Court Opinion

ID: 8779012
Source: CourtListenerOpinion
Date Created: 2022-11-26 13:12:13.041611+00
Date Added: 2024-06-11T17:02:44.303047
License: Public Domain

BAKER, Circuit Judge
(dissenting). Agreeing, of course, that the pipes can physically be cut in two at the point where they cross the city limits, I do not see liow that bears upon either the physical fact of the present integrality of the supplemental plant or the legal fact of the unsplitable nature of the taxpayers’ asserted cause of action and the final decree thereon.
Plans for the construction of the new system as an entirety were agreed upon between the city officials and the contractors. Realizing that a direct contract between them would be futile, they determined *36to attempt the same end under cover. The result physically was the construction of a unitary system in which the wells and pumps were outside the city; and the power for pumping the water from the wells, the reservoir for receiving the water through a continuous pipe line, and the means for distributing the water from the reservoir were within the city. With the pipe severed, and the pumps at one end and the power and the reservoir at the other end in the hands of adversaries, each part would be practically valueless in comparison with its value in the unitary system.
Before a step had been taken in the physical work, taxpayers filed a suit for injunction. This was an assertion tftat they were the true representatives of the city, and that the city officials had abandoned their .posts and were about to trespass upon the city’s rights. The charge in substance and effect was that the city officials and the contractors were about to attempt under cover what they could not do openly; that they had devised a scheme under which they would try to evade the. Indiana Constitution; that the scheme consisted of organizing a corporation to act as agent and trustee of the city, of the corporation’s never having funds in its treasury except what were to be obtained from the city treasury and what were to be borrowed by it as agent and trustee of the city, of the corporation’s acquiring the naked legal title to a right of way from the wells to the city’s water station and holding such title and possession thereunder as agent and trustee of the city as the real owner and possessor, of the contractors’ building on such right of way the system according to the original plans and their original bid, of the contractors’ stepping aside after receiving their money partly from the city treasury and the balance from a loan to be obtained by the corporation as the city’s agent and trustee, of the corporation’s securing the loan by executing as the city’s agent and trustee a mortgage of the system as an entirety and then leaving the city as the actual owner, possessor, and operator of the plant and the real paymaster of the borrowed money; that the scheme had progressed to the point of organizing the corporation, passing the ordinance, and making the contract for the work; and that the entire scheme, unless enjoined, would be carried out to completion.
The facts being so, the decree, if rendered promptly instead of after years of litigation, would have stopped the scheme before a cent of the taxpayers’ money was taken from the city treasury to put into an unlawful enterprise.
The final decree was that of the Raporte circuit court. Regarding the quoted expression from the Indiana Supreme Court, it suffices to say that the mortgagees were not before that court; that no party then before it did or could present an issue as to that suit’s being or not being effective as lis pendens against the mortgagees; and that in the proceedings then before it the Indiana Supreme Court found error and remanded the cause for trial de novo. Thereupon it became the duty of the Raporte circuit court to hear the evidence, find the facts, draw conclusions of law, and enter a decree. The Raporte circuit court may well have concluded, the question of lis pendens not being *37before the Indiana Supreme Court nor before it, that the statement looking towards that subject was not authoritative. But, if authoritative, what then? The finality of a decree, as against parties and privies, is not dependent on the court’s correctly apprehending the scope of the authorities or even the law of the case.
When the Laporte circuit court came to formulate its final decree, it had to pass upon the original complaint and the supplemental complaint as well. The latter document made no change in the taxpayers’ asserted cause of action. It merely exhibited a change in circumstances under which the injunction as originally prayed for would he ineffective. It charged in substance and effect that pending the suit the scheme had been executed; that money from the city treasury had been taken and used to buy the well site-and right of way outside the city in the name of the corporation, but for the city as the real owner; that the contractors had completed the plant and stepped aside after getting the amount of their original bid partly out of city funds and the balance out of a loan procured by the corporation as agent and trustee of the city; that the corporation as agent and trustee of the city had mortgaged the plant as an entirety to secure the loan and had turned the plant over to the city subject to the mortgage. The allegations of the original and supplemental complaints were found to be true. The final decree therefore had to be framed to protect under the changed circumstances the taxpayers’ rights as originally asserted. With findings of the fraudulent scheme as an entirety, of the fact that the formal corporation had been used throughout merely as a cover for the operations of the city officials and contractors, of the fact that the naked legal title to the right of way within the cit]^ and of the right of way outside the city (purchased with $600 or $700 of funds from the city treasury) was held by the corporation as trustee of the city, and of the fact that not a dollar ever went into the plant outside of $40,000 taken from the city treasury and $65,000 indirectly borrowed by the city through the corporation as its agent, it seems clear that a decree perpetually enjoining the corporation “from in any manner making any demand upon the defendant city for money, property or thing of value whatsoever” would forever preclude the corporation (no matter who should hold the stock thereof) from setting up any claim upon the water or other revenues of the city and also from disturbing the city in its ownership, possession, and operation of the plant as an entirety.
“Pendente lite nihil novetur” is a maxim of imperative policy. It therefore must override the individual’s plea of hardship. If a defendant to an injunction suit (the res litigiosa being of the kind that is within the maxim) changes the status, even though there be no temporary injunction, he is- in contempt of the court’s jurisdiction. Such a course can earn him no rights; at most, it can only change the form of what would have been thé final decree. An innocent investor, whether he takes his conveyance before or after decree, equally suffers if deprived of his investment; and the hardship is of the same kind, lesser only in degree, if but half is stripped from him. But if the suit is of the class, and the subject-matter of the kind, in which the max*38im applies, no exception in enforcement can be made where one comes in before decree any more than an exception could be made in the enforcement of the rule of res ad judicata where one comes in after decree. Enforcement of both, without regard to hardship, is an absolute requisite of government. This necessity is the foundation of the maxim. An effect is to create a constructive notice to the world.
Among the suits of which the world must take notice is the injunction suit that seeks to prevent acts affecting any kind of property except commercial paper or ordinary articles of commerce in the usual course of trade. Union Trust Co. v. So. Nav. Co., 130 U. S. 565, 9 Sup. Ct. 606, 32 L. Ed. 1043; Diamond v. Lawrence County, 37 Pa. 353, 78 Am. Dec. 429; Murray v. Lylburn, 2 Johns. Ch. 441.
“Lis pendens is notice of every fact contained in the pleadings and apparent on the face thereof, and of those other things of which the facts so stated necessarily put the purchaser on notice.” Jones v. McNarrin, 68 Me. 334, 28 Am. Rep. 66; Lockwood v. Bates, 1 Del. Ch. 435, 12 Am. Dec. 121; and other cases cited in 25 Cyc. 1476.
The members of this court are in agreement that the mortgagees were bound to know that the Water Supply Company had no right to take money from the city or from them and put it into the construction of the water system on the right of way easement within the city, the legal title to which stood in the name of the Water Supply Company. But what were the infirmities of which the mortgagees had actual or constructive knowledge? Not that the Water Supply Company did not have a good charter from the state; nor that it was wanting in corporate power to take a grant from the city “to erect, maintain and operate a waterworks system in, and near the city of Laporte,” and a grant from the city of a right of way within the city, and a grant from others of a right of way outside the city. The infirmities were that, although those things might be done in a proper case, in this case everything done or threatened to be done was an indispensable element of an illegal scheme which had for its sole aim the erection of the plant as an entirety and the turning over of it to the city subj ect to the mortgage; that the title to the easement within the city, though standing in the name of the Water Supply Company, was the .city’s title and would merge into the city’s original title; that the needed right of way outside the city was to be bought with the city’s money, and that the title, though standing in the name of the Water Supply Company, would be the city’s title; that the city’s money, to the extent of $30,000 or so, was first to be expended in putting a unitary system upon such lands; and that the city, through its agent, was to mortgage the plant for enough to finish it. The mortgage, when tendered to appellees, showed both the unity of the system and the unity of the plan by -which the money was to be raised. The physical situation itself was notice of the integrality of the system.
If the complaint was notice to the defendants that any attempt by them to construct the system would be in contempt of the court’s jurisdiction, then it was notice to anyone who was bound to take notice at all that no greater rights than the defendants would have could be obtained in the proposed system. If the decree is a final adjudica*39tion against the Water Supply Company, then it is a final adjudication against the Water Supply Company's mortgagees who were bound-to know that such a decree might be rendered.
1 admit, of course, that the Water Supply Company, solely by virtue of its franchise from the state to be a corporation, independently of its franchise from the city to build a waterworks system in and near the city, had the legal capacity to go out and buy lands with its own funds and place, thereon a valid mortgage. The franchise from the city was just as valid on its face as the franchise from the state. But the actual physical undertaking, the proffered mortgage itself, and particularly the taxpayers’ complaint were notice that it was the franchise from the city that was about to be exercised.
If, before the taxpayers’ complaint was filed, the execution of the scheme had progressed to the point where the city’s money had been used to buy the outside right of way in the name of the Water Supply Company, the taxpayers might have had to file the statutory lis pen-dens notice. But, if the complaint as filed gave the court jurisdiction of the res litigiosa and of all persons then interested in the res (the threatened exercise of the franchise from the city), no action of a defendant ill contempt of that jurisdiction could diminish the court’s authority on the original complaint to render a final decree that would forever conclude the defendants and all persons who were hound to take notice of the facts alleged in the original complaint.
The decree of this court strikes me as being of the same character as that of the Circuit Court. That decree, no less anxiously than this, professed to relieve the city of all liability, professed to enforce in favor of the taxpayers the constitutional prohibition of subversive efforts of city officers and all contracting parties to create liability. That decree eliminated the mortgage of the water rentals and the city’s taxes, expressly excluded every demand against the city, and confined itself to ordering the sale of the tangible property into which the mortgagees’ money had gone. Why was that decree, explicitly shutting out all personal liability on the part of the city, not permitted to stand? On account of the compulsive force of the situation. Because the only way the taxpayers could protect their underlying $30,-000 or $40,000 tied up in the unitary plant would be to pay off the superimposed mortgage. The present, decree is coercive in exactly the same way and nearly to the same extent. It puts into the mortgagees’ hands the sword that Solomon held over the child. The onlv method by which the taxpayers can protect their underlying $30,000 or $40,000 (and the $22,000 paid on the mortgage by the city officers in the face of the taxpayers’ suit) is to pay off the superimposed mortgage to the extent that the situation compels. The part within the city, if not used in a waterworks system, has onfy a junk value. To preserve the present value of the part: within the city the taxpayers will be forced to pay to the mortgagees (before or at or after the judicial sale) an amount substantially equal to what it would cost them to pur in new wells, pumps, and -[jipes to the city limits.
What more can taxpayers do to protect themselves against faithless municipal officers and eager contractors than to put into the state’s *40organic law an absolute prohibition oi schemes such as this record discloses, and to begin promptly, before a dollar is embarked in the illegal enterprise, an injunction suit against all parties then concerned in the threatened betrayal ?