UNITED STATES SUPREME COURT DECISIONS ON-LINE

By virtue of Art. 11, sec. 3, of the Constitution of Iowa of 1857, which 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,"

negotiable bonds in excess of the constitutional limit issued by a school district and sold by its treasurer, for the purpose of applying the proceeds of the sale to the payment of the outstanding bonded indebtedness of the district pursuant to the statute of Iowa of 1880, c. 132, are void as against one who purchases them from the district with knowledge that the constitutional limit is thereby exceeded.

The original action was brought by Theron Cummins, a citizen of Illinois, on coupons attached to negotiable bonds issued by the defendant, a district township of Iowa, under the statute of Iowa of 1880, c. 132, the material provisions of which are copied in the margin. [Footnote 1] clubjuris

Page 142 U. S. 367

The defendant denied the validity of the bonds on the ground that they were issued in violation of the Constitution of Iowa of 1857, art. 11, sec. 3, likewise copied in the margin. [Footnote 2]

A jury was duly waived, and the case was submitted to the circuit court, which found the following facts:

The defendant is a school district in Lyon County, Iowa, having power to contract in its corporate name, and to issue negotiable bonds. From the date of its organization, its affairs have been badly managed, and, through fraud and incompetency on the part of the officers of the district, indebtedness to a very large extent has been created against the district, part of which was evidenced by bonds of the district, part by judgments against it, and part by warrants or orders drawn on its different funds.

On July 9, 1881, the board of directors of the district unanimously adopted a resolution to issue, "for the purpose of funding the outstanding bonded indebtedness of the district," bonds to an amount not exceeding $25,000, in accordance with the statute aforesaid, to run for ten years and payable after five years at the pleasure of the district, and bearing interest at the annual rate of seven percent, with interest coupons attached, and appointing one Richards "refunding agent to negotiate said bonds," to take up the aforesaid indebtedness, and to report his doings to the district.

In pursuance of this resolution, twenty-five bonds were prepared and signed by the proper officers of the district, dated July 11, 1881, for the sum of $1,000 each, having the statute clubjuris

Page 142 U. S. 368

aforesaid printed upon them, and containing the following recital:

"This bond is executed and issued by the board of directors of said school district in pursuance of and in accordance with chapter 132, Laws of the Eighteenth General Assembly of Iowa, is in accordance with the laws and Constitution of the State of Iowa, and in conformity with a resolution of said board of directors passed in accordance with said chapter 132 at a meeting thereof held 9th day of July, 1881."

Ten of these bonds were sold on July 25, 1881, and ten others on August 11, 1881, for their par value in cash, by Richards to the plaintiff, who at the time of his first purchase knew that it was the defendant's purpose to issue bonds to the amount of $20,000 at least, or $25,000 if necessary. The remaining five bonds were sold by Richards on December 20, 1881, to another party.

At the time of issuing the bonds in question, the total valuation of the taxable property within the district, as shown by the next preceding state and county tax lists, was $131,038. The evidence failed to show the exact amount of bonds of the defendant outstanding on July 11, 1881, but the amount of such bonds, with interest, exceeded $20,000. Large amounts of warrants had been issued by the district from time to time for various purposes, a portion at least of which was fraudulent, and there were outstanding unsatisfied judgments against it for $11,700. Many frauds had been perpetrated by the officers of the district, and thereby the amount of indebtedness evidenced by its bonds and by judgments against it had been fraudulently increased. But the evidence failed to show that any of those bonds had been issued in violation of the above provision of the Constitution of Iowa or that a successful defense could have been interposed by the defendant against the holders of any of them.

Of the proceeds of the sale of the new bonds, the sum of $19,174 was paid out by Richards at various times from July 30, 1881, to March 4, 1882, in discharging bonds, coupons, judgments, warrants, and orders drawn on the teachers', contingent, and schoolhouse funds, and the balance of $6,485.79 was paid to the defendant's treasurer. His report, which was made part of the findings of fact, showed that, of the sum of $19,174, less than $6,000 was applied to the payment of outstanding bonds and coupons, $875 in paying interest on the new bonds, and the rest to the other purposes above mentioned.

The defendant regularly paid interest on the new bonds until and including July, 1885, and this action was brought on the coupons falling due in 1886, 1887, 1888, and 1889.

On these facts, the court gave judgment for the plaintiff for $6,462.40, being the amount of the coupons sued on, with interest. 42 F.6d 4. The defendant sued out this writ of error. clubjuris

Page 142 U. S. 370