The affairs of no municipal corporation were ever conducted, I presume, without incurring obligations for various purposes, in anticipation of its revenues. It may be held that there is a distinction between incurring debts for the ordinary and current expenses of the corporation, to be defrayed by the expected annual income, and debts upon an extended credit for objects of a permanent character, as, for instance, that a debt may be created for the repair of a bridge or market, but not for the erection of or procuring a suitable site for such market. I am unable to discover any solid basis for such a distinction, or any definite line by which it could be marked."

§ 69. Same: For general purposes. In this case the city borrowed the money for a specific purpose. May it borrow money generally, i. e., without specifying for what particular purpose? That question was raised and answered in Mills v. Gleason (3), in which the action was brought to restrain the treasurer of Dane County from selling lands of the plaintiff for taxes assessed for the purpose of raising a sum to be paid as interest on a loan of $100,000 previously obtained by the city of Madison and for which bonds had been issued by the city. The money was obtained for no specific purpose, but had been paid into the city treasury and expended in erecting city buildings and for general city purposes. The court sustained the validity of the bonds, and held that in such cases it was not necessary to show that the money had been properly used by the city, although it had been so

used in the case before it. Upon this point, however, there is a conflict of authority, and perhaps the larger number of cases hold that the municipal corporation has no implied power to borrow money generally, or to meet the current expenses of city government, although it may borrow for permanent improvements, as in the case of Ketchum v. Buffalo discussed above. For example, in Hackettstown v. Swackhamer (4) the note whose validity was challenged was given by the treasurer of the town, in the name of the town, for money borrowed to meet the ordinary expenses of the town. The loan was held invalid, on the ground that such a power was not necessary or even to be fairly implied from the powers granted by the charter. The court relied, in part, on the fact that the charter expressly authorized the town to raise money from year to year by tax, in order to meet current expenses, holding that the grant of this power expressly, by implication denied the power to borrow to meet the same expenses. Judge Dillon is inclined to think that the majority of the cases deny even the implied power to borrow money to make future local improvements, even though such improvements be expressly authorized (5). The obvious result of such narrow rules of construction has made it necessary for the legislature to go into great detail in enumerating the powers of local corporations in their charters.

§ 70. Implied power to issue negotiable bonds when expressly authorized to borrow money. As a result of the

(4) 37 N. J. L. 191.

narrow construction of the city's powers to borrow money, many charters now expressly grant municipalities the power to borrow money. Does this express power carry with it an implied power to issued negotiable bonds for the loan? The question is an important one, for it is one of the characteristics of negotiable instruments that certain defenses which would render the instruments unenforceable in the hands of the original holders are lost if they pass into the hands of persons to whom they are transferred for value, before maturity, without notice of such defenses. The Supreme Court of the United States in the case of Brenham v. Bank (6) held that such a power was not one fairly to be implied as incidental to the express power to borrow money. Three of the nine members of the court, however, dissented from the conclusions of the court, and pointed out that Judge Dillon agreed with their view rather than with that of the majority. Judge Dillon's statement is as follows: "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 railways 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." It would seem that the view of the minority of the United States court represents not only the better view, but also the weight of authority.

§ 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.

§ 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