§ 162. Corporate indebtedness; its payment from a special fund. Indebtedness legally incurred by a public corporation is often payable not out of the general revenues of the municipality but total debts or liabilities. In Kelly v. City of Minneapolis, 63 Minn. 125, it was held that the amount of bonds and money in the sinking fund of Minneapolis was to be deducted from the total amount of outstanding bonds of the city in determining whether the indebtedness of the municipality had reached the constitutional limitation, "that all of the bonds held by the sinking fund are the bonds of the city, hence the amount of the bonds and the amount in the fund must necessarily represent an equal amount of the outstanding and uncanceled bonds and indebtedness of the city which has already been realized from taxation to pay the bonds, and to ascertain the further amount to be raised by taxation in order to extinguish the entire indebtedness of the city, it necessarily follows that the amount of the sinking fund is to be deducted from the entire amount of the apparent indebtedness of the city. The balance is its actual debt. The debt limit of the statute has reference to an actual indebtedness for the payment of which a tax must be levied, not to an uncanceled apparent liability." Bank v. Grace, 102 N. Y. 313. In Webb City & C. Waterworks Co. v. City of Carterville, 142 Mo. 101, the court held that as relating to the power of the city to contract debts in any year in excess of its income, money derived from a sale of bonds was not to be considered a part of such income or revenue. State v. Hopkins, 14 Wash. 59, 44 Pac. 134. Within the meaning of the constitutional provision limiting indebtedness locally incurrable by counties, the cash assets of the county should be deducted from the outstanding indebtedness to ascertain the actual indebtedness. See Brooke v. City of Philadelphia, 162 Pa. 123, as following the doctrine held in the case of Kelly v. City of Minneapolis, 63 Minn. 125; Kelley v. Pierce County, 15 Wash. 697; Graham v. City of Spokane, 19 Wash. 447. Assets of the city applicable to the payment of its debts consisting of cash in hand, taxes assessed for the year during which the indebtedness is contracted, and unpaid taxes of prior years, are all to be deducted. Crogster v. Bayfield County, 99 Wis. 1. The rule as given in the text is followed and the court hold that the amount of cash on hand with the available assets and resources readily convertible into cash should be subtracted from outstanding indebtedness to ascertain the actual debt. Rice v. City of Milwaukee, 100 Wis. 516, 76 N. W. 341. Prospective revenue indefinite and uncertain in amount should not be included as an asset of the corporation for the purpose of determining whether it has reached the limit of its indebtedness. The court say: "As already noted, the moneys to be derived from these sources (licenses) are entirely indefinite and uncertain. They were not in the process of collection and could be collected only at the will of parties who sought privileges for which license charges were made, and for that reason could not be con from some special fund raised through the imposition of taxes or special assessments upon certain property or in a certain manner and having for its purpose the reduction and ultimately the payment of such indebtedness.304 This is especially true where the debt, whether evidenced by negotiable bonds or other forms, was contracted for the especial purpose of constructing works of internal or local improvement, namely, bridges, highways, and in municipal corporations proper for the grading, paving or general improvement of streets.305 It seems to be the rule that where sources. sidered as available assets or reIt, therefore, seems clear that these unknown and unascertained items of income should not and cannot be considered as offsets against the city's indebtedness. If our conclusions are correct, it is readily apparent that the city had already pledged its credit to an amount exceeding the debt limit and had no right to make the proposed bond issue." In Herman v. City of Oconto, 110 Wis. 660, the court held that taxes which had been apportioned by the secretary of the state but which were not payable until the following December, the contract in this case being made in October, could not be considered as an asset of the city for the purpose of deduction under the rule stated in the text. 304 Santa Ana Water Co. v. San Buenaventura, 56 Fed. 339; Smith Canal or Ditch Co. v. City of Denver, 20 Colo. 84; State v. Bell, 9 Ga. 334; City of Chicago v. Shober & C. Lithographing Co., 6 Ill. App. 560; Dehm v. City of Havana, 28 Ill. App. 520; Carlyle Water, L. & P. Co. v. City of Carlyle, 31 Ill. App. 325; Second Nat. Bank v. Town of Danville, 60 Ind. 504; City of Indianapolis v. Wann, 144 Ind. 175; Wilson v. City of Shreveport, 29 La. Ann. 673; Mister v. City of Kansas, 18 Mo. App. 217; Kingsland v. City of New York, 5 Daly (N. Y.) 448; Blair v. Lantry, 21 Neb. 247; McElhinney v. City of Superior, 32 Neb. 744; Winston v. City of Ft. Worth (Tex. Civ. App.) 47 S. W. 740; Kaufle v. Delaney, 25 W. Va. 410. 305 Monroe County Com'rs v. Harrell, 147 Ind. 500, 46 N. E. 124; Affeld v. City of Detroit, 112 Mich. 560. Detroit Charter Local Laws 1883, p. 629, § 8, provide that no public work shall be paid for except by a special assessment to be made upon the property benefited. The court held that such work could not be paid from funds raised for a different purpose and say, "Apparently, the city has had the benefit of the plaintiff's labor, under circumstances which made it inequitable that he should not be paid for it. As before stated, whether the law will now permit an assessment to raise the money to pay him, we have no means of knowing; but we feel constrained to hold that, whether it will or not, the work cannot be paid for from any other fund than that raised for the purpose according to law." Kelly v. City of Minneapolis, 63 Minn. 125. Certificates calling for the payment of money and issued by the park board of the city of Minneapolis are not an indebtedness of the city within the meaning of Laws indebtedness is thus to be paid from a special fund created in the manner suggested, its legality will not be affected by the diversion of moneys from such funds or the failure to levy and collect the taxes which the corporation may be legally authorized to do in this behalf. Creditors who are entitled to have the amounts owing them paid from revenues collected in this way, usually 1893, c. 204, § 2, limiting the indebtedness of cities. The court in its opinion by Start, Chief Justice, say: "The certificates in question were given for the purchase price of land for park purposes, and their payment secured by a mortgage on the land purchased. Each certificate states that the city of Minneapolis is indebted to the payee in the sum therein named, and recites that the consideration therefor is the conveyance to the city by the payee of land for park purposes, and that the certificate is secured by a mortgage on the land sold, and that it is payable out of the funds arising from assessments made upon real estate specially benefited by the park established on the land, and concludes with these words: 'It being expressly nuderstood and agreed that there is no liability on the part of said city to pay the amount evidenced by this certificate and secured by the above described mortgage out of any other fund than the fund above specified.' No certificates issued or contracts made by the park board can be given any legal effect contrary to or in excess of the powers conferred upon the board by the statute we have quoted, and they are, in fact, substantially in accordance with its provisions. The board has no power to make these certificates a lien generally upon all the parks of the city, and the record shows that no attempt has been made to secure their payment by the creation of such a lien. The debt of the city is neither increased nor diminished by the transaction. No revenues of the city which must be raised or replaced by taxation are pledged for the payment of the certificates. The statute expressly provides that the park board cannot create any personal or general liability on the part of the city by any certificates they may issue, except to pay such amounts as may be realized from assessments on property benefited on account of the acquisition of the land purchased for park purposes. In no event, nor under any circumstances, is the city liable, except as a trustee, to pay over to the certificate holder the amount actually realized from the assessments. * * How, then, can it be said that these certificates, for the payment of which the city is not liable, and for which no tax can be levied. are an indebtedness of the city, within the meaning of the statute fixing the debt limit?” Queens County Sup'rs v. Phipps, 35 App. Div. 350, 54 N. Y. Supp. 946. Under Laws 1898, c. 614, the county commissioners it was decided could apply the balance of a fund raised in the manner indicated in the text for the improvement of highways but not needed for its original purpose to pay a debt contracted in constructing a jail. Baker v. City of Seattle, 2 Wash. St. 576. See also many authorities cited § 152, notes 278 and 279. have the right to compel an accounting of the funds in the case of a wrongful diversion and to maintain proceedings against the city or public officials where through such action they have suffered an injury.306 Their rights cannot be defeated by illegal acts of public officials appropriating and using these funds for other purposes.307 Neither can they be affected or destroyed by the failure of the municipal officers to levy the tax authorized by law for the purpose of making the payment due. If the proper officials fail in this regard those to whom the contract obligation is due can by writ of mandamus or proper proceeding compel the levying of a sufficient tax to make such payment. This principle is especially applicable where under a contract for the furnishing of light or water the municipality has failed to make its contract payments but still insists on using and does use light and water thus supplied.308 If there is no provision by which such indebtedness is to be paid through the imposition of assessments or taxes, but it is specially charged upon the general revenues of the corporation, it seems to be the rule that these general revenues must be applied first to the payment of the current or running expenses and the surplus income, if any, used in the payment of the principal or interest of such bonded or other indebtedness.309 306 City of New Orleans v. Fisher, (C. C. A.) 91 Fed. 574; Village of Kent v. United States (C. C. A.) 113 Fed. 232; Bates v. Porter, 74 Cal. 224, 15 Pac. 732; Leonard v. Long Island City, 65 Hun (N. Y.) 621; McGlue v. City of Philadelphia, 32 Leg. Int. 188; Gate v. City of Philadelphia, 14 Wkly. Notes Cas. 274. 307 Cooke v. Village of Saratoga Springs, 23 Hun (N. Y.) 55; People v. City of Cairo, 50 Ill. 154; State v. McCrillus, 4 Kan. 250. The court in speaking of the control of the county board over bonds say: "The bonds are ascertained claims not in any wise depending on the action of the board for their validity. They have no power to audit or allow them or to disallow them. This power over them was ended when they passed into other hands for a valid consideration." 308 Elliott County v. Kitchen, 14 Bush (Ky.) 289. The rule stated in the text applied to the payment of an issue of bonds authorized by law. State v. City of Great Falls, 19 Mont. 518; City of Wilkesbarre's Appeal, 116 Pa. 246. Municipal corporations under Pa. Const. art. 15, § 3, are authorized, in addition to the powers of taxation they may possess, to levy a tax for the creation of a sinking fund having for its purpose the ultimate payment of their indebtedness. 309 White v. City of Decatur, 119 Ala. 476, 23 So. 999; City of East St. Louis v. Flannigen, 34 Ill. App. 596; § 163. Its payment through the levy of taxes. Corporate indebtedness legally incurred for a public purpose by the corporation in its capacity as a public or governmental agent is generally paid through the imposition and collection of taxes, and, as will be noted in a succeeding section,310 the payment of a valid indebtedness is considered a public purpose and one authorizing such action. In the absence of a constitutional or statutory limitation upon the power to tax, the granting of the authority to incur an indebtedness impliedly authorizes the levy of taxes sufficient to pay the debt and the interest as it becomes due.3 311 Though some few cases hold to the contrary, Allen v. City of Davenport, 107 Iowa, be paid in future, not limited to pay90, 77 N. W. 532. 310 City of Guthrie v. Ter., 1 Okl. 188, 31 Pac. 190. The legislature has the authority to provide for the payment by a village corporation of the debts of a prior provisional government embracing the same territory. The court say: "It is a fundamental rule that a legislature may, by a retroactive statute cure or ratify any defect which it might have in the first instance, authorized unless prohibited by some constitutional or organic provision; or it may by a retroactive statute, legalize any proceedings that it might have authorized. It can hardly be contended that the legislature could not have authorized the creation of the debts of the provisional government had there been a legislature prior to their organization." 311 Simonton Mun. Bonds, § 133. Citizens' Sav. & Loan Ass'n v. City of Topeka, 87 U. S. (20 Wall.) 655. "But such instances are few and exceptional, and the proposition is a very broad one, that debts contracted by municipal corporations must be paid, if paid at all, out of taxes which they may lawfully levy, and that all contracts creating debts to ment from some other source, imply an obligation to pay by taxation. It follows that in this class of cases the right to contract must be limited by the right to tax, and if in the given case no tax can lawfully be levied to pay the debt, the contract itself is void for want of authority to make it. If this were not so, these corporations could make valid promises, which they have no means of fulfilling, and on which even the legislature that created them can confer no such power. The validity of a contract which can only be fulfilled by a resort to taxation, depends on the power to levy the tax for that purpose. It is therefore to be inferred that when the legislature of the state authorizes a county or city to contract a debt by bond, it intends to authorize it to levy such taxes as are necessary to pay the debt, unless there is in the act itself, or in some general statute, a limitation upon the power of taxation which repels such an inference." United States v. City of New Orleans, 98 U. S. 381; Ralls County Court v. United States, 105 U. S. 735; City of Quincy v. Jackson, 113 U. S. 335; United States v. Justices |