§ 285. Implied Power to borrow; New Jersey Decisions. New Jersey, the question of the implied power of a town to borrow

money arose in an action against the town for money borrowed. The Supreme Court of that State held that, in the absence of a specific grant of power, municipal corporations do not in general possess the capacity to borrow money. It declared that the power to borrow money could not be inferred as an appendage to the usual franchises given to municipal corporations, such right not being in any reasonable sense "necessary" within the meaning of that term as properly defined. In a majority of instances municipal affairs are with ease and completeness transacted without it, and the court cannot hold that ordinary municipal operations cannot be' efficiently carried on without the assistance of borrowed capital. For the attainment of ordinary municipal purposes the supplies derived

warrants negotiable in form, wherein recovery has been allowed; but such warrants are not in fact negotiable, and words of negotiability are in such cases clearly surplusage. National State Bank v. Marshall Indep. Sch. Dist., 39 Iowa, 490; Wall v. Monroe County, 103 U. S. 74; Clark v. Polk Co., 19 Iowa, 248; Clark v. Des Moines, 19 Iowa, 199-290; Keller v. Hicks, 22 Cal. 457, 460; Dana v. San Francisco, 19 Cal. 486, 490."

If it is to be understood that if the bonds had not contained words of negotiability they would have been valid and recovery might be had thereon, but because, and only because, they are made negotiable in form they are wholly void, and no recovery can be had upon them, although the city has on the merits no defence thereto, it asserts a doctrine which we believe to be unsound, and one which is not necessary in the case supposed to protect the municipality, and which is manifestly unjust to the holder of such instruments. Such a doctrine is contrary to what is decided or declared in many cases, and one which we think will not obtain general judicial sanction. In a previous case the Supreme Court of Iowa laid down the true rule as follows: "Where a municipal corporation has the power to bind itself by written obligation without the power to make the same negotiable, and it executes its written obligation making the same negotiable in form, it would not be void. It would result only that the instrument would not in fact be negotiable, and would lack the characteristics with which actual negotiability would clothe it." Sioux City . Weare, 59 Iowa, 95.

The Federal Circuit Court of Appeals for the Fifth Circuit, in a case in which the issue was directly involved, unanimously held as follows: "Conceding there was no power in the defendant to bind its constituency to the payment of commercial securities, as these bonds purport to be, it does not follow that when such bonds were given in payment of a lawful debt, and the settlement of such debt is shown to have been the purpose for which the bonds were issued, and it is further shown that the mayor, being duly authorized by valid ordinances, signed and delivered the same to the creditor agreeing to take them, the defendant can escape the payment of the debt or obligation which is evidenced by such promises to pay, because, or on the ground that, the city authorities gave negotiable, instead of non-negotiable, promises to pay to the creditor. the contrary, when negotiable securities, instead of non-negotiable instruments, have been employed in settlement of lawful debts, the negotiable bonds so given have, when they were being sued upon, been treated in a number of reported cases, both in Federal and State courts as evidences of the debt, and on them, in the hands of third parties, recovery has been had against such defendant corporation. See Holmes v. City of Shreveport, 31 Fed. 113, and cases cited therein." Pacific Imp. Co. v. Clarksdale, 74 Fed. 528. See also, by analogy, Quincy v. Warfield, 25 Ill. 317; Enfield v. Jordan, 119 U. S. 680. A different rule would or might apply where there was no authority to create the debt or to issue any instrument whatever to evi

dence it.

On

annually from taxation should be deemed amply sufficient. Therefore, under an authority to a city, from year to year, to vote and raise by tax such sum or sums of money as shall be deemed necessary and proper, money cannot be raised by loan. Although there may be no limitation upon the amount that may be raised, there is a limitation upon the method of raising it. The restriction is, that it shall be derived from taxation. The power to borrow money is, in a certain sense, a larger power than that of raising money by taxation. The resistance of the parties taxed is, in the nature of the thing, an immediate check to taxation, which does not exist in the case of a power to borrow, for the immediate burden of a loan is but slightly felt. Therefore the right to borrow money should not be inferred from any of the ordinary powers conferred in the charters of municipal corporations, and under ordinary circumstances such a power can proceed only from an express grant to that effect.1

at the bar, whether a municipal corporation, lacking a special authority to that end, can execute a promissory note. I have examined the subject, but the views already expressed render it unnecessary to pronounce any final conclusion with respect to it; for the purposes of the present case, I may say, however, that my present view is, that a corporate body of this character has the general and inherent right to execute a note as a voucher of indebtedness, but that such note will not have the effect, when in the hands of a bona fide holder before maturity, of cutting off the equities existing between the maker and payee. In this respect I fully concur in the learned opinion of Mr. Justice Bradley, recently read in the Supreme Court of the United States, in the case of Mayor v. Ray, 19 Wall. 468." Per Beasley, C. J.

1 Hackettstown v. Swackhamer, 37 N. J. L. 191. The able and learned judge who delivered the opinion of the court said: "An examination of the books will show that this question has not as yet received much judicial consideration. The courts of Wisconsin and Ohio have had this matter before them, and have arrived at a result the opposite of that which has just been stated. I have carefully weighed the arguments of these learned tribunals, but they have failed to convince my understanding. The cases referred to are those of Mills v. Gleason, and Bank v. Chillicothe. As a counterpoise to these views stands the weighty opinion of Judge Dillon in his treatise on Municipal Corporations, Vol. I, § 117. Much emphasis is added to this expression of opinion from the fact that this author had before him, at the time he wrote, the opposing cases just cited. Authority to a city to purchase In this state of the authority, it cannot sites, for markets, public buildings and be claimed that the principle is so wharves, and to erect suitable buildsettled that the judgment of this court ings or wharves, or other structures or cannot be freely exercised with respect improvement on said sites, and for to this important subject. My con- said purposes, or for the purpose of clusion is that already expressed, that purchasing said sites for school a right to borrow money is not to be houses, to issue bonds, does not ininferred from any of the ordinary clude authority to issue bonds to enpowers conferred in the charters of large a school house. School houses municipal corporations, and that, under held not included in the expression ordinary circumstances, such a power "public buildings" as used in the can proceed only from an express grant charter. Field v. Bayonne, 49 N. J. L. to that effect. 308.

"The further question was discussed

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§ 286. Implied Power to borrow; New York Decisions. New York, a comparatively early case laid down the rule that if a city be authorized to purchase lands, e. g., for a market, it may make the purchase upon credit and execute a bond or instrument in acknowledgment of the debt, payable in twenty-five years.1 The court, however, expressed the opinion that the power to purchase on credit and to execute an instrument in acknowledgment of the debt is not the same as the power to borrow money to accomplish a corporate object. In purchasing or contracting upon credit, the power of the corporation to use its credit is limited to contracting

necessary course.

1 Ketchum v. Buffalo, 14 N. Y. 356, tween the two. If the power of the 1856, s. c. post, chapter on Municipal corporation to use its credit is limited Bonds, was an action to set aside a to contracting directly for the accomconveyance made by an individual plishment of the object authorized by defendant to the defendant city, and law, then the avails or consideration of to cancel a bond given to the individual the debt created cannot be diverted defendant as the purchase price of the to any illegitimate purpose. The conland conveyed by him to the city. tract not only creates the fund, but The court examined the authority of secures its just appropriation. On the the city to purchase the land upon contrary, if the money may be borcredit and to execute a bond under rowed, the corporation will be liable to seal payable twenty-five years after repay it, although not a cent may ever date for the purchase price, and the be applied to the object for which it conclusion which it reached was that was avowedly obtained. It may be the city had power to purchase the borrowed to build a market and apland; that the city had implied propriated to build a theatre, and yet authority to do so upon a credit to the corporation would be responsible which there was no limit but its own for the debt. The lender is no way discretion, and that the right to give accountable for the use made of the the single bill in question in acknowl- money. It is plain, therefore, that edgment of the debt followed as a if the policy of limiting the powers and expenditures of corporations to the objects contemplated by their charters is to be carried out, their right to incur debts for those objects must be strictly confined to contracts which tend to their direct accomplishment. If they may procure the requisite funds by the indirect method of borrowing, they may resort to any other indirect mode of obtaining them, such as establishing some profitable branch of trade, entering into commercial enterprises, &c., the avowed object being to obtain the means necessary to accomplish some authorized purpose. No one can fail to see that to concede to corporations the power to borrow money for any purpose would be entirely subversive of the principle which would limit their operations to legitimate objects. Hence the distinction between such a power and that of stipulating for a credit in a contract made for the direct advancement of some authorized corporate object."

Discussing the effect of the reasoning of the court in so deciding as tending to establish the right to exercise an implied power to borrow money, Lott, J., said: "It may be objected that the reasoning here adopted tends to establish the right of a corporation to contract a debt for any authorized purpose by borrowing the money necessary to accomplish it; a right which, from the numerous legislative acts on the subject, it would seem corporations have not generally been supposed to possess. It is true the power to contract to pay A $10,000 at the end of a year for doing certain work, and the power to borrow $10,000 of B, upon a credit of a year, for the purpose of paying A, for doing the work, might seem, at first view, to be substantially identical. The amount is the same, and the time of payment the same; the creditor only is different. A little examination, however, will show that there is a very material difference be

directly for an object authorized by law, and the avails or consideration of the debt created cannot be diverted to any illegitimate purpose. But under a power to borrow money, the corporation becomes liable to repay it, although no part of it is applied to the object for which it is avowedly obtained. In later cases the court used expressions denying the inherent or implied powers of towns and of boards of supervisors of counties to borrow money, or to issue negotiable paper. And in a later case which involved the question of the power of a town to borrow money and to issue bonds therefor the court held that towns had no inherent power to borrow. In reaching this conclusion the broad ground appears to have been