Nelson v. Consolidated Independent School Dist. of Troy Mills

• Decision Date: 25 October 1917
• Docket Number: 31203
• Citation: 164 N.W. 874,181 Iowa 424
• Parties: A. J. NELSON et al., Appellees, v. CONSOLIDATED INDEPENDENT SCHOOL DISTRICT OF TROY MILLS et al., Appellants
• Court: Iowa Supreme Court

164 N.W. 874

181 Iowa 424

A. J. NELSON et al., Appellees, v. CONSOLIDATED INDEPENDENT SCHOOL DISTRICT OF TROY MILLS et al., Appellants

No. 31203

Supreme Court of Iowa, Des Moines

October 25, 1917

Appeal from Linn District Court.--F. O. ELLISON, Judge.

THIS is a proceeding in equity to test the legality of an acting school corporation. The plaintiffs are taxpayers, and have sought their remedy by injunction. There was a decree in their favor, holding the organization of the defendant school district to be illegal and void. The defendants have appealed.

Reversed.

Ring & Hann and Treichler & Treichler, for appellants.

F. L Anderson, for appellees.

LADD J. GAYNOR, C. J., WEAVER, PRESTON and STEVENS, JJ., concur. EVANS, J., SALINGER, J., dissenting.

OPINION

LADD, J.

The defendant Consolidated Independent School District of Troy Mills was organized, if at all, under the provisions of Section 2794-a, Code Supplement, 1913. The other defendants in the case are the acting directors who were elected as such following the alleged organization. The defendants question the right of the plaintiffs to challenge by an injunction suit the legality of the defendants' existence as a corporation, and urge that quo warranto is the only remedy available for that purpose.

That quo warranto is an appropriate remedy appears from Chapter 9 of Title XXI of the Code. A complete and adequate remedy at law is there provided for testing the validity of corporate organizations, and this remedy is quite generally held to be exclusive. It was applied in State v. Independent School Dist., 29 Iowa 264. In Cochran v. McCleary, 22 Iowa 75, the right of a mayor to preside at meetings of a city council in cities of the second class was involved. The court held such right to preside, a franchise, and that the right to exercise the same might not be tested in equity; that the exclusive remedy was that of quo warranto, saying:

"In England and in the different states in this country, the law, solicitous to furnish a remedy for every invasion of legal right, has provided that of quo warranto, or an information in the nature of a quo warranto, to determine the title of an officer to his office and to determine the right of any person or corporation to exercise a public franchise."

In State v. Alexander, 129 Iowa 538, 105 N.W. 1021, quo warranto was held to be the proper remedy to test the validity of the organization of an independent school district, and it was intimated that certiorari proceedings were inappropriate, inasmuch as complaint was not of the exercise of any judicial function.

In State v. Independent School Dist., 44 Iowa 227, the action was against the district, and, though recognizing the remedy by quo warranto as appropriate, the court held that the action must be brought against the persons acting as a corporation alleged not to exist, saying that to sue it would admit that it had been organized. This conclusion is based on the language of Paragraph 3 of Section 4313 of the Code, providing that a civil action by ordinary proceedings may be brought in the name of the state "against any person acting as a corporation within the state without being authorized by law."

Though this would seem the better practice, in several states the so-called corporation is held to be a necessary party. See State v. Tracy, (Minn.) 51 N.W. 613, and cases cited. Contra, State v. Uridil, (Neb.) 55 N.W. 1072. Whether making the so-called corporation a defendant would amount to an admission of its corporate existence depends upon the allegations of the petition; for the mere inclusion of a name as a defendant could not operate as an admission against an express averment in that pleading to the contrary.

In State v. Gaston, 79 Iowa 457, 44 N.W. 706, an action in quo warranto was held to be at law, and not triable de novo. In Wallace v. Independent School Dist., 150 Iowa 711, 130 N.W. 804, as in several other cases, the suit was in equity, but the propriety of the procedure was not questioned. Here the right to challenge the organization of a corporation otherwise than by information in the nature of quo warranto was raised in the trial court and is pressed here. In no case since Cochran v. McClearly, supra, declaring this remedy exclusive, has that decision been questioned, nor has other remedy, when challenged, been held to be available.

The cases in equity in which the issue was determined are recent, relating to the organization of consolidated school districts, and furnish no sufficient foundation for the assertion that the bench and bar of this state have acquiesced in repudiating the statutes prescribing the procedure for testing the legality of corporate organizations, or ignored the universal holding that such procedure is exclusive. Acquiescence in the few equity cases in which the issue was decided finds explanation in the fact that dismissal because of error in procedure in such a case is in the nature of an abatement, and furnishes no obstacle to the institution of another action, and counsel with a good defense, as was found to exist in these cases, might well prefer to carry them to conclusions, rather than insist on dismissal and thereby merely delay the final determination of the issues raised. It should be added that acquiescence as a reason for holding that corporate existence may be tested in equity is not suggested by counsel nor in the record before us. Such suggestion originated with our disagreeing brothers, and, without challenging their veracity, we are constrained to doubt the correctness of their deductions from the facts, and to intimate that vivid imaginations have been active in assuming a condition not known to exist. Even were conditions as imagined, little inconvenience would be experienced in returning to a rational and statutory method of testing the validity of corporate organizations; for the dismissal of suits pending, if any there are, owing to error in selecting the wrong procedure, might delay but would not prevent resort to the procedure prescribed by statute.

Concession that this court may be held to have acquiesced in anything not presented to it for decision is not to be inferred from anything said. It is quite enough to say that we are quite unaware of acquiescence of bench or bar in the repudiation of the remedy through quo warranto proceedings, recognized by all courts, as well as text books, as exclusive in cases like this. In no case other than School Dist. Township of Franklin v. Wiggins, 122 Iowa 602, 98 N.W. 490, is an intimation to be found that corporate existence may be tested otherwise than by quo warranto proceedings, as exacted in Cochran v. McCleary, supra. Nor is it clear from the record in that case that the writer of the opinion intended to hold more than that a suit in equity might be maintained even though it were necessary, as a circumstance or incident in the case, that the incorporation be shown to be merely colorable, and effected secretly and fraudulently, with the wrongful purpose of attaining results not authorized by law. In such a case, the alleged organization would be but a circumstance or incident in carrying out the unlawful designs of the perpetrators of the fraud, and undoubtedly might be the subject of investigation as an emergent issue, at the instance of a private litigant. Though some of the language of the opinion is broader, the allegations of the petition are in harmony with this interpretation. This view is confirmed by a later opinion of this court, filed upon a third appeal (142 Iowa 377), where it appears that final decree was entered against defendants as directors of this independent school district, assailed on the emergent issues with reference to an accounting.

A school district is, under our statutes, a public corporation, and as all parties, in undertaking to organize the district in controversy and in selecting officers thereof, acted in good faith, the Consolidated Independent District of Troy Mills is a de facto corporation. To constitute a corporation de facto, three things are necessary: (1) Some law under which a corporation with powers assumed may lawfully have been created; (2) a colorable and bona fide attempt to perfect an organization under such a law; and (3) user of the rights claimed to have been conferred by the law,--that is, of the corporate franchise. Tulare Irrigation Dist. v. Shepard, 185 U.S. 1 (46 L.Ed. 773, 22 S.Ct. 531); Pierce v. Inhabitants of Town of Lutesville, 25 Mo.App. 317; Evens v. Anderson, (Minn.) 155 N.W. 1040.

Whether this district has the qualities of a corporation de jure is the sole issue in this case, and this can be raised by the state only. This is sometimes put on the ground that "corporate franchises are grants of sovereignty only, and if the state acquiesces in their usurpation, individuals will not be heard to complain" (Miller v. Perris Irrigation Dist., 85 F. 693 [C. C.]), but oftener upon considerations of public policy, such as the importance of stability and certainty in such matters, and the consequences likely to, or which might, follow if the existence of a municipal corporation should be called in question and perhaps denied in actions between the corporation and private parties. See State v. Honerud, 66 Minn. 32 (68 N.W. 323).

In Brennan v. City of Weatherford, 53 Tex. 330, 336, the court remarked that:

"The creation of a corporate franchise is an attribute of sovereignty to be exercised solely by the supreme power of the state. Such franchise being amenable only to the power of its creation, it follows that this power alone can question the legality of its existence, by such proceedings as in its wisdom it may adopt."

To permit the existence of public corporations to depend on private...