity. And the state itself may justly be precluded on principles of estoppel, from raising any such objection, where there has been long acquiescence and recognition." Continuing with its own opinion, the court stated: "It is next to be determined whether or not, with the law giving rise to the annexation absolutely void, the legality of the present city organization can be sustained under the rule of estoppel or laches. On this branch of the case a large number of authorities have been cited, and the newness of the "This, it is true, is a direct proceeding by question, as well as the great interests in- the state. And, while the language used is volved, make it one of great importance. The applied in part to collateral proceedings, it foundation for the application of the doctrine seems also to include actions by the state of estoppel is the consequence to result from directly. The learned writer sustains this a judgment denying to the city of Des Moines text by a reference to People v. Maynard, municipal authority over the territory ansupra, Rumsey v. People, 19 N. Y. 41, and nexed, after the lapse of four years, during Lanning v. Carpenter, 20 N. Y. 447. It will which time such authority has been exer- be seen that importance is given to the fact eised, and the changed conditions involving that the defective organization takes place extensive public and private interests. It under color of law. Nothing less can be will be remembered that the act of annexa- said of the annexation in this case than that tion resulted in the abandonment of eight it was made under color of law. 'Color of[175] municipal governments, which before the an- law' does not mean actual law. 'Color,' as nexation were independent, and bringing a modifier, in legal parlance, means 'appearthem under the single government of the city of Des Moines. This involved a vacation of ance as distinguished from reality.' Color all offices in the city and towns annexed, and of law means 'mere semblance of legal right.' the delivery of all public records and proper- the cases the defects as to organization have (Kin. Law Dict. & Gloss). In some of ty to the officers chosen for the city so enlarged. For four years taxes have been lev- been spoken of as irregularities, because of ied, collected, and expended under the new which appellant thinks the cases not appliconditions; public improvements have been cable, because this is a void proceeding. The made, including some miles of street curb- term 'irregularity' is oftener applied to ing, paving, and sewerage, for which certifi- forms or rules of procedure in practice than cates and warrants have been issued, and to a nonobservance of the law in other ways, contracts are now outstanding for such im- but it has application to both. It is defined provements. In brief, with the statement as a 'violation or nonobservance of estab that for the four years the entire machinery lished rules and practices.' The annexation of city government has been in operation, in question was a legal right under the law, the situation may be better imagined than independent of the act held void. It was not expressed. It is hardly possible to contem- a void thing, as if prohibited by law. The MCCAIN V. DES MOINES. was void because, among other things, it was It is therefore quite plain that the com- way any The case is, however, made still stronger by the fact that the validity of the present organization of the city government and the lawfulness of its exercise of jurisdiction over the territory mentioned has been already decided by the state court, and had been so decided when this suit was commenced. It is not important upon what ground the state court proceeded in arriving at its judgment, whether it was because the act of 1890 was valid, or, that being invalid, the lawfulness of the organization could not be inquired into for the reasons stated in the opinion of the court above quoted. The complainants however argue that the state supreme court in the quo warranto case did not decide upon the validity of the city organization, but only that the relator, being a nonresident of the city and paying taxes in a town in the nominal sum of a dollar a year, would not be heard upon a question which might disturb the peaceful relations that existed in the territory, and which might also overturn the municipal authority of the city of Des Moines therein. Counsel allege that these complainants do not attempt to test the corporate existence of the city of Des[178] Moines, but simply to test the right of that corporation to levy taxes for certain purposes upon the property of the complainants. The claim of the complainants is based solely and wholly upon the allegation that the act of 1890 was void as in violation of the Constitution of Iowa. Their counsel lay that down in so many words in their brief. They say that their claim is "that under a law declared to be void and unconstitutional by the supreme court of the state of Iowa, the city of Des Moines is still exercising municipal control and jurisdiction over the complainants' property." There is an alle gation in the bill that the land of the town was agricultural, but it is not asserted that the act was a violation of the Federal Constitution because it included such lands. No such question is made by the bill. In their brief counsel urge that the act in the territory mentioned. is clearly an er The last assertion, so far as concerns the testing of the corporate existence of the city 939 1898. most that can be said is that the proceeding for annexation was not the one prescribed, but it was a violation or nonobservance of that rule or law. It seems to us that the proceeding is no less an irregularity than in the cases cited." And again on page 536, in speaking of the invalidity of the act of 1890, the court said: "Had the act never been passed, and the same method for annexation been adopted, with the same conditions as to recognition, acquiescence, delays, and public and private interests involved, the same conclusion would result; and hence the act is without the least significance, nor have we given it a shadow of bearing, except in so far as it may have served as a color of law inducing the proceedings for annexation." And lastly, in speaking of the consequences to be apprehended from a judgment of ouster, the learned court said: "Such a judgment would disrupt the present peaceful and satisfactory arrangement of all the people of the city, as to its corporate existence without a benefit, so far as we know, to any person. The law does not demand such a sacrifice for merely technical In fact, the constitutional vindication is complete with the declaration that the act is absolutely void." reasons. It will thus be seen that while the supreme court of Iowa decided that the act purporting to extend the limits of the city was void as being in violation of the constitutional [476]provision *in regard to special and local legislation, yet the court also held for the reasons stated that it was sufficient in itself to constitute, under the circumstances mentioned, a color of law for the annexation, and for the application of the principles of estoppel as above mentioned. The legality of the present city organization was for those It is the same organizareasons sustained. tion that the complainants now ask to have enjoined in this suit from exercising any function of government in the annexed district, and the former organization in the annexed district, which the complainants allege has ceased to exercise those functions, they now ask the court in this suit to enjoin it "to exercise for its own future benefits under the statutes of Iowa." To grant the relief demanded would quite effectually overrule the decision of the state court upon a question relating purely to the local law of the state. ! ror, because the bill asks relief in the way of a perpetual injunction to restrain the city of Des Moines, its officers and agents, from the exercise of any function of municipal government or authority or jurisdiction for the purpose of taxation or for works of internal improvement in the town of Greenwood Park, and it asks that the city officers be perpetually restrained from interfering with the officers of the town or from obstructing them in the administration of the municipal affairs of the town; and that the town "be authorized and enjoined to exercise for its own future benefits under the statutes of the state of Iowa all functions of municipal government, taxation, and works of internal improvement, in the same manner and to the same extent as the said functions have been exercised by defendant prior to the 3d day of March, 1890." This prayer for relief seeks to test pretty substantially the corporate existence of the city of Des Monies in the territory in question. It does, of course, also seek to test the right of the corporation to levy taxes for the purposes named in the bill and upon the property of the complainants; but the right to levy these taxes depends entirely upon the legality of the city organization, so that if the organization is not lawful, the taxation is equally invalid. as the necessary result of holding that the city government did not extend over the territory mentioned. For these public considerations the court refused to permit the inquiry to be made, even by the state, into the validity of the municipal government of the city as enlarged under color of the act of 1890. That no collateral inquiry would be permitted the opinion takes as unquestionably plain. For the purpose probably of meeting the argument arising from acquiescence, as set forth in the quo warranto case, the complainants allege in the bill herein that they and the citizens of Greenwood Park have not assented to or acquiesced in or agreed to the acts of the city of Des Moines, and that jurisdiction has been exercised over them without their consent, and without permitting the citizens by election or otherwise to de termine whether the pretended acts of annexation should be operative or not. These allegations would seem to refer to the state of mind which the complainants and citizens were in during these many years, and the allegation of an absence of acquiescence would[180] also seem to have been founded upon the fact that there had been no election by which to determine whether the act should be accepted or not. Neither fact alters the effect to be properly given the opinion in the case mentioned, in the face of the facts actually existing. From the time of the passage of the annexation act up to the commencement of the suit, a period of seven years, there is no allegation of any act on the part of the complainants or any other citizen in the way of an attempt to test the validity of this legislation with the exception of the suit brought by the state upon the relation of a nonresident property owner who paid taxes in the amount of one dollar a year. Otherwise than as above stated there is no allegation tending to show dissatisfaction with the legislation prior to September, 1897, when the brick company defendant entered upon the work which led to the assessment in dispute in this suit. During these years the city authorities have, as the bill alleges, performed all the functions of government in the territory, and taxes have been imposed and collected (presumably from complainants among others), improvements commenced and continued, interest on bonds paid. and no action taken by anyone to prevent these measures or to test their validity. What may have been the secret thoughts of the complainants or other citizens during all this time must be matter wholly immaterial, so long as there was such acquiescence on the part of the public authorities as has been stated in the opinion of the court in the quo warranto case and such as substantially appears by the allegations of the bill in this suit. The particular allegations of nonacquiescence by the complainants do not detract from the strength of the principles laid down by the state court, nor do they in any degree affect the full applicability of those principles to the facts set up in the bill in this suit. The action of the state against the city of Des Moines has been the only thing done towards making any attempt to The commencement of this suit is plainly an attempt to overturn the decision of the state court in the quo warranto case. In our opinion the complainants take much too narrow a view of the decision of the state court in that case. The facts of the nonresidence of the relator and the smallness of his interest were spoken of, but they formed only an insignificant part of other and more important facts upon which the reasoning of the court was based. Those other facts were of a public nature, and the court, in its opinion, gave great weight to the public interests that were involved and the great injury that would fall upon all public as well as pri[179]vate interests by overturning an authority that had lasted four years, and which had been initiated under color and by reason of an act of the legislature. The court in truth decided that the legality of the city organization could not be inquired into, even in a direct proceeding brought by the state to test the validity of the act, or, in other words, the validity must be sustained for the following, among other, stated reasons: The lapse of time; the actions of the authorities of both city and town in taking and yielding possession and jurisdiction; the delivery of all public records and the closing of all public offices by the officers in all the abandoned municipal governments; the levying, collection, and expenditure of taxes; the public improvements made after the passage of the act; the bonds that had been recalled by the city and others issued in their place; the general recognition of the validity of the municipal government by all classes of the community; the color of law under which the organization of the city government had been practically effected in the territory; and the inextricable confusion into which the whole affairs of the city and town would be thrown 4. Upon affirmance of a decree from which a receiver has appealed, he should pay the costs of the appellate proceedings, notwithstanding error of an intermediate court in dismissing the appeal instead of affirming it. test the question of the validity of the leg. islation prior to the commencement of this suit. In this suit we are bound to take the law of Iowa as it has been decided to be in the quo warranto case. In that case it has been deliberately decided that the validity [181]of the organization of the municipal government in the whole territory in which it has been in practical operation for so long a time cannot be the subject of judicial inquiry by Submitted January 25, 1899. Decided May anyone at this late day. Such being the law of Iowa, we are of opinion that an allegation in the bill that this is a controversy and a suit of a civil nature arising under the Constitution and laws of the United States [No. 211.] 1, 1899. is not supported by the facts appearing in the bill. The facts alleged must show the nature of the suit, and it must plainly appear that it arises under the Constitution or laws of the United States; that is, there must be a real and substantial dispute as to the effect or construction of the Constitution or of some law of the United States, upon the determination of which the recovery depends. Shreveport v. Cole, 129 U. S. 36 [32: 589]; New Orleans v. Benjamin, 153 U. 8. 411 [38: 764]. Taking the law of Iowa to be as decided in the case mentioned, it appears that the validity of the city government has been sustained by the state court, and in that event there is not a shadow of a Federal question in this suit, for if the city government be valid, the regularity and validity of the proposed assessment necessarily follow, and there cannot be even a pretense that the collection of the assessment would be without due process of law. proper judgment in such case is an affirm ance. A dismissal of an appeal when the appel- and was entitled to hearing, cannot be justi- WRIT OF CERTIORARI to the United for Seventh Circuit to review a decree of that court dismissing the appeal of C. H. BosSt. Louis Railway Company, in an intervenworth, Receiver of the Chicago, Peoria, & ing petition filed by the Terminal Railroad Association, for labor performed and material furnished for the said railway company in an action brought by the Mercantile Trust Company against said railway company for the foreclosure of a mortgage and the appointment of a receiver. Decree modi fied; and as modified, affirmed. See same case below, 53 U. S. App. 302. Statement by Mr. Justice Brewer: The facts in this case are briefly these: On September 21, 1893, the Mercantile Trust Company, of New York, filed its bill of complaint in the circuit court of the United States for the southern district of Illinois against the Chicago, Peoria, & St. Louis Railway Company, praying foreclosure of a mortgage and the appointment of a receiver. On the same day an order was entered appointing the present appellant receiver of that road. Among other things the order of appointment *directed the receiver to pay "all[183] claims for materials and supplies which have been incurred in the operation and maintenance of said property during the six months last past, and all ticket trackage traffic balances due from said railroad." The plaintiff, the Mercantile Trust Company, objected to this part of the order, but after argument the objection was overruled. On May 27, 1895, the Terminal Railroad Association of St. Louis filed an intervening petition, claiming that it had performed labor and furnished materials for the defendant railroad company within the six months named in the order of appointment. The receiver answered, denying the claim. The matter was referred to a master, who found in favor of the petitioner, and on July 30, 1896, the following decree was entered: "It is therefore ordered, adjudged, and decreed by the court that the receiver herein pay to the intervener, the Terminal Railroad Association of St. Louis, the said sum of eight thousand one hundred and sixty-two dollars and eleven cents ($8,162.11) out of the income of said receivership, if any such income is in his hands, and in case he has not the funds in hand for this purpose, it is ordered, adjudged, and decreed that the same be paid out of the proceeds of the sale of the mortgaged premises in preference to the mortgage debt, and until paid the same is 183-186 hereby declared a lien upon the said mortgaged estate superior to the lien of the mortgage herein." SUPREME COURT OF THE UNITED STATES. The receiver appealed from this decree to the court of appeals, but on June 8, 1897, that court dismissed the appeal. 53 U. S. App. 302. Thereafter a certiorari was issued, and under that writ the case was brought to this court. Messrs. Bluford Wilson and Philip Barton Warren for petitioner. Messrs. J. E. McKeighan, Shepard Barclay, Millard F. Watts, and Samuel P. Wheeler for respondent. [463] *Mr. Justice Brewer delivered the opinion of the court: [184] *Upon the record as it was filed in the court of appeals, and independently of other considerations, its decision was manifestly erroneous. A claim was presented against the estate in the hands of the receiver, which he disputed. A part of his contention, as appears from the exceptions, was, specifically, that the debt, whatever its amount, was due from the Jacksonville Southeastern line and not from the mortgagor, the Chicago, Peoria, & St. Louis Railway Company. After reference to a master, and his report stating the facts, an order was entered directing the receiver to pay the claim. The reference, the findings, the report of the master, the exceptions of the receiver, were all set forth. So that in the record, as it came to the court of appeals, there was a denial on the part of the receiver of any liability of the estate in his possession to the petitioner, and a decree adversely thereto. That alleged liability he was the proper person to contest, and to contest both in the court which had appointed him receiver, and on appeal in the appellate court. But the court of appeals, in its opinion directing the dismissal, makes this statement of facts: "The contention of the receiver is thus stated in the brief of his counsel: "The question thus presented to this court for determination is one as to the displacement of vested contract liens by unsecured creditors. There is no controversy as to the labor having been performed or the materials furnished within the six months next prior to the appointment of the receiver of the insolvent corporation, nor as to the value of the same. The only controversy is as to whether or not the appellee is entitled on its petition and proof made thereunder to have the vested lien of the mortgagee displaced to the extent of his claim.' He insists that the provision in the decree appointing a receiver providing for the payment of certain claims as preferential created no vested right, and that within our ruling in Mather Humane Stock Transportation Company v. Anderson, 46 U. S. App. 138, the decree in that regard was interlocutory and is not controlling of the subsequent action of the court; and that, within the doctrine declared in Turner v. The Indianapolis, Bloomington, & Western Rail[185]way Company, 8 Biss. 315;*Fosdick v. Schall, 99 U. S. 235 [25: 339]; Union Trust Company v. Souther, 107 U. S. 591 [27: 488]; 942 OCT. TERM, Burnham v. Bowen, 111 U. S. 776 [28: 590]; Union Trust Company v. Illinois Midland Railway Company, 117 U. S. 434 [29: 963]; Wood v. Guarantee Trust & Safe Deposit Company, 128 U. S. 416 [32: 472]; Kneeland v. American Loan & Trust Company, 138 U. S. 509 [34: 1052]; Thomas v. Western Car Com pany, 149 U. S. 111[37: 669]; Farmers' Loan & Trust Company v. Green Bay, W. & St. P. Railway Company, 45 Fed. Rep. 664, before a claim can be deemed to be preferential to the mortgage debt there must be first established a diversion of income from the payment of operating expenses to the payment of interest, and that, failing diversion, there can be no restoration. The broad ground is taken that a court of equity, assuming at the request of a trustee the operation of a railway, has not the right to provide for the payment out of the income or the corpus of the road, of operating expenses incurred within a limited time prior to the suit, unless there has been diversion of income, and then only to the extent of such diversion." And again: "The record here is not complete. There has been brought to this court only so much of the record as is thought to bear upon the particular question which the receiver desired to present. It was, however, conceded at the argument that prior to the decree appealed from the railway had been sold under decree of sale, and had passed out of the possession of the receiver and into the possession of the purchaser, and that the receiver had not in hand any moneys with which to pay the debt adjudged.' 99 Even with the change made in the condition of the case by these admissions, we are of opinion that the proper entry should have been an affirmance of the decree rather than a dismissal. A dismissal implies that the receiver had no right to appeal; whereas we are of opinion that he was the proper party to take such appeal, was entitled to a hearing in the court of appeals, and also bound the estate in his possession as receiver by any admission of facts. Such admission in this case went so far as to relieve the appellate court from any necessity of inquiry as[186] to the merits of the claim, but it was made after the case had been taken to the appellate court, and did not affect the rightfulness of the appeal. It becomes important to consider what are the rights and duties of a receiver in respect to claims made against the estate in his possession. It is often said that he is merely the hand of the court which has appointed him; and for certain purposes that is not an inapt expression. He is charged with the duty of carrying into execution the orders of that court, but he is also a custodian of property, and has by virtue of such custody certain obligations to the parties owning or interested therein. First. A receiver may defend, both in the court appointing him and by appeal, the estate in his possession against all claims which are antagonistic to the rights of both parties to the suit. For instance, he may thus contest a claim for taxes, because if valid they are superior to the rights of both parties; in |
