When the Constitution of a state forbids "county, political or
other municipal corporations" within the state to "become indebted
in any manner" beyond a named percentage "on the value of the
taxable property within such county or corporation," negotiable
bonds issued by such corporation in excess of such limit are
invalid without regard to any recitals which they contain.
A holder of such bonds for value, is bound to take notice of the
amount of the taxable property within the municipality at the date
of their issue, as shown by the tax list, and is charged with
knowledge of the over-issue. When a second suit is upon the same
cause of action, and between the same parties as a former suit, the
judgment in the former is conclusive in the latter as to every
question which was or might have been presented and determined in
the first action, but when the second suit is upon a different
cause of action, though between the same parties, the judgment in
the former action operates as an estoppel only as to the point or
question actually litigated and determined, and not as to other
matters which might have been litigated and determined.
Each matured coupon upon a negotiable bond is a separable
promise, distinct from the promises to pay the bond or the other
coupons, and gives rise to a separate cause of action.
A judgment against a municipal corporation in an action on
coupons cut from its negotiable bonds, where the only defense set
up was the invalidity of the issue of the bonds by reason of their
being in excess of the amount allowed by law, is no estoppel to
another action between the same parties on the bonds themselves and
other coupons cut from them where the defense set up is such
invalidity, coupled with knowledge of the same by the plaintiff
when he acquired the bonds and coupons.
Page 144 U. S. 611
The Court stated the case as follows:
This was an action on five bonds purporting to have been issued
by the school district defendant. The case was tried by the court
without a jury. Special findings of facts were made, of which the
following are the only ones material to the questions
presented:
"2d. The value of the taxable property within the boundaries of
the independent district, as shown by the state and county tax
lists, was for the year 1872 forty-one thousand four hundred and
twenty-six dollars, and for the year 1873 sixty-eight thousand
three hundred and seven dollars."
"3d. That on the 26th and 27th days of March, 1873, the
indebtedness of said independent district, exclusive of the bonds
declared on in this action, exceeded the sum of thirty-five hundred
dollars."
"4th. That the bonds sued on in this action bear date March 27,
1873, maturing ten years thereafter, are five in number, for five
hundred dollars each, or $2,500.00 in the aggregate, exclusive of
interest, are numbered 14, 15, 16, 17, and 18, and that the
signatures thereon are the genuine signatures of the officers of
the district purporting to sign the same, and that said bonds, with
the accrued interest, now amount to the sum of five thousand six
hundred and ninety-five dollars, which bonds and interest coupons
were produced in evidence by plaintiff. The said bonds and interest
coupons are in all respects alike except as to number, and each
coupon refers to the number of the bond to which it belongs and to
said act under which it was issued. All of said bonds contain the
following provision in the body thereof:"
"This bond is issued by the board of directors of said
independent school district under the provisions of chapter 98 of
the Acts of the Twelfth General Assembly of the State of Iowa, and
in conformity with a resolution of said board dated the 26th day of
March, 1873. A copy of the act referred to is printed on the back
of the bonds. The exhibits attached to plaintiff's petition are
correct copies of said bonds and coupons."
"4 1/2. That all of said five bonds and the coupons attached
Page 144 U. S. 612
belong to the same series, and were issued at the same time,
under the same circumstances, and part of the same
transaction."
"5th. That the plaintiff, who is a citizen of Great Britain,
bought these bonds, and all the interest coupons belonging thereto,
as an investment from one Henry Hutchinson on the 20th day of
December, 1877, paying him therefor the sum of two thousand
dollars; that said plaintiff, when she made such purchase, had no
other knowledge concerning the bonds, or of the facts connected
with their issuance, than she was chargeable with from the bonds
themselves, and from the provisions of the Constitution and laws of
the State of Iowa."
"6th. That said bonds were issued without consideration."
"7th. That plaintiff brought suit in the United States Circuit
Court at Des Moines, Iowa, against the said independent district of
Riverside upon certain of the interest coupons belonging to the
bonds Nos. 14 and 15, being two of the bonds included in the
present action, and in the petition in that cause filed the
plaintiff averred that she was the owner of the two bonds Nos. 14
and 15, and the coupons thereto attached, and asked judgment upon
the six coupons then due and unpaid. To this petition the defendant
answered that at the time the bonds were issued the indebtedness of
the district exceeded five percent of the taxable property of the
district, as shown by the state and county tax lists, and that the
bonds were therefore void, under the provision of the Constitution
of the State of Iowa; that no legal or proper election upon the
question of issuing the bonds was held; that the bonds were issued
under the pretense of building a schoolhouse with the proceeds
thereof, but the same has not been built, nor was it intended that
it should be built; that the district received no consideration for
the bonds, and that the same are fraudulent and void; that
plaintiff is not a
bona fide holder of said bonds."
"The case was tried to the court, and judgment was rendered in
favor of plaintiff for the full amount of the six coupons declared
on in that cause. It is shown by evidence
aliunde that the
five bonds bought by plaintiff were in possession of plaintiff's
counsel at the trial of the action at Des Moines, and
Page 144 U. S. 613
that bonds Nos. 14 and 15 were actually produced and exhibited
to the court at such trial and offered in evidence. It is not shown
that at such trial the fact that plaintiff had bought and was the
owner of bonds Nos. 16, 17, and 18 was made known to the court. The
judgment entry in said cause shows that on that trial it appeared
from the evidence that when said bonds Nos. 14 and 15 were issued
the indebtedness of the district, exclusive of these bonds,
exceeded the constitutional limitation of five percent; that the
judges trying said cause were divided in opinion upon the question
whether the recitals in the bond estopped the defendant from
showing this fact against plaintiff, and certified a division of
opinion on this question, judgment being rendered in favor of
plaintiff. It does not appear that the cause was taken to the
supreme court upon the question certified."
"8th. Under the statutes of Iowa in force in 1872 and 1873,
regulating the assessment of property for the purpose of state and
county taxation, the lists thereof could not be computed before the
month of August, and in March, 1873, when these bonds were issued,
the last computed tax list was for the year 1872."
Upon these facts, judgment was entered in favor of the
defendant, 25 F. 635, to reverse which judgment this writ of error
was sued out.
Page 144 U. S. 617
MR. JUSTICE BREWER, after stating the facts in the foregoing
language, delivered the opinion of the Court.
Article 11, sec. 3, of the Constitution of Iowa of 1857 ordains
that
"No county or other political or municipal corporation shall be
allowed to become indebted in any manner, or for any purpose, to an
amount in the aggregate exceeding five percentum on the value of
the taxable property within such county or corporation, to be
ascertained by the last state and county tax lists previous to the
incurring of such indebtedness."
Under that section, the limit of indebtedness which the district
could incur at the date of the issue of these bonds was $2,071.30.
It was already indebted in a sum exceeding $3,500, and the five
bonds of themselves aggregated $2,500, or nearly $500 more than the
amount of debt the district could lawfully create. Aside,
therefore, from the fact that they were issued without
consideration, they were invalid by reason of the constitutional
provision, and created no obligation against the district. They
were issued at the same time and as one transaction, and were
purchased by plaintiff together and in one purchase. If not charged
with knowledge of the prior indebtedness, she was with the fact
that, independent of such indebtedness, these bonds alone were an
overissue, and beyond the power of the district, for she was bound
to take notice of the value of taxable property within the district
as shown by the tax list.
Buchanan v. Litchfield,
102 U. S. 278;
Northern Bank v. Porter Township, 110 U.
S. 608;
Dixon County v. Field, 111 U. S.
83. In the first of those cases, on page
102 U. S. 289,
it is said that
"the purchaser of the bonds was certainly bound to take
Page 144 U. S. 618
notice not only of the constitutional limitation upon municipal
indebtedness, but of such facts as the authorized official
assessments disclosed concerning the valuation of taxable property
within the city for the year 1873,"
and in the last, on page
111 U. S. 95,
that
"the amount of the bonds issued was known. It is stated in the
recital itself. It was $87,000. The holder of each bond was
apprised of that fact. The amount of the assessed value of the
taxable property in the county is not stated, but,
ex vi
termini, it was ascertainable in one way only, and that was by
reference to the assessment itself, a public record equally
accessible to all intending purchasers of bonds as well as to the
county officers."
So when the plaintiff purchased these bonds, she knew or at
least was chargeable with knowledge of the fact that they were
unlawfully issued, and created no obligation against the district.
She could not, therefore, claim to be a
bona fide
purchaser, no matter what recitals appeared on the face of the
instrument.
But the question which is most earnestly pressed upon our
attention is the estoppel which is alleged to have been created by
the judgment against the district in the United States Circuit
Court at Des Moines, upon coupons detached from the two bonds
numbered 14 and 15. Is this a case of estoppel by judgment? The law
in respect to such estoppel was fully considered and determined by
this Court in the case of
Cromwell v. County of Sac,
94 U. S. 351. It
was there decided that when the second suit is upon the same cause
of action and between the same parties as the first, the judgment
in the former is conclusive in the latter as to every question
which was or might have been presented and determined in the first
action; but when the second suit is upon a different cause of
action, though between the same parties, the judgment in the former
action operates as an estoppel only as to the point or question
actually litigated and determined, and not as to other matters
which might have been litigated and determined.
Now the present suit is on causes of action different from those
presented in the suit at Des Moines. Bonds 16, 17, and 18 were not
presented or known in that suit, and while bonds 14 and 15 were
presented, alleged to be the property of
Page 144 U. S. 619
plaintiff, and judgment asked upon six coupons attached thereto,
yet the cause of action on the six coupons is distinct and separate
from that upon the bonds or the other coupons. Each matured coupon
is a separable promise, and gives rise to a separate cause of
action. It may be detached from the bond and sold by itself.
Indeed, the title to several matured coupons of the same bond may
being as many different persons, and upon each a distinct and
separate action be maintained. So while the promises of the bond
and of the coupons in the first instance are upon the same paper,
and the coupons are for interest due upon the bond, yet the promise
to pay the coupon is as distinct from that to pay the bond as
though the two promises were placed in different instruments, upon
different paper.
By the rule laid down in
Cromwell v. County of Sac, the
judgment in the suit at Des Moines is conclusive in this case only
as to the matters actually litigated and determined. What were
they? The defense pleaded was this: that at the time the bonds were
issued, the indebtedness exceeded five percent, and the bonds were
therefore void; that the district received no consideration, and
that the plaintiff was not a
bona fide holder. The
judgment entry shows that it appeared from the evidence that the
indebtedness at the time the bonds were issued exceeded the
constitutional limitation of five percent, but that it was adjudged
that the recitals in the bonds estopped the defendant from showing
this fact against the plaintiff. In other words, that which was
determined was the effect of the recitals. But this case does not
turn upon that question at all, and nothing was determined here
antagonistic to the adjudication there. An additional fact -- that
of notice from the amount of the bonds purchased -- was proved.
The effect of recitals in municipal bonds is like that given to
words of negotiability in a promissory note. They simply relieve
the paper in the hands of a
bona fide holder from the
burden of defenses other than the lack of power, growing out of the
original issue of the paper, and available as against the immediate
payee. Suppose two negotiable promissory notes, issued at the same
time and as a part of the same transaction.
Page 144 U. S. 620
In a suit on the first brought by a purchaser before maturity,
the maker proves facts constituting a defense as against the payee,
but fails to bring home notice of these facts to the holder before
his purchase. The judgment must go in favor of the holder, for the
words of negotiability in the note preclude the maker from such a
defense as against him. In a suit on the second of such notes, may
not the maker couple proof of notice to the holder with that of the
original invalidity of the note, and thus establish a complete
defense against the holder? Is he precluded by the first judgment,
and his failure in that to prove notice to the holder? That is
precisely this case. In the suit at Des Moines, no notice to the
holder was shown. The recitals cut off the defense pleaded of
original invalidity. In this action, notice is proved, and an
additional fact is put into the case, which makes a new question.
The effect of recital is one thing; that of recitals coupled with
notice is another. The one question was litigated and determined in
the Des Moines suit; the other is presented here. Surely an
adjudication as to the effect of one fact alone does not preclude
in the second suit an inquiry and determination as to the effect of
that fact in conjunction with others. Infancy is pleaded in an
action on a contract, and an adjudication is made establishing it
as a defense. In a second suit between the same parties on a
different cause of action, though created at the same time, may not
the plaintiff prove ratification after majority? Many reasons may
induce or prevent the introduction into the first case of all the
facts. It was well said in
Cromwell v. County of Sac, Page
94 U. S. 356,
that:
"Various considerations other than the actual merits may govern
a party in bringing forward grounds of recovery or defense in one
action which may not exist in another action upon a different
demand, such as the smallness of the amount or the value of the
property in controversy, the difficulty of obtaining the necessary
evidence, the expense of the litigation, and his own situation at
the time. A party acting upon considerations like these ought not
to be precluded from contesting, in a subsequent action, other
demands arising out of the same transaction. "
Page 144 U. S. 621
This case may be looked at in another light. The defense pleaded
in the Des Moines suit was that at the time of the issue of the two
bonds then disclosed, there was a prior indebtedness of the
district exceeding the constitutional limitation, and that defense
was the one adjudged to be precluded by the recitals. Here, an
additional defense is that the five bonds in suit themselves
created an overissue. That question was not presented in the Des
Moines suit, and could not have been adjudicated. It is presented
for the first time in this case. It is of itself a valid defense,
irrespective of prior indebtedness. So we have in this case a new
question not presented in the Des Moines suit, the existence of
facts never called to the attention of the court in that case,
which of themselves create a perfect defense.
We see no error in the judgment, and it is
Affirmed.
MR. JUSTICE HARLAN dissents.
