This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
Credit cannot be loaned directly or indirectly without express authority.1 Thus a contract for issuing interest-bearing warrants to the contractor on the execution of the contract to enable him to raise money to carry out the contract, the contractor to repay the interest at the final settlement is invalid.2 A contract of guaranty, entered into by a municipal corporation is ordinarily ultra vires.3 Power to erect a lighting plant is not implied power to guarantee bonds of an electric light company.4 However, giving its notes to pay assessments in a mutual insurance company of which it is a member is not a gratuity or a loan of credit.5 Under some state constitutions, it is held that the legislature cannot authorize a loan of credit,6 or a gift to a private enterprise.7 In other states this power may be given expressly by statute.8 Issuing bonds in payment of a valid stock subscription has been held not to be a loan of credit ;9 and giving bonds for local improvements, the bonds to be paid out of the assessments is not objectionable as a loan of credit.10
13 Field v. Shawnee, 7 Okla. 73; 54 Pac. 318.
14 Waters v. Bonvouloir, 172 Mass. 286; 52 N. E. 500.
15 James v. Seattle, 22 Wash. 654; 79 Am. St. Rep. 957; 62 Pac. 84.
16 Hayes v. Douglass Co., 92 Wis. 429; 53 Am. St. Rep. 926; 31 L. R. A. 213; 65 N. W. 482. Contra, a county may contract for exhibiting its products at a state centennial outside the county limits. State v. Cornell. 53 Neb. 556; 68 Am. St. Rep. 629; 74 N. W. 59; Shelby Co. v. Exposition Co.. 96 Tenn. 653; 33 L. R. A. 717; 36 S. W. 694.
17 Stem v. Cincinnati. 6 Ohio N. P. 15; (citing Tash v. Adams, 10 Cush. (Mass.) 252; Hood v. Lynn,
1 Allen (Mass.) 103; Claflin v. Ho-pinton, 4 Gray (Mass.) 502; Hodges v. Buffalo, 2 Denio (N. Y.) 110). See Daggett v. Colgan, 92 Cal. 53; 27 Am. St. Rep. 95; 14 L. R. A. 474; 28 Pac. 51.
18 Moore v. Hoffman, 2 Cinn. Sup. Ct. 453.
1 Scott v. La Porte, - Ind. - ; 68 N. E. 278.
2 Moran v. Thompson, 20 Wash. 525; 56 Pac. 29.
3 Nashville v. Sutherland Co., 92 Tenn. 335; 36 Am. St. Rep. 88; 19 L. R. A. 619; 21 S. W. 674.
4 Lynchburg, etc., Co. v. Dameron, 95 Va. 545; 28 S. E. 951; citing Blake v. Mayor, etc., of Macon. 53 Ga. 172.