Court Opinion

ID: 9639673
Source: CourtListenerOpinion
Date Created: 2023-08-22 16:44:03.984735+00
Date Added: 2024-06-11T18:10:20.942896
License: Public Domain

POPE, Justice
(dissenting).
The prior dissenting opinion is withdrawn and this one is substituted for it. This court, in upholding the validity of the bonds sued upon, makes some basic errors. It holds that the owners of lands embraced in the Water District have no standing to challenge the validity of the bonds. It holds that the constitutional requirement for an election to authorize the issuance of bonds is inapplicable to a good-faith purchaser and that First State Bank is such a purchaser. It holds that the Legislature can override the constitutional requirement that a water district must conduct an election prior to the time it issues bonds. We shall assume that the Water District was validly created and organized.
The court has cut off the rights of the landowners, the Gueterslohs and McFalls, to question the validity of the bonds and has done this upon the basis of Article 7880-25a, Vernon’s Tex.Civ.Stats. The court says that the landowners did not follow the prescribed procedure, that of a quo warranto proceeding, and they are thereby precluded from raising the defense that there was no election prior to the issuance of bonds. No party to this action has challenged the standing of the Gueterslohs and the McFalls to question the constitutionality of the bond issue. The plaintiff, First State Bank, as the adverse party, has not raised the issue. In fact, it was First State Bank that brought those landowners into this action by naming them as defendants. First State Bank alleged that they “are asserting, or attempting to assert, divers claims that the bonds sued on herein and the series of which they are a part, are invalid, and by such claims are attempting to impede and hinder the levy and collection of taxes for payment of the *781bonds due the plaintiff. By reason whereof, a bona fide controversy exists between the plaintiff as bondholder and the group of property owning defendants mentioned in this paragraph as adverse parties, which dispute and controversy should be resolved in this action.” The landowner defendants asserted in their answer that the Water District had failed to comply with the Constitution’s requirement of an election. At that point, if the plaintiff bank was relying upon the lack of capacity of the landowners to invoke such a defense, it should have so pleaded affirmatively. Failing to do so it waived the contention. Rule 94, Tex.Rules Civ.Proc.
Plaintiff, First State Bank, did not plead that the landowners had failed to challenge the bond issue by quo warranto. It raised no such issue in its motion for summary judgment. The bank’s brief in the court of civil appeals and its application to this court make no mention of the landowners’ failure to proceed by quo warranto. The idea was first mentioned in this case by an amicus curiae brief filed in this court after the parties had completed their briefing. This court grounds its decision upon the failure of the attorney general to institute an action in quo warranto and treats the point in the same way we would a jurisdictional or fundamental error point. I would hold that the plaintiff bank, in choosing not to rely upon the point, has waived it. I do not consider the intrusion of this new theory, at so late a stage and at the behest of an amicus curiae and in a summary judgment proceeding, as procedurally fair.
The summary judgment should have been denied because a material fact issue existed as to whether the constitutionally required bond election was held. The Gueterslohs and McFalls produced proof at the summary judgment hearing that there never was a bond election. That proof must be taken as true in determining the correctness of the trial court’s action in testing the summary judgment against them. Gul-benkian v. Penn, 151 Tex. 412, 252 S.W.2d 929 (1952). This proof was presented by agreement that the evidence heard in another trial could be considered in this case. There were only three qualified voters in the Water District. The election returns showed that there were three votes cast, and they all favored the issuance of the bonds and the levy of taxes to pay the bonds. The record on the summary judgment proceeding includes a certificate signed by the Secretary of the Board of Directors of the Water District which shows that the voters who voted on April 14, 1956 were “Mr. C. O. Rymer, Mrs. C. O. Rymer and Ronald E. Hewitt.” Those three persons denied there was an election on April 14, 1956, or that they voted on that date.
There was an election to confirm the creation of the Water District on February 18, 1956 which was almost two months before the alleged bond election. Mrs. Ry-mer unequivocally denied her presence at or participation in any election other than the February election.1 Mr. Rymer testified that he voted only at the election in February of 1956, not in the April bond *782election.2 Mr. Hewitt, the only other qualified voter, testified that he was present during an election on a date which he could not fix with any certainty, but he said he did not vote in an election.3 The record shows that Mr. and Mrs. Durbin were named as election clerks for the February 18 election and later were named as election clerks for the bond election on April 14, 1956. Durbin testified that he was present during the February election and acted as an election clerk. He said that he signed two sets of papers that were presented to him during the election in February, but he said he did not attend or witness any bond election which was purportedly held on April 14, 1956. Durbin, on cross-examination, was pressed to explain his signature on the bond election returns, dated in April. He answered by saying that he signed two documents on the night of February 18, the one about the February election as well as the one about the April election. A portion of the cross-examination is:
Q. And you say no evidences of an election during the month of April?
A. No.
Q. It all happened in February?
A. All happened in February.
Q. No question about it?
A. No question in my mind about it whatsoever.
Durbin’s wife according to the Water District records was also named as a clerk for the two elections. She testified she was present in February, but not in April. She said that any documents she signed were signed on the night of February 18, 1956. She denied she participated in or witnessed any election during April that concerned voting for the issuance of bonds.
*783This summary judgment record by agreement of the parties includes the entire record and statement of facts in the case of E. F. Hutton & Company v. Yoakum County Water Control and Improvement District No. 2, which case is now pending in the Fifth Circuit of the United States, awaiting our decision. The first issue submitted to the jury in that case was: “Do you find from a preponderance of the evidence that an election was held within Yoakum County Water Control and Improvement District No. 2 in April, 1956 on the question of whether the Board of Directors of the District should be authorized to issue bonds of said District for the purpose of financing the construction of an irrigation system in the District?” The jury answered “No” and judgment was rendered accordingly.
In the face of a constitutional requirement for an election and the unanimous proofs, which we must accept as true, that there was no election, one seeks a reason for a decision which renders the constitutional requirement an empty one. The basis for the holding of the courts below is that the landowners are estopped to prove what they did prove — the absence of the election which the Constitution required. The majority opinion is silent on this issue.
The doctrine of estoppel by recital is a valid and good doctrine. Our question, however, is whether a good doctrine can uproot a plain requirement of the Constitution and can excuse an election when the Constitution requires one. Miller v. State ex rel. Abney, 155 S.W.2d 1012 (Tex.Civ. App.1941, writ ref.) by dicta, suggests the contrary result. That was a quo warranto case instituted by the Attorney General on the relation of twenty landowners in the Hidalgo County Water Control and Improvement District No. 2. The Water District, pursuant to an election, authorized the issuance of construction bonds in the principal sum of $5,550,000. Without an election, the Water District authorized the issuance of an additional $1,150,000 of interim bonds. The Water District’s order and the bonds, as in our case, recited compliance with the law. The Attorney General certified his approval of the transcript of the record of all proceedings both of the organization of the Water District and the issuance of the bonds. The bonds were issued and approved and were registered with the Comptroller. Miller, the holder of some of the bonds, was not a holder in due course. The opinion of the court of civil appeals in Miller v. State was approved with the notation, writ refused. It discusses the constitutional mandate that an election must be the source of power to issue bonds. After quoting the constitutional requirement, the court wrote:
“ * * * This inhibition is not only against the power of the Legislature to provide for any indebtedness against any such district, but it also prevents authorization for the issuance of any bonds unless the proposition upon which the bonds are to be issued shall first be adopted by the voters. Since the interim bonds in controversy were issued * * * without such proposition having been first submitted to the voters of the District for their adoption, we hold that said bonds are invalid and void because issued in violation of the plain provisions of the Constitution. * * *
“Appellants assert that because the bonds in controversy were approved by a former Attorney General, registered by the Comptroller, and purchased by them on the open market, Article 7880-34 of Vernon’s Civil Statutes requires judgment decreeing the same to be valid. We are in full accord with the sound public policy which doubtless prompted the enactment of this article of the statutes. It may be that by reason thereof the re-lators herein would be cut off from the right to maintain this suit in their individual capacities, although in view of the provisions of Articles 715 and 8010 of said Statutes we doubt whether any in*784terested citizen would be deprived of his right to question the validity of the bonds in controversy on fraudulent or constitutional grounds. * * (Emphasis added)
In Miller v. State, there is also discussion of the effect of certain validating acts by the Legislature. The court held that an election was an essential constitutional requirement which must precede the issuance of the bonds, saying: “But if it was the legislative intent that ány of the cited statutes should be construed as contended for by appellants, then it is fundamental that no act of the Attorney General or of the Comptroller, or indeed of the Legislature itself, could give validity to that which is expressly prohibited by the Constitution.”
Miller v. State struck down a bond issue of a Water District which in fact had conducted no election. It did this in the face of the perfect bond transcript of the Water District’s records and the Attorney General’s approval. It did this after the Comptroller had registered the bonds and after the Legislature had passed a special act validating the bond issue. Despite all of these steps, the court held that a constitutional condition precedent could not be excused on principles of estoppel or by the acts of the Legislature itself.
If the executive and legislative branches of the government can not rise above this constitutional limitation upon powers to issue bonds, I fail to see how the doctrine of estoppel by recital can. It is no answer to state the beneficial purposes of that doctrine in protecting bondholders and in maintaining confidence in the bond market. The Constitution made an express choice between those it desired to protect. It did this in only one narrow area. It says, in effect, that the doctrine of estoppel by recital may operate except in the situation in which no election at all was conducted. This means that the Constitution, in that instance, declares it is better to protect the taxpayer than the bondholder.
Miller v. State was a quo warranto proceeding, but as already discussed, the plaintiff, First State Bank, has not contended in these proceedings that the landowners lacked standing to challenge the bonds and has waived any such contention. It might also be thought that the case is distinguishable since the holder of the bonds in that case was not a good-faith purchaser. It is more or less assumed by the courts below that First State Bank was a good-faith purchaser, but the record does not support this assumption.
Estoppel by recital did not operate against the landowners because the plaintiff bank did not show as a matter of law that it was a good-faith purchaser. One’s good faith is ordinarily a question of fact, and we have held that “bad faith may be shown by a wilful disregard of and refusal to learn the facts when available and at hand.” Citizens Bridge Co. v. Guerra, 152 Tex. 361, 258 S.W.2d 64 (1953).. In Miller v. State, the doctrine of estoppel by recital was not operative because the bondholder was not a good-faith purchaser.
This court has assumed that the bank in this case is a good-faith purchaser, but that is a material fact issue which should be resolved upon trial. James F. Smith was President of the Amarillo Savings & Loan Association when it authorized H. L. Shaffer to purchase the bonds. There is a fact issue concerning Shaffer’s agency. Smith was also President of First State Bank at the time Shaffer made the purchase for Amarillo Savings and when it transferred the bonds to First State Bank. There is proof that either Shaffer or Smith, or both, at all relevant times showed a wilful disregard of facts which they knew or which were readily at hand. Those facts are that the Water District embraced only seven sections of land, three of those sections were not tillable, three were not irrigable, only one section was in cultivation in 1959 but the bond circulars repre*785sented that 6,000 acres would be in cultivation by 1958, the District would charge for' water which meant the District must own the water, the seven sections without water rights were assessed at $939,000 in 1959, it was impossible for sandy land to be worth that much when the landowners owned no water rights, the District had collected no taxes for the first three years which violated Article 7880-90, the seven sections would need to produce taxes to pay off the sum of $513,135 which was the projected amount to be spent on irrigation wells and equipment, and the bond election authorized the issuance of bonds in the sum of $787,500 which would impose a debt of eighty-six per cent of the land value. Under this record, we can not say, as a matter of law that the purchaser of the bonds was a good-faith purchaser.
I would hold without regard to the good-faith issue that bonds which are issued in contravention of the express requirement of Article 16, Section 59(c) of the Texas Constitution are wholly void and subject to collateral attack, as the rule has been formerly applied. City of Brenham v. German American Bank, 144 U.S. 173, 12 S.Ct. 559, 36 L.Ed. 390 (1892); Miller v. State ex rel. Abney, 155 S.W.2d 1012, 1017 (Tex.Civ.App.1941, writ ref.); Deason v. Orange County Water Control & Improvement Dist. No. One, 151 Tex. 29, 244 S.W. 2d 981 (1952); Grimes County v. W. L. Slayton & Co., 262 S.W. 209 (Tex.Civ. App.1924, writ ref.); Texas Agr. Ass’n v. Hidalgo County W. C. & Imp. District No. 1, 125 F.2d 829 (5th Cir. 1942); Shelby County v. Provident Savings Bank & Trust Co., 54 F.2d 602 (5th Cir. 1932). A collateral attack is permissible to establish that the bonds are void. Walling v. North Central Texas Municipal Water Authority, 162 Tex. 527, 348 S.W.2d 532 (1961); Parks v. West, 102 Tex. 11, 111 S.W. 726 (1908). I find it impossible to square our holding in Walling with the holding in this case. In Walling we relied upon and quoted from Parks v. West, 102 Tex. 11, 111 S.W. 726 (1908) wherein this court held:
“ ‘ * * * the attack of the plaintiffs is not merely upon the corporate existence of the district, but is directed against the power of the defendants to lay burdens on their property and subject them to the payment of taxes. Surely they have the right to do that although the reason they assign for the lack of power may also go to the right of the district to exist under the Constitution. Certainly a property holder has the right to say to the court that he is protected by the Constitution from the imposition of a tax by persons to whom the Constitution, in effect, denies such power.’ ” (Emphasis supplied)
These cases correctly held that powers denied by the Constitution should not be permitted by decision. See Peck v. Hemp-stead, 27 Tex.Civ.App. 80, 65 S.W. 653 (1901, writ ref.). We have also enforced legislative limitations upon powers of municipalities to act by holding excessive exercises of powers “utterly void because not authorized by law or color of law.” We have permitted collateral attacks upon void municipal acts and by private citizens without resort to quo warranto. Deacon v. City of Euless, 405 S.W.2d 59 (Tex.Sup.1966).
The third error, that of ignoring the constitutional requirement for an election, arises out of the court’s failure to consider Article 7880-25a in its entirety. The court has held that the statute states two exclusive remedies which a complaining landowner must pursue to question a bond issue. The court says that the landowner must either (1) sue before the bonds are registered or (2) proceed by quo warranto. Article 7880-25a is also cited in support of the court’s conclusion. The court quotes a portion of the statute, which standing alone, would support the holding. The court does not quote the remaining and controlling part of the same article. I find *786it difficult to read out of the statute these words which the majority opinion ignores:
“ * * * except in such cases as are, or may be, provided by * * *, or by the Constitution of Texas.”
I would hold that the Legislature has not cut off the landowners’ constitutional rights by limiting them to two designated procedures, since the statute expressly excepts their right to invoke any other constitutional limitation upon the powers of the one issuing the bonds. I would hold that the Legislature did not intend and does not possess the power to validate an unconstitutional bond issue. Hedges v. Dixon County, 150 U.S. 182, 14 S.Ct. 71, 37 L.Ed. 1044 (1893); State v. Town of Belleair, 170 So. 434 (Fla.1936); Village of Heyburn v. Security Savings & Trust Co., 55 Idaho 732, 49 P.2d 258 (1935). In Hedges, supra, the United States Supreme Court said:
“Again, the constitution of the state having prescribed the amount which the county might donate to a railroad company, that provision operated as an absolute limitation upon the power of the county to exceed that amount; and it is well settled that no recitals in the bonds, or endorsed thereon, could estop the county from setting up their invalidity, based upon a want of constitutional authority to issue the same. Recitals in bonds issued under legislative authority may estop the municipality from disputing their authority, as against a bona fide holder for value; but, when the municipal bonds are issued in violation of a constitutional provision, no such estop-pel can arise by reason of any recitals contained in the bonds.” (Emphasis supplied)
I would reverse the judgment of the courts below and remand this case for trial upon the merits.
SMITH and REAVLEY, JJ., join in this dissent.

. Q. Were you there in April of 1956 at an election?
A. No.

Q. Now, Mrs. Rymer, if that is your signature on that page, and if that purports to be about an April election, when did you sign it, if you signed it?
A. Well, the only time I was over there was in February. We were supposed to vote for the Water District. That’s the only time I ever signed any papers.
Q. All right. State whether or not you ever attended or participated in any election at which the Water District authorized the issuance of bonds?
A. That one time is the only time I ever voted.
Q. And what was the proposition you voted on that one time?
A. Well, we was supposed to vote on the Water District.
Q. Whether or not you would have a water district, or what?
A. ' Well, they were trying to get a water district over there, as I understand it.

. Q. All right, Mr. Rymer, did you ever vote out there in an election on any other occasion?
A. No, I never did.

Q. Well, with respect to the Yoakum County Water Control and Improvement District No. 2, did you ever vote on any election, or in any election, other than this one in February for the Water District?
A. No, never did.
Q. Specifically, did you ever vote in any election in April?
A. No, never did.
Q. Of 1956?
A. Never did.
Q. Did you ever vote on whether or not the District would issue bonds?
A. No, not knowing about it.
* * # ⅜ *
Q. All right. And did you ever sign any papers with respect to the District, other than on this night in February?
A. No, never did.
Q. If you signed this paper which you said you did, when did you sign it?
A. When I signed it the night of the election.
Q. In what month?
A. February.

Q. Now, I don’t want to try to confuse you about what the issues were or who was an election judge, all I want to know is, did you ever vote in an election in April of 1956 in connection with the Water Control District?
A. No sir, never did.

Q. Did you, in February or April of 1956, or any other time, cast a vote, to your knowledge, relating to the issuance of bonds?
A. No sir, never did that I knowed about * * * anything about it.

. A. That was the only one that I remember that I was present to, I didn’t have nothing to do with it, just an onlooker.
Q. Did you ever vote in any election yourself?
A. No.

A. No, if there was any election, it was that one. Of course, they — I don’t even know whether they called it an election, but they was voting on something.
Q. And you didn’t participate in that?
A. No.
Q. And you didn’t participate in any other election?
A. No.