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of which we do not question) the usual restraints and checks upon the power have proved ineffectual, since, if they were disregarded or evaded and the bonds issued and negotiated, they became valid and enforceable obligations. The result of legislative authority thus conferred is seen in the vast municipal debt of the country, largely created in aid of railways, and in our municipalities blighted and burdened with debt.1

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§ 321 (161). Express Power Essential. The courts concur, however, with great unanimity, in holding that there is no implied authority in municipal corporations to incur debts or borrow money in order to become subscribers to the stock of railway companies, and that such power must be conferred by express grant. To become stockholders in private corporations is manifestly foreign to the purposes intended to be subserved by the creation of municipalities; the practice of bestowing such an abnormal power is of modern origin, and hence the rule that the authority must be specially conferred, and cannot be deduced by inference or implication from the ordinary municipal grants.3

This retrospect teaches the prac- of a city for the purpose of contributing tical lesson that the power to create to works of internal improvement" held debt evidenced by negotiable bonds to authorize the city to guarantee payfor public and municipal purposes will ment of the bonds of a railroad company. be abused unless it be strictly safe- Savannah v. Kelly, 108 U. S. 184. guarded as to amount, and precautions See post, chapter on Municipal Bonds. and conditions prescribed to prevent Power granted by Congress to the terfraud in the issue of such securities. ritorial legislature to authorize a county See chap. vi., Constitutional Debt to incur debts or obligations "necesLimitations, ante; post, chapter on sary to the administration of the interMunicipal Bonds. nal affairs" of the county, does not justify an act authorizing and requir ing the county to issue its bonds in aid of the construction of a railroad. Lewis v. Pima County, 155 U. S. 54.

2 The power to become a stockholder in a railroad company must be expressly conferred upon a municipal or public corporation. Kelley v. Milan, 127 U. S. 139; Norton v. Dyersburg, 127 Aurora v. West, 22 Ind. 88, 96; U. S. 160; Wells v. Supervisors, 102 Starin v. Genoa, 23 N. Y. 439; Gould U. S. 625; Concord v. Robinson, 121 v. Sterling, Ib. 439, 456; Atchison v. U. S. 165; Kelly v. Town of Milan, 21 Butcher, 3 Kan. 104; Burnes v. AtchiFed. Rep. 842; Wetumpka v. We- son, 2 Kan. 454; Bank v. Rome, 18 tumpka Wharf Co., 63 Ala. 611; Welch N. Y. 38; Bridgeport v. Housatonuc v. Post, 99 Ill. 471; Katzenberger v. Railway Co., 15 Conn. 475; Marsh Aberdeen, 16 Fed. Rep. 745; Barnum v. Fulton Co., 10 Wall. 676; Cook v. v. Okolona, 148 U. S. 393. In re- Manufacturing Co., 1 Sneed (Tenn.), affirming this doctrine it was decided, 698; Gaddis v. Richland Co., 92 Ill. in Provident Life & Trust Co. v. Mercer County, 170 U. S. 593, that when the good faith of all the parties is unquestionable, the courts will lean to that construction of the statute which will uphold the transaction as consummated. Authority "to obtain money on loan on the faith and credit

119; Pitzman v. Freeburg, 92 Ill. 111; McCoy v. Briant, 53 Cal. 247; Lewis v. Shreveport, 3 Woods C. C. 205; Nichol v. Nashville, 9 Humph. (Tenn.) 252; City and County of St. Louis v. Alexander, 23 Mo. 483; Jones v. Mayor, &c. of Columbus, 25 Ga. 610; Oebricke v. Pittsburg, U. S. C. C.; 7 Am. Law

Accordingly, where a city was, by charter, specifically authorized to construct wharves, docks, piers, water works, works for lighting the city, &c., and was also authorized upon certain conditions to create a debt, this was considered to mean a debt for some of these specified purposes, and not to empower the corporate authorities to issue bonds to aid in the construction of a railroad. So there is no

before (Aspinwall v. Daviess County, 22 How. 364), if not, indeed, after the subscription is made, but before it is paid for, annul the proceeding and authorize the municipal corporation to withdraw the subscription and release its right to the stock. People v. Coon, 25 Cal. 635. Extent of legislative power. Ante, chap. iv. Text approved. Jacksonport v. Watson, 33 Ark. 704.

Reg. 725; Duanesburg v. Jenkins, 40 Barb. 574; French v. Teschemaker, 24 Cal. 518; People v. Mitchell, 35 N. Y. 551; St. Joseph Township v. Rogers, 16 Wall. 644; English v. Chicot County, 26 Ark. 454; Thomson v. Lee County, 3 Wall. (U. S.) 327; Commercial Bank v. Iola, 2 Dillon C. C. R. 353; s. c. 20 Wall. (U. S.) 655. "It is well settled that a municipal corporation, in order to exercise the power of becoming a stockholder in a railroad corporation, must have such power expressly conferred upon it by a grant from the legislature; and that even the power to subscribe for such stock does not carry with it the power to issue negotiable bonds in payment for the subscription, unless the power to issue such bonds is expressly or by reasonable reasonable implication from the power implication conferred by statute." Blatchford, J., in Kelley v. Milan, 127 U. S. 139, citing Pulaski v. Gilmore, 21 Fed. Rep. 870; Milan v. Tennessec Central R. R., 11 Lea, 330; Marsh v. Fulton County, 10 Wall. 676; Wells v. Supervisors, 102 U. S. 625; Ottawa v. Carey, 108 U. S. 110; Daviess County v. Dickinson, 117 U. S. 657.

It is also held in this case (Kelley v. Milan, supra) that where the power to

Authority to subscribe for stock in a railroad company held not to carry with it the implied power to issue bonds therefor. Wells v. Supervisors, 102 U. S. 625; Claiborne County v. Brooks, 111 U. S. 400; Norton v. Dyersburg, 127 U. S. 160; Kelley v. Milan, 127 U. S. 139 (but holding that the power to issue bonds may be conferred by a

granted), ante, §§ 284, 288, 291; post, $$ 872 et seq. But see Brenham v. German Am. Bank, 144 U. S. 173; on rehearing Ib. 549. Nor does a grant of power to appropriate money to aid a railroad, with a provision directing a levy of taxes to meet the appropriation, include power to issue bonds. Concord v. Robinson, 121 U. S. 165; Wells v. Supervisors, 102 U. S. 625.

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subscribe for railroad stock and to issue Lafayette v. Cox, 5 Ind. 38. As bonds therefor is wanting, an agreement to rights of bondholders, however, made by the mayor of the municipality, see post, chapter on Municipal Bonds, by which a decree recognizing the and decisions in the national and State validity of the bonds is entered, is courts, there cited. Power in general ineffectual for that purpose. More to the city council of Charleston, by the fully on this point see post, chapter on charter of 1783, to pass, inter alia, Municipal Bonds. "No lawyer doubts "every other by-law as shall appear to that a borough can only subscribe to a the city council requisite and necessary railroad when expressly authorized by for the security, welfare, and convenience law." Black, C. J., in Sharpless' Case, of said city," was held by the Court of cited Pennsylvania Railway Co. v. Errors to authorize the city to subscribe Philadelphia, 47 Pa. St. 189, 193. A to the stock of railroad companies railroad is such a "road" as is em- within or without the State. Copes v. braced in the terms of a charter by Charleston, 10 Rich. (S. Car.) Law, 491. which the common council of a city See Charleston v. Baptist Church, 4 were authorized "to take stock in any Strob. Law (S. Car.), 306, 308, for chartered company for making roads to preamble to the charter of Charleston. said city." Evansville, I. & C. S. L. R. There can be little doubt that this is Co. v. Evansville, 15 Ind. 395; Aurora pressing the constructive powers of v. West, 9 Ind. 74; post, chapter on the corporation to an unwarrantable Municipal Bonds. The legislature may, extent.

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power in a municipal corporation (even supposing it to be competent for the legislature to confer such power), as incidental to the usual grants of municipal authority, to take stock in a manufacturing com pany located in or near the corporation,' or to aid or engage in other enterprises, essentially private.2

§ 322 (162). Effect of Special Power on Existing Charter Limitations of the Taxing Power - Whether special authority to a municipality to borrow money to pay for stock subscribed to a railway company will impliedly repeal, pro tanto, existing charter limitations upon the rate of taxation, is a question depending upon construction, and in relation to which the courts have differed. But the strong inclination of the Supreme Court of the United States seems to be in favor of that construction which restricts such limitations to the exercise of the power of taxation in the ordinary course of municipal action.3

Construction of special acts or charters thority. Pennsylvania Railroad Co. v. held to give power to take stock and issue Philadelphia, 47 Pa. St. 193; and since bonds. Meyer v. Muscatine, 1 Wall.. the new Constitution of Pennsylvania 384; Curtis v. Butler County, 24 How. (art. xi. § 7, Amendment to Constitu435; Gelpcke v. Dubuque, 1 Wall. 175, tion, 1857, supra, § 317, note), the leg220; City and County of St. Louis v. islature cannot give that power. Where Alexander, 23 Mo. 483; Railroad Co. a charter recited its purpose to delev. Otoe County, 1 Dillon C. C. R. 338; gate to the city authorities power to Rogers v. Burlington, 3 Wall. 654 make such ordinances as the "con(compare Chamberlain v. Burlington, tingencies, or the local circumstances" 19 Iowa, 395); Rogers v. Burlington, of the corporation might require, and supra, overruled, 144 U. S. 173; Fos- gave "full power and authority to dick v. Perrysburg, 14 Ohio St. 472; make such assessments on the inhab Goshorn v. County, 1 West Va. 308; itants of the city, or those who hold Taylor v. Newberne, 2 Jones (N. Car.) taxable property therein, for the safety, Eq. 141; Caldwell v. Justices, 4 lb. 323; benefit, and advantage of the city, as People v. Spencer, 55 N. Y. 1; Decker shall appear to them expedient," the v. Hughes, 68 Ill. 33; People v Pueblo court were of opinion that the city Co., 2 Colo. 360; English v. Chicot Co., might assess a tax upon the real estate 26 Ark. 454; distinguishing Seybert v. within the corporation for the purpose Pittsburgh, 1 Wall. 272; Veeder v. of constructing a canal “for manufac Lima, 19 Wis. 280. The opinion of turing purposes, and for the better se Dixon, C. J., contains an interesting curing an abundant supply of water for discussion of the questions presented by the city," and if it could not, yet that it was competent for the legislature, as it did by a subsequent act, to adopt and confirm the action of the city in passing such an ordinance. Frederick v. Augusta, 5 Ga. 561. Aside from the curative act, the correctness of the view taken by the court is by no means clear; ante, §§ 129, 318, 319.

that case.

Construction of acts held not to grant power to subscribe for stock and issue bonds. Kelley v. Milan, 127 U. S. 139; Norton v. Dyersburg, Ib. 160.

'Cook v. Manufacturing Co., 1 Sneed (Tenn.), 698; Com. Nat. Bank. v. Iola, 2 Dillon C. C. R. 353.

2 Clark v. Des Moines, 19 Iowa, 199; Hanson v. Vernon, 27 Iowa, 28; Cooley, Const. Lim. 212. A city corporation cannot subscribe for stock in a steamship line without express legislative au

Butz v. Muscatine, 8 Wall. 575. Contra, Clark v. Davenport, 14 Iowa, 494; Learned v. Burlington, 2 Am. Law Reg. N. s. 394 and note; Leavenworth v. Norton, 1 Kan. 432; Burnes r.

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§ 323 (163). Power to issue Bonds absolutely Essential; Conditions Precedent to its Exercise must be complied with. - If statutory power to issue bonds in aid of railway and other like public enterprises has not been conferred, they are void into whosesoever hands they may come. The power, when it has been conferred, to aid or engage in extra-municipal enterprises, being extraordinary in its nature and burdensome to the citizen, must (except as modified by the doctrine of estoppel in favor of the bona fide holders of the securities) be strictly pursued, according to the terms and conditions of the grant conferring it. Thus, under an act authorizing town officers to borrow money upon the credit of the town, and to pay it over to a railroad corporation, to be expended by it "in grading and constructing a railroad," taking in exchange its stock at par, it is not within the power of municipal officers to make a direct exchange of the bonds of the town, even for an equal nominal amount of stock, as this leaves it in the power of the railroad corporation to sell such bonds at a discount.3 So in a case where a county had by the legislative

Atchison, 2 Kan. 454. And see Commonwealth v. Pittsburgh, 34 Pa. St. 496; Amey v. Allegheny City, 24 How. (U. S.) 364; Fosdick v. Perrysburg, 14 Ohio St. 472; Cumberland v. Magruder, 34 Md. 381. See Assessors v. Commissioners, 3 Brews. (Pa.) 333; State v. Guttenburg, 39 N. J. L. 660. In Quincy v. Jackson, 113 U. S. 332, the Supreme Court of the United States held that a power to levy taxes, to pay debts, and for general expenses, not exceeding fifty cents on each hundred dollars, related only to debts and expenses for the ordinary purposes of the city, and not to such as were incurred under a special authority, as, a debt incurred by subscribing to the stock of a railroad under authority of a statute which was construed to confer authority to make a levy, for the payment of the debt, in excess of the limitation above recited. This case distinguished from United States v. Macon County, 99 U. S. 582; for a statement of which see post, chapter on Municipal Bonds.

Marsh v. Fulton County, supra; Allen v. Louisiana, 103 U. S. 80; Com. Bank v. Iola, 2 Dillon, 353, aff'd in Supreme Court, 20 Wall. 655; Sav. Assoc. v. Topeka, 3 Dillon, 276, 376; Weismer v. Village of Douglas, 64 N. Y. 91; Clay v. County, 4 Bush (Ky.), 154; Rathbone v. Kiowa County, 73 Fed. 395. See further, chapter on Municipal Bonds, post, where the vital ques

tion of power in its legal sense, and the rights of bona fide holders of such instruments are considered at length. Dunnovan v. Green, 57 Ill. 63; Lynde v. Winnebago County, 16 Wall. 6; James v. Milwaukee, 16 Wall. 159; post, § 958; Police Jury v. Britton, 15 Wall. 566; Gould v. Paris, 68 Tex. 511.

2 Young v. Clarendon Township, 132 U. S. 340.

3 Starin v. Genoa, 23 N. Y. 439; Gould v. Sterling, Ib. 439, 456. In the case last cited, Selden, J., p. 460, remarks: "In the present case the only authority given (to the town) by the act is to borrow upon the bonds of the town. No express power to sell the bonds is given, and no such power can, I think, be implied. To borrow money, and give a bond or obligation for it, and to sell a bond or obligation for money, are by no means identical transactions. In the one case the money and the bond would, of course, be equal in amount; in the other they might or might not be equal." Whether such a defence would be available against a bona fide holder of the bonds was not determined. See post, § 911. As to these cases, see chapter on Municipal Bonds, post. See Woods v. Lawrence County, 1 Black, 386; Moran v. Miami County, 2 Black, 722. That such a defence is not available against a holder for value, see post, §§ 897 et seq.

act no authority to issue its bonds to the railroad company unless upon the sanction of a previous vote after thirty days' notice of the election to be held for that purpose, the Supreme Court of Illinois held, in a direct proceeding against the county to enjoin it from issuing its bonds, that although there was an election at which a majority voted in favor of the subscription, yet the failure to give the thirty days' notice was a fatal defect, and the issue of the bonds was restrained.1

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§ 324 (164). Estoppel in Favor of bona fide Holder of Negotiable Bonds. It may be observed in conclusion that the Supreme Court of the United States, in the municipal railway aid bond cases and other bond cases referred to in a subsequent chapter,2 have held the doctrine, in favor of the innocent holders for value of such securities, that the municipality may, where statutory power to issue bonds exists, be estopped by recitals in the bonds, by the subsequent levy of taxes to pay interest thereon, and by retaining the stock which was received in exchange for the bonds or purchased with their proceeds, to set up in defence a non-compliance with preliminary

1 Harding v. Rockford, &c. Railroad Co., 65 Ill. 90.

cott v. Pana, 92 Ill. 24; Gaddis v.
Richland Co., 92 Ill. 119; Supervisors
of Schuyler Co. v. People, 25 Ill. 181;
Supervisors of Hancock County v.
Clark, 27 Ill. 305; Marshall County v.
Cook, 38 Ill. 44; Wiley v. Town of
Brimfield, 59 Ill. 306; People v. Cass
Co., 77 Ill. 438."

In delivering the opinion of the court, Thornton, J., remarks: "Such municipalities were not created with the view to engage in commerce, or to aid in the construction of railways, but for governmental purposes only. When they exercise the functions given If aid has been conditionally voted, by the statutes under consideration, the condition must be complied with the powers granted must not only be before the company can demand the clearly conferred, but strictly pursued. aid. Portland & O. C. Co v. Hartford, If the mode prescribed for carrying 58 Me. 23; Cowdrey v. Town of Canainto effect the right to issue bonds is dea, 16 Fed. Rep. 532; Rich v. Town not complied with in all material mat- of Mentz, 19 Fed. Rep. 725. Where an ters, then the bonds should not be act is done which can be done legally issued, and thus the taxpayer will be after the performance of some prior act, exempt from the imposition of illegal proof of the later carries with it a pretaxes, and a grievous burden upon his sumption of the due performance of property. These principles have been the prior act. Knox County v. Ninth so elaborately discussed and fully set- National Bank, 147 U. S. 91, holding tled by this court, that we need only that an election being held under an refer to some of the cases. People v. order of the county court, there being Tazwell County, 22 Ill. 147; Fulton no statutory requirement as to length County v. Mississippi & Wabash Rail- of time that notice should be given, road Co., 21 Ill. 338; Middleport v. the votes cast canvassed by the proper Ætna Life Ins. Co., 82 Ill. 562; People officers, and an order for a subscription v. Logan Co., 63 Ill. 374, 384; Williams to the stock of a railroad company v. Roberts, 88 Ill. 11, 13; People v. Oldtown, 88 Ill. 202; Clarke v. Hancock Co. Board, &c., 27 Ill. 305, 307; Force v. Batavia, 61 Ill. 99; Harding v. R. R. I. & St. L. R. R. Co., 65 Ill. 90; Lippin

made in accordance with the terms of the order for the election, it may be presumed that proper notices of election were given.

Post, chapter on Municipal Bonds.

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