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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, chang. ing, and improving streets, the making of contracts, and the creating and payment of debts.

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:

plate the situation to result from a judgment[174]
dissolving the present city organization, and
leaving the territory formerly embraced
within corporate lines as it would be left.
Of all the cases to which we are cited, involv.
ing the validity of municipal organizations,
where the consequences to result from a
judgment of avoidance are considered, not
one presents a case of such uncertainty, nor
where there are the same grounds for seri-
ous apprehension, because of difficulties in
adjusting rights in this case."

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 Árk. 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.):

"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 an- supra, 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 cised, 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

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 pro-
ceedings for annexation."

And lastly, in speaking of the consequences to be apprehended from a judgment of oust er, 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 reasons. In fact, the constitutional vindication is complete with the declaration that the act is absolutely void."

was void because, among other things, it was
a violation of the Constitution of Iowa in
bringing agricultural lands, under the cir-
cumstances and to the extent mentioned,
into the control and limits of the city. The
act itself in the third section exempts such
lanas from taxation for any city purpose,
when they shall in good faith be occupied
and used for agricultural or horticultural
purposes.

It is therefore quite plain that the com-
plainants base their case upon the allegation
that their property is about to be taken from[177]
them by the city authorities without due
process of law and in violation of the Con-
stitution of the United States, because the
act of 1890 violates the Constitution of Iowa.
That is a question of law, depending for its
solution upon the law of Iowa, and as to
what that law is the Federal courts are
bound in such a case as this by the decision
of the state tribunal. There is no construc-
tion of the Federal Constitution involved in
that inquiry, nor any question as to its ef-
fect upon the complainants' rights in this
suit. The question whether their property
is taken without due process of law must be
decided with sole reference to the law of
Iowa. How can it be said upon such facts
that any question arises under the Con-
stitution or laws of the United States?
The claim of the complainants will not be
defeated by one construction of that clause
in the Constitution or sanctioned by the
other. Starin v. New York, 115 U. S. 248
[29: 388]. There is no dispute about con-
struction in any way whatever; the
only question is as to the validity of the city
organization, which, as stated, is a matter of
state law.

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 case is, however, made still stronger the present city organization was for those by the fact that the validity of the present reasons sustained. It is the same organiza-organization of the city government and the 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.

lawfulness of its exercise of jurisdiction over
the territory mentioned has been already de-
cided 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 in-
to 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 dis-
turb the peaceful relations that existed in
the territory, and which might also over-
turn 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 pur-
poses 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 mu-
nicipal 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 Con-
stitution because it included such lands. The last assertion, so far as concerns the
No such question is made by the bill.
testing of the corporate existence of the city
In their brief counsel urge that the act in the territory mentioned. is clearly an er-

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 The commencement of this suit is plainly mentioned, in the face of the facts actually an attempt to overturn the decision of the existing. From the time of the passage of state court in the quo warranto case. In the annexation act up to the commencement our opinion the complainants take much too of the suit, a period of seven years, there narrow a view of the decision of the state is no allegation of any act on the part of the court in that case. The facts of the non- complainants or any other citizen in the way residence of the relator and the smallness of of an attempt to test the validity of this his interest were spoken of, but they formed legislation with the exception of the suit only an insignificant part of other and more brought by the state upon the relation of important facts upon which the reasoning of a nonresident property owner who paid taxes the court was based. Those other facts were in the amount of one dollar a year. Otherof a public nature, and the court, in its opin-wise than as above stated there is no allegaion, 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

tion 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

4.

proper judgment in such case is an affirm

ance.

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 legislation 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 1]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

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.

The allegation that the suit arises under the Constitution of the United States is so palpably unfounded that it constitutes not even a color for the jurisdiction of the Circuit Court. That court was therefore right in dismissing the bill, and its decree must be affirmed.

2]C. H. BOSWORTH, Receiver of the Chicago, Peoria, & St. Louis Railway Company,

Petitioner.

TERMINAL

v.

RAILROAD ASSOCIATION OF ST. LOUIS (Intervening Petitioner).

(See S. C. Reporter's ed. 182-190.)

When receiver may appeal-power of receiver to defend claim-costs on affirmance.

[No. 211.]

1, 1899.

States Circuit Court of Appeals for the N WRIT OF CERTIORARI to the United 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 modified; 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:

1. Where on foreclosure of a mortgage, the receiver of the property is decreed to pay the "It is therefore ordered, adjudged, and declaim of an intervener, the receiver may ap- creed by the court that the receiver herein peal, although, prior to the decree, the prop-pay to the intervener, the Terminal Railroad erty had been sold, under decree of sale, and had passed out of his possession. 2. A receiver is the proper party to defend the estate against the claims of an intervener, and can bind the estate in his possession by admission of facts.

♣ A dismissal of an appeal when the appellant was the proper party to take the appeal,

and was entitled to hearing, cannot be justifled by his admission on the appeal as to the merits of the case against him, but the

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

hereby declared a lien upon the said mort- |
gaged estate superior to the lien of the mort-
gage herein."

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 is-
sued, 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 Sam-
mel P. Wheeler for respondent.

[463] *Mr. Justice Brewer delivered the opin-
ion of the court:
[184] *Upon the record as it was filed in the court
of appeals, and independently of other con-
siderations, its decision was manifestly er-
roneous. A claim was presented against the
estate in the hands of the receiver, which he
disputed. A part of his contention, as ap-
pears 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 ref-
erence to a master, and his report stating the
facts, an order was entered directing the re-
ceiver to pay the claim. The reference, the
findings, the report of the master, the excep-
tions 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 con-
test both in the court which had appointed
him receiver, and on appeal in the appellate
court. But the court of appeals, in its opin-
ion directing the dismissal, makes this state
ment 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

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 Company, 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.'

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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

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