would seem, then, to be a special legislative authority to make or issue them; an authority which does not reside in the general words in which the powers of local self-government are usually conferred,1 and one also which must be carefully followed by the

of dissent which all the while has accompanied these precedents been disregarded and set aside.

Some most remarkable illustrations may be found in our legislative history of the devices and shifts that will be resorted to for the plunder of the public when the doctrine is once submitted to, that private corporations may be subsidized from the public treasury. In this place we content ourselves with mentioning one. The people of Illinois by constitutional provision have expressly forbidden such subsidies. Unfortunately for the State, a number of towns and counties had previously voted considerable sums to railroad companies, which still remain unpaid. Some of these constituted such burdens upon the municipalities voting them that the local authorities did not venture to impose the necessary taxes to pay the interest, much less to provide for the principal. What should be done under such circumstances? The holders of the debts wanted their pay: the municipalities wanted to get rid of their obligations. It would seem that nothing was to be done but for the one party to pay or the other to resort to the proper legal remedy. With millions at stake, however, ingenious men were not wanting who could suggest some other plan, and the one suggested was, that these local obligations should be saddled upon the State. It seems incredible, but it is nevertheless true, that such influences were brought to bear as secured legislation which, covertly and by indirection, imposed upon the State the burden. So gross and palpable a disregard of the constitutional principle which requires taxation to be gathered from those upon whom the burden justly rests (post, p. 493–4) is not often known.

As denying the right to tax in aid of railroad corporations, reference is made to Stokes v. Scott County, 10 Iowa, 166; State v. Wapello County, 13 Iowa, 388; Myers v. Johnson County, 14 Iowa, 47; Smith v. Henry County, 15 Iowa, 385; Ten Eyck v. Keokuk, ib. 486; Clark v. Des Moines, 19 Iowa, 212; McClure v. Owen, 26 Iowa, 243; Hanson v. Vernon, 27 Iowa, 28; People v. Township Board of Salem, 21 Mich. 11; Bay City v. State Treasurer, 23 Mich. 499; Whiting v. Sheboygan R.R. Co., 25 Wis. 167; Phillips v. Albany, 28 Wis. 357; and to dissenting opinions in many of the cases where a majority of the Court sustained the right, Compare also what is said by Church, Ch. J., in People v. Flagg, 46 N. Y. 401.

1

Bullock v. Curry, 2 Met. (Ky.) 171. A general power to borrow money or incur indebtedness to aid in the construction of "any road or bridge" must be understood to have reference only to the roads or bridges within the municipality. Stokes v. Scott County, 10 Iowa, 173; State v. Wapello County, 13 Iowa, 388; La Fayette v. Cox, 5 Ind. 38. There are decisions in the Supreme Court of the United States which appear to be to the contrary. The city charter of Muscatine conferred in detail the usual powers, and then authorized the city "to borrow money for any object in its discretion," after a vote of the city in favor of the loan. In Meyer v. Muscatine, 1 Wall. 384, the court seem to have

municipality in all essential particulars, or the subscription or security will be void. And while mere irregularities of action, not going to the essentials of the power, would not prevent parties who had acted in reliance upon the securities enforcing them, yet as the doings of these corporations are matters of public record, and they have no general power to issue negotiable securities, any one who becomes holder of such securities, even though they be negotiable in form, will take them with constructive notice of any want of power in the corporation to issue them, and cannot enforce them when their issue was unauthorized.1

construed this clause as authorizing a loan for any object whatever; though such phrases are understood usually to be confined in their scope to the specific objects before enumerated; or at least to those embraced within the ordinary functions of municipal governments. See Lafayette v. Cox, 5 Ind. 38. The case in 1 Wallace was followed in Rogers v. Burlington, 3 Wall. 654, four justices dis-' senting. See also Mitchell v. Burlington, 4 Wall. 270. A municipal corporation having power to borrow money, it is held, may make its obligations payable wherever it shall agree. Meyer v. Muscatine, 1 Wall. 384. But some cases hold that such obligations can only be made payable at the corporation treasury, unless there is express legislative authority to make them payable elsewhere. People v. Tazewell County, 22 Ill. 147; Pekin v. Reynolds, 31 Ill. 529. Such corporations cannot give their obligations all the qualities of negotiable paper, without express legislative permission. Dively v. Cedar Falls, 21 Iowa, 565. See Thomas v. Richmond, 12 Wall. 349; Dillon, Mun. Corp. §§ 406. 407.

1 There is considerable confusion in the cases on this subject. If the corporation has no authority to issue negotiable paper, or if the officers who assume to do so have no power under the charter for that purpose, there can be no doubt that the defence of want of power may be made by the corporation in any suit brought on the securities. Smith v. Cheshire, 13 Gray, 318; Gould v. Sterling, 23 N. Y. 458; Andover v. Grafton, 7 N. H. 298; Clark v. Des Moines, 19 Iowa, 209. And in any case, if the holder has received the securities with notice of any valid defence, he takes them subject thereto. But where the corporation has power to issue negotiable paper in some cases, and its officers have assumed to do so in cases not within the charter, whether a bona fide holder would be chargeable with notice of the want of authority in the particular case, or, on the other hand, would be entitled to rely on the securities themselves as sufficient evidence that they were properly issued when nothing appeared on their face to apprise him of the contrary, is a question still open to some dispute.

In Stoney v. American Life Insurance Co., 11 Paige, 635, it was held that a negotiable security of a corporation which upon its face appears to have been duly issued by such corporation, and in conformity with the provisions of its charter, is valid in the hands of a bona fide holder thereof without notice, although such security was in fact issued for a purpose, and at a place not authorized by the charter of the company, and in violation of the laws of the State where it was actually issued. In Gelpecke v. Dubuque, 1 Wall. 203, the law is

*In some of the cases involving the validity of the sub- [* 216] scriptions made or bonds issued by municipal corporations

stated as follows: "Where a corporation has power, under any circumstances, to issue negotiable securities, the bona fide holder has a right to presume they were issued under the circumstances which give the requisite authority, and they are no more liable to be impeached for any infirmity in the hands of such holder than any other commercial paper." See also Commissioners of Knox Co. v. Aspinwall, 21 How. 539; Russell v. Jeffersonville, 24 How. 287; Thorn v. Commissioners of Miami Co., 2 Black, 722; De Voss v. Richmond, 18 Grat. 338; San Antonio v. Lane, 32 Tex. 405. In Farmers and Mechanics Bank v. The Butchers and Drovers Bank, 16 N. Y. 125, it is said: "A citizen who deals directly with a corporation, or who takes its negotiable paper, is presumed to know the extent of its corporate powers. But when the paper is, upon its face, in all respects such as the corporation has authority to issue, and its only defect consists in some extrinsic fact, such as the purpose or object for which it was issued, — to hold that the person taking the paper must inquire as to such extraneous fact, of the existence of which he is in no way apprised, would obviously conflict with the whole policy of the law in regard to negotiable paper." In Madison and Indianapolis Railroad Co. v. The Norwich Savings Society, 24 Ind. 461, this doctrine is approved, and a distinction made, in the earlier case of Smead v. Indianapolis, &c., Railroad Co., 11 Ind. 104, between paper executed ultra vires and that executed within the power of the corporation, but, by an abuse of the power in that particular instance, was repudiated. In Halstead v. Mayor, &c., of New York, 5 Barb. 218, action was brought upon warrants drawn by the corporation of New York upon its treasurer, not in the course of its proper and legitimate business. It was held that the corporation under its charter had no general power to issue negotiable paper, though, not being prohibited by law, it might do so for any debt contracted in the course of its proper legitimate business. We quote from the opinion of Edwards, J.: It was contended on the argument, that the rule of the law-merchant which protects the bona fide holder of negotiable paper, without notice, was of universal application; and that, if the defendants had a right to issue negotiable paper, it must ex necessitate be subject to the same rules as the negotiable paper of an individual. This view seems plausible, but will it bear the test of examination? In the first place, the defendants have no general power, either express or implied, to issue negotiable paper. They have only a special or conditional implied power for that purpose; that it is necessary as a condition precedent to the validity of such paper that the debt which forms the consideration should be contracted in the proper legitimate business of the defendant. The act under which they were incorporated is declared to be a public act. Every person who takes their negotiable paper is bound to know the extent of their powers, and is presumed to receive it with a full knowledge that they have only a limited and conditional power to issue it. He is thus put on his inquiry, and takes it at his peril. The circumstances under which a bona fide holder, without notice, receives the negotiable paper of a natural person, or of a corporation having the general express power to issue negotiable paper, are very different. In both those instances, the

[* 217] in aid of internal * improvements, there has been occasion to consider clauses in the State constitutions designed to

power to issue such paper is general and unconditional; and hence the rules which have been established by commercial policy, for the purpose of giving currency to mercantile paper, are applicable. It results from the views which have been expressed, that the drafts in question, not having been issued by the defendants in their proper and legitimate business, are void in the hands of the plaintiff, although received by him without actual notice of their consideration." This decision was affirmed in 3 N. Y. 430. In Gould v. Town of Stirling, 23 N. Y. 464, it was held that where a town had issued negotiable bonds, which could only be issued when the written assent of two-thirds of the resident persons taxed in the town had been obtained and filed in the county clerk's office, the bonds issued without such assent were invalid, and that the purchaser of them could not rely upon the recital in the bonds that such assent had been obtained, but must ascertain for himself at his peril. Say the court: "One who takes a negotiable promissory note or bill of exchange, purporting to be made by an agent, is bound to inquire as to the power of the agent. Where the agent is appointed and the power conferred, but the right to exercise the power has been made to depend upon the existence of facts of which the agent may be supposed to be in an especial manner cognizant, the bona fide holder is protected; because he is presumed to have taken the paper upon the faith of the representation as to those facts. The mere fact of executing the note or bill amounts in itself, in such a case, to a representation by the agent to every person who may take the paper that the requisite facts exist. But the holder has no such protection in regard to the existence of the power itself. In that respect the subsequent bona fide holder is in no better situation than the payee, except in so far as the latter would appear of necessity to have had cognizance of facts which the other cannot [must?] be presumed to have known." And the case is distinguished from that of the Farmers and Mechanics Bank v. Butchers and Drovers Bank, 16 N. Y. 125, where the extrinsic fact affecting the authority related to the state of accounts between the bank and one of its customers, which could only be known to the teller and other officers of the bank. See also Brady v. Mayor, &c., of New York, 2 Bosw. 173; Hopple v. Brown Township, 13 Ohio, N. s. 311; Veeder v. Lima, 19 Wis. 280. The subject is reviewed in Clark v. City of Des Moines, 19 Iowa, 209. The action was brought upon city warrants, negotiable in form, and of which the plaintiff claimed to be bona fide assignee, without notice of any defects. The city offered to show that the warrants were issued without any authority from the city council, and without any vote of the council authorizing the same. It was held that the evidence should have been admitted, and that it would constitute a complete defence. See further Head v. Providence, &c., Co., 2 Cranch, 169; Royal British Bank v. Turquand, 6 El. & Bl. 327; Knox County v. Aspinwall, 21 How. 544; Bissell v. Jeffersonville, 24 How. 287; Sanborn v. Deerfield, 2 N. H. 254; Alleghany City v. McClurkan, 14 Penn. St. 83; Morris Canal and Banking Co. v. Fisher, 1 Stock. 667; Clapp v. Cedar Co., 5 Iowa, 15; Commissioners, &c. v. Cox, 6 Ind. 403; Madison and Indianapolis R.R. Co. v. Norwalk Savings Society, 24 Ind. 457; Bird v. Daggett, 97 Mass.

*

limit the power of the legislature to incur indebtedness [*218] on behalf of the State, and which clauses, it has been urged, were equally imperative in restraining indebtedness on behalf of the several political divisions of the State. The Constitution of Kentucky prohibited any act of the legislature authorizing any debt to be contracted on behalf of the Commonwealth, except for certain specified purposes, unless provision should be made in such act for an annual tax sufficient to pay such debt within thirty years; and the act was not to have effect unless approved by the people. It was contended that this provision was not to apply to the Commonwealth as a mere ideal abstraction, unconnected with her citizens and her soil, but to the Commonwealth as composed of her people, and their territorial organizations of towns, cities, and counties, which make up the State, and that it embraced in principle every legislative act which authorized a debt to be contracted by any of the local organizations of which the Commonwealth was composed. The courts of that State held otherwise. "The clause in question," they say, “applies in terms to a debt contracted on behalf of the Commonwealth as a distinct corporate body; and the distinction between a debt on behalf of the Commonwealth, and a debt or debts on behalf of one county, or of any number of counties, is too broad and palpa

494. It is of course impossible to reconcile these authorities; but the doctrine in the case of Gould v. Town of Stirling appears to us to be sound, and that, wherever a want of power exists, a purchaser of the securities is chargeable with notice of it, if the defect is disclosed by the corporate records, or, as in that case, by other records where the power is required to be shown. See Fish v. Kenosha, 26 Wis. 24. That the powers of the agents of municipal corporations are matters of record, and the corporation not liable for an unauthorized act, see further Baltimore v. Eschbach, 18 Md. 276; Johnson v. Common Council, 16 Ind. 227. Those who deal with a corporation must take notice of the restrictions in its charter, or in the general law, regarding the making of contracts. Brady v. Mayor, &c., of New York, 2 Bosw. 173; s. c. 20 N. Y. 312; Swift v. Williamsburg, 24 Barb. 427; Zabriskie v. Cleveland, &c., R.R. Co., 23 How. 381; Hull v. Marshall County, 12 Iowa, 142; Clark v. Des Moines, 19 Iowa, 199; Marsh v. Supervisors of Fulton Co., 10 Wall. 676. If they are not, no subsequent ratification by the corporation can make them valid. Leavenworth v. Rankin, 2 Kansas, 357. The courts of Missouri and Florida have held that purchasers of securities issued under unconstitutional laws will be protected, and the securities enforced if they were purchased before the laws were declared invalid. Steines v. Franklin County, 48 Mo. 167; Columbia County v. King, 13 Fla. 451.