or quasi-municipal body was illegal, as held by a State court, still the question whether or not the illegal action of such a body, in the exercise of a power granted to it, constitutes any defense to bonds issued or contracts made pursuant to such action, and held by a bona fide purchaser, is a question of general jurisprudence, which it would be a dereliction of duty for a Federal court to decline to consider and determine for itself." Clapp v. Otoe County, Neb., 45 C. C. A. 579, 104 Fed. 473. Federal court; when will exercise independent judgment. 1070. (Iowa, 1902.) On the ques. tion whether, in this case, the city of Ottumwa would violate the constitutional limitation on municipal indebtedness by a proposed issue of bonds the Federal court refused to adopt and follow the rule of the Supreme Court of Iowa, on the ground that it was the duty of the Federal court to exercise an independent judg ment in the application of statutory or constitutional provisions to a par ticular contract or transaction. Held in this case that the proposed issue did violate Iowa Constitution. City of Ottumwa v. City Water Supply Co., 56 C. C. A. 219, 119 Fed. 315. 3. Change in Rules of Decision by State Courts; Contract Rights Protected by Federal Courts. State decisions in force at time of contract. 1071. (Iowa, 1863.) "It is urged that all these decisions have been overruled by the Supreme Court of the State, in the latter case of the State of Iowa, ex rel. v. The County of Wapello, and it is insisted that in cases involving the construction of a State law or Constitution, this court is bound to follow the latest adjudication of the highest court of the State. Leffingwell v. Warren is relied upon as authority for the proposition. In that case this court said it would follow The latest settled adjudications.' Whether the judgment in question can, under the circumstances, be deemed to come within that category it is not now necessary to determine. It cannot be expected that this court will follow every such oscillation, from whatever cause arising, that may possibly occur. The earlier decisions, we think, are sustained by reason and authority. They are in harmony with the adjudications of sixteen States of the Union. Many of the cases in the other States are marked by the profoundest legal ability. The late case in Iowa, and two other cases of a kindred character in another State, also overruling earlier adjudications, stand out, as far as we are advised, in unenviable solitude and notoriety. However we may regard the late case in lowa as affecting the future, it can have no effect upon the past. "The sound and true rule is that if the contract, when made, was valid by the laws of the State as then expounded by all departments of the government and administered in its courts of justice, its validity and obligation can not be impaired by any subsequent action of legislation, or decision of its courts altering the construction of the law.' The same principle applies where there is a change of judicial decision as to the constitutional power of the legislature to enact the law. To this rule, thus enlarged, we adhere. It is the law of this court. It rests upon the plainest principles of justice. To hold otherwise would be as unjust as to hold that rights acquired under a statute may be lost by its repeal. This rule embraces this case." Gelpcke et al. v. The City of Dubuque, 1 Wall. 175, 17 L. Ed. 520; Havemeyer v. Iowa City, 3 Wall. 294, 18 L. Ed. 38; Mitchell v. Burlington, 4 Wall. 270, 18 L. Ed. 350; Lee County v. Rogers, 7 Wall. 181, 19 L. Ed. 16. Following decisions of state courts; change in decisions state courts after bonds issued. 1072. (Iowa, 1863.) Noticing the claims asserted by the city as grounds of defense to the bonds involved in this suit, the .court say: "All these objections have been fully considered and repeatedly overruled by the Supreme Court of Iowa." (Citing a number of cases decided in 1853 to 1859.) "The bonds were issued and put upon the market between the periods named. These adjudications cover the entire ground of this controversy. They exhaust the argument upon the subject. We could add nothing to what they contain. We shall be governed by them, unless there be something which takes the case out of the established rule of this court upon that subject. It is urged that all the decisions have been overruled by the Su preme Court of the State, in the later case of the State of Iowa ex rel. v. The County of Wapello, and it is insisted that in cases involving the construction of a State law or Constitution, this court is bound to follow the latest adjudication of the highest court of the State. Leffingwell v. Warren is relied upon as authority for the proposition. In that case this court said it would follow the latest settled adjudications.' Whether the judgment in question can, under the circumstances, be deemed to come within that category, it is not now necessary to determine. It cannot be expected that this court will follow every such oscillation, from whatever cause arising, that may possibly occur." "However we may regard the late case in Iowa as affecting the future, it can have no effect upon the past. 'The sound and true rule is, that if the contract, when made, was valid by the laws of the State as then expounded by all departments of the government, and administered in its courts of justice, its validity and obligation cannot be impaired by any subsequent action of legislation, or decision of its courts altering the construction of the law. The same principle applies where there is a change of judicial decision as to the constitutional power of the legislature to enact the law. To this rule, thus enlarged, we adhere. It is the law of this court. It rests upon the plainest principles of justice. To hold otherwise would be as unjust as to hold that rights acquired under a statute may be lost by its repeal. The rule embraces this case." "We are not unmindful of the importance of uniformity in the decisions of this court, and those of the highest local courts, giving constructions to the laws and Constitutions of their own States. It is the settled rule of this court in such cases, to follow the decisions of the State courts. But there have been heretofore, in the judicial history of this court, as doubtless there will be hereafter, many exceptional cases. We shall never immolate truth, justice, and the law because a State tribunal has erected the altar and decreed the sacrifice." Gelpcke v. City of Dubuque, 1 Wall. 175, 17 L. Ed. 520. Change of decision subsequent to contract. 1073. (Iowa, 1865.) "If the bonds in suit had been executed since the last decision in Iowa, they would be controlled by it; but the change in judicial decision cannot be allowed to render invalid contracts which, when made, were held to be lawful. The courts of Iowa, having, when these bonds were issued, construed their Constitution and laws so as to give them force and validity, cannot, by a subsequent and contrary construction, destroy them. Thomson V. Lee County, 3 Wall. 327, 18 L. Ed. 177. Changed rule of decision by state court. 1074. (Wis. 1869.) "It is urged also that the Supreme Court of Wisconsin has held that the act of the legislature conferring authority upon the city to lend its credit, and issue the bonds in question, was in violation of the provision of the Constitution above referred to. But, at the time this loan was made, and these bonds were issued, the decisions of the court of the State favored the validity of the law. The last decision cannot, therefore, be followed." The City (of Kenosha) v. Lamson, 9 Wall. 477, 19 L. Ed. 725, 730. Changed judicial construction. 1075. (Mo. 1879.) "As a rule, we treat the construction which the highest court of a State has given a statute of the State as part of the statute, and govern ourselves accordingly; but where different constructions have been given to the same statute at different times, we have never felt ourselves bound to follow the latest decisions, if thereby contract rights which have accrued under earlier rulings will be injuriously affected.” "The true rule is to give a change of judicial construction in respect to a statute the same effect in its operation on contracts and existing contract rights that would be given to a legislative amendment; that is to say, make it prospective, but not retroactive. After a statute has been settled by judicial construction, the construction becomes, so far as contract rights acquired under it are concerned, as much a part of the statute as the text itself, and a change of decision is to all intents and purposes the same in its effect on contracts as an amendment of the law by means of a legislative enactment. So far as this case is concerned, we have no hesitation in saying that the rights of the parties are to be determined according to the law as it was judicially construed to be when the bonds in question were put on the market as commercial paper. We recognize fully, not only the right of a State court, but its duty to change its decisions whenever, in its judgment, the necessity arises. It may do this for new reasons, or because of a change of opinion in respect to old ones; and ordinarily we will follow them, except so far as they affect rights vested before the change was made." Douglass v. County of Pike, 101 U. S. 677, 25 L. Ed. 968. Changed rule of decisions by state courts. 1076. (N. Y. 1880.) In this case the court declined to follow the latest decisions of the State Supreme Court, holding a curative statute to be unconstitutional for the reason, that at the time the bonds in suit were issued the decisions of the State Supreme Court held such acts to be valid. Thompson v. Perrine, 103 U. S. 806, 26 L. Ed. 612. Rule of decision of state court when contract made. 1077. (Mich. 1881.) Following the former decisions of this court it was held in this case, "To be the duty of the Federal courts, in all cases within their jurisdiction, depending upon local law, to administer that law, so far as it affects contract obligations and rights, as it was judicially declared to be by the highest court of the State at the time such obligations were incurred or such rights accrued. And this doctrine is no longer open to question in this court. It has been recognized for more than a quarter of a century as an established exception to the general rule that the Federal courts will accept or adopt the construction which the State courts give to their own Constitution and laws." Taylor v. Ypsilanti, 105 U. S. 60, 26 L. Ed. 1008; New Buffalo v. Iron Co., 105 U. S. 73, 26 L. Ed. 1024. Changed rule of decision of the su preme court of a state. 1078. (II. 1886.) "If, according to the law of Illinois, as declared by its highest court at the time the bonds in suit were issued, the act of February 28, 1867, was a valid exercise of legislative power, the rights of the purchasers or holders, could not be affected merely by subsequent change of decision. For it is the long established doctrine of this court-from which, as said recently in Green County v. Conness. 109 U. S. 105, we are not disposed to swerve-that where the liability of a municipal corporation upon negotiable securities depends upon a local statute, the rights of the parties are to be determined according to the law as declared by the State courts at the time such securities were issued." Anderson v. Santa Anna, 116 U. S. 356, 6 Sup. Ct. Rep. 413, 29 L. Ed. 633. Changed rule of decision of state court. 1079. (Mo. 1889.) "But this court declined to reconsider its former decisions to the prejudice of bona fide holders of bonds issued prior to the change of decision in the State court. The bonds, the coupons of which are here in suit, were all issued in 1871, at which time the highest court of Missouri held that the above constitutional provision, as to municipal subscriptions or the loaning of municipal credit to corporations without a previous vote of the people, was intended (to use the language of County of Ralls v. Douglass), 'as a limitation on future legislation only, and did not operate to repeal enabling acts in existence when the Constitution took effect." Scotland County v. Hill, 132 U. S. 107, 10 Sup. Ct. Rep. 26, 33 L. "If there be any inconsistency in the opinions of these courts, the general rule is that we follow the latest settled adjudications in preference to the earlier ones." "An exception has been admitted to this rule, where, upon the faith of State decisions affirming the validity of contracts made or bonds issued under a certain statute, other contracts have been made or bonds issued under the same statute before the prior cases were overruled. Such contracts and bonds have been held to be valid, upon the principle that the holders upon purchasing such bonds and the parties to such contracts were entitled to rely upon the prior decisions as settling the law of the State. To have held otherwise would enable the State to set a trap for its creditors by inducing them to subscribe to bonds and then withdrawing their own security." Wade v. Travis County, 174 U. S. 499, 19 Sup. Ct. Rep. 715, 43 L. Ed. 1060. CHAPTER XVII. RES ADJUDICATA; LIS PENDENS; INJUNCTIONS BY STATE COURTS. To what extent prior decisions of the courts, in causes in which municipal bonds have been in any way involved, may affect the rights of purchasers or holders of the securities, and to what extent the doctrine of lis pendens applies to such securities and dealers therein, are questions of interest and importance to the bond buyer and bond lawyer. The cases involving these matters which have been decided by the Supreme Court and the Circuit Courts of Appeals of the United States are cited and noted in this chapter, with the exception of some that appear in part C of chapter XII on the subject of mandamus proceedings. ticular case, cannot in any manner limit or affect the operation of the process or proceedings in the Federal Jurisdiction of federal courts; not affected by state legislation; injunction by state courts; process of federal courts not affected courts." thereby; discussion; impairing The Constitution itself becomes a obligation of contract by removal of taxing power. 1081. (Iowa, 1867.) A State court cannot enjoin or interfere with process of a Federal court. "Where a State has authorized a municipal corporation to contract and to exercise the local power of taxation to the extent necessary to meet the engagement, the power thus given cannot be withdrawn until the contract is satisfied." of any "Authority of the Circuit Courts to issue process kind which is necessary to the exercise of jurisdiction and agreeable to the principles and usages of law, is beyond question, and the power so conferred cannot be controlled either by the process of the State courts or by any act of a State legislature." mockery if the State legislatures may at will annul the judgments of the Federal courts and the Nation is deprived of the means of enforcing its own laws by the instrumentality of its own tribunals. "State courts are exempt from all interference by the Federal tribunals, restrain either the process or proceedbut they are destitute of all power ings in the National courts." 66 Viewed in any light, therefore, it is obvious that the injunction of a State court is inoperative to control, or in any manner to affect the process or proceedings of a Circuit Court, not on account of any paramount jurisdiction in the latter courts, but because, in their sphere of action, Circuit Courts are wholly independent of the State tribunals." Riggs v. John 'Repeated decisions of this court have also determined that State laws, son County, 6 Wall. 166, whether general or enacted for the par L. Ed. Res adjudicata; same parties and title. 1083. (Wis. 1868.) "On the 9th of January, 1861, the appellee recovered a judgment at law against the appellant upon another portion of these securities judgment rendered in its favor, in an action brought by one Smith upon certain earlier maturing coupons from the same bonds accompanied with proof, that Cromwell the plaintiff here was at the time the owner of the coupons in that action, and that the action was prosecuted for his sole use and benefit. Held, that on the facts appearing, such former judgment did not operate as an estoppel. The rule of law relating to res adjudicata discussed at considerable length. Cromwell v. County of Sac, 94 U. S. 351, 24 L. Ed. 195. Pendency of suit; affecting bonds. though not the same with 1086. (Ill. 1877.) "Was the comthose in question in this case. The mencement and pendency of the suit parties were identical, and the title involved was the same. for having the proceedings of the All the objections taken in this case might have supervisors declared void, and preventbeen taken in that. The judgment of ing the issue of the bonds, such notice the court could have been invoked to all persons of their invalidity, as upon each of them, and if it were ad- to defeat the title of a purchaser for verse to the appellant, he might have value before maturity, having no brought the decision here by a writ of actual notice of the suit, or of the error for review. The court had full objection to the bonds?" jurisdiction over the parties and the subject. Under such circumstances, a judgment is conclusive, not only as to the res of that case, but as to all further litigation between same paries touching the same subject-matter, though the res itself may be different." "A party can no more split up defenses than indivisible demands, and present them by piecemeal in successive suits growing out of the same transaction. The judgment at law established conclusively the original validity of the securities described in the bill, and the liability of the town to pay them. Nothing is disclosed in the case which affects this condition of things." Beloit v. Morgan, 7 Wall. 619, 19 L. Ed. 203, 205. Pendency of litigation. 1084. (Ky. 1871.) Purchasers in the open market of negotiable municipal bonds are not affected by the pendency of litigation concerning them. City of Lexington v. Butler, 14 Wall. 282, 20 L. Ed. 809. Former judgment as estoppel. 1085. (Iowa, 1876.) In this case, an action on bonds of Sac county and interest coupons, the county pleaded and relied upon the estoppel of a former But "It is a general rule that all persons dealing with property are bound to take notice of a suit pending with regard to the title thereto, and will, on their peril, purchase the same from any of the parties to the suit. this rule is not of universal application. It does not apply to negotiable securities purchased before maturity, nor to articles of ordinary commerce sold in the usual way. This exception was suggested by Chancellor Kent, in one of the leading cases on the subject in this country, and has been confirmed by many subsequent decisions." A number of cases noticed and com mented upon. "Whilst the doctrine of constructive notice arising from lis pendens, though often severe in its application, is, on the whole, a wholesome and necessary one, and founded on principles affecting the authoritative administration of justice; the exception to its application is demanded by other considerations equally important, as affecting the free operations of commerce, and that confidence in the instruments by which it is carried on, which is so nec essary in a business community." County of Warren v. Marcy, 97 U. S. 96, 24 L. Ed. 977. |