ERROR TO THE CIRCUIT COURT OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF CALIFORNIA
Fuller, Harlan, Gray, Brewer, Brown, Shiras, Jr., White, Peckham, McKenna
MR. JUSTICE PECKHAM, after making the foregoing statement of facts, delivered the opinion of the court.
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 Commissioners v. Bolles, 94 U.S. 104, 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 defence 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 two 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."
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 defence to bonds that were issued, no matter under what circumstances the defence 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 defence could prevail. The whole force of the defence rests, therefore, upon
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. Any one 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 any one 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, 117 California, 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
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.
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 warrantor 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 of the 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 defences 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 defences." 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.
The Supreme Court of the State has held that irrigation districts were public municipal corporations, Central Irrigation District v. De Lappe, 79 California, 351; In re Madera Irrigation District, 92 California, 296; Quint v. Hoffman, 103 California, 506, and the statute providing for their creation has been held to be one that should be liberally construed. 79 California, 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. 112-159, 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, 571; Shapleigh v. San Angelo, 167 U.S. 646, 655; see also cases decided by the Federal courts in California, Miller v. Perris Irrigation District, 85 Fed. Rep. 693, again reported in 99 Fed. Rep. 143; Herring v. Modesto Irrigation District, 95 Fed. Rep. 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. Law, 599; Snider's Son's Co. v. Troy, 91 Alabama, 224; American Salt Co. v. Heidenheimer, 80 Texas, 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 ...