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Vol. II.)

CLARK v. Iowa City.

[No. 3.

LIMITATIONS. — DETACHED COUPONS.

CLARK v. IOWA CITY.

The statute of limitations begins to run against detached coupons from their maturity.

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MR. JUSTICE FIELD delivered the opinion of the court.

In 1856 Iowa City issued certain bonds in sums of five hundred dollars each, payable to bearer in the city of New York, on the 1st of January, 1876, with annual interest at the rate of ten per cent. a year, payable on the first day of January of each year. For the different instalments of interest coupons were annexed. The bonds were taken up and cancelled before the commencement of this action, but previous to such cancellation the coupons for interest due on the 1st of January, 1860, upon which the action was brought, were detached and negotiated to other parties until by purchase they came to the possession of the plaintiff. In bar of the action the defendant pleaded the statute of limitations of Iowa. That statute prescribes the limitation of ten years to actions on all written contracts, whether under seal or otherwise.

The simple question, therefore, presented for our determination is, whether the statute is a bar to an action upon the coupons detached from the bonds and transferred to parties other than the holders of the bonds, when it would not be a bar to an action on the bonds themselves had they not been cancelled.

The counsel for the plaintiff cites the case of The City of Kenosha v. Lamson, reported in the 9th of Wallace, and the case of The City of Lexington v. Butler, reported in the 14th of Wallace, as conclusive against the bar of the statute. There are expressions in the opinions of the court in those cases which, detached from the context, would seem to justify this conclusion. But the whole purport of the decisions in those cases was to the effect that the coupons, being given for interest on the bonds, partook of their nature and were equally high as security, and therefore the statute could only run against them when it would run against instruments of the dignity of the bonds. In other words, the decisions only established the doctrine that the coupons so far partook of the nature of the bonds that as the latter were specialties so were they specialties also, and not mere simple contracts. See also Commissioners of Knox County v. Aspinwall, 21 How. 539, 546.

The first case, that of The City of Kenosha v. Lamson, arose in Wisconsin, where actions upon sealed instruments are not barred until the lapse of twenty years, whilst actions upon simple contracts are barred in six years. The action was brought upon the coupons when more than six years but less than twenty years had elapsed after their maturity. And the court held that the coupons were substantially copies of the bond in respect to the interest, and were given to the holder of the bond for the purpose of enabling him to collect the interest at the time and place mentioned, without the trouble of presenting the bond every time the interest became due, and to enable the holder to realize the interest by negotiating the coupons in business transactions; and that the coupons, partaking

Vol. II.)

CLARK ‘v. Iowa City.

(No. 3.

ecurien they are comissued, and in depa

of the nature of the bonds, which was of higher security, were not barred by lapse of time short of twenty years. The court concluded its opinion by observing that it would be a departure from the purpose for which the coupons were issued, and from the intent of the parties, to hold that when they are cut off from the bonds the nature and character of the security changes and becomes a simple contract debt, and adds : “ Our conclusion is that the cause of action is not barred by lapse of time short of twenty years."

The case of The City of Lexington v. Butler arose in Kentucky, where the statute prescribes fifteen years as the limitation for actions on bonds and only five years for actions on simple contracts. The action was upon coupons of certain bonds issued by the city, and the city pleaded the statute of limitations of five years; but the court answered that bonds were specialties not falling within the period prescribed ; that suits on bonds might be maintained if commenced within fifteen years after the cause of action accrued ; and that a suit upon a coupon was not barred by the statute unless the lapse of time was sufficient to bar also a suit upon the bond, as the coupon, if in the usual form, was but a repetition of the bond in respect to the interest for the period of time therein mentioned, and partook of its nature.

It is evident from this examination of the cases cited that it was not the intention of the court to decide that an action upon a coupon detached from the bond, and negotiated to other parties, was not subject to the same limitations as an action upon the bond itself ; much less to hold that the coupons remained a valid and existing cause of action not only for the period prescribed for actions on the bond after its maturity, but for the additional period intervening between the maturity of the coupon and the maturity of the bond, however great that might be. The question before the court in those cases was only whether the time the statute ran against the coupons was the longest or shortest period — was it six or twenty years in the Wisconsin case, or was it five or fifteen years in the Kentucky case ; and the court held that the statute ran for the longest period, because the coupons partook of the nature of the bonds, and the statute ran for that period as to them.

Most of the bonds of municipal bodies and private corporations in this country are issued in order to raise funds for works of large extent and cost, and their payment is, therefore, made at distant periods, not unfrequently beyond a quarter of a century. Coupons for the different instalments of interest are usually attached to these bonds, in the expectation that they will be paid as they mature, however distant the period fixed for the payment of the principal. These coupons, when severed from the bonds, are negotiable and pass by delivery. They then cease to be incidents of the bonds, and become in fact independent claims; they do not lose their validity, if for any cause the bonds are cancelled or paid before maturity ; nor their negotiable character ; nor their ability to support separate actions; and the amount for which they are issued draws interest from its maturity. They, then, possess the essential attributes of commercial paper, as has been held by this court in repeated instances. Thompson v. Lee County, 3 Wallace, 327 ; Aurora City v. West, 7 Ib. 105. See also County of Beaver v. Armstrong, 44 Pa. 63, and National Exchange Bank v. Hartford, Providence f Fishkill R. R. 8 R. I. 375.

Vol. II.)

FIRST NATIONAL BANK OF CLARION v. Jones.

(No. 3.

Every consideration, therefore, which gives efficacy to the statute of limitations, when applied to actions on the bonds after their maturity, equally requires that similar limitations should be applied to actions upon the coupons after their maturity.

Coupons, when severed from the bonds to which they were originally attached, are in legal effect equivalent to separate bonds for the different instalments of interest. The like action may be brought upon each of them, when they respectively become due, as upon the bond itself when the principal matures; and to each action— to that upon the bond and to each of those upon the coupons — the same limitation must upon principle apply. All statutes of limitation begin to run when the right of action is complete, and it would be exceptional and illogical to hold that the statute sleeps with respect to claims upon detached coupons, whilst a complete right of action upon such claims exists in the holder.

We answer therefore the question certified to us, that the statute of Iowa, which extends the same limitation to actions on all written contracts, sealed or unsealed, began to run against the coupons in suit from their respective maturities ; and accordingly affirm the judgment.

CLIFFORD, J. I dissent from the opinion of the court, upon the ground that the case is governed by our prior decisions.

BANKRUPTCY. — FRAUDULENT PREFERENCE. — JUDGMENT NOTE.

FIRST NATIONAL BANK OF CLARION v. JONES.

Two notes were discounted by plaintiff in error. Before their maturity, upon urgent request, defendant in error took them up, and gave, in lieu of them, a single judgment note equal in amount to the two. A few days afterwards judgment was entered for the amount of the new note, and a levy and sale made. The defendant in error, haying been adjudged a bankrupt, suit was instituted by his assignee to recover the value of the property sold, on the ground that the giving of the judgment note was a fraudulent preference, the debtor being at the time insolvent. The court below gave certain instructions appropriate to the case, upon which a jury found for the plaintiff on the question of insolvency. The several instructions, which were the alleged grounds of error, are here examined and approved, the appellate court refusing to disturb the decrec, which was to the effect that the giving of the judgment note was a preference.

MR. JUSTICE CLIFFORD delivered the opinion of the court.

Assignees of the bankrupt's estate may recover back money or other property paid, conveyed, sold, assigned, or transferred contrary to the provisions of the bankrupt act, if such payment, pledge, assignment, transfer, or conveyance was made within four months before the filing of the petition by or against the debtor, and with a view to give a preference to one or more of the creditors of the bankrupt, or to a person having a claim against him, or who was under any liability on his account, provided the debtor was insolvent or in contemplation of insolvency, and the person receiving such payment or conveyance had reasonable cause to believe that a fraud on the bankrupt act was intended or that the debtor was insolvent. 14 Stat. at Large, 536.

Vol. II.)

FIRST NATIONAL BANK OF CLARION v. Jones.

(No. 3.

Two notes of five thousand dollars each were discounted by the defendant corporation for the firm of which the debtor is the surviving partner. Each note was made payable four months after date and neither had become payable at the date of the transaction which is the subject of complaint. They were dated as follows, to wit: the first April 16th, 1867, and the second March 16th in the same year, and each was indorsed by the firm of which the debtor was a member. Subsequently the senior partner of the firm deceased, and on the 9th of July next after the dates of the notes the officers of the bank insisted upon a different security, and the debtor, yielding to their importunity, gave the bank a new note, payable one day after date, for the sum of ten thousand dollars, with interest, coupled with a warrant of attorney to confess judgment against him for the amount as of any term, with costs of suit, waiving inquisition, and agreeing to the condemnation of any property that may be levied upon by any execution which may issue forthwith on failure to comply with the conditions hereof, also hereby waiving the benefit of the exemption laws, or any act of assembly, relative to executions now in force or hereafter to be passed, as more fully set forth in the record.

Armed with that power the creditor, on the eighteenth of the same month, entered judgment against the debtor for the sum of ten thousand three hundred dollars in one of the state courts, under the warrant of attorney annexed to the note, and by exemplification transferred the same to the county where the debtor resided and was engaged in busi

ness.

Promptitude seems to have characterized the whole transaction, and on the nineteenth of the same month the creditor filed a precipe for a fieri facias, which it appears was issued on the same day, and on the twenty-second of the same month the sheriff seized certain quantities of white-pine boards, amounting in the whole to a million and two hundred thousand feet, and three days later the same officer seized the stock of goods owned by the debtor. Suffice it to say that such proceedings followed that the goods seized were sold and the net proceeds were paid over to the creditor, amounting to nine thousand three hundred and fiftynine dollars and six cents, and that the balance of the judgment was afterwards paid by a sale of the lands of the debtor situated in another county. .

By the record it also appears that the debtor, during the same month, filed his petition in the district court praying to be adjudged a bankrupt, and that he was so adjudged on the 9th of September following. Pursuant to those proceedings the plaintiff below was duly appointed the assignee of the bankrupt's estate, and on the 6th of January of the next year he instituted this suit to recover back the property, or the value of it, so received by the creditor.

Briefly stated, what the plaintiff alleges is, in substance and effect, that the debtor, being then and there insolvent, with a view to give a preference to the creditor, executed and delivered to him the said bond or note with the warrant to confess judgment thereon against him for the speci. fied amount ; that all the proceedings which led to the judgment, execution, and levy were had with intent to give the creditor a preference over

Vol. II.)

First National Bank OF CLARION v. JONES.

[No. 3.

his other creditors; and that the creditor bank accepted the bond or note with the warrant to confess judgment, and received the proceeds of the sale of the property, having reasonable cause to believe that the debtor was insolvent, and that the bond or note, judgment, exemplification, execution, and payment were made in fraud of the provisions of the bankrupt act.

Several counts were filed, but the particulars in which they differ are not material to the questions presented in the assignment of errors. Nor is it necessary to reproduce the pleas filed by the defendant, as it will be sufficient to say that they controvert every material allegation of the declaration, except the execution and delivery of the note and warrant to confess judgment.

Witnesses were introduced by the plaintiff tending to show that the debtor was insolvent when he gave the bond or note with the warrant to confess judgment, and that the debtor gave it to secure a preference to the creditor over his other creditors, and that the defendant had reasonable cause to believe that the debtor was insolvent, and that the bond or note with the warrant to confess judgment was given in fraud of the provisions of the bankrupt act.

On the other hand, the defendant introduced witnesses whose testimony tended to prove that the debtor at that time was not insolvent, that he did not then contemplate insolvency or bankruptcy, and that the defendant had no reasonable cause to believe or suspect that he was insolvent or that he contemplated anything of the kind.

Matters of that sort, however, are not now in issue, as they were submitted to the jury, and the record shows that the verdict of the jury was in favor of the plaintiff. All such matters having been settled by the verdict of the jury, nothing remains except to reëxamine the questions of law presented in the bill of exceptions, or such of them as are embodied in the assignment of errors, which are substantially as follows: (1.) That the court erred in charging the jury as requested by the plaintiff in his third prayer. (2.) That the court erred in charging the jury as requested by the plaintiff in his sixth prayer. (3.) That the court erred in charging the jury as requested by the plaintiff in his eighth prayer. (4.) That the court erred in refusing to charge the jury as requested by the defendants in their first prayer. (5.) That the court erred in refusing to charge the jury that the circuit court will not take jurisdiction in such a suit where it appears that the judgment of a state court has been perfected by levy or sale and distribution of the proceeds of the sale of a defendant's property among his lien creditors. (6.) That the court erred in permitting the plaintiff to give evidence as to the value of the property beyond the amount made out of it and paid to the bank. (7.) That the court erred in rejecting the offer of the defendants to prove by the debtor that he did not procure the execution to be issued or the seizure of the goods to be made.

I. Three of the errors assigned are addressed to the charge of the court, which was substantially as follows :

1. That every one is presumed to intend that which is the necessary and unavoidable consequence of his acts, and that the evidence introduced that the debtor signed and delivered to the defendants the judgment note

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