Branch v. City of Sour Lake

ESTES, District Judge (after stating the facts as above). I am of the opinion that the original judgment rendered herein is correct, and that tho motion for a rehearing should be overruled. Out of deference to the zeal and ability with which counsel have urged the motion, I shall briefly outline my reasons for overruling it: On the Question of Jurisdiction. The suit is brought by a citizen of Kansas against the city of Sour Lake, alleged to be a municipal corporation created under the laws of this state, and against various individuals as defendants. These individuals are designated as the mayor and aldermen of the city and are all citizens of Texas. The petition discloses that the attempt to incorporate the city has been held to be ineffectual; but it shows that, at the time the instruments sued on herein were executed, the city was, and in so far as its status is fixed by legislation enacted since its dissolution still is, a de fado corporation. The fact that the attempt to incorporate was ineffectual would not constitute a defense in a suit based on obligations incurred by the municipality prior to its dissolution. The state, having permitted the incorporation and having thus established the status of the city as a de facto concern, could not, by a dissolution brought about through its own initiative, impair obligations that were created during the time it was permitted to be a going concern. Shapleigh v. City of San Angelo, 167 U. S. 646, 17 S. Ct. 957, 42 L. Ed. 310. There is, then, in the event of a default in payment, a cause of action or right existing in the holder of warrants issued under such conditions. “When the bonds in question were issued and became the property of the plaintiff, he was entitled, not merely to the contract of payment expressed in the bonds, but to the remedies implied by existing law.” The procedure which the plaintiff Invokes is based on legislation that sets up a corporation, dissolved as this one was, as a de facto institution for purposes of suit. I think the Supreme Court, in the case of Tulare Irrigation Co. v. Shepard, 185 U. S. 1, 22 S. Ct. 531, 46 L. Ed. 773, has settled the proposition that such a corporation comes within the category of a citizen of this state, within the meaning of the statute outlining the jurisdiction of this court. To the same effect is the more recent ease of Scott County v. Thresher Co. (C. C. A.) 288 F. 739, 36 A. L. R. 937. If there is no corporation to sue, then the residence of the individual defendants, who were parties to the suit as representatives, would establish jurisdiction. 1 Poster, Federal Practice, p. 152. On the Question of Estoppel. I am by no means sure, under the evidence here, that the defenses respecting the validity of the warrants are good. International Harvester Co. v. Searcy County, 136 Ark. 209, 206 S. W. 312; Hitchcock v. Galveston, 96 U. S. 350, 24 L. Ed. 659; City of Tyler v. Jester, 97 Tex. 360, 78 S. W. 1058. But, regardless of that, if there were in fact irregularities, they are such that the plaintiff can, I think, successfully plead that the defendants are estopped to urge. The warrants were issued for the purpose of offering them for sale to the public, and with knowledge that they would be transferred from timo to time. They were issued by a council clothed with authority to issue such instruments. Before they were sold to any one, the requisite tax to liquidate them was provided, and the record attesting their validity was made. There was no fraud or conspiracy, as in the Slayton Case (D. C.) 283 F. 330, or lack of authority, as in the Watson Case,, 97 F. 450, 38 C. C. A. 264. The proceeds from the sale of the warrants were received by the rnunie [974] ipality and applied to public use, and the plaintiff,' the present owner of the warrants, bought them in good faith after reasonable investigation. These facts, it seems to me, estop the defendants from pleading the irregularities connected with the transaction. The authorities on this point are collated, and the principles that are' applied in the decisions are set forth, in the case of Scott County v. Thresher Co., cited above. On the Constitutionality of the Statute of ■ • 1923. I do not think that the act in question creates or .affects property rights. It is a general statute, and purports to be and is merely a method of enforcing existing and future obligations of the character it mentions. Without the statute, this court perhaps would not have the authority to designate the aldermen or other parties to levy the taxes and enforce the collection of the judgment.rendered herein. Thompson v. Allen, 115 U. S. 550, 6 S. Ct. 140, 29 L. Ed. 472. By its enactment, however, the Legislature has set up machinery by which obligations of this character may be enforced. Supervisors of Lee County v. Rogers, 7 Wall. 175, 19 L. Ed. 162; Campbellsville Lumber Co. v. Hubbert, 112 F. 718, 50 C. C. A. 435. The statute reflects the will of the state respecting such situations, just as the reincorporation of a city reflects the will of the state for the new concern to assume the obligations of the defunct one. Shapleigh v. San Angelo, supra. It is ordered that the motion for a rehearing be and the same hereby is overruled.