Henderson v. School District No. 44
242 P. 979
Mont.
1926
Check Treatment
MR. JUSTICE MATTHEWS

delivered the opinion of the court.

On April 4, 1925, an election for the issuance of $20,000 school district bonds was held in defendant District No. 44 *159 of Fergus county, and a majority of the electors voted in favor of the issue; thereupon the defendant trustees of said district took the appropriate steps for the issuance and» sale of such bonds. Before the date of sale, however, plaintiffs, as resident taxpayers in said district, commenced an action to enjoin the sale. Issue was joined and the cause submitted to the trial court on an agreed statement of facts, and resulted in a judgment of dismissal аnd for costs in favor of the defendants. From this judgment plaintiffs have appealed.

From the agreed statement of facts it appears that School District No. 44 of Fergus county had been in existence as a legal entity for years prior to February, 1919; adjoining it there existed a small district with but nineteen children of school age, then known as School District No. 42. In February, 1919, the people residing in District No. 42, conceiving that their children would be better served in District No. 44, petitioned the county superintendent to annex their district to District No. 44. After a hearing duly noticed, the cоunty superintendent made an order of annexation, which order was filed with the county clerk of Fergus county. From this order no appeal was taken, and its validity was never questioned until this action was commenced in May, 1925.

Upon the annexation, District No. 44 assumed jurisdiction over the territоry included within the boundaries of District No. 42, and accepted the children therein into its schools as residents of the district; the board of county commissioners recognized, the annexation as valid, and levied school taxesi for District No. 44 upon all property within the enlarged district. Sсhool District No. 42 ceased to function as a district, and all of the residents within that territory, including the plaintiffs, acquiesced in the annexation, took part in school elections held in District No. 44, sent their children to its schools, and paid the taxes levied upon their property for its suрport and maintenance. In 1923 District No. 44 issued and *160 sold refunding bonds of the district, which are still outstanding.

The question presented by the appeal is: Does the present status of School District No. 44,- as shown by the agreed statement of facts, warrant the judgment of dismissal?

Section 1034, Revised Codes of 1921, existed at the time of the attempted annexation as section 407, Chapter 76, Laws of 1913. It authorized the consolidation of school districts or the annexation of one district to another, which latter thereafter continues under its old name and organization, but in order to effeсt either consolidation or annexation under this section, a petition therefor must be presented to the county superintendent of schools of the county from each of the districts to be affected, and on these petitions an election must be called and the quеstion voted upon in each district. No attempt was .made to comply with these provisions other than the presentation of a petition for annexation signed by residents of District No. 42, and the order of annexation was-clearly the result of following the provisions of sectiоn 1033, Revised Codes of 1921, then section 406, Chapter 76, above, providing for the extension of the boundaries of a school district on petition of a majority of the resident freeholders of territory which is a part of an organized district, to be made a part of such first district, on which petition the county ‍​​‌​‌‌‌‌​‌‌‌​​​​‌‌​​‌​‌​‌​‌​‌​‌​​​‌‌​‌​‌‌​‌​‌‌‌‌‍superintendent of schools is authorized, after a hearing, to make the order of inclusion.

1. A school district, organized by compliance with the laws of this state, is a public corporation. (See. 1022, Rev. Codes 1921; Finley v. School District, 51 Mont. 411, 153 Pac. 1010; State ex rel. School District v. McGraw, 74 Mont. 152, 240 Pac. 812.)

2. Public or municipal corporations have been classified, with reference to the regularity or legality of their organization, as (a) corporations de ¡jure; (b) corporations de facto; and (c) void corporations. (28 Cyc. 171.)

*161 (a) A corporation de' jure exists by reason of full eompli anee by tbe incorporators with the requirements of an existing law permitting the organization of such a corporation, and is impregnable to assault in the courts from any source. (Jameson y. People, 16 Ill. 257, 63 Am. Dec. 304; State v. Young, 3 Kan. 445; Smith v. Crutcher, 92 Ky. 586, 18 S. W. 521.)

(b) Under certain conditions, where an attempt has been made to create a corporation, which attempt falls short of the creation of a corporation de jure, the entity will, nevertheless, be recognized as a corporation de facto, and, if such is the case, the legality of the organization or existence can be questioned only by tbe state in a direct proceeding. (Dillon on Municipal Corporations, 5th ed., sec. 67; 25 Cyc. 174; Morgan v. Independent School District, 36 Idaho, 372, 211 Pac. 529; Nelson v. Consolidated School District, 181 Iowa, 424, 164 N. W. 874; Daily v. Marshall, 47 Mont. 377, 133 Pac. 681; Barnes v. Smith, 48 Mont. 309, 137 Pac. 541.) The general rule is that, in order to create a corporation de facto, therе must exist a charter or general law under which such a corporation might lawfully be organized, an attempt in good faith to ‍​​‌​‌‌‌‌​‌‌‌​​​​‌‌​​‌​‌​‌​‌​‌​‌​​​‌‌​‌​‌‌​‌​‌‌‌‌‍organize thereunder, and actual user of the corporate franchise. (1 McQuillin on Municipal Corporations, sec. 1511; 28 Cyc. 172; Coe v. City of Los Angeles, 42 Cal. App. 479, 183 Pac. 822; City of Carthage v. Burton, 51 Tex. Civ. App. 195, 111 S. W. 440; City of Salem v. Young, 142 Mo. App. 160, 125 S. W. 857; Lang v. Bayonne City, 73 N. J. L. 455, 122 Am. St. Rep. 391, 12 Ann. Cas. 961, 15 L. R. A. (n. s.) 93, 68 Atl. 90.)

(c) Where there is no law undеr which a corporation such as that attempted to be created can exist, or where there has been no attempt in good faith to organize under an existing law, it is generally held that the purported corporation is void, and the attempted exercise of corporate powers may be *162 attacked, by a private individual who will be affected thereby, in an appropriate proceeding. (Green Mt. Stock Ranching Co. v. Savage, 15 Mont. 189, 38 Pac. 940; Cleveland v. School District, 51 Okl. 69, 151 Pac. 577; Dartmouth Sav. Bank v. School District, 6 Dak. 332, 43 N. W. 822; 28 Cyc. 174, and cases cited.)

Here we have a general law under which the annexation could legally have been accomplished; an attempt, apparently in good faith, to annex District No. 42 to District No. 44, not,, however, undbr the law providing for annexation, but under an existing law permitting the extension of the boundaries of one district to take in a part of another organized district, but followed, nevertheless, by user, acquiesced in by the рublic officials, District No. 42, and all freeholders residing therein, including the plaintiffs, for more than five years.

Manifestly the action taken was irregular and was not sufficient to create a corporation de jure, nor, under the general rule stated above, was it sufficient to create a corporation de facto, and, had timely action been taken, undoubtedly residents of District No. 42 could have prevented District No. 44 from exercising dominion and control over the territory of the former. (Van Wagener v. MacFarland, 58 Cal. App. 115, 208 Pac. 345.)

The case of Green Mt. Stock Ranch Co. v. Savage, above, is relied upon by plaintiffs as supporting their contention that a resident freehоlder may attack the organization of such a corporation as the one under consideration at any time, if the second requisite given in the above definition of a de facto corporation, to-wit, an attempt in good faith to organize under the particular law providing for such organization, is lacking. There this court had under consideration the sufficiency ‍​​‌​‌‌‌‌​‌‌‌​​​​‌‌​​‌​‌​‌​‌​‌​‌​​​‌‌​‌​‌‌​‌​‌‌‌‌‍of a complaint which alleged: “That nothing whatever was ever done by the county superintendent of schools, or the board of county commissioners, or any other person, which section *163 1875 of thе Compiled Statutes of 1877 required to be done in order to organize a school district.” There appears to have been no showing as to whether the alleged school district had ever acted as such prior to the attempted levy and collection of taxes which were opposed by the plaintiff, or that any attempt under any law in existence was made to organize a school district. The court said: “If the facts stated in the complaint in relation to the organization of this district are true, then it never had any legal existence. It is a nullity. Thе organization of this district is not attacked on account of irregularities. But the facts alleged show that there never was in fact any such corporate entity. * * * In order to give a school district existence, at least something ought to be done which the law requires to be done in order that it may claim organization and assume to exercise the privileges and franchises of a corporation.” In the absence of any showing other than that of the complaint in that case, and under the rules heretofore announced, plaintiff’s contention wоuld be unassailable.

But in the case at bar there was an attempt, apparently i\ in good faith, to organize under an existing law, resulting' in an order of annexation and followed for more than five years by user, acquiesced in by the public officials, District No. 42 and all of the resident freeholders thereof, including these plaintiffs.

In the recent case of Shore v. Board of Education, 97 Okl. 273, 223 Pac. 867, wherein the facts stated are quite similar to those in the case at 'bar, and it was contended, as here, that the corporation was void by reason of failure to proceed under the proper statute, the court said: “The rule аnnounced by the decisions of our own court and of other states on this question may be said to be that if there is no law authorizing de jure corporations, a de facto corporation cannot exist, but if corporations of the nature attempted to be organized are recognized by the general system of law of the state, or *164 if there is a law under which such corporation might be organized, even though the specific Act under which the organization proceeded is not strictly applicable, such corporation would exist as a de facto corporation, and its existence or the validity of its organization cannot be collaterally attacked.”, (See, also, Griffin v. Thomas, 86 Okl. 70, 206 Pac. 604.)

In Graham v. City of Greenville, 67 Tex. 62, 2 S. W. 742, it was held that, notwithstanding an election was held in a manner not sanctioned by the law, a corporation de facto existed, as the action constituted but an irregularity, quoting: “When the question arises collaterally,” says Mr. Cooley, “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 this though the manner of incorporation prescribed by the Constitution had not been followеd.” Mr. Dillon, in his work on Municipal Corporations, ‍​​‌​‌‌‌‌​‌‌‌​​​​‌‌​​‌​‌​‌​‌​‌​‌​​​‌‌​‌​‌‌​‌​‌‌‌‌‍says: “In public affairs, where the people have organized themselves, under color of law, into the ordinary municipal bodies, and have gone on year after year, raising taxes, making improvements, and exercising their 'usual franchisеs, their rights are properly regarded as dependent quite as much on acquiescence as on the regularity of their origin.” (Dillon on Municipal Corporations, 5th ed., see. 67.)

In People ex rel. Gridley v. Farnham, 35 Ill. 562, it is declared that, after long-continued use of corporate powers, and the acquiescence of the public in them, the law will indulge the presumption that the corporation was legally created.

Under these authorities we would be justified in holding that School District No. 44 had, at the time this action wa^f* commenced, become a corporation de facto, and that there-l fоre it was not open to the collateral attack made upon it, but we need not go so far as that. . S

3. The defendant district had pleaded an estoppel as against the plaintiffs, and under the agreed facts, it is urged that this is a sufficient plea.

*165 After a community has for years, as in the case at bar, exercised the functions of a public corporation, its legal existence cannot be questioned without causing disturbance more or less serious, and if the question of the regularity of its organization can be kept open to collateral inquiry indеfinitely, no one can ever 'be secure in dealing with such entities, or be sure that taxes levied, bonds floated, or contracts necessarily entered into for the transaction of its business will be valid and enforceable. The transaction of public business might be blocked at any time аt the will or whim of a private individual and the credit of the corporation impaired or destroyed. For these and other cogent reasons it is held that: “An individual may be estopped by his conduct to attack the validity of the incorporation of a municipality, even though, but for such estoppel, he might do so.” (28 Cyc. 175.) Thus acquiescence in the exercise of corporate functions, and dealing with the corporation as such over a period of years will estop all persons dealing with the corporation from assailing its legality. (In re Flemington Borough, 168 Pa. 628, 32 Atl. 86; St. Louis v. Shields, 62 Mo. 247; Cowell v. Colorado Springs Co., 3 Colo. 82; People v. Maynard, 15 Mich. 463; People v. Curley, 5 Colo. 412; State v. Westport, 116 Mo. 582, 22 S. W. 888; State v. Leatherman, 38 Ark. 81; State v. Pell City, 157 Ala. 380, 47 South. 246; Board v. Crittenden, 94 Fed. 613, 36 C. C. A. 418.)

Counsel for рlaintiffs contends that, in order to create an estoppel by acceptance of benefits, it is essential that the party against whom the estoppel is claimed must have acted with knowledge of the fact and of his rights, and that the record discloses that these plaintiffs had no knowledge of the creation of the district until April, 1925. He cites, in support of his contention, 21 C. J. 1207, 10 R. C. L. 694, and Peterson v. School Board, 73 Mont. 442, 236 Pac. 670. Here the plaintiffs did more than accept benefits; they dealt with the district and *166 accepted liability as well; they paid the taxes levied against their property for a number оf years, thus recognizing the district and acquiescing in its assumption of corporate capacity, and the estoppel here invoked is not, therefore, strictly an estoppel by acceptance of benefits, but rather it is an estoppel ‍​​‌​‌‌‌‌​‌‌‌​​​​‌‌​​‌​‌​‌​‌​‌​‌​​​‌‌​‌​‌‌​‌​‌‌‌‌‍based upon public рolicy, because of the confusion into which a judgment, at this late date, that the organization was void, would throw public and private rights and interests acquired through years of operation with the acquiescence of the inhabitants, and is therefore not dependent upon knоwledge of the facts.

A similar contention was made in the case of Hamilton v. San Diego County, 108 Cal. 273, 41 Pac. 305, and under like fact conditions, and was disposed of by the following statement: “The plaintiff here and hi's numerous assignors, owners of property included within the district recognized its corporate existence by paying taxes for its use in discharging the debts incurred. True they did this, аs the court finds, under a mistake as to the legal creation of the district, but that is immaterial, ’ ’ etc.

Under the facts disclosed in the record before us, we are of the opinion that the plaintiffs were in no position to question the existence of the enlarged District No. 44, and that, therefore, the facts warranted the judgment of dismissal entered.

The judgment is affirmed.

Affirmed.

Mr. Chief Justice Callaway and Associate Justices Holloway, Galen and Stark concur.