United States, upon an examination of the nature of other powers contained in the charter, not to prohibit or limit the city in incurring an indebtedness for authorized purposes greater than the sum it was empowered to borrow.1

A con

§ 293 (129). What is a Borrowing; Power construed. tract whereby a city agrees with an individual that if the latter will pay or advance the amount of interest due and to become due on certain bonds of the city already issued, the city will pay or refund the amount, is "not a borrowing of money" within the terms or spirit of the charter prohibiting the municipal authorities from borrowing money unless authorized by a prior vote of the citizens; such a contract being one simply for the payment of a debt.2 Under authority to a city to borrow money, it may, if there be no statutory restriction, make the principal and interest payable at the place where the money is borrowed or where it pleases, though beyond the limits of the State. Among certain powers of a strictly municipal nature conferred upon a city was the power "to borrow money for any object in its discretion," or "for any public purpose," on a two-thirds vote of the citizens; and this was held, in connection with a general statute of the State, recognizing by implication (as construed) the validity of city and county bonds generally, to authorize such city to issue bonds to aid in the construction of a railway or plank road leading to, through, or from the city. In thus holding the court,

3

Hitchcock v. Galveston, 96 U. S. 341; approved, United States v. Fort Scott, 99 U. S. 152.

2 Gelpcke v. Dubuque, 1 Wall. (U. S.) 175, 221, Miller, J., dissenting. Where a city can make such a contract, with the sanction of a prior vote, the sanction will, in an action on such a contract, be presumed until the contrary is shown by the city. Ib. per Swayne, J.

Meyer v. Muscatine, 1 Wall. (U.S.) 384. In this case the court, per Swayne, J., say (1 Wall. 391): "The power of a municipal corporation to make any contract does not depend upon the place of performance, but upon its scope and object. A city authorized to establish gas works and water works, and to gravel its streets, may buy water, coal, and gravel beyond its limits, and agree to pay where they are found, or elsewhere. The principal power, when expressed, draws to it, by necessary implication, the means of its execution. This is the settled rule in the construc

tion of all grants of authority, whether to governments or individuals." Express authority to a city "to borrow money" without restriction as to the mode of its exercise necessarily implies the power to determine the time of payment, and to issue bonds or other evidence of indebtedness, to borrow within or without the State, and to agree to pay where borrowed. Evansville, &c. R. Co. v. Evansville, 15 Ind. 395, 412, distinguished as to place of payment from Prettyman v. Tazwell Co., 19 Ill. 406; 22 III. 147, which were regarded as turning upon peculiar statutory provisions. Evansville v. Woodbury, 18 U. S. App. 514 ("re; demption bonds" issued under charter power "to borrow money for the use of the city"), following Evansville, &c. R. Co. v. Evansville, 15 Ind. 395, supra. See supra, § 280, and further, chapter on Municipal Bonds, post.

Meyer v. Muscatine, 1 Wall. (U. S.) 384, Miller, J., dissenting, in an opinion of marked ability; Mitchell v. Burling

as it seems to us, overlooked or did not apply the salutary rule of strict construction of such an extraordinary power as that of aid to railways and borrowing money for that purpose.

§ 294 (130). Special Limitations on the Power to borrow; Borrowing and Creation of Debt defined. Provisions are frequently made in Constitutions or in charters or legislative acts to prevent the creation or increase of municipal indebtedness beyond specified limits or except upon certain conditions. Such limitations have been found by experience to be necessary to prevent extravagance, are remedial in their nature, are based upon a wise policy, and ought, therefore, to be construed and applied to secure the end sought. The cases referred to will show that the courts have fairly given them full effect. The judicial construction of some of these provisions will be noticed in this place.

The Constitution of Maryland contains a provision that “no debt shall be created by the mayor and city council of Baltimore" (except for specified temporary purposes), unless it shall be first sanctioned by the legislature and approved by the voters of the city. The city, being the owner of a large amount of stock in the Baltimore and Ohio Railroad Company, without previous legislative authority or the approval of the voters, passed an ordinance to provide for the raising of one million of dollars by hypothecating its railroad stock, and for the investment of the same in the bonds of another railroad company whose road was in process of construction. The validity of this ordinance being drawn in question, the court considered it to be plain that the constitutional provision quoted was intended to prohibit the city from aiding in the construction of works of internal improvement without the previous assent of the legislature and of a majority of the voters of the city; and that the ordinance (notwithstanding the ingenious use of the phrase raising instead of borrowing money, and the further provision that the parties furnishing the money should look for its repayment exclusively to the stock pledged, and that the city should not be responsible for any deficit) did create a debt within the meaning of the Constitution, and was therefore void.1

ton, 4 Wall. 270; Rogers v. Burlington, 3 Wall. 654. Overruled in Brenham v. German Am. Bank, 144 U. S. 173; on rehearing, Ib. 549. General power granted to a city to create a debt will be construed to mean debts for specified, legitimate, and proper municipal purposes, and not for any or all purposes, at the discretion of the city

council or inhabitants. Lafayette v. Cox, 5 Ind. 38. Limitation on taring power does not or may not limit power to contract debts. Emerson v. Blairsville, 2 Pittsb. (Pa.) Rep. 39; post, § 322. See further chapters on Contracts and Municipal Bonds, post.

1 Baltimore v. Gill, 31 Md. 375; distinguished, Richmond v. McGirr, 78

$295 (131).

Special Charter Limitations construed.

Under

a charter prohibiting the common council of a city from "authoriz

Ind. 192, 196. That a debt may be entirely reconcile these cases. The true created by borrowing money, although interpretation of such restrictions on there be a provision exempting the municipal indebtedness, in my judgborrower from liability beyond the ment, lies between the extremes they property pledged, see Newell v. People, exhibit. The plain object of such re7 N. Y. 9, 87; post, $ 295. Where a strictions is to require that all moneys municipal corporation is forbidden by which are to be paid for municipal the Constitution to become indebted expenses, after the debt has reached in any amount exceeding a specified the fixed limit, shall be raised by taxalimit, held, 1, that if it exceed the tion. In view of this object, it is clear limited amount it may be enjoined; (and all the cases agree in this) that 2, that the bill is maintainable by a prohibitions against increasing the incitizen and taxpayer of the place. debtedness, or the debt, of a municiSpringfield v. Edwards, 84 Ill. 626. pality are not to be construed as See also Dunbar v. Canyon County, 5 limited to obligations which are debts Idaho, 407. See ante, § 215. Remedy eo nomine, but are to be extended to all of taxpayer, see post, § 1579. Such contracts for the payment of money a limitation was held to forbid implied or contracts whereon the payment of as well as express indebtedness, and to be binding equally upon courts of equity and of law. Litchfield v. Ballou, 114 U. S. 190 (where relief in equity was denied to one who had loaned money to a city, in excess of its constitutional limit of indebtedness, which had been used in constructing public works, and who prayed for a return of the money); Hedges v. Dixon County, 150 U. S. 182. Where the contract of a town to issue its bonds was illegal because the issue would create a debt in excess of its power under the Constitution to contract, the fact that it afterwards, under the general municipal incorporation law, became a city with power to create a debt in a greater amount, was held not to validate the contract made while it was a town, and that the city could not ratify the contract. Waxahatchie v. Brown, 67 Tex. 519; Gould v. Paris, 68 Tex. 511. As to debt limitations, see ante, chap. vi.

The charter of Atlantic City in New Jersey contained a limitation that its debt "shall at no time exceed $35,000." The city was indebted in this sum when it entered into a contract with a water company to supply itself with water for public purposes for an indefinite period, making no provision, however, to raise by taxation the amount that the city could be called on to pay under the contract. On certiorari, bringing up the contract for judicial review, it was held that the contract and ordinances were ultra vires, and the same were set aside. After reviewing the cases from Iowa, Illinois, Indiana, and Pennsylvania, Magie, J., said: "It is impossible, perhaps, to

money may be enforced. But where the money to be paid upon such contracts is provided for, to be raised by taxation upon some fixed and definite scheme, such contracts are not, in my judgment, within such prohibitions. Where, however, the money required to meet such contracts is not provided for, either by being, legally ordered to be raised by taxation and appropriated for that purpose, or by some legislative scheme which positively prescribes that it shall be raised by taxation and appropriated for its payment as needed, then such contracts do increase the indebtedness or debt of municipal corporations within the meaning of such prohibitions. Any other construction would deprive these restrictions of the force requisite to reach and cure the evil intended to be prevented thereby." Read v. Atlantic City, 49 N. J. L. 558.

In Louisiana, it was held that an act of the legislature prohibiting counties and cities from thereafter "contracting any debt or pecuniary liability, without fully providing, in the ordinance creating the debt, the means of paying the principal and interest of the debt so contracted," does not extend to a liability for ordinary street work, which forms part of the current expenses of the corporation, and which may be paid out of its current revenues. Reynolds v. Shreveport, 13 La. An. 426. A provision in a city charter that the council shall not have power to pledge the credit of the city for more than a specified sum without submitting the question to the voters of the city was regarded as a definite restriction on the power;

ing any expenditure for any purpose," in the current political year, exceeding the amount of the annual tax levy, the council cannot authorize any expenditure to be made within the year exceeding the limit; but they are not forbidden to authorize in that year an expenditure to be made in a subsequent year, for services to be performed in such subsequent year.1 The charter of Chicago contained the provision that "no contract shall be made by the common council, and no expense incurred unless an appropriation shall have been previously made concerning such expense," and the comptroller is required to submit each year an estimate of the amount necessary to defray the expenses of the city for the current year. With this provision in force the city made a contract with a gas company whose works were already complete to take gas for its streets and public buildings at a specified price for the period of ten years. This contract was held invalid on the ground that under the above charter provision there was no actual or reasonable necessity to make a contract extending over ten years, no appropriation having been made commensurate with the obligations of the contract; and aside from the special provision of the charter, the court inclined to the same result on the ground that the power was legislative and that the council could not, without any reasonable necessity appearing, bind their successors for ten years or indefinitely. Drummond, J., added, "In all cases of contracts to run for years, the authority to make them should be clear. It is better that all parties should understand there is a limit to the power of municipal bodies in such cases.'

and hence a statute authorizing the city to issue bonds to defray the expenses of building a bridge is subordinate to, and does not override, the restriction in the charter. Cumberland v. Magruder, 34 Md. 381. But see Butz v. Muscatine, 8 Wall. (U. S.) 575; post, $322.

1 Weston v. Syracuse, 17 N. Y. 110. See also Cook v. City of Buffalo, 1 Clinton's N. Y. Digest, Buffalo," § 2. Limitation on rate of tax to be annually levied construed. State v. New Orleans, 23 La. An. 358.

Funded debts. The charter of a city provided that "no funded debt shall be contracted." It was decided that a city bond, issued on time, for the purchase of market grounds, was not a funded debt. Ketchum v. Buffalo, 14 N. Y. 356. Meaning of "funded debt" and "funding" considered by Selden, J., Ib. p. 367, and by Wright, J., p. 378. See ante, § 202. City may fund valid bonds and issue new bonds therefor,

2

without express authority. Sed quare? Galena v. Corwith, 48 Ill. 423; Burr v. Carbondale, 76 Ill. 455, 474. See Smith v. Morse, 2 Cal. 524; Police Jury v. Britton, 15 Wall. 566; ante, §§ 106, 113, 193, 194, 195, 196, 210. Index, Funded Debt, Sinking Fund. The authorities on the power of a city to fund or refund its indebtedness are collated and examined in the chapter on Municipal Bonds, post.

2 Garrison v. Chicago, 7 Biss. 480, Drummond, J.; ante, § 245. The statute of California, which declares that the board of supervisors must not contract debts and liabilities which, added to the salaries of officials, will exceed the revenue of the county for the year, does not mean by "revenue" the actual amount of money received into the County Treasury, but the estimate of the board of supervisors of what the revenue will be. Babcock v. Goodrich, 47 Cal. 488.

§ 296 (132). Special Charter Limitation as to borrowing Money construed. The city of Galveston, under a provision of its charter authorizing it to construct sidewalks and make street improvements and to reimburse itself for the expense from abutting lot owners, made a contract for local improvements of this character which created a liability exceeding $50,000. This contract was claimed by the city to be invalid by reason of another provision of the charter, that the council shall not borrow money for general purposes to an amount greater than $50,000. The Supreme Court of the United States held the objection to the validity of the contract not to be well taken; and the reasons for its judgment, as stated by Mr. Justice Strong, are given in the note.1

§ 297 (133). Prohibitory Statute construed. Under a statute which was passed to prohibit the making of contracts by unauthorized official agents for supplies for the use of the city of New York, if a contractor makes a contract without observing the protective requirements of the statute and furnishes supplies thereunder, the city is not bound, although the materials supplied were used by it, and an implied liability cannot be raised in the face of the words and purpose of the statute."

power, and it is a special expenditure. It is for a new work, unlike the work of keeping in repair. Conceding that it is a purpose of the act incorporating the city, it cannot be regarded as a general purpose, for if it is, all purposes of the charter are general. Grading a street or making a sidewalk, where none had existed before, is a special improvement, not like repairs of constant recurrence. By another article of defendant's charter the city council was authorized to provide by ordinance special funds for special purposes, and to make the same disbursable only for the purpose for which the fund was created. For these reasons we are of opinion that the limitation upon the power of the council to borrow for general purposes did not make the agreement with the plaintiffs invalid."

Hitchcock v. Galveston, 96 U. S. 341; approved, U. S. v. Fort Scott, 99 U. S. 152. "The limitation," says Strong, J., in the case first cited, "is upon the power to borrow money, and to borrow it for general purposes. It implies that there may be lawful purposes which are not general in the sense in which that word is used in the charter. An examination of the whole instrument, and of the numerous and large powers conferred upon the council as well as duties imposed, makes it evident that the provision could not have been intended to prohibit incurring an indebtedness exceeding the sum named. It is in no sense a limitation of the debt of the city. If it is, the grant of power the charter contains was an idle thing, and the duties imposed could not be performed. The council, as we have seen, is empowered to grade 2 McDonald v. New York, 68 N. Y. and pave the streets, and to construct 23, distinguishing Nelson v. Mayor, &c., sidewalks. There is no express limita- 63 N. Y. 535; and Argenti v. San Frantion of these powers. Their exercise cisco, 16 Cal. 255, as to implied liability. necessarily involves large expenditure. See Gould v. Paris, 68 Tex. 511; post, Such expenditure is, therefore, au- §§ 792, 794; ante, §§ 288, note, 290, thorized. It is a plain incident of the note.