c. Power to issue negotiable instruments.— The power to borrow money does not necessarily carry with it the power to issue nego

*

would be responsible for the debt. this kind, it is well known that our The lender is in no way accountable towns and cities have long been, and for the use made of the money. It are now being improved and governed. is plain, therefore, that if the policy For the attainment of these ends it of limiting the power and expendi- has not generally been found necestures of corporations to the objects sary to resort to loans of money. The contemplated by their charters is to supplies derived annually from taxabe carried out, their right to incur tion have been found amply sufficient debts for those objects must be strictly for these purposes; consequently I am confined to contracts which tend to unable to perceive any necessity to their direct accomplishment. borrow money under these conditions, No one can fail to see that to con- from which the gift of such power to cede to corporations the power to bor- borrow is to be implied. It undoubtrow money for any purpose would be edly is clear that if, as has been asentirely subversive of the principle serted, the ends of the municipal which would limit their operations to charter can be conveniently reached, legitimate objects." See also Starin v. without a resort to the device of raisTown of Genoa, 23 N. Y. 439; Parker ing moneys by loan, there is not the V. Board of Supervisors, Saratoga least legal basis for a claim of the County, 106 N. Y. 392, 13 N. E. 308; power to obtain funds in that way. Birge v. Berlin Iron Bridge Co., 133 Granted the fact that the charter can N. Y. 477, 487, 31 N. E. 609. be executed with reasonable ease and with completeness, the conclusion is inevitable that the power in question cannot be called into existence by intendment, and as I claim the fact to exist I must, of necessity, reject the right of implication in question."

The rule in New Jersey as laid down in the case of Hackettstown v. Swackhammer, 37 N. J. L. 191, is the same: The court in that case said:

"I am at a loss to perceive how it can be inferred that a power to borrow money is an appendage to the United States Supreme Court.usual franchise given to municipal cor- The case of The Mayor v. Ray, 19 porations. Such a right cannot, in Wall. 468, is a leading case in the any reasonable sense, be said to be United States Supreme Court on this necessary within the meaning of that question. The court was divided; Justerm as already defined. Under ordi- tice Bradley wrote the prevailing opinnary circumstances it is not certainly ion, concurred in by Justices Miller, indispensable, as common experience Davis, and Field, and Justice Hunt demonstrates. In the great majority concurred in the judgment, although of instances the municipal affairs are, he expressly differed from his assowith ease and completeness, trans- ciates upon the question of the implied acted without it. My re- power of municipal corporations to marks are to be restricted to that borrow money. Mr. Justice Bradley

class of cases where charters

are used

granted containing nothing more than the usual franchises incident to municipal corporations, and under such conditions it seems clear to me that the power to borrow money is not to be deduced. I have already said that it does not appear to be a necessary incident to the powers granted, for such powers can be readily and efficiently executed in its absence. It would be to fly in the face of all experience to claim that the ordinary municipal operations cannot be efficiently carried on, except with the assistance of bor rowed capital. Without any help of

the following language: “A municipal corporation is a subordinate branch of the domestic government of a State. It is instituted for public purposes only; and has none of the peculiar qualities and characteristics of a trading corporation, instituted for purposes of private gain, except that of acting in a corporate capacity. Its objects, its responsibilities, and its powers are different. As a local government institution, it exists for the benefit of the people within its corporate limits. The legislation invests it with such powers as it deems adequate to the ends to be accomplished.

tiable instruments.5 A municipal corporation may be empowered to incur indebtedness, and to borrow money, but, according to

The power of taxation is usually con- porations organized for pecuniary ferred for the purpose of enabling it profit are held in this country to to raise the necessary funds to carry possess the incidental power to boron the city government and to make row money, and to issue commercial such public improvements as it is au- paper having all the qualities attribthorized to make. As this is a power uted to such paper by the law merwhich immediately affects the entire chant, that a like power is inherently constituency of the municipal body possessed by public and municipal corwhich exercises it, no evil consequences porations. The analogy is false and are likely to ensue from its being con- delusive. The purposes of the two ferred, although it is not unusual to classes of corporations, the powers of affix limits for its exercise for any their officers, and the means of maksingle year. The power to borrow ing provisions for meeting their liabilimoney is different. When this is ex- ties are all essentially different. The ercised the citizens are immediately af- nature of the usual duties devolved fected only by the benefit which arises by law upon municipalities does not from the loan; its burden is not felt make it necessary to imply the existuntil afterward. Such a power does ence of a general power to borrow not belong to a municipal corporation money and to issue commercial paper. as an incident of its creation. To be The consequences of recognizing such possessed it must be conferred by legis- power. in the extravagance it will lation, either express or implied. It stimulate, in the funds it will engender, does not belong, as a mere matter of and in the onerous indebtedness it will course, to local governments to raise inevitably produce are alarming to loans. Such governments are not cre- contemplate. The history of the exated for any such purpose. Their press power given to municipalities to powers are prescribed by their char- aid railways by borrowing money and ters, and those charters provide the issuing commercial obligations is full means for exercising the powers; and of warning and instruction." See also the creation of specific means excludes the remainder of this summarized conothers. Indebtedness may be incurred clusion of Judge Dillon on page 156. to a limited extent in carrying out the 5. Power to borrow does not include objects of the incorporation. Evidences power to issue negotiable instruments. of such indebtedness may be given to - In the case of Gause v. Clarksthe public creditors. But they must ville, 5 Dill. 165, Fed. Cas. No. 5,276, look to and rely on the legitimate Judge Dillon said: "It is a nonmode of raising the funds for its pay- sequitur, as applied to municipal and ment. That mode is taxation." public corporations, to affirm that this Opinion of Judge Dillon.-Judge power to create debts implies the Dillon, in his able treatise on Municipal power to give a negotiable bill, bond, Corporations (§ 125), has summarized or note therefor, which shall be inhis views on the power of municipal vested with all the incidents of negocorporations to borrow money in the tiability. Such an implied power is following language: "(1) The power to denied in England even as to private borrow money as a means of raising corporations organized for pecuniary a fund to make future local improve- profit (other than banking or trading ments, or to carry on the ordinary corporations), and this demonstrates operations of the municipality, cannot that the alleged implication of such a be implied from the mere authority to power in municipal corporations is make such improvements or from the neither logical nor legally sound. But usual grants of municipal power. These if it be conceded that as respects pricontemplate that the expense of the vate corporations the American doc. execution of the ordinary municipal trine is otherwise, and that it is rightly powers shall be met by the revenues so, still it does not follow that the derived year by year from taxation. same rule does apply, or ought to ap(2) It does not follow because bank- ply, to municipal corporations. They ing, trading, and other private cor- are not created for trading, commer

many authorities, the power is not to be extended by implication to the power of issuing negotiable instruments. These authorities contend that the power of issuing such instruments must be expressly conferred, or, at least, that it cannot be implied from the power to create indebtedness or to borrow money. There is here also a decided conflict of authority. The cases are numerous and emphatic to the effect that a municipal corporation, having the

cial, or business purposes. Private and the accumulation of vast amounts corporations are more vigilant of their of indebtedness, without any correinterests than it is possible for munici- sponding public benefit, have been renpal corporations to be. The latter are dered easy and secure from merited in their nature governmental agencies, punishment. The purpose and object having in general but one resource of a municipal corporation do not with which to meet their liabilities, ordinarily require the exercise of any and that is by taxation, and it is such power. They are not trading upon this resource that creditors must corporations and ought not to become be taken to rely. The frauds such a such. They are invested with public doctrine will enable unscrupulous offi- trusts of a governmental and adminis cers successfully to practice ought to trative character; they are the local weigh with decisive force against its governments of the people, established unnecessary judicial entertainment." by them as their representatives in See also Merrill v. Monticello, 138 U. the management and administration of S. 682, 11 Sup. Ct. 445; Francis v. municipal affairs affecting the peace, Howard County, 50 Fed. 56; Bogart v. good order, and general well-being of La Motte Township, 79 Mich. 298, 44 the community as a political society N. W. 613. and district; and invested with power 6. Power to issue negotiable in- by taxation to raise the revenues necesstruments to be expressly conferred.- sary for those purposes. The idea that Wells V. Supervisors, 102 U. S. they have the incidental power to 625; Mayor v. Ray, 19 Wall. (U. S.) issue an unlimited amount of obliga. 468; Katzenberger v. Aberdeen, 121 U. tions of such a character as to be irreS. 172, 7 Sup. Ct. 947, 30 L. Ed. 911; trievably binding on the people, withMinot v. West Roxbury, 112 Mass. 1, out a shadow of consideration in re17 Am. Rep. 32; Hawkins v. Carroll turn, is the growth of a modern County, 50 Miss. 762; Hill v. Memphis, misconception of their true object and 134 U. S. 198, 10 Sup. Ct. 502, 33 L. Ed. 887; Benham V. German-Am. Bank, 144 U. S. 173, 12 Sup. Ct. 559, 36 L. Ed. 390; Hackettstown v. Swackhammer, 37 N. J. L. 191; Starin v. Genoa, 23 N. Y. 439; Wells v. Salina, 119 N. Y. 280, 23 N. E. 870.

character. If in the exercise of their important trusts the power to borrow money and to issue bonds or other commercial securities is needed, the Legislature can easily confer it under the proper limitations and restraints, and with proper provisions for future In the case of Mayor v. Ray, supra, repayment. Without such authority Justice Bradley said: "Much less it cannot be legally exercised. It is can any precedent be found (except too dangerous a power to be exercised of modern date and in this country) by all municipal bodies indiscrimifor the issue, by local civil authorities, nately managed as they are by persons of promissory notes, bills of exchange, whose individual responsibility is not and other commercial paper at stake." See also Wall v. County of if city and town officials should have Monroe, 103 U. S. 78; Clark v. Des the power thus to bind their constitu- Moines, 19 Iowa, 199, 87 Am. Dec. 423; encies, it is easy to see what abuses Newgass v. New Orleans, 42 La. Ann. might, and probably would, ensue. We 163, 21 Am. St. Rep. 368, 7 South. know from experience what abuses 565; Milan Taxpayers v. Tenn., etc., have been practiced where the power R. Co., 11 Lea (Tenn.), 329; Colburn has been conferred. Fraudulent is- v. Chattanooga R. Co., 94 Tenn. 43, sues, peculations, and embezzlements, 28 S. W. 298.

power to contract an indebtedness, may also, in connection therewith, exercise the power of issuing any form of an evidence of such indebtedness, whether negotiable or nonnegotiable. The Supreme Court of the United States has repeatedly declared that such corporations have no power to make and alter commercial paper of any kind unless such power is expressly conferred by law or is clearly implied from some other power expressly given, which cannot be fairly exercised without it.

8

Where a municipal corporation has no express power to make an expenditure for a certain purpose, it may, as a necessary incident to that power, make a contract for the accomplishment of that purpose, and thereby incur an indebtedness, for which proper vouchers may be issued. But there is a marked legal distinction between the power to give a note to the lender for the amount of money borrowed, or to a creditor for the amount due, and the power to issue for sale in open market a bond as commercial security, with immunity in the hands of a bona fide holder for value from equitable defenses." Ordinary warrants and orders, negotiable in form, may be made by the proper officers of a municipality upon other officers having municipal funds under their control to be disbursed by them as provided by law. In

7. Galena v. Corwith, 48 Ill. 423, 95 of levying taxes to defray all public Am. Dec. 557; Rushville, etc., Co. v. Rushville, 121 Ind. 206, 23 N. E. 72, 16 Am. St. Rep. 388; Wil amsport v. Commonwealth, 48 Pa. St. 487, 24 Am. Rep. 208.

66

charges created, whether they are or are not formally invested with corporate capacity, have no power or authority to make and alter commercial paper of any kind, unless such power In Illinois the decisions upon this is expressly conferred upon them by subject are much modified, if not over- law, or clearly implied from some ruled, by a more recent adjudication, other power expressly given, which affirming in substance that the power cannot be fairly exercised without it." to issue negotiable instruments cannot See also Concord v. Robinson, 121 U. be exercised by a municipality unless S. 165, 7 Sup. Ct. 937, 30 L. Ed. 911; expressly granted or necessarily im- Kelley v. Milan, 127 U. S. 139, 8 Sup. plied in order to carry into effect a Ct. 1101, 32 L. Ed. 77; Hill v. Memgeneral power." Harden County v. phis, 134 U. S. 198, 10 Sup. Ct. 502, McFarlan, 82 Ill. 138, 141. 33 L. Ed. 887; Merrill v. Monticello, 8. Power to be clearly implied. 138 U. S. 673, 11 Sup. Ct. 441, 34 L. Benham V. German-American Bank, 144 U. S. 173, 12 Sup. Ct. 559, 36 L. Ed. 390; Wells v. Supervisors, 102 U. S. 625, 26 L. Ed. 122; Ogden v. County of Daviess, 102 U. S. 634, 26 L. Ed. 263; Claiborne County v. Brooks, 111 U. S. 400, 4 Sup. Ct. 489, 28 L. Ed. 470. In this last case the court 9. Merrill v. Monticello, 138 U. S. said: Our opinion is that mere politi- 673, 11 Sup. Ct. 441, 34 L. Ed. 1069; cal bodies, constituted, as counties are, Claiborne County v. Brooks, 111 U. for the purpose of local police and S. 400, 4 Sup. Ct. 489, 28 L. Ed. administration, and having the power 470.

Ed. 1069; Atchison Board of Education v. De Kay, 148 U. S. 591, 13 Sup. Ct. 706, 37 L. Ed. 573; Ashuelot Nat. Bank of Keene v. School District, 5 C. C. A. 468, 56 Fed. 197; Lehman v. City of San Diego, 83 Fed. 669, 27 C. C. A. 668.

many States such warrants or orders may be transferred by indorsement or by delivery, and the holder may sue thereon in his own name. It does not follow, however, that they are commercial or negotiable paper in the hands of bona fide holders, so as to exclude inquiry into the legality of their issue, or to preclude defenses thereto.1 10

Judge Dillon has summarized the law relating to the power of a municipal corporation to issue commercial paper; because of the marked ability of the learned author in treating this question, and the frequency with which he is quoted as an authority by both the courts and text-book writers in respect to matters pertaining to municipal corporations, his conclusions are peculiarly valuable, and should do much toward reconciling the pronounced conflict between the cases involving a consideration of this vexed question. His conclusions are as follows:11 "(3) The power to issue commercial paper which is unimpeachable in the hands of the holder is not among the ordinary incidental powers of a public or municipal corporation. It must be conferred expressly, or by fair implication, as a necessary, or at least a reasonable and usual means of executing the particular power to which it is claimed to be incidental. (4) Express power to borrow money, perhaps in all cases, but especially if conferred to effect objects for which large or unusual sums are required, as for example subscriptions to aid railroads and other public improvements, will ordinarily be taken, if there be nothing in the legislation to negative the inference, to include the power (the same as if conferred upon a corporation organized for pecuniary profit) to issue negotiable paper with all the incidents of negotiability.12 (5) When it is expressly provided by statute, that public and municipal corporations shall audit all claims presented, and shall issue to the creditor warrants or orders, and no other provision is made, this will not authorize as a means of payment the issue of negotiable or commercial paper which shall

10. Dillon on Municipal Corpora- 11. Dillon on Municipal Corporations, § 487. See Clark v. Des Moines, tions, § 125. 19 Iowa, 199; People v. County, 11 12. Mayor v. Inman, 57 Ga. 370; Cal. 170; Sturtevant v. Liberty, 46 Galena v. Corwith, 48 Ill. 423; Kelly Me. 457; Emery v. Mariaville, 56 Me. v. Mayor, 4 Hill (N. Y.), 265; De Voss 315; Mathes v. Cameron, 62 Mo. 504; v. City of Richmond, 18 Gratt. (Va.) Smith v. Cheshire, 13 Gray (Mass.), 338; Tucker v. City of Randolph, 75 318; Hyde v. Franklin, 27 Vt. 185; N. C. 267; City of Vicksburg v. LomConnersville v. Connersville Hydraulic bard, 51 Miss. 125; Williamsport v. Co., 86 Ind. 184; Halstead v. Mayor, Commonwealth, 84 Pa. St. 487; Rein3 N. Y. 430; Hubbard v. Lyndon, 28 both v. Pittsburg, 41 Pa. St. 278; Wis. 674. Holmes v. Shreveport, 31 Fed. 113.