Dissenting Opinion: Brown, Harlan, Brewer, JJ.

MR. JUSTICE BROWN, (with whom concurred MR. JUSTICE HARLAN and MR. JUSTICE BREWER,) dissenting.

These bonds were issued under an act of the legislature authorizing district townships having a bonded indebtedness outstanding to issue negotiable bonds for the purpose of funding such indebtedness, and subject to a constitutional provision that no municipal corporation shall become indebted in any manner or for any purpose to an amount in the aggregate exceeding five per cent on the value of the taxable property within such corporation. The bonds were certified by the proper officers of the district to have been executed and issued in pursuance of and in accordance with the statute authorizing such bonds, (a copy of which was printed upon the bonds,) and in accordance with the laws and constitution of the State of Iowa, and in conformity with the resolution of the board of directors, etc. Plaintiff purchased these bonds, for their par value in cash, of one Richards, who had been appointed "refunding agent to negotiate the bonds." Under the provision of the constitution, the township had no power to create an indebtedness in excess of $6551.90, that being five per cent of the taxable property of the township, as shown by the last tax list previous to the issuance of said bonds.

But, granting that the indebtedness already existing exceeded the constitutional limit, these bonds were issued, not for the purpose of increasing this indebtedness, but merely to change its form and reduce its rate of interest. The object of the constitutional provision was to prevent the incurrence of a new debt or the increase of an existing debt beyond a limited amount. The object of the statute was to enable district townships to fund their indebtedness by issuing and selling bonds at not less than their par value, and applying the proceeds to the payment of such outstanding indebtedness, or by exchanging such bonds for outstanding bonds. If the construction placed upon this statute by the court be correct, it is difficult to see how any township can avail itself of it, if such township has an existing indebtedness up to the amount of the constitutional limitation, since the new bonds, whether

Dissenting Opinion: Brown, Harlan, Brewer, JJ.

issued to be sold for cash or to be exchanged for other bonds, must, while the process of sale or exchange is going on, nominally increase the indebtedness of the corporation. I regard this as too technical an interpretation of the constitutional provision.

In giving a construction to this clause, the Supreme Court of Iowa held in S. C. &. St. P. R. R. Co. v. The County of Osceola, 45 Iowa, 168, that the validity of negotiable bonds of a county, issued in satisfaction of a judgment, in the hands of innocent holders for value, without notice of any claim that they are illegal for any cause, could not be questioned, by showing that the judgments were rendered upon warrants issued in excess of the constitutional limitation of five per cent, and that the board of supervisors fraudulently omitted to interpose the defence when the warrants were sued upon. "When a bond," says the court, "issued in discharge of a judgment is placed upon the market, a purchaser who has no intimation of anything affecting its validity, has a right to presume that the board of supervisors have been mindful of their interest and their duty, and that all available defences have been presented and passed upon." This case was recognized and cited with approval in Miller v. Nelson, 64 Iowa, 468, and S. C. &. St. P. R. R. Co. v. Osceola County, 52 Iowa, 26. See also Chaffee Co. v. Potter, ante, 355, and cases there cited; Powell v. Madison, 107 Indiana, 106.

Had the proceeds of these bonds been properly applied, no question could have arisen as to the indebtedness of the township having been increased by their issue. If the district township had the right to issue the bonds, which it certainly had, if the statute under which they were issued be constitutional, the purchaser of such bonds was under no obligation to see that the money he paid for them was applied to extinguishing the existing indebtedness. He was entitled to act upon the presumption that the officers charged with the execution of the law would not betray their trust, and would deal fairly with the people who had put them forward to represent them. In my view this is simply an attempt to saddle the holders of these bonds with the derelictions of the officials chosen by the electors of this township to act for them in this transaction, and who were alone entitled to receive the money.

Opinion of the Court.

SCOTT v. ELLERY.

APPEAL FROM THE CIRCUIT COURT OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF IOWA.

No. 117. Submitted November 25, 1891.- - Decided January 4, 1892.

Sections 5105 and 5106 of the Revised Statutes relate to different classes of debts against a bankrupt; the former to debts that are proved, the latter to debts that are provable but not proved.

A mortgage creditor of a bankrupt obtained a decree for the foreclosure of the mortgage, under which the property was sold for less than the mortgage debt. He proved the remainder, deducting the amount received from the sale, in the bankruptcy proceedings. After the discharge of the bankrupt he obtained a decree in the foreclosure proceedings against the debtor for the balance due on the mortgage debt. Held, that by proving his debt in bankruptcy he waived his right, pending the question of discharge, to take a deficiency decree against the bankrupt; that after the discharge the right to such a decree was lost altogether; that the debtor was not bound, after his discharge, to give any attention to the foreclosure suit; and that, under the circumstances, the obtaining a deficiency decree amounted to a fraud in law.

THE case is stated in the opinion.

Mr. H. Scott Howell and Mr. William C. Howell for appellant.

Mr. E. S. Huston for appellee.

MR. JUSTICE HARLAN delivered the opinion of the court.

The plaintiff, Ellery, and the defendant, Scott, were, on and after the 17th day of August, 1877, residents and citizens, continuously, of the respective States of New Jersey and Iowa.

On that day, Scott instituted a suit in the District Court of Des Moines County, Iowa, to obtain a decree for the sale of certain lands in that county covered by a mortgage given by Ellery, and for a judgment against the latter for the mortgage debt. Ellery appeared in the suit and caused it to be removed

Opinion of the Court.

into the Circuit Court of the United States for what' was then the Southern District of Iowa. By a decree, rendered June 10, 1878, the mortgage was foreclosed, the court adjudging the sum of $19,480.50 and costs to be due Scott from Ellery, and directing a sale of the premises by the master to pay that sum. The decree concluded: "It is further ordered that the said master shall, as soon as the said sale is made, report the same to this court for its action thereon, and that this cause do stand continued until the execution of this decree, and the further order of this court." The mortgaged property was sold under the decree, and brought the sum of $10,000. The sale was duly confirmed November 4, 1878, that sum being credited on the decree.

Prior to the confirmation of the sale - whether before the sale occurred is not stated—a petition of involuntary bankruptcy was filed against Ellery in the District Court of the United States for the District of New Jersey, and he was duly adjudged by that court a bankrupt. His estate was conveyed by the register in bankruptcy, in the usual form, to an assignee. Subsequently, January 27, 1879, Scott filed with the register in bankruptcy proof of his debt against the estate of Ellery, based upon the above decree of foreclosure, and giving a credit for the $10,000 realized by the sale.

On the 25th day of February, 1879, Ellery was granted a discharge in bankruptcy, but no dividend was ever made or paid by his assignee.

At the regular term of the Circuit Court of the United States for the District of Iowa, held at Des Moines, May 15, 1879, Scott appeared by counsel, and such proceedings were had that a decree was rendered, at his instance, against Ellery for $10,436.42, being the balance due on the mortgage debt. No new notice was served upon Ellery or his counsel, by or for Scott, nor was any notice published, stating that an application would be made for a deficiency decree against Ellery.

Scott did not have knowledge of Ellery's discharge in bankruptcy until long after the date of the deficiency decree; and Ellery had no actual knowledge of that decree until about the last of May, 1883. The only notice either had was such as

Opinion of the Court.

might be implied or inferred from the facts and proceedings to which reference has been made.

By the final decree in the present suit, which was a bill in equity brought by Ellery, the court, in accordance with Ellery's prayer for relief, vacated the deficiency decree of May 15, 1879, and Scott was enjoined from enforcing it.

Section 5105 of the Revised Statutes provided (as did the bankruptcy act of 1841, c. 9, § 5, 5 Stat. 445) that "no creditor proving his debt or claim shall be allowed to maintain any suit at law or in equity therefor against the bankrupt, but shall be deemed to have waived all right of action against him; and all proceedings already commenced or unsatisfied judgments already obtained thereon against the bankrupt shall be deemed to be discharged and surrendered thereby." This section was amended by the act of June 22, 1874, by adding thereto the following words: "But a creditor proving his debt or claim shall not be held to have waived his right of action or suit against the bankrupt where a discharge has been refused or the proceedings have been determined without a discharge." 18 Stat. 179, c. 390, § 7.

Section 5106 provided that "no creditor whose debt is provable shall be allowed to prosecute to final judgment any suit at law or in equity therefor against the bankrupt, until the question of the debtor's discharge shall have been determined; and any such suit or proceeding shall, upon the application of the bankrupt, be stayed to await the determination of the court in bankruptcy on the question of the discharge, provided there is no unreasonable delay on the part of the bankrupt in endeavoring to obtain his discharge, and provided, also, that if the amount due the creditor is in dispute, the suit, by leave of the court in bankruptcy, may proceed to judgment for the purpose of ascertaining the amount due, which amount may be proved in bankruptcy, but execution shall be stayed."

It is clear that sections 5105 and 5106 related to different classes of cases. Section 5106 applied only to creditors whose debts were "provable," but not proved, in bankruptcy. In respect to such debts, when sued for, the right was given to the bankrupt, upon his application, to have the suit and pro