that an issue of bonds for the purpose of purchasing the plant, franchises, &c. of a water works system under a statute providing that the bonds should be paid from the income of the water works, and that none of the city's funds raised by taxation should be applied to their payment, is not a contracting of debt by the city within the inhibition of the Constitution. If the fund from which the obligations are to be paid is to be created by the levy of a tax under the general power of taxation vested in the municipality, although the contract stipulates that no general indebtedness for the stipulated amount shall be created against the city, and that the only obligation undertaken by the city is to levy, anticipate, and pledge the tax agreed to be imposed, indebtedness is created, and the contract is void if the existing indebtedness of the municipality has reached the constitutional limit.2 The question whether under the Iowa Constitution the legislature may by statute authorize a city to make a contract payable exclusively from a special levy for the purpose of defraying the cost of an improvement of general interest, such as water works, without creating indebtedness, has been before the State and Federal courts in two cases, involving the same statute, ordinance, and contract, and decisions were rendered by these courts diametrically opposed to each other. The State court held that the legislature might properly authorize the levy of such a tax; that a fund created thereby was essentially a special fund in the same sense that a fund created by the levy of a special assessment is, there being no real difference between such a fund and a special assessment, and that bonds issued by the city payable only from such tax would not create an tional limit, and bonds are issued for the payment of a water works plant under the express authority of a statute which makes them payable out of a special fund, composed of a percentage of the gross receipts of the plant, without pledging the credit of the city, they are not "municipal bonds" within a constitutional provision permitting the investment of the school fund in "State, county, municipal, or school district bonds." i Brockenbrough v. Charlotte Water Com'rs, 134 N. Car. 1. See also State v. Neosho, 203 Mo. 40; 101 S. W. Rep. 99. 2 Windsor v. Des Moines, 110 Iowa, 175; post, § 200. The contract in this was for the construction of an electric light plant. At the time when it was made there was no statute author case izing a special levy for the purpose of constructing the plant. The contract obliged the city to levy taxes to pay the cost of construction and to appropriate them as collected to the payment thereof. To the same effect, Voss v. Waterloo Water Co., 163 Ind. 69; East Moline v. Pope, 224 Ill. 386. An obligation incurred by a county under a statute authorizing it to levy an annual tax for a series of years to construct a court house, which also provides that it shall not be liable to the contractor except for the application of such tax when collected, creates a debt within the constitutional provision, because the tax necessarily implies a resort to a general power of taxation over all the people of the county. Brix v. Clatsop County, 46 Oreg. 223. indebtedness within the meaning of the constitutional provision.' The same statute, contract, and ordinance came before the Federal 1 In Burlington Water Co. v. Woodward, 49 Iowa, 58, the city, acting under statutory authority, entered into a contract with a private corporation to construct certain water. works, under an agreement whereby a special tax upon property within the city was levied from year to year. It was provided that the moneys thus realized together with the earnings of the system should constitute a water fund. This fund was created for the payment of the interest on the bonds issued by the company, for the purchase or retirement of the bonds from time to time, for taxes and expenses, for a specified dividend to stockholders, and for the creation of a sinking fund for the extension and improvement of the works. The special tax was never to be so far diminished as to prevent the payment of the specified dividend upon the stock of the company. It was also agreed that, when the financial condition of the city would admit, it might purchase the works by assuming the duties and liabilities of the company. The mayor was required to endorse on each bond of the company a certificate showing the assessed value of the property on which this special tax was annually to be levied, together with a stipulation that from the water fund the city would pay the interest and pay the further sum of $2,000 annually into the sinking fund before any money should be taken out of the water fund for any other purpose. It was held that the agreement by the city to pay the interest upon the bonds, the instalments to the sinking fund, and dividends to the stockholders was limited to the special tax alone, and therefore did not create a municipal indebtedness. In Swanson v. Ottumwa, 118 Iowa, 161, the city, which was then indebted beyond the constitutional limit, passed an ordinance to issue $400,000 of bonds to be sold by the city and the proceeds used in constructing water works. This action was subsequently approved by a vote of the electors. The bonds were to be payable at stated times, to bear interest payable semi-annually, and to be secured by a mortgage on the water plant. The ordinance also levied a sinking fund tax of two mills for each year until the cost of the plant should be fully paid, and appropriated the tax to the payment of the bonds. Provision was also made for the levy in each year after the construction of the works of a water tax of five mills, or so much thereof as might be necessary, together with the water rents, to pay the cost of maintenance, and to pay any of the purchase price or bonds which should not be paid from the proceeds of the two-mill tax. Any surplus arising from the water tax or water rents was pledged to the payment of the bonds. It was provided that no part of the bonds should be paid out of any fund, levy, or tax other than those so provided. The Court held that this contract did not create municipal indebtedness within the meaning of the Constitution. Weaver, J., after a very full examination of the authorities, said: "If a city enters into a contract for an extraordinary expenditure within the scope of its power, and under express statutory authority provides a special or extraordinary fund, either by tax contemporaneously levied for that purpose alone and for the full amount or by some fixed or definite plan of taxation extending over a period of years, is not the receipt of such revenues legally certain and subject to appropriation in advance of its actual collection without the incurring of an indebtedness? It must be borne in mind that the limit provided by the Constitution is upon the power to contract indebtedness and not upon the power of taxation. It will no doubt be conceded that it would be competent for the legislature to authorize a city to levy in a single year a special tax sufficiently large to construct a suitable system of water works. Suppose, then, that under such a statute the city levies the necessary tax and proceeds to let the contract in anticipation of the revenues thus provided. Can it be urged in the light of the authorities that this contract creates a municipal debt? We think not. Nor can we conceive that the fact of the tax being extended over a period of years instead of being all levied in a single year affects the application of the principle. The plan of taxation is fixed and definite, and its levy and collection from year to year is subject to no discretion, and is as certain in every legal sense as if levied in a single instalment." court in an action seeking identically the same relief. That court was of the opinion that the scheme of the statute and the proposed transaction constituted an evident evasion of the purpose and intent of the constitutional limitation upon the power of the city, and held that it necessarily involved a resort to the general power of taxation of the city, and that the ordinance and contract created an indebtedness in violation of the Constitution. While it is true that in terms "the limit provided by the Constitution is upon the power to contract indebtedness and not upon the power of taxation," it is also true that taxation is the sting of indebtedness, and that the constitutional debt limit is provided because becoming indebted involves the exercise of the power of taxation if the municipal faith and credit are to be kept good. On similar principles, if the special fund out of which the obligation is to be paid is to be created by the pledge, mortgage, and appropriation of an existing established works and property and the income thereof belonging to the city, of which it is or might thereby be deprived, an indebtedness is created within the meaning of the constitutional limitation. If, however, bonds issued for the purpose of raising money to make special improvements contain an unconditional promise to pay, they constitute an indebtedness within the meaning of the constitutional provisions, notwithstanding recitals that they are payable out of the proceeds of special assessments for the improvement, are issued upon the faith and security thereof, and their payment is chargeable upon the property benefited, and notwithstanding such bonds are a mere substitute for the assessments which the city can collect as a resource for their payment. If means are 1 Ottumwa v. City Water Supply Co., 119 Fed. Rep. 315. This case was decided about a month after Swanson v. Ottumwa, supra, and the Federal Circuit Court of Appeals declared that the opinion in the Swanson case was not persuasive, and it declined to be guided by it. It considered that the transaction involved a borrowing of money by the city upon the security of a general tax upon the property within the municipality, and that, as the city was indebted to the constitutional limit, the contract was void. Post, § 199. water fund. The act provided that the city might convey, by way of mortgage or deed of trust, the water works system acquired or enlarged to secure the payment of the certificate. By the ordinance all the receipts from the water works were to be paid into the water fund, and the bonds were also to be secured by a mortgage upon the entire water system. The city had already reached the limit of indebtedness, and it was held that the ordinance was void, because it contemplated the pledging of the existing works and the revenues therefrom by mortgage and previous appropriation, as a result of which the city might be deprived of its property. See also East Moline v. Pope, 224 Ill. 386; post, § 199. Fort Madison v. Fort Madison Water Co., 114 Fed. Rep. 292, aff'g 110 Fed. Rep. 901; Vickrey v. Sioux City, adopted which in good faith, according to reasonable expectation, will produce a sufficient fund to satisfy the obligation, the contract entered into on the faith of them should not be held unlawful on account of an unintentional miscalculation or an accidental and unexpected failure to produce the full result. If a city at the time of making a contract levies a special tax in good faith supposed to be adequate to meet it, but in case of fire or flood or decline in values. the result is an insufficient fund, it cannot be held that the contract, good at its inception, is thereby made bad. Consequently, where a city provides that the contract price of a sewer shall be paid partly by money in the treasury and partly by assessments on abutting and non-abutting property, and subsequently it is found that the non-abutting property is not liable to the assessments, the loss must fall on the city, although, at the time when the contract was made, the obligation of the city to pay for the non-abutting properties increased the debt beyond the constitutional limitation.1 So, too, if a city in good faith provides that bonds issued for a local improvement shall be payable out of assessments on the property benefited, and the assessments prove to be illegal because of the improper manner in which the ordinances authorizing them were enacted, the city is liable for, or in respect of, the bonds, on an implied assumpsit or perhaps ex delicto, although at the time of their issue the amount thereof would increase the debt beyond the constitutional limitation.2 $ 199. Hypothecation of City Property and Purchase of Prop- erty Subject to Incumbrance. - 115 Fed. Rep. 437; Allen v. Davenport, 107 Iowa, 90; Austin v. Seattle, 2 Wash. 667; Fowler v. Superior, 85 Wis. 411. See also United States v. Fort Scott, 99 U. S. 152; Burlington Sav. Bank v. Clinton, 111 Fed. Rep. 439; Citizens Bank v. Spencer, 126 Iowa, 101; post, chapter on Municipal Bonds. Addyston Pipe & Steel Co. v. Corry, 197 Pa. St. 41. 2 Fort Dodge Electric Light & Power Co. v. Fort Dodge, 115 Iowa, 568; Gable v. Altoona, 200 Pa. St. 15. See also Denny v. Spokane, 79 Fed. Rep. 719; Mankato v. Barber Asphalt Pav. Co., 142 Fed. Rep. 329. The rule stated in the text deducible from the cases cited is consonant certainly with one's sense of justice; it seems not to be easy to reconcile it with the broad definitions of "indebtedness' judicially declared in other cases. See supra, In § 193 and notes; infra, § 201. Springfield v. Edwards, 84 Ill. 626, it is said that when the debt is made payable from a special fund or an appropriation of current taxes already levied, the remedy for a failure of the officers to collect and pay over the taxes to the creditor must be against the officers and not against the city, otherwise a contingent debt would be incurred, but quære? Where the city is not liable to the contractor for the cost of paving a street because the statutes impose that cost upon the abutting proprietors only and declare that no contractor shall have a claim against the city for the work done, the city is liable to the contractor for money paid to it for such improvement by a railroad company which has agreed to pay one-half the expenses thereof. Dallas v. Brown, 10 Tex. Civ. App. 612. the effect of the constitutional limitations by borrowing money on the security of property already belonging to the municipality, without giving the lender any recourse against the body corporate or its property other than the particular property pledged to secure the money advanced. But the courts have held that such transactions create indebtedness within the prohibition of the Constitution, because, although the city is not bound in personam to pay the debt, its property may be taken therefor. The reasoning on which the cases proceed is that the personal obligation of the debtor is not essential to the creation of the debt; the borrowing of the money and its reception contemplate that it shall be repaid, and the mortgaging or pledging of the existing property of the city necessarily implies an indebtedness for which the property of the city pledged or mortgaged is bound, even if the creditor have no general recourse against the city and its funds. If the city purchases water works In Mayor, &c. of Baltimore v. Gill, 31 Md. 375, an ordinance was passed for the raising of a sum of money by the hypothecation of certain railroad stock belonging to the city. It provided that the creditors should look exclusively to the stock pledged for repayment, and that in no event should the city be liable or responsible for the return or repayment thereof. The court held that the ordinance contemplated the creation of indebtedness within the meaning of the constitutional provision prohibiting the city from creating debt within the assent of the voters. In Joliet v. Alexander, 194 Ill. 457, the city owned a system of water works. Desiring to extend its water works, the city (which was indebted in excess of the constitutional limit) passed an ordinance authorizing a contract therefor, which provided that all the income from the system should constitute a water fund; that water fund certificates bearing interest should be issued to pay the cost of the extension; that no money should be paid out of the water fund except for necessary operating expenses, and the principal and interest of the certificates; that the certificates should be secured by mortgage on the water system and its proposed extension. This ordinance was within the statutory authority of the city. The holder of the certificates was not to have any cause of action against the city except to compel it to appropriate the water fund to their payment, and to foreclose the mortgage. It was held that as the proposed transaction contemplated the pledging or mortgaging of the existing water works, and the revenues therefrom for the payment of the certificates, it created indebtedness of the city in violation of the constitutional limitation. Supra, § 198. See also East Moline v. Pope, 224 Ill. 386. In Lobdell v. Chicago, 227 Ill. 218, the city, being already indebted to a large amount, proposed, pursuant to statutory authority, to issue " street railway certificates" to the amount of $75,000,000, to purchase and equip street railways owned and operated by railway corporations under franchises from the State and city. If this issue constituted "indebtedness" within the meaning of the constitutional limitation, it would be in excess of the amount permitted thereby, and hence unlawful. The statute declared that these certificates, with the interest thereon, should under no circumstances become an obligation or liability of the city, or payable out of any general fund thereof, but should be payable solely out of a specified portion of the revenues or income to be derived from the railway property for the acquisition of which they were issued. To secure the payment of the certificates, the city was authorized to mortgage all railway property acquired or to be acquired through the issue thereof. Any such mortgage carried the grant of a privilege or right to maintain and operate the street railway property covered thereby for a period not exceeding twenty years from |