Chicot County Drainage District v. Baxter State Bank

308 U.S. 371 (1940)


Baxter (P) sued Chicot (D) to recover on fourteen bonds worth $1,000 each that were issued in 1924. D had been in default since 1932. D pled a decree issued in the same court under the Act of May 24, 1934, providing for Municipal Debt Readjustments. The decree was essentially a debt restructuring in the same fashion that a bankruptcy court would issue; old obligations were ordered to be presented within one year and that unless they were presented those parties would be forever barred from participating in the planned readjustment. D pled the decree as res judicata, and P demurred to the answer. Evidence showed that P had notice of the proceeding for debt readjustment. The District Court ruled in favor of P as such because the decree was void as the statute that authorized it was declared unconstitutional by the Supreme Court in a 1936 case. D appealed.