Nesbit v. Independent District of Riverside/Opinion of the Court

Article 11, § 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 per centum 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; Bank v. Porter Tp., 110 U.S. 608, 4 Sup. Ct. Rep. 254; Dixon Co. v. Field, 111 U.S. 83, 4 Sup. Ct. Rep. 315. In the first of those cases, on page 289, it is said that 'the purchaser of the bonds was certainly bound to take notice, not only of the constitutional limitation itation 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 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 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 bein 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. 5 per cent., 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 5 per cent.; 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 flde 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. 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 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.' 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.