CITY OF LAMPASAS v. TALCOTT, 94 F. 457

SHELBY, Circuit Judge (after stating the facts as above). The city of Lampasas was made a municipal corporation by special act of the legislature on April 18, 1873. Until 1876 the corporation remained organized under this special act. The city officers then resigned, and the administration of the town’s affairs by officers was abandoned. In February, 1883, the population of the town having increased, an effort was made to form a new municipal corporation. The procedure was under statutes intended to apply to towns that had never been incorporated.

The citizens of Lam-pasas were acting on the mistaken presumption that they had effectually abandoned and annulled the incorporation of the town under the special act. The town, as last organized, embraced substantially all of the territory covered by the special act, and also other lands so as to include a railroad depot. Each organization provided for the government of the town by a city council, and the usual officers were provided by each. The office of treasurer was not provided for by the special act.

The last organization continued in practical force from February, 1883, to January 31, 1890, when the supreme court of Texas sustained quo warranto proceedings, and removed the city officers holding under an election had under the organization of 1883. The supreme court held that the effort to incorporate the town under the general laws was ineffectual, and that the mode adopted was only applicable to unincorporated towns. The effect of the court’s opinion was to show that the special act of 1873 continued in force. Largen v. State, 76 Tex. 323, 13 S. W. 161.

After the opinion of the supreme court was rendered, an election was held under the special charter of 1873, and soon thereafter the city regularly accepted the provisions of the general laws of the state relative to municipal corporations, as stated in the findings of the circuit court. By the charter of 1873 the mayor and aldermen were granted power to “construct waterworks” and to “issue bonds for public improvements.” The bonds were issued, and used to secure the erection of the water works.

The works are shown to be worth not less than from $25,-000 to $26,000, without estimating profits made by the contractor. The bonds were used to pay for the waterworks. In the absence of proof to the contrary, they are presumed to have passed into the possession of the plaintiff before maturity, for a valuable consideration, and without notice of any objection to which they were liable. City of San Antonio v. Mehaffy, 96 U. S. 314. If it be true that the corporation had authority under any circumstances to issue the securities, the bona fide holder has a right to presume they were legally issued. Id.

The dominant question in this case is, had the corporation, at the date of these bonds, the right to issue them? In one aspect a municipal corporation is an agency of the state government to perform certain functions. It is brought into existence by the state, and can only be annulled by the creative power, or pursuant to laws regularly made. Its existence cannot be collaterally attacked. As a party to a contract, it must be looked on as an individual, or as a private corporation, for its contracts are equally Tinder the protection of law.

The prohibition against their impairment is as effective as in the case of the contracts of individuals. It is protected, even against execution, in the ownership of property necessary to the exercise of its public functions. It holds for taxation the real estate within its limits and the personal property of its residents. These are its resources for discharging its debts. The people living in it are the units of which the corporation is composed. The people and the property are the whole debt-paying elements of a municipal corporation. The organization is the mere shell that holds it in shape.

The kernel is composed of the people and the property. Looking practically at the substance, rather than at the form, the courts have uniformly held that no change of name or of organization will enable a municipal corporation to avoid the payment of its debts. Whatever tin; name may be, whatever the officers may be called, the new organization would be the successor of the old, would be composed of the same, or nearly the same, units, would embrace the same territory, holding the same, or nearly the same, subjects of taxation, and would in fact be tin' successor of the first organization.

As the second government succeeds to the rights of the first, it is also subject to its liabilities. Shapleigh v. City of San Angelo, 167 U. S. 646, 17 Sup. Ct. 957; Laird v. City of De Soto, 22 Fed. 422. In the case at bar the legal charter under the special act was laid aside. One illegal, but having all the appearances of legality, was formed. It named the necessary officers, elected them, and performed all the functions of a municipal corporation for a period of nearly seven years. The state, during this period, did not challenge its exercise of power.

It issues $40,000 of bonds, and obtains the benefit of their sale. Then, by judgment of the court, the officers are removed as officers of the new organization, and others elected under the first charter. Can it be held that the city, composed of the same people, including the same resources for revenue, is now absolved of all liability upon the bonds?

Can a city, under an illegal and irregular change of limits, preserving the same name, obtain credit for public improvements, and, when the irregular charter is vacated, return to the use of the first, which has all along been in force, and then stand freed of the debt? The people and property now sought to be charged were all, or nearly all, included and represented in the irregular corporation which issued the bonds. They get the benefit of the bonds. The facts show that the city and citizens were acting in good faith. The bonds were issued with public approval, and without objection.

The improvements were accepted, and it was intended that the bonds should be paid. If it bad been otherwise, if the irregular organization had been assumed in order to obtain credit, and abandoned to avoid payment, could such a scheme receive judicial sanction? This would not be permitted. It would open wide an avenue for fraud and imposition.

If it is plain that such a plan, no matter how ingeniously executed, would not be permitted to succeed, it must be equally clear that, when the citizens and acting officers of the irregular corporation acted in good faith, and believed their action to be regular and valid, sucb irregularity will not be permitted to work injustice. The officers representing the city in the issuance of the bonds believed that they were clothed with authority by the procedure of 1883. In this they were mistaken. The charter of 1873 was still in existence. It authorized the election of officers of the city.

These officers had been elected. Although they believed that they held office under the new organization, they were officers de facto of the city, actually filling places created by the special act of 1873. The special act of incorporation authorized the issuance of the bonds for public improvement. An ordinance was passed to issue them. The bonds, we hold, were not made invalid by reason of the illegal effort at incorporation made in 1883. There are other defenses suggested in argument, but it would serve no useful purpose to extend this opinion.

The whole of the findings of fact by the circuit court will appear in the statement of the case, and it is sufficient to say that we concur in the conclusion of the learned judge presiding in the circuit court that the plaintiff was entitled to judgment. The judgment of the circuit court is affirmed.