may be thought of its constitutional soundness, there is little hesitation in affirming that this invention to aid the enterprises

of private corporations has proved itself baneful in the last degree.'

314 (154). Municipal Indebtedness; Negotiable Bonds. The indebtedness of municipal and public corporations in this country has already reached enormous proportions, and it is constantly increasing. A large part of this indebtedness is evidenced by negotiable bonds, which are held by thousands of persons, at home and abroad, as an investment. Bonds have been issued in large amounts in payment of subscriptions for the stock of railway corporations, or as donations to aid them in the construction of their roads located in or near the municipality or public corporation thus extending its assistance.2

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315 (155). Same Subject. The power conferred upon municipal and public corporations to issue commercial securities for such a purpose is of comparatively recent origin, and it has undeniably been attended with very serious, and it is perhaps not too strong a statement to add, disastrous consequences. One of these is the stimulus which the long credit commonly provided for effectually supplies to over-indebtedness. The bonds usually fix a time, twenty or thirty years distant, for payment of the principal. Those

provision in Wisconsin restricting the power of municipalities to borrow money, contract debts, and loan their credit.

Bush (Ky.), 1; Breckenridge County, Kentucky v. McCracken, 22 U. S. App. 115 (subscription by "magisterial precinct" of a county to stock of a railThe Supreme Court of Minnesota road company). Text approved. Jackhas affirmed the validity of compulsory sonport v. Watson, 33 Ark. 704; aid to railways, saying that it is wholly Richeson v. People, 115 Ill. 450. for the legislature to determine whether An act attempting to authorize townthe aid shall be by subscribing to the ships to issue bonds in aid of a railroad stock and issuing bonds in payment, was held to be unconstitutional in Coleor by a donation of money or bonds to man v. Broad River Tp., 50 S. Car. secure their construction, the court in 321, citing Congaree Construction Co. v. either case regarding the use to be a Columbia Tp., 49 S. Car. 535. Power public use for which taxation may be held to be given town to issue bonds in authorized. Davidson v. Ramsey aid of railroads. Germania Savings County, 18 Minn. 482. And the validity Bank v. Darlington, 50 S. Car. 337. of such legislation has also been 1 Cooley, Const. Lim. (5th ed.) 204 affirmed by the Supreme Court of et seq., discusses the constitutional Nebraska, Crounse, and Lake, JJ., con- principles involved in such legislation curring, and Mason, C. J., dissenting, with his accustomed clearness and the opinion of Crounse, J., reviews the ability. principal cases; Hallenbeck v. Hahn, 2 As to coupon bonds, see Daniel on 2 Neb. 377; and by the Supreme Court Neg. Instr. §§ 1486 et seq.; post, chapter of California, Stockton, &c. Railroad on Municipal Bonds, where the subject Co. v. City of Stockton, 41 Cal. 147; is considered at large; post, chapter and in Alabama, Opelika v. Daniel, 59 on Public Utilities. The mode of enAla. 211; Selma & Gulf Railroad, In re, forcement is presented in chapter on 45 Ala. 696; and in Kentucky, Allison Mandamus. r. Lou.. H. C. & W. Railway Co., 10

who vote the debt, and the councils or bodies which create it and issue the bonds, do so without much hesitation, as the burden is expected to fall principally on posterity. A learned justice of the Supreme Court of the United States has very fitly described the effect witnessed as a mania for running in debt for public improvements. It has elsewhere been characterized as an “epidemic insanity" inducing extravagant corporate subscriptions to public works.2

§ 316 (156). The Abuse of the Power. In many parts of the country, and particularly in the West, this mania became at one time general in cities, counties, townships, and school districts, and large and burdensome debts have been thoughtlessly created. The author has known new counties in a Western State not containing over 10,000 inhabitants vote, for a single railway, bonds to the amount of $300,000, drawing ten per cent interest, payable annually; and instances are not unfrequent where bonds have been issued greater than the assessed value of all the taxable property at the time within the municipal or territorial subdivision. No check against the incurring of over-indebtedness is so effectual as the one that you must pay as you go, or make provision for such payment; but this is wholly disregarded in the legislation which authorizes bonds payable at a remote period. Another serious consequence of this policy is that even the interest on these bonds often proves to be a heavy burden upon the community, and in many instances the bonds have been issued fraudulently by the public or municipal officers, and no consideration or none of value has been in fact received therefor. They may, indeed, have the stock of the railway company; but in most cases, under the prevailing mode of constructing railways, the stock is valueless. When the sting of taxation is felt, and when the taxpayer knows that the bonds were fraudulently issued, and even when he feels that their issue was improvident, experience shows that repudiation, or attempted repudiation, is the next stage, involving a forfeiture of the public faith pledged for their payment. Occasionally it has been witnessed that the State in all its departments has actively sympathized with the repudiating municipality, and the public faith has been redeemed only, if at all, through the coercion of the Supreme Court of the United States. In a few instances,

various constitutional limitations on

1 Mr. Justice Davis. One of the principal means to the mode and extent of the power to prevent the creation of extravagant incur debt. This subject is newly municipal indebtedness consists in the treated in the present edition of this recent adoption in many States of work. Ante, chap. vi.

indeed, the States have set the example of repudiating their own obligations issued in aid of railways; and it was in a case of this kind that the Supreme Court at Washington felt itself bound to declare "that the faith of the State [of Minnesota], solemnly pledged, has not been kept; and were she amenable to the tribunals of the country, as private individuals are, no court of justice would withhold its judgment against her." Examples of this kind are demoralizing, and cannot safely become general or frequent.

§ 317 (157). Constitutional Principles involved. It is not proposed here to enter into a discussion of the constitutional principles involved in such legislation. The arguments in favor of the power are fully presented in the leading case of Sharpless v. Mayor,1 and against it in Hanson v. Vernon,2 in Whiting v. Sheboygan Railway Company,3 and in People v. Township Board of Salem, to

1 Sharpless v. Mayor, 21 Pa. St. 147. See also Am. Law Rev., Oct. 1870; infra, § 318.

2 Hanson v. Vernon, 27 Iowa, 28. Whiting v Sheboygan Railway Co., 25 Wis. 167, opinion by Dixon, Č. J.; s. c. 3 Am. Rep. 30; s. c. 9 Am. Law Reg. N. s. 156 and note. See criticism of this case in Roberts v. Northern Pacific R. Co., 158 U. S. 1, 1. c. 17; Rogan v. Watertown, 30 Wis.

259.

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the amendment to the Constitution. Per Read, J., Pennsylvania Railroad Co. v. Philadelphia, Ib. 193. The Constitution of Pennsylvania (1874) provides: "The General Assembly shall not authorize any county, city, borough, township, or incorporated district to become a stockholder in any company, association, or corporation, or to obtain or appropriate money for, or to loan its credit to, any corporation, association, institution, or individual.' This is in substance the amendment to the Constitution made in 1857. Construed in Pennsylvania Railroad Co. v. Philadelphia, 47 Pa. St. 189, 193; Wheeler v. Philadelphia, 77 Pa. St. 338; Wilkesbarre Hospital v. Luzerne County, 84 Pa. St. 55. Bounty tax to volunteers not within the prohibition. Speer v. School Directors, 50 Pa. St. 150.

People v. Township Board of Salem, 9 Am. Law Reg. N. s. 487 and notes; s. c. 20 Mich. 452. "It was the settled law of Michigan that it was incompetent for the legislature, under the Constitution thereof, to authorize the municipalities of the State to aid in the construction of railroads." Risley v. Village of Howell, 22 U. S. App. 635. "Bonds like these are of modern invention, and when counties The Ohio Constitution (art. viii. § 6) and towns were decoyed into the use of provides that "The General Assembly them for the purpose of railroad corpo- shall never authorize any county, city, rations they had to obtain enabling town, or township, by vote of its citistatutes before they could prostitute zens or otherwise, to become a stockmunicipal seals to any such purpose. holder in any joint stock company, And as soon as the people [of Penn- corporation, or association whatever; sylvania] began to feel the conse- or to raise money or loan its credit to, quences of applying the fundamental or in aid of, any such company, corporaprinciple of commercial paper to their bonds, they altered their organic law so as to render such bonds and enabling statutes impossibilities in the future." Per Woodward, C. J., Armstrong County v. Brinton, 47 Pa. St. 367. The evil of these subscriptions was the cause of

tion, or association"; and this was held not to prohibit the legislature from authorizing a municipal corporation to engage in building a railroad mainly outside of the State on its own account. Walker v. Cincinnati, 21 Ohio St. 14; s. c. 11 Am. Law Reg.

which, and to the other cases before cited, the reader is referred. The judgments affirming the existence of the power have generally

N. S. 346, and note of Judge Redfield; s. c. 8 Am. Rep. 24. Considering the evil which this provision of the Constitution was aimed at, it seems difficult to avoid the conclusion that this construction thwarts the intention and purpose for which the provision was designed and adopted. This legislation in order to avoid the odium and injustice of repudiation was held valid notwithstanding subsequent change of decisions in Ohio. Cincinnati v. Taft, 63 Ohio St. 141.

aid of such parties. The Act of April 23, 1872, to authorize counties, townships, and other municipalities therein named to build railroads, &c. [59 O. L. 84]. authorizes the raising of money by taxation, which is equally applicable to the unlawful purpose of aiding railroad companies and others engaged in building and operating railroads, as it is toany lawful purpose, and gives to the officers entrusted with the control and operation of the money thus raised no means or power of discrimination as to the lawfulness of the work or purpose to which it is to be applied; and this is in contravention of § 6, art viii. of the Constitution, and therefore void. Taylor v. Ross County, 23 Ohio St. 22. See also Wyscaver v. Atkinson, 37 Ohio St. 80; Counterman v. Dublin Township, 38 Ohio St. 515.

This case illustrates the dangerous nature of the invention of bringing the taxing power to aid in the building of railway lines, and particularly does it subvert all previous notions of the appropriate powers, functions, and duties of municipalities. Here a single city, in the face of the Constitution, was authorized to borrow $10,000,000, The Act of the legislature of Ohio of and issue its bonds in payment, to be April 9, 1880 (77 O. L. 157), to authorappropriated to the construction of ize townships having a certain populaa long railroad line by itself and for tion to issue bonds for raising the itself, lying chiefly in other States; means to build a railway line, was held, and yet the validity of the act giving in Pleasant Township v. Ætna Life Ins. the authority was sustained. In May, Co., 138 U. S. 67, to be in contraven1873, the same constitutional provision tion of art. viii. § 6, of the Constiwas before the Supreme Court of the tution. It was contended that this Act State, and the Act of 1872, mentioned of 1880 was modelled on the statute below, was held to be in conflict with it, of 1869, the Cincinnati act approved since the legislature could not do in- in Walker v. Cincinnati, supra; and directly what it was prohibited from that, therefore, though not in terms, doing directly. The court held: 1. yet in fact there had been a previous Taxation can only be authorized for judicial affirmation of the highest court public purposes. When, therefore, a of the State in favor of such legislation. statute authorizes a county, township, The Supreme Court of the United or municipality to levy taxes not above States denied the soundness of this a given per cent on the taxable property proposition, and distinguished the of the locality for the purpose of building cases, in one the grant of power being So much of a railroad as can be built for to a municipal corporation proper that amount, and the part of a railroad (the city) and in the other to a quasi so to be built can be of no public utility corporation (the township). But irreunless used to accomplish an unconstitu- spective of this, the Supreme Court held tional purpose, such tax is illegal and that in view of the unsettled condition cannot be enforced. 2. Where public of the decisions in the State courts credit or money is furnished by any of (as indicated above) this was a proper the subdivisions of the State named in case for the exercise of the independent the Constitution, to be used in part in judgment of the court. A demurrer to the construction of a work which, the answer was overruled, and a trial under the statute authorizing its con- had, and the cause afterward came struction, must be completed, if com- before the United States Circuit Court pleted at all, by other parties out of of Appeals for the Sixth Circuit, which their own means, who are to own, or held that notwithstanding any facts have the beneficial control and manage- proved on the trial the decision of the ment of the work when completed, Supreme Court on demurrer settled public money or credit thus used can the case, and accordingly rendered only be regarded as furnished for or in judgment in favor of the township.