§ 71. Constitutional restrictions on power to incur indebtedness. Perhaps the reluctance of the courts to imply broad financial powers on behalf of the local corporations is justified by experience, which shows that many of them when granted the wider powers promptly exercised them to so great extent as to become bankrupt. Because of this it is not uncommon to find in the state constitutions limitations forbidding the local corporations to borrow beyond certain limits, usually a fixed percentage of their assessed valuation. As usual, these constitutional limitations have given rise to much litigation. In Valparaiso v. Gardner (7) taxpayers sought an injunction to stop the letting of a contract to a waterworks company for the supply of water for twenty years at $6,000 a year. The municipal corporation had no money in the treasury at the time and had reached the limit set by the constitution to its indebtedness. The constitutional provision in question provided that "no political or municipal corporation in this state shall ever become indebted, in any manner or for any purpose, to an amount in the aggregate exceeding two per centum on the value of the taxable property within such corporation, to be ascertained by the last assessment for state and county taxes previous to the incurring of such indebtedness; and all bonds or obligations, in excess of such amount, given by such corporation, shall be void." The court decided that as the water rent would only become due in annual instalments, at the end of each annual period, it did not constitute an indebtedness within the meaning of the constitution. It was an obligation but not a debt. (7) 97 Ind. 1. § 72. Same (continued). On the other hand, in the case of Spilman v. Parkersburg (8) the court held the obligation incurred was a debt. The facts were that the city, being indebted up to the constitutional limit, entered into a contract which purported to be a lease of an electric lighting plant, paying so much per year, but with an option to buy the plant at the end of the period for $1; plainly, said the court, a contract of purchase, creating a debt for the whole sum due in instalments. The distinction between this and the preceding case seems to be that in the former the article, water, was to be furnished from year to year, and the debt accrued only as the water was received; while here the whole debt accrued at once. From these two cases it is obvious that the interpretation of these apparently plain constitutional provisions is not so simple as at first sight seems to be the case. A full discussion would occupy more space than is at our command, and we must content ourselves with noticing that some courts hold that the limitation does not apply to indebtedness incurred for expenses imposed upon quasi-municipal corporations by state law, but only to indebtedness voluntarily incurred by the county or town (9), while others adopt the contrary view (10). Perhaps a slight difference in the wording of the constitutional provisions may explain some of the apparent conflict. It is also possible for a city to escape the constitutional provision by providing for assessing the cost of local improvements upon abutting property, so drawing the contracts that no liability to pay rests upon the city (11). § 73. Rights of holders in due course of negotiable bonds: Recitals. In those cases in which municipal corporations have been given power to issue negotiable bonds, it is difficult to determine the question of the rights of holders of the same who have purchased them in good faith, for value, and without notice that certain formalities required by law have not been satisfied. Very often the law requires that the voters of the locality sanction the issue by a majority vote. If this is not done, may a holder in due course, i. e., a transferee for value without notice of the fact that no vote was had, enforce the bonds? It is clear that if the bonds as issued contain no recitals as to the statute under which they are issued, or as to the prior votes or proceedings of the voters, no recovery can be had, even by a holder in due course (12). Where, however, the officers whose duty it is to ascertain whether all conditions required by statute have been complied with, insert in the bonds a recital that they have, e. g., that the election was duly held and a majority vote given sanctioning their issue, it is held that a holder in due course may recover (13). The idea back of this is that the legislature must intend the officials to announce the result and that other persons may rely upon their statements-clearly a fair rule. In the case cited the court put it as follows: "Where legislative authority has been given to a municipality, or to its officers, to subscribe for the stock of a (11) Davis v. Des Moines, 71 Iowa 500. railroad company, and to issue municipal bonds in payment, but only on some precedent condition, such as a popular vote favoring the subscription, and where it may be gathered from the legislative enactment that the officers of the municipality were invested with power to decide whether the condition precedent has been complied with, their recital that it has been, made in the bonds issued by them and held by a bona fide purchaser, is conclusive of the fact and binding upon the municipality; for the recital is itself a decision of the fact by the appointed tribunal." § 74. Same: Public records. The limitations on this doctrine are clearly set forth by Mr. Justice Gray of the United States Supreme Court in the case of Sutliff v. Lake County Commissioners (14):. "In those cases in which this court has held a municipal corporation to be estopped by recitals in its bonds to assert that they were issued in excess of the limit imposed by the constitution or statutes of the state, the statutes, as construed by the court, left it to the officers issuing the bonds to determine whether the fact existed which constituted the statutory or constitutional condition precedent, and did not require those facts to be made a matter of public record. But if the statute expressly requires those facts to be made a matter of public record, open to the inspection of every one, there can be no implication that it was intended to leave that matter to be determined and concluded, contrary to the facts so recorded, by the officers charged with the duty of issuing the bonds." (14) 147 U. S. 230. In other words, it must appear that the recitals relied upon must be made by officers whose duty it was, under the statute authorizing the issue of the bonds, to ascertain and determine whether all conditions were complied with, "not merely for themselves, as the ground of their own action, in issuing the bonds, but, equally, as authentic and final evidence of their existence for the information and action of all others dealing with them in reference to it" (15). In the case from which the foregoing extract is taken, the court concluded that the holder in due course of the bonds in question could not recover, as the recitals were not of the required character. § 75. Right to recover from a public corporation in quasi-contract. The principles of the law relating to quasi-contracts are treated in the article on that subject in Volume I of this work. As pointed out there, the basis of the liability is the fundamental principle that no person shall unjustly enrich himself at another's expense. This principle, of course, may be applied to corporations, private and public, as well as to natural persons. For example, one who paid money to a city for invalid bonds was permitted, on returning the bonds, to recover, not on the contract contained in the bonds, but on a quasi-contractual duty to restore the amount paid (16). The bonds were invalid because not having been registered with a state official, but the city officials concealed this by antedating them so that they appeared to have been issued before the act requiring registration went into effect (15) Harlan, J., in Bank of Toledo v. Porter Township, 110 U. S. 608. (16) City of Louisiana v. Wood, 102 U. S. 294. |