CHAPTER XLVIII.

THE VALIDITY OF MUNICIPAL BONDS.

§ 1518. Municipal bonds constitute a vast portion of the wealth of the country, and the questions daily arising respecting their validity are of the utmost nicety, and of the highest importance to the communities bound for their payment, as well as to the capitalists and business men trading in them as mercantile commodities. We shall endeavor to discuss their nature and properties thoroughly, dividing the subject under the following heads: I. Nature of municipal corporations, and what powers may be conferred upon them. II. Express and implied powers of municipal corporations. When they may issue negotiable bonds. III. Power of the officer to bind the municipality. Views of the United States Supreme Court. IV. How invalidity of the bond is cured by acquiescence or ratification of the municipality. V. Review of the foregoing doctrines. Views which seem sustained by reason and authority. VI. Legislative control over municipal obligations.

SECTION I.

NATURE OF MUNICIPAL CORPORATIONS, AND WHAT POWERS MAY BE CONFERRED UPON THEM.

§ 1519. A municipal corporation is an involuntary organization of the inhabitants within certain local confines, of all ages, sexes, and conditions, under the will and direction of the legislative branch of the government, by which they are clothed with a corporate character, for the purposes of local government.

A private corporation is a voluntary association of persons capable of contracting, who enter a joint enterprise of private business, and are clothed by the Legislature with a corporate character, for the purpose of carrying on such private business.

§ 1519a. Differences between a municipal and a private corpora. tion. These definitions exhibit the fundamental, substantial, and numerous differences between the two incorporations.

(1) A municipal corporation is involuntary. The inhabitants within its limits need not accept, nay, may unanimously protest

against, its charter. But they are clay in the hands of the potter, and the Legislature, at its sovereign will, may mould them into a municipal corporation, and then may dissolve or change it at pleasure. It may "erect, divide, and abolish at pleasure." 2 But a private corporation can only be formed by the voluntary act of each member.

(2) A municipal corporation is composed of all the inhabitants within its limits: men, infants, lunatics, and married women. A private corporation can only be formed of those whom the law designates, and who are capable of contracting.

(3) A municipal corporation involves no contract between its members. A private corporation involves a contract by its members inter sese, whereby, as against each other, they acquire vested rights and privileges, for the agreed consideration.

(4) A municipal corporation involves no contract between the State and itself, and none between the State and its members. A private corporation must accept its charter. And when accepte, it is a contract between the State and the artificial person constituted by it; and also between the State and the members composing it, subject only to such control as the State may reserve, or be entitled in its sovereign character to exercise over it.

(5) In a municipal corporation the members are not shareholders. They need have no property interest in it; and if any, their voice in the corporation is not proportioned to that interest. "The whole interests and franchises are the exclusive domain of the government." 3 In a private corporation the members are (as a general rule) shareholders, and their influence is proportioned to their interests.*

(6) A municipal corporation is formed purely for the purposes of local government. As said by the United States Supreme Court, "it is a representative not only of the State, but is a

1. Soper v. Henry County, 26 Iowa, 264.

2. 1 Dillon on Municipal Corporations (2d ed.), p. 139, § 30. 3. Dartmouth College v. Woodward, 4 Wheat. 636.

"The

4. East Hartford v. Hartford County, 10 How. 531, Woodward, J.: members (of a municipal corporation) are not shareholders or joint partners in any corporate estate, which they can sell or devise to others, or which can be attached or levied on for their debts. Hence, generally, the doings between them and the Legislature are in the nature of legislation rather than compact.” There are some private corporations to which this remark does not apply, such as schools and charities, which are quasi public, and of course the Legislature may provide by charter such rules as it may see fit.

portion of its governmental power. It is one of its creatures, made for a specific purpose, to exercise within a limited sphere the pow ers of the State." 5 A private corporation is formed for the purpose of private business.

§ 1520. As to what powers may be conferred upon municipal corporations. Remembering that the powers of a corporation are only such as are conferred "either expressly or as incidental to its very existence," and that the latter are such as "are best calculated to effect the object for which it is created," we come to consider what powers are incidental to the existence of municipal corporations, and what powers are or may be expressly conferred. Quite certain it is, we think, that there is no incidental power in a municipal corporation to borrow money, and none to execute negotiable or other securities for debt, though there is upon these, as upon almost every question as to the powers of such bodies, a perplexing conflict of authority." "A municipal corporation," says the United States Supreme Court, "cannot issue bonds in aid of extraneous objects (a railroad in the present case), without legislative authority, of which all persons dealing with the bonds must take notice." 10 But equally certain it is, impliedly authorize a mu

that the Legislature may expressly or

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5. United States v. Baltimore & Ohio R. Co., 17 Wall. 322; 1 Dillon on Municipal Corporations (2d ed.), 139, note; Jones on Railroad Securities, § 222. In Hodges v. City of Buffalo, 2 Den. 110, it was held that the common council had no authority to furnish an entertainment at public expense, and the party providing it could not recover against the city.

6. Dartmouth College v. Woodward, 4 Wheat. 636; Congaree Construction Co. v. Columbia Township, 49 S. C. 535, 27 S. E. 570.

7. Miller v. Ray, 19 Wall. 468; Thomson v. Lee County, 3 Wall. 327: Starin v. Town of Genoa, 23 N. Y. 447-449; Hitchcock v. City of Galveston, U. S. Dist. Ct., Cent. L. J., May 21, 1875, p. 331; Jones on Railroad Securities, $ 222. But it has been held that municipal corporations have all the powers of natural persons respecting their debts. Kelley v. Mayor, 4 Hill, 263. 8. Thomson v. Lee County, 3 Wall. 327; Starin v. Town of Genoa, 23 N. Y. 447-449; Dively v. Cedar Falls, 21 Iowa, 566; Clark v. Des Moines, 19 Iowa, 200.

9. Kelley v. Mayor, 4 Hill, 263.

See also

10. Town of South Ottawa v. Perkins, 94 U. S. (4 Otto) 262. Pendleton County v. Amy, 13 Wall. 297; Kennicott v. Supervisors, 16 Wall. 452; St. Joseph Township v. Rogers, 16 Wall. 644; Town of Coloma v. Eaves, 92 U. S. (2 Otto) 484; Young v. Clarendon Township, 132 U. S. 340; Broadway Savings Institution v. Town of Pelham, 83 Hun, 96, 31 N. Y. Supp. 402; Claybrook v. Commissioners, 114 N. C. 453, 19 S. E. 593; Provident Trust Co. v. Mercer County (Ky.), 170 U. S. 593, 18 Sup. Ct. Rep. 788; Watson v. City of Huron, 38 C. C. A. 264, 97 Fed. 449.

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nicipal corporation to borrow money, and to issue its securities therefor, negotiable or nonnegotiable, provided it be done for a public purpose. And that it cannot authorize it to pledge its credit, or appropriate its means to a private purpose; for such a purpose is contrary to the very nature of its institution, and any diversion of the people's property to it, without their unanimous consent, would be taking one private citizen's substance for the benefit of another, and would operate a virtual confiscation.1

§ 1521. Municipal corporations, by authority, may make donations for public purposes. But, provided the purpose be a public one, the Legislature may empower the corporation not only to subscribe to it for a consideration, but also to devote to it its means or its credits.13 Thus it has been recently decided by the United States Supreme Court, that where the Legislature of Nebraska authorized the county of Otoe to aid the Burlington and Missouri Railroad Company, by issuing its bonds to it as a donation, such bonds were valid,14 and that decision has been followed and reaffirmed in other cases. 15

§ 1522. As to what purposes are public. The construction and grading of streets;16 the construction of water works; 17 of a bridge; 18 of a town hall;19 courthouse or jail;20 gas works;21

11. See infra, § 1522, and post, section VI.

12. National Bank v. City of Iola, 9 Kan. 700; Loan Assn. v. Topeka, 20 Wall. 655.

13. Davidson v. Ramsey County, 18 Minn. 482 (1872). See 1 Dillon on Municipal Corporations (2d ed.), 220, § 104, and notes.

14. Railroad Co. v. County of Otoe, 16 Wall. 667 (1872).

15. Olcott v. Supervisors, 16 Wall. 678 (1872); Town of Queensbury v. Culver, 19 Wall. 91 (1873); Township of Pine Grove v. Talcott, 19 Wall. 667; Harter v. Kernochan, 103 U. S. (13 Otto) 568; Clemens on Corporate Securities, 39.

16. Sturtevant v. City of Alton, 3 McLean, 393; Rogers v. Burlington, 3 Wall. 362.

17. Rome v. Cabat, 28 Ga. 50; Hale v. Houghton, 8 Mich. 458; Stein v. Mobile, 24 Ala. 591.

*

#

18. In County Commissioners v. Chandler, 96 U. S. (6 Otto) 205, Bradley, J., said: “Railroads, turnpikes, bridges, ferries, all are things of public concern, and the right to erect them is a public right. In our judg ment the bridge in question is a public bridge, and a work of internal improvement within the meaning of the statute." Bonds issued in aid of the bridge were held valid. See also Township of Burlington v. Beasley, 94 U. S. (4 Otto) 314; United States v. Dodge County, 110 U. S. 156.

19. Greeley v. People, 60 Ill. 19.

20. Wade v. Travis County, 174 U. S. 499, 19 Sup. Ct. Rep. 715. 21. City of Aurora v. West, 9 Ind. 74.

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markets;22 the providing of fire engines;23 the laying out of cemeteries, are proper objects of municipal care, and undoubtedly the Legislature may authorize the municipality to contract with reference to them, to borrow money for the purpose of effecting those objects, and to issue its negotiable securities therefor.25 But the loaning of money to enable citizens to rebuild their burned houses,26 to equip and furnish manufacturing estab lishment of individuals,27 to construct saw or grist mills28 (unless such mills be made public institutions, in which case it would be different),29 to improve a water privilege and manufacture lumber,30 to establish a citizen in business,31 to provide destitute citizens with provisions and grain for seed and feed,32 would not be within the scope of public purposes, and the Legislature could confer no authority to subscribe to such objects.

§ 1522a. Injunction lies to restrain subscription for private purposes. If the municipal authorities undertake to subscribe on behalf of the municipality to a private object the citizens have their remedy; and it is well settled that resident taxpayers may invoke the interposition of the courts to prevent illegal disposition of municipal funds, or the illegal creation of a debt.33

22. State v. Madison, 7 Wis. 688.

Robinson v. St. Louis, 28 Mo. 488.

23. Mills v. Gleason, 11 Wis. 470; 24. Mills v. Gleason, 11 Wis. 470; Robinson v. St. Louis, 28 Mo. 488. 25. 1 Dillon on Municipal Corporations, § 66; Charlotte v. Shepard, 122 N. C. 602, 29 S. E. 842; McCless v. Meekins, 117 N. C. 34, 23 S. E. 99. 26. Lowell v. Boston, 111 Mass. 454 (1873).

27. Loan Assn. v. Topeka, 20 Wall. 655; Commercial Nat. Bank v. Iola, 2 Dill. C. C. 353, 9 Kan. 700.

28. Allen v. Inhabitants of Jay, 60 Me. 124 (1871), 12 Am. Law Reg. (N. S.) 481; Osborne v. Adams County, 109 U. S. 1; State er rel. v. Adams County, 15 Nebr. 568. Or to establish an electric plant, questioned. Slocomb v. Fayetteville, 125 N. C. 362, 34 S. E. 436.

29. Township of Burlington v. Beasley, 94 U. S. (4 Otto) 314.

30. Weismer v. Village of Douglass, 4 Hun, 211.

31. Cooley's Constitutional Limitations, 494.

Contra,

32. The State ex rel. Griffith v. Osawkee Township, 14 Kan. 418. State of North Dakota v. Nelson County, 1 N. Dak. 88, 45 N. W. 33. Or to aid in constructing railroads. See Congaree Construction Co. v. Columbia Township, 49 S. C. 535, 27 S. E. 570.

33. Crampton v. Zabriskie, 101 U. S. (11 Otto) 601. Injunction can likewise be invoked when the municipality seeks to issue bonds in excess of the constitutional limit of indebtedness. See Fowler v. City of Superior, 85 Wis. 411, 54 N. W. 800. See also Crogster v. Bayfield County, 99 Wis. 1, 74 N. W. 635, 77 N. W. 167.