308 U.S. 371 (1940), 122, Chicot County Drainage District v. Baxter State Bank

Docket Nº:No. 122
Citation:308 U.S. 371, 60 S.Ct. 317, 84 L.Ed. 329
Party Name:Chicot County Drainage District v. Baxter State Bank
Case Date:January 02, 1940
Court:United States Supreme Court

Page 371

308 U.S. 371 (1940)

60 S.Ct. 317, 84 L.Ed. 329

Chicot County Drainage District


Baxter State Bank

No. 122

United States Supreme Court

Jan. 2, 1940

Argued December 7, 1939




1. Bondholders of a state drainage district, who were parties to a proceeding under the Act of Congress of May 24, 1934, for a readjustment of its indebtedness, and who did not then question the constitutionality of that statute, but did not comply with the provisions of the decree for retirement of their bonds within a time limited, are estopped, by the principle of res judicata, from raising that question of constitutionality in a subsequent action on their bonds, notwithstanding that, in the meantime, in another case, coming from another district, this Court had declared the Act unconstitutional. Pp. 374-375.

2. The lower federal courts, including the District Court sitting as a court of bankruptcy, though their jurisdiction is limited to that prescribed by Acts of Congress, are nevertheless courts with authority, when parties are brought before them in accordance with the requirements of due process, to determine whether or not they have jurisdiction to entertain the cause and for this purpose to construe and apply the statute under which they are asked to act. Their determinations of such questions, while open to direct review, may not be assailed collaterally. P. 376.

3. Res judicata may be pleaded as a bar not only as respects matters actually presented to sustain or defeat the right asserted in the earlier proceedings, but also as respects any other available matter which might have been presented to that end. P. 378.

103 F.2d 847 reversed.

Certiorari, post, p. 532, to review the affirmance of a judgment recovered in the District Court in an action on bonds of a drainage district.

Page 372

HUGHES, J., lead opinion

MR. CHIEF JUSTICE HUGHES delivered the opinion of the Court.

Respondents brought this suit in the United States District Court for the Western Division of the Eastern District of Arkansas to recover on fourteen bonds of $1,000 each, which had been issued in 1924 by the petitioner, Chicot County Drainage District, organized under statutes of Arkansas,1 and had been in default since 1932.

In its answer, petitioner pleaded a decree of the same District Court in a proceeding instituted by petitioner to effect a plan of readjustment of its indebtedness under the Act of May 24, 1934,2 providing for "Municipal-Debt Readjustments". The decree recited that a plan of readjustment had been accepted by the holders of more than two-thirds of the outstanding indebtedness

Page 373

and was fair and equitable; that, to consummate the plan, and with the approval of the court, petitioner had issued and sold new serial bonds to the Reconstruction Finance Corporation in the amount of $193,500, and that these new bonds were valid obligations; that, also with the approval of the court, the Reconstruction Finance Corporation had purchased outstanding obligations of petitioner to the amount of $705,087.06, which had been delivered in exchange for new bonds and canceled; that certain proceeds had been turned over to the clerk of the court, and that the disbursing agent had filed his report showing that the Reconstruction Finance Corporation had purchased all the old bonds of petitioner other than the amount of $57,449.30. The decree provided for the application of the amount paid into court to the remaining old obligations of petitioner, that such obligations might be presented within one year, and that, unless so presented, they should be forever barred from participating in the plan of readjustment or in the fund paid into court. Except for the provision for such presentation, the decree canceled the old bonds, and the holders were enjoined from thereafter asserting any claim thereon.

Petitioner pleaded this decree, which was entered in March, 1936, as res judicata. Respondents demurred to the answer. Thereupon, the parties stipulated for trial without a jury.

The evidence showed respondents' ownership of the bonds in suit, and that respondents had notice of the proceeding for debt readjustment. The record of that proceeding, including the final decree, was introduced. The District Court ruled in favor of respondents, and the Circuit Court of Appeals affirmed. 103 F.2d 847. The decision was placed upon the ground that the decree was void because, subsequent to its entry, this Court, in a

Page 374

proceeding relating to a municipal district in Texas, had declared the statute under which the District Court had acted to be unconstitutional. Ashton v. Cameron County District, 298 U.S. 513. In view of the importance of the question, we granted certiorari. October 9, 1939. 308 U.S. 532.

The courts below have proceeded on the theory that the Act of Congress, having been found to be unconstitutional, was not a law; that it was inoperative, conferring no rights and imposing no duties, and hence affording no basis for the challenged decree. Norton v. Shelby County, 118 U.S. 425, 442; Chicago, Indianapolis & Louisville Rwy. Co. v. Hackett, 228 U.S. 559, 566. It is quite clear, however, that such broad statements as to the effect of a determination of unconstitutionality must be taken with qualifications. The actual existence of a statute, prior to such a determination, is an operative fact, and may have consequences which cannot justly be ignored. The past cannot always be erased by a new judicial declaration. [60 S.Ct. 319] The effect of the subsequent ruling as to invalidity may have to be considered in various aspects -- with respect to particular relations, individual and corporate, and particular conduct,...

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