author: Boynton, J.

text:
    The United States Rolling Stock Company v. The Atlantic and Great Western Railroad Company.
    1. Where a contract made by an agent is voidable at the election of his principal, such election must be made within a reasonable time after full knowledge is acquired by the principal of the circumstances under which the contract was made, otherwise it will be binding upon him.

      2. Where, upon full knowledge of all the facts affecting his liability, the principal promises to pay an account stated of the amount appearing to be due from a contract previously voidable at his election, he thereby ratifies the contract.
    ■ 3. A contract made between two corporations through .their respective boards of directors, is not voidable at the election of one of the parties thereto, from the mere circumstance that a minority of its board of directors are also directors of the other company.

      ■4. The plaintiff and defendant by their respective boards of directors, entered into a contract whereby the plaintiff agreed to supply the defendant with all the rolling stock required in the operation of its railway for the period of seven years, at an agreed rental to be paid monthly. The five persons composing the plaintiff’s board of directors were members of the defendant’s board, which consisted of thirteen persons. At the meeting of the defendant’s board, at which the terms of said contract were agreed upon and confirmed, there were present only eight directors, two of whom were directors of the -plaintiff. The plaintiff supplied the rolling stock, as agreed, and the defendant received and used the same in the operation of its railway for the period of nearly two years and a half, when the contract was terminated: Held, If it be assumed that the contract, under the circumstances of the case, was voidable, in equity, at the election of the defendant within a reasonable time after the same was made, for want of a quorum of directors at the meeting at which the contract was agreed upon and confirmed, who were not directors of the plaintiff, the delay in exercising the election, to avoid it, operated as a waiver of the right so to do; and, consequently, an instruction to the jury that such right existed at the time of the trial was erroneous.
    Error to the District Court of Summit county.
    The action below was brought by the plaintiff against the defendant to recover the sum of $985,934.02, most of which sum was a balance alleged to be due the plaintiff from the -defendant for the. use of rolling stock furnished by the former to the latter, from February, 1872, to December 10, 1874, under an express contract. It appears from the record that the plaintiff was incorporated under the laws of New York on the 31st day of October, 1871, with a board of five directors empowered to manage its affairs ; and that on December 11, 1871, the defendant was organized as a ■consolidated railroad company, under the laws of New York, Pennsylvania, and Ohio with aboard of thirteen directors ¿.that at the date of the organization of the railroad company, the five directors of the rolling stock company, namely, George B. McClellan, Samuel L. M. Barlow, James B. Hodgskins, William Butler Duncan, and Lawrence Wells were elected and became five of the thirteen directors of the railroad company; that said five persons continued to be the sole members of the plaintiff’s board of directors and five of the thirteen members of the defendant’s board until the 11th day of December, 1873, and that one or more of said directors of the plaintiff continued to be directors of defendant until the termination of the contract on which suit was brought.
    It further appears that on November 6, 187.1, a provisional contract was entered into by James McHenry, purporting to act for the plaintiff, and Leonard John Woodman, purporting to act for and on behalf of the executive committee of the Atlantic and Great Western Railroad Company, by the terms of which the plaintiff agreed to supply to the defendant and the defendant to receive, at an agreed monthly rental, for the period of seven years, from January 1,1872, the rolling stock'mentioned in a schedule thereto annexed, consisting of locomotives, engines, passenger carriages, petroleum tanks, box and coal cars, and such other description of rolling stock and equipment. as the railroad company required, in the operation of its railway. On the 19th day of July, 1872, this contract, with a certain modification, was ratified and adopted by the plaintiff’s board of directors, and on August 2,1872, was, as modified, adopted, and confirmed by the defendant’s board •of directors. It further appears that at the meeting of the defendant’s board, at which said contract was ratified and' confirmed, only eight of the thirteen members were present, two of whom, McClellan and Hodgskins, were directors of the plaintiff. It was averred in the petition, and not denied by the answer, that the plaintiff furnished to the defendant, under said contract, between the dates first above mentioned, a large amount of rolling stock which was used by the defendant in the operation of its railway. And that “ on the 28th day of February, 1874, there was due from defendant to plaintiff, under said contract for the hire of said cars and rolling stock to said date, and insurance paid by plaintiff on account of defendant, over and above all credits then due from plaintiff to defendant, three hundred and six thousand eight hundred and fifty-eight and forty one-hundredths dollars, as appears-by an account stated of said date between defendant and-plaintiff — defendant acting by Thomas "Warnock, its auditor. A true copy of said account stated is hereto annexed,, marked ‘ B,’ and made part hereof. On or about the first day of March, 1874, plaintiff requested from defendant payment of the moneys admitted to be due as aforesaid, which defendant promised to pay.”
    The answer alleged that the defendant had paid to the-plaintiff', on account of said rolling stock, used by the defendant, for the whole period of its use, from June, 1872, until December 10,1874, the sum of $1,075,085.15, but that the fair rental value of the same for said period was only $875,000, and denied that said contract “ is or should be in any manner binding upon it,” and averred that it was- “ not liable, except for the fair and reasonable value of the-use of said rolling stock.”
    Plaintiff “ offered and produced to the jury evidence tending to prove that the directors of plaintiff and defendant respectively, in the passage of the aforesaid resolution respectively, endeavored to act for the best interests of the-stockholders and creditors of the respective corporations aforesaid, and defendant offered and produced evidence-tending to prove the contrary.”

      The plaintiff“ produced to the jury evidence tending to prove that at the rates of rental specified in said provisional contract, as modified by the resolutions aforesaid, there was due plaintiff from defendant for the use of the rolling stock in plaintiff’s said petitions mentioned, over and above all payments made by defendant to plaintiff, and over and .above the rebate by said contract allowed to defendant, more than $700,000, and defendant offered and produced ■evidence tending to prove that the actual value of the use ■of said rolling stock was less than the moneys by defendant paid to plaintiff.”
    After argument, the court, at defendant’s request, charged &nd directed the jury “that the fact that the said five directors or trustees of plaintiff were five of the thirteen directors of defendant, with the further fact that the aforesaid two directors or trustees of plaintiff were two of the ■quorum of eight directors of defendant who passed said resolution of August 2, 1872, rendered the written or special contract made between plaintiff and defendant as aforesaid in law invalid and voidable at the election of defendant, irrespective of the motives of the said directors of plaintiff and defendant respectively, in their aforesaid .action.”
    To which instructions the plaintiff excepted.
    The court thereupon further charged and directed the jury that they were to allow the plaintiff the fair value of the use of all rolling stock furnished by plaintiff to defendant since November 6, 1871, and allow the defendant the' payments by the pleadings admitted to have been made by defendant to plaintiff, and render a verdict accordingly.
    A verdict was accordingly rendered for the value of such use, on which judgment was rendered, which, on error, was affirmed by the district court. This petition in error is prosecuted to reverse both judgments.

      Charles M. DaCosta, Stanley Matthews, and Edward Bis-■sell, and also Edward Ooiatt and Bissell Gorrill, for plaintiff in error:
    It was clearly error to limit the recovery of the plaintiff, under the circumstances of the case, to only “the fair value of the use of the rolling stock furnished by plaintiff to the defendant since November 6,1871,” because the first count, or cause of action in the first petition, is on an account stated under the contract, on February 28,1874 — that is to say, more that twenty-seven and a half months after' the execution of the original contract,'in November, 1871, and more than eighteen and a half months after the ratification and approval of the same by the directors of the-respective companies, plaintiff and defendant, during all of which time the contract was performed on the part of the plaintiff, with the knowledge, approval, and without the dissent of the defendant. The fact of such account having been so stated under the contract, is not denied in the answer, nor is the correctness of the account in any way therein impugned.
    The admissions made by the answer therefore conclusively establish a ratification of the contract by the defendant’s company.
    The doctrine of the ratification of an agent’s acts, doings, and omissions, applicable to natural persons, is also-controlling in the case of corporations.
    A principal is bound by the acts of his agent, even though not originally authorized, if—
    1. There is a positive approval and- ratification of the acts of the agent by the principal.
    2. Such ratification maybe inferred from the acts of the principal, and from the facts and circumstances of the case.

      The State v. Ex’r of Buttles, 3 Ohio St. 309, 323; Payson v Stoever, 2 Dillon, 427; Moss v. Lead Co., 5 Hill, 137; Bridge Co. v. Phœnix Bank, 3 Comstock, 156; Hilliard v. Goold, 34 N. H. 230; Christian University v. Jordan, 29 Mo. 70; Shover v. Bear River Co., 10 Cal. 396; Angell & Ames on Corp., § 304, and eases cited; Id., § 502; Insurance Co. v. Sanders, 36 N. H. 252; Moss v. Averell, 10 N. Y. 449; Church v. Sterling, 16 Conn. 387; Mayor v. Ray, 19 Wall. 468; Alleghany City v. McClurkan & Co., 14 Pa. St. 81; Eield on Corp., §§ 162, 163, 167; Brice’s Ultra Vires (Green’s Ed.), 462-475, and notes.
    The principle contended for maybe likened to, and is supported by, the doctrine of estoppel, which applies alike to individuals and to corporations. The defendant has, by its silence and acquiescence in, and acting under, the contract, estopped itself, and especially by the accounting thereunder had, from denying its validity. Zabriskie v. Cleveland Co., 23 How. 381, 400, 401; Bissell v. Jeffersonville, 24 Id. 287, 300; County v. Emigrant Co., 93 U. S. 124, 130. The well known municipal or county-bond cases, from Gelpke v. City of Dubuque, 1 Wall. 175, to Town of East Lincoln v. Davenport, 94 U. S. 801; Isham v. Buckingham, 49 N. Y. 217, 223; Big. on Estoppel, 419, (2d ed.); Bocock v. Pavey, 8 Ohio St, 270, 281, 282; Newburg Co. v. Weare, 27 Ohio St. 343, 353, 354; Cassey v. Galli, 94 U. S. 680.
    Support, too, may be had from the doctrine of ultra vires; for, even if the contract had been beyond the scope of either or both the corporations to enter into, yet, having been executed, neither could invoke the doctrine of ultra vires. The execution of the contract prevents them, or either of them, from so doing. Green’s Brice on Ultra Vires, note to page 372 et seq.; Whitney Arms Co. v. Barlow, 63 N. Y. 62.
    3. Again, if the principal desires to disapprove of' his agent’s unauthorized acts, he must not take the benefit of such act, but must reject it and repudiate it at once as soon as ascertained. Rianhardv. Hovey, 13 Ohio, 300; Kilsey v. National Bank, 69 Pa. St. 426, 429.
    4. And the same doctrine applies outside the laws of agency;
    If a party desires to rescind the contract upon the ground of mistake or fraud, he must, upon the discovery of the facts, at once announce his purpose to rescind and act accordingly. Grymes v. Sanders, 93 U. S. 62; Twin Lick Co. v. Marbury, 91 U. S. 592 ; Bruce v. Davenport, 1 Abb. Ct. App. Dec. 233 ; Cobb v. Hatfield, 46, N. Y. 535; Hammond
      v. Pennock, 61 N. Y. 153; Harris v. Equitable Society, 64 N. Y. 199.
    Or, if a party has an election between two inconsistent remedies, he will be confined to that which he first adopts. Any decisive act of the party done with knowledge of' his rights and of the facts determines his election, and works an estoppel. Bigelow on Estoppel (2d ed.), p. 503; Rodermund v. Clark, 46 N. Y. 354; Kennedy v. Thorpe, 51 N. Y. 174, 176.
    To conclude, the defendant, by its silence and acts, acquiesced in and ratified the contract. Even, if avoidable at first, it elected to act under and to receive its benefits, from its inception until the bringing of this suit, that is, at least thirty months. It is, therefore, estopped under every recognized principle from now seeking to avoid it, even if the election to avoid it originally appertained to the defendant. Goodin v. Evans, 18 Ohio St. 150, 168.
    Is the contract invalid in law for the reasons assigned by the court — that is, because five of the plaintiff’s directors were five of the thirteen of the defendant’s directors at the time of the ratification, by the defendant, of the contract on August 2, 1872, when coupled with the fact that two of the eight of the defendant’s directors present at the meeting which ratified the contract, were directors of the plaintiff?' It is submitted that the contract is not invalid in law for either or both of these reasons.
    As to the first reason — that is, that it was invalid in law, because five of the plaintiff’s directors were five of the thirteen directors of the defendant at the time of the ratification of the contract.
    The directors and officers of a corporation are not the corporation. They are simply its agents, and through them the corporation expresses its wishes and acts.
    Corporations may have common agents, as natural persons have. A common agent of two parties is a very frequent' occurrence — as an auctioneer, an arbitrator, a broker, etc. The defendant itself is nothing but a consolidation of three companies who had common directors, •and if the rule be correct, their act of consolidation is null and void. See Browne on Stat. of Frauds, § 369; Butler v. Thompson, 92 U. S. 412; Pugh v. Chesseldine, 11 Ohio 109, 123, 124.
    The reductio ad absurdum of the proposition enunciated in the charge of the court below is easy; for, if the fact that one corporation has among its agents some of the .agents of another corporation with which it proposes to contract, per se makes such contract invalid in law, a fortiori, must that be the rule if there be found among the two corporations a person who is a stockholder in both; for, as directors are but agents of the company, they themselves do not reap the benefit. It is the stockholders who .are either benefited or injured, and hence the logical sequence of the rule which is attempted to be upheld by the defendant would be, that no person could be a shareholder in two companies without the risk being run that if the two companies should make a conteict with each other, the same could be declared by this court to be invalid in law. The enunciation of such a doctrine would not only startle the community, but embarrass and prevent the investment •of capital in corporate shares.
    It must be remembered, also, that directors even are not inhibited in all eases from contracting with their own company, if the contract be for its use, and it be entered into -in good faith (which is in all cases a question of fact to be submitted to the jury. Starbuck v. U. S. Pottery Co., 34 Vt. 144); and contracts so made will be upheld. Twin Lick Co. v. Marbury, 91 U. S. 144; Omaha Co. v. Wade, 97 U. S. ; Bank v. Courtwright, 22 Wend. 348; Smith v. Lansing, 22 N. Y. 520; Merrick v. Peru Co., 61 Ill. 472 ; Troop’s case, 29 Beav. 353; Hoare’s case, 30 Beav. 225.
    The secoud fact alluded to by the court as a reason for its ruling, viz., because two of the quorum of the eight directors of the defendant’s company, who passed the resolution of August 2,1872, were directors also of the plaintiff, and so the contract was rendered invalid in law, is, it is •submitted, equally unsound.

      ' The defendant’s hoard consisted of thirteen persons. As this court is not informed that the by-laws required any definite number of such thirteen to constitute a quorum, it: must be presumed, in accordance with the common-law rule, that a quorum consisted of the majority of the board, that is to say, seven. At the meeting- of August 2, 1872,. there were present eight. It follows, therefore, that the-meeting was a legally constituted one for the transaction! of business.
    Again, the court not being informed that any by-law of the defendant existed, requiring a certain number of votes upon any question, the common-law rule must prevail, that is to say, that a majority of the quorum was only requisite-to do any act by which the corporation should be bound,, or, in other words, four votes were required. 2 Kent’s-Com. 293, marginal.
    It appeal’s that out of the eight persons present, six were-not directors of the plaintiff’s company. The resolution, of August 2, 1872, therefore, received six unobjectionable-votes — two more than the required number, even supposing-that the two objectionable votes must be deemed as recorded voting in the negative. The contract, therefore,, was then absolutely legally ratified by the defendant’s company, unless the mere fact of there being some directors-common to both companies was in itself sufficient to invalidate the contract — a position which could hardly be seriously contended for.

      Otis, Adams $ Russell, W. Ii. Upson, and R. P. Ranney,, for defendant in error :
    We claim that directors of corporations can not, as directors, represent both sides of a contract, in which the two corporations have conflicting interests, especially when the-contract is made in the intei’est of one at the expense of the other.
    The same person can not represent, as agent or trustee, both sides of any controversy. He can not act for both' sides in negotiating a contract, much less in making a coil-tract between adverse interests. Building Ass’n v. Caldwell, 25 Md. 420; Sparling v. Todd, 27 Ohio St. 521; Story on Agency, §§ 210, 211.
    Directors in a corporation are agents and trustees for the stockholders or parties in interest, and occupy a fiduciary position toward them. Goodin v. Railroad, 18 Ohio St. 182; 36 Ind. 66, and cases there cited; 31 Ind. 288; 14 Mich. 477 ; Green’s Brice’s Ultra Vires, 400-403, and notes Perry on Trusts (2 ed.), 248, § 207; Railroad v. Blakie, 1 McQueen, 461; Davoue v. Fanning, 2 Johns. Ch. 252; Lewin on Trusts, 97; Law Lib. 402; Ex parte Hughs, 6 Ves. 622; Ex parte Lacey, 6 Ves. 628 ; Ex parte James, 8 Ves. 337 , Railway v. Dewey, 14 Mich. 477 ; People v Tp.. Board, 11 Mich. 225; Brown v. Boston Theater, 104 Mass. 378; 11 Sim. 327; Hodkinson v. Insurance Co., 26 Beav.. 437; Gregory v. Patchett, 33 Beav. 595 ; Atwool v. Merryweather, L. R. 5 Eq. 464.
    Applying the principles laid down in the foregoing authorities to this case it is entirely clear that the contract made or approved August 2, 1872, was, as to the rentals provided, ruinously oppressive to the Atlantic and Great Western Railroad Company, was in effect- a fraud upon it that could not be sustained in a court of equity.
    Its effect was to indirectly appropriate to the rolling-stock company the “ common property, profits, or means-of profit” of the railroad company, through a contract assented to by the railroad board, the whole five directors (trustees) of the rolling stock company being active members of the railroad company’s board of directors, and both companies having the same executive officers and managei's..
    But, outside of all questions of actual fraud, the contract-could not stand. The rolling stock board were disqualified from thus acting as part of the board of the other contracting party.
   Boynton, J.

The question presented by the record arises upon the exception to the charge of the court upon the-point of the defendant’s right to avoid the contract upon; which the action, was founded. The rule that an agent or trustee in matters touching his agency, or pertaining to the trust, can not bind the principal or cesíui que trust, without his consent, by a contract in which the former is adversely 'interested, rests upon a very satisfactory foundation, and is supported by a great weight of authority. Wade v Pettibone, 11 Ohio, 57; Morison v. Thompson, L. R. 9 Q. B. 480 ; 1 Leading Cases in Eq. 210.

In Story on Agency, § 210, the rule is said to be founded “upon the plain and obvious consideration, that the principal bargains, in the employment, for the exercise of the •disinterested skill, diligence, and zeal of the agent for his own exclusive benefit. It is a confidence necessarily reposed in the agent, that he will act with a sole regard to the interest of his principal as far as he lawfully may.” And, in 2 Kent’s Com. 618, the same principle is asserted, in the following language : “ An agent, acting as such, can not take upon himself, at the same time, an incompatible •duty. He can not have an adverse interest or employment. He can not be both buyer and seller; for this would expose his fiduciary trust to abuse and fraud.” In Bennett, ex parte, 10 Yes. 393, Lord Eldon, commenting on .a sale of the trust property to the trustee, stated the reason of the rule denying the right of the trustee to buy the trust property to be, “that it would not be safe, with reference to the administration of justice in the general affairs of the trust, that a trustee should be permitted to purchase; for human infirmity will, in very few instances, permit a man to exert against himself that providence which a vendor •ought to exert, in order to sell to the best advantage, and which a purchaser is at liberty to exert for himself, in order to purchase at the lowest price.” The rule which prevents the agent or trustee from acting for himself in a matter where his interest would conflict with his duty, also prevents him from acting for another whose interest is adverse to that of the principal; and, in all eases where, without the assent of the principal, the agent has assumed to act in such double capacity, the principal may avoid the transaction, at his election. No question of its fairness or unfairness can he raised. The law holds it constructively fraudulent, and voidable at the election of the principal.. Aberdeen Ry. Co. v. Blackie, 1 McQueen H. L. Cas. 461; The York Buildings Co. v. Mackenzie, 3 Paton H. L. 378; Bisham’s Principles of Eq. 106. 18 Ohio St. 182.

But does the present case fall within the operation of this principle. The right to avoid the contract, because the-agent has a personal interest in its subject-matter adverse to-that of the principal, or has assumed an incompatible duty, is one arising in equity for the principal’s protection. He-may avail himself of the right to avoid the contract., or he-may waive it, at his option.

That the agent may represent two persons, with their assent, in a transaction relating to or embracing a subject-matter respecting which their interests may be adverse or conflicting, admits of no doubt. In The Adams Mining Co. v. Senter, 26 Mich. 73, upon the question how far the double-agency of one affected his relation to his employers or third, persons, it was held, that “ where the same person is made the agent of two mining corporations, in the same-vicinity, and it becomes necessary for one to deal with the other, he must be presumed to have the same power to act for both that would be possessed if there were two agents-acting separately, and may dispose of property in the same way; and such double authority would dispense with such formalities as could not be complied with, where one man acts for both companies.” The court, in announcing its-opinion, say: “ The authority of agents, where no law is-violated, is as large as their employers choose to make it. There are multitudes of cases where the same person acts-under power from different principals in their mutual transactions. Every partnership involves such double relation. Every survey of boundaries by a surveyor jointly agreed upon would come within similar difficulties. There can be no presumption that the agent of two parties will deal unfairly with either.” So, where subsequent assent is given to the acts of the agent, the same result fol■lows; that is, if the principal, with full knowledge of all the facts affecting his rights, ratifies the act of the agent, the right to avoid the contract or transaction is gone.

In discussing the subject of the principal’s right to .avoid or rescind the contract, where the engagements of the agent are affected with a personal interest, Story, in his ■Commentary on the Law of Agency, § 810, further says: ■“Of course it is to be understood, as a proper qualification of the doctrine, that the principal has an election ■ to adopt the act of the agent or not; and that, if after .a full knowledge of all the circumstances, he deliberately .and freely ratifies the act of the agent, or acquiesces in it for a great length of time, it will become obligatory upon «him, not by its own inherent force, but from the considera••■tion that he thereby waives the protection intended by the law for his own interests, and deals with his agent, quoad ..hoc, discharged of his agency.”

Mr. Wharton, in his work on Agency, § 244, says: “ So, .also, a principal, when fully knowing the facts, can ratify the agent’s action, though tainted with employment by an ■ opposing party.”

The doctrine is equally well settled that the option to .avoid the contract must be exercised by the principal within' a reasonable time after being fully apprised of the circumstances of the agent’s engagement.

“ Where the principal is informed of what has been done, ■-he must dissent, and give notice of it within a reasonable time; and if he does not, his assent and ratification will be presumed.” 2 Kent’s Com. 616 ; Raley on Agency, 172.

What constitutes a reasonable time must largely, if not wholly, depend on the circumstances of the particular case. Where the consequences of delay are or may prove injurious to the other contracting party, especially where large •expenditures, to the knowledge of the principal, are being made, on the faith of the validity of the contract, the law requires prompt action on his part, if he would avoid responsibility for the acts of the agent. His right to avoid «•being one arising in equity, is governed by the rules upon •which that court administers justice. ITe must speak when 'he should, or he will not be permitted, to speak when he •would. In Smith v. Clay, 3 Bro. C. C. 639 (n.), Lord Camden, adverting to the principles which govern a court of equity, where a party has slept upon his rights, said: “A ■court of equity has always refused its aid to stale demands, where a party has slept on his right, and acquiesced for a great length of time. Nothing can call forth this court into activity but conscience, good faith, and reasonable diligence. Where these are wanting, the court is passive, and does nothing. Laches and neglect are always discountenanced.”

This doctrine is universally recognized by courts of ■equity. Sanderson v. Etna Iron and Nail Co., ante 442; Twin Lick Oil Co. v. Marbury, 91 U. S. 587; Grymes v. Sanders, 93 U. S. 55; Brown v. County of Buena Vista, 95 U. S. 157 ; Clegg v. Edmondson, 8 De Gex, M. & G. 787; Jennings v. Broughton, 5 De Gex, M. & G. 126; Murray v. Graham, 6 Paige Ch. 622; 2 Story’s Eq. Jur. § 1520a.

Hence, where the principal has an option to avoid or stand by the contract of his agent, he is not permitted to await the issue of events to transpire in the future with the purpose of adopting the contract if the transaction to which it relates proves a paying one, and if not to reject it. Mere silence has often been held to give rise to a conclusive presumption of ratification, especially where good faith and fair dealing require the principal to speak, and his silence has a tendency to mislead. Story’s Agency, § 255.

It is equally true, and results from the application of the .■same principle, that if the principal adopts a part of the act of the agent, upon full knowledge of the circumstances, he thereby ratifies the -whole. He can not elect to take a part and reject the balance. An acceptance of the benefits of the transaction imposes the obligation to assume its burdens and operates to confirm it as a whole. And a ratifi■eation once made becomes as irrevocable, obligatory, and binding as if the act of the agent were previously authorized.

In the-light of these principles let ns examine the question arising upon the charge of the court below.

If the contract sued on was void, because agents in common of the two corporations participated in making-it, it of course would follow that no prejudice resulted from the instructions given. But a contract between two corporations having common directors, made by their respective boards, or between a corporation and an individual director or a firm of which he is a member, is, at common-law, perfectly valid. In view of this fact, and to guard-against the evils which, in particular instances, might result therefrom, it was provided in England by 8 & 9 Yict. ch. 16, that “ no person holding an office or place of’ trust or profit under the company, or interested in any contract with the company, shall be capable of being a director ; and no director . . . shall be capable of being interested in any contract with the company, during the time he ■ shall be a director;” and also, that “if any director at any time subsequently to his election, ... be either directly or indirectly concerned in any contract with the company, or participate in any manner in the profits of any work to-be'done for the company, the office of such director shall . become vacant, and thenceforth he shall cease from voting or-acting as a director.” In Foster v. The Oxford W. & W. Ry. Co., 13 C. B. 200, it was held, that while these provisions incapacitated a party contracting with a company from -becoming or continuing a director, they did not avoid-the contract. The action was brought upon an agreement between the defendant and a firm of which a director of the defendant was a member, to recover for a supply of iron-to the company by the firm. In disposing of the point-taken that the contract was void under the foregoing provisions of the statute, Jervis, C. J., said: “ If all such contracts are void, contracts entered into with a joint-stock company, as well as contracts entered into with individuals, would-be avoided, if a member of the joint-stock company happened to be a director of the company contracted with; and yet the 87th section merely provides, that ‘ no person being; a shareholder or member of any incorporated joint-stock company, shall be disqualified or prevented from acting as-a director, by reason of any contract entered into between such joint-stock company and the company incorporated by the special act; but no such director being a shareholder or member of such joint-stock company, shall vote on any question as to any contract with such joint-stock company/' That provision would have been unnecessary if the contract was already avoided.”

To the same effect is Ernest v. Nichols, 6 H. L. Cas. 401, There the 29th section of the 7 and 8 Vict., ch. 110, was-construed to render a contract void for noncompliance with its provisions. That section in terms prohibited a director from voting on the subject of any contract in which he was-interested. Then followed the provision that if any contract or dealing, with certain named exceptions, “shall be entered into, in which any director shall be interested, then the terms of such contract or dealing shall be submitted to the next general or special meeting of the shareholders, to-be summoned for that purpose, and no such contract shall have force until approved and confirmed by the majority of votes of the shareholders present at such meeting.” See also Murray’s Ex’r’s Case, 5 De Gex. M. & G. 746.

These citations sufficiently show that, in England, a contract between a corporation and one of its directors would, in the absehee of a statute affecting its validity, be upheld and enforced in her common-law7 tribunals. That the same rule prevails in this country is well established. See Ashurst’s Appeal, 60 Penn. St. 290 ; Stark Bank v. U. S. Pottery Co., 34 Vt. 144.

If it be granted that the confirmation of the contract by the defendant’s board of directors at the meeting of August 2, 1872, was voidable in equity, at the election of the company, for want of the presence at that meeting of • th.e board of a quorum of directors who were not directors of the plaintiff, it nevertheless appears that the board was composed of thirteen persons, a clear majority of whom. were affected with no incapacity to act for the best interests of the company, and who sustained no fiduciary relation to the plaintiff whatever. This majority possessed ample power to restrain and control the action of the minority, and if the contract was voidable at the option of the company, it had full power to express the company’s election if it saw fit to avoid the contract. The fact that some of the persons composing this majority might vote with those who were members of both boards, and thereby create a majority in favor of the contract, would in no wise affect the validity of the transaction, nor relieve the board from the duty to move in the matter, if they desired the company’s escape from liability.

We have not, upon the most diligent research, been able to find a case holding a contract made between two corporations by their respective boards of directors invalid, or voidable at the election of one of the parties thereto, from the mere circumstance that a minority of its board of directors are also directors of the other company. Nor do we think such a rule ought to be adopted. There is no just reason, where a quorum of directors, sustaining no relation of trust or duty to the other corporation, are present, participating in the action of the board, cvhy such action should not be binding upon the company, in the absence of such fraud as would lead a court of equity to undo or set aside the transaction. If the mere fact that a minority of one board are members of the other, gives the company an option to avoid the contract without respect to its fairness, the same result would follow where such minority consisted of but one person, and notwithstanding the board might consist of twenty or more. In our judgment, where a majority of the board are not adversely interested, and have no adverse employment, the right to avoid the contract or transaction does not exist without proof of fraud or unfairness ; and hence the fact that five of the defend ant’s board of directors were members of the plaintiff’s board, whatever may have been its effect on the defendant’s right to disaffirm or repudiate the contract, if exercised within a reasonable time, did not disable the defendant from ■subsequently affirming the contract, if satisfied with its terms, or rejecting it if not* nor did it relieve it from the duty to exercise its election to avoid or rescind within a reasonable time, if not willing to abide.by its terms.

That it did not do this, nor take any steps toward its ■disaffirmance, but continued to act under it for nearly two years and a half, receiving the rolling stock for the use of which it stipulated, and with which it operated its road for the whole of said period, making payments for such use in accordance with the rate fixed by the contract, very clearly appears from the admitted facts. Besides this, the petition avers that, upon an account stated of the amount due under the contract, on February 28, 1874, over eighteen months after the contract was entered into, and after ample time to elect to avoid if the company desired so to do, the defendant promised to pay the same, being in amount upwards of $300,000. This allegation the answer nowhere denies ; nor does it deny the allegation of the petition that said rolling stock was furnished and received and used under .such contract for the whole of said period of time.

The denial that the contract set up in the petition “ is or ■should be in any manner binding upon the company,” and the allegation that the defendant is “ not liable, except for the fair and reasonable value of the use of said rolling stock,” are but the averment of mere legal conclusions, entirely out of place in a pleading, and of no possible benefit to the pleader. This court has repeatedly held that both allegations and denials of this character are without any legal significance whatever. Knox County Bank v. Loyd’s Adm’r, 18 Ohio St. 353 ; Larimore v. Wells, 29 Ohio St. 13 ; B. & O. R. R. Co. v. Wilson, 31 Ohio St. 555. Hence the conceded facts clearly establish a ratification of the contract, and estop the defendant from denying its validity.

The instruction given by the court to the jury, as applied to the undisputed facts, was therefore erroneous. The jury were told that the fact that the said five directors of the plaintiff were five of the thirteen directors of the defendant, with the further fact that two of said five were two of the quorum of eight directors of defendant, who confirmed the contract upon August 2, 1872, rendered such contract in law invalid and voidable, at the election of the defendant, irrespective of the motives of the directors participating. This was intended and understood to mean that such election could then be made, notwithstanding the admitted facts, constituting in law a complete affirmance of the contract.

Whatever may have been the right to avoid the contract, without proof of fraud or unfairness, if exercised at an earlier day, it did not exist at the time of the trial. The question involving the right was therefore wholly removed from the ease.

The instruction permitted the jury to give the defendant the benefit of an option which, if formerly existing, had long since been lost by failure to exercise it.

Judgment reversed, and cause remanded for a new trial.


source: Caselaw Access Project

author: McIlvaine, J.

license: Public Domain

text:
    Kelly et al. v. The City of Cleveland et al.
    1. An ordinance providing that the cost of improving a street “shall be assessed upon all the lots and parcels of land benefited thereby in proportion to the number of feet front in each,” is not in conformity to or authorized by section 576 of the municipal code of 1869.
    2. Non-abutting lots and lands are not subject to assessment for the cost of a street improvement, unless the same be designated and the amount to-be assessed thereon fixed by the board of improvements or city council, in pursuance of section 579 of said code.
    3. For the purpose of apportioning the cost of a street improvement in-proportion to benefits, the council can not require the board of improvements or a committee of freeholders to report an estimated assessment under section 584, until the property to be charged therewith and the amount to be assessed thereon has been determined and fixed in pursuance of section 576, and, if non-abutting property be embraced, of section 579.
    4. Where the provisions of section 576, as to abutting property, and of 579, as to non-abutting property, are disregarded in proceedings to assess-specially the cost of an improvement, the assessment is invalid, and. the case does not come within the curative provisions of section 550.
    Error to the District Court of Cuyahoga county.
    This proceeding is prosecuted to reverse the judgment of the district court for error, in overruling a demurrer to the answer of the defendants in the original action.
    The ease was- in the district' court on appeal from the ■court of common pleas.
    The action was originally brought by the plaintiffs in •error against the defendants in error to enjoin the collection of a special assessment for the improvement of a part of "Wilson avenue, in the city of Cleveland. The questions ■of law involved arise on the following state of facts:
    On the 9th of September, 1878, the city council of the ■city of Cleveland passed the following:

      “An ordinance to grade, drain, and improve Wilson avenue, from Julia street to Sawtell avenue.

      “ Section. 1. Be it ordained by the city council of the ■city of Cleveland (two-thirds of all the members concuring), that Wilson avenue, between Julia street and Sawtell avenue, be graded, drained, and improved, in accordance with the established grade now on file in the office of the •city civil engineer, under the direction of the board"of improvements.

      “ Sec. 2. That the cost and expense of said grading, •draining, and improving shall be levied and assessed upon all the lots or parcels of land benefited thereby, in proportion to the number of feet front in each.
    “ Sec. 8. That, the damages claimed by reason of said .grading, draining, and improving shall be adjudged after the completion of the same.”
    ■ A portion of the work having been let and completed, to wit, from Julia to Maurice street, the council directed the board of improvements to make an estimated assessment of the cost and expense thereof upon the property properly ■chargeable therewith. An estimated assessment was made by the board, upon the lots abutting, and also upon lots not abutting, upon the improvement. Objections to this assessment having been filed, an equalizing board was appointed by the council, whose report was confirmed by the council' on the 18th of June, 1875. Among the lots thus assesse i, which did not abut on the improvement, were certain lots: of the plaintiffs.
    On the 17th of September, 1875, the council passed the following ordinance:
    “ An ordinance to levy and assesss a special tax to pay the cost and expense of grading, draining, and improving Wilson avenue, between Julia and Maurice streets:

    “ Section 1. Be it ordained by the city council of the city of Cleveland (two-thirds of all the members concurring), that for the purpose of paying the cost and expense of grading, draining, and improving Wilson avenue, between Julia and Maurice streets, there be, and is hereby,, levied and assessed a tax, in accordance with the assessments as made for that purpose, and confirmed by the city council, June 18,1875; that the amount of said tax, payable annually, shall be in accordance with the amount on the tax list, as certified to the city council by the city auditor, and that the same be placed on the county tax duplicate for collection, said tax to be payable, in three installments,, to the county treasurer — the first installment to be payable on or before the 20th day of December, 1875, and an installment annually thereafter until all are paid.”
    Previous to the order of the city council, requiring the board of improvements to make an estimated assessment, neither council nor board of improvements had designated the non-abutting property which, in its opinion,, would be specially benefited and accommodated by the improvement, nor had fixed the amount to be assessed upon the non-abutting property.
    Upon this state of facts, the plaintiffs claim that further proceedings, for the enforcement of the assessment, should have been enjoined by the court below.

      S. 0. Griswold and S. M. Stone, for plaintiffs in error:
    We claim that this tax, upon the lots of plaintiffs, is wholly illegal and void, on the ground that the necessary jurisdictional action, to authorize the city to levy an assessment for the payment of an improvement on property not bounding and abutting on the street improved, was not taken, or attempted to be taken, by the city.
    It will be seen, from the language of section 579 (66 Ohio L. 247), that in addition to what is required in order to authorize the city to assess lands bounding and abutting on the street improved, certain other action is necessary to authorize an assessment upon other lots and lands within the corporation not bounding or abutting upon the improvement.
    There must be, first, an opinion of the council, or board of improvements, that “ such other lots and lands ” will “be specially accommodated and benefited by the improvement ;” second, that it would be equitable to assess a proportion of the cost of the improvement upon “such other lots and lands;” and, thirdly, the amount for which they are to be assessed shall be fixed.
    The opinion herein required is the judgmeut or determination of the council or board of improvements, and must be expressed officially; that is'to say, the council or hoard of improvements must, in their official capacity, in some manner, w’hieh shall appear of record, declare that the lots and lands, other than the bounding and abutting, will be specially accommodated and benefited by the improvement, and, that it would be equitable to assess a portion of the cost of the improvement upon them, and the amount to be so assessed fixed and determined.
    In order to give effect to this section, it is cleai’ly requisite for the hoard or council to designate what lots and lands, other than the bounding and abutting lands, will be specially benefited and accommodated by the improvement, and which in equity ought to bear a portion of the cost.
    It is equally clear that this should be done before the passage of the ordinance directing the improvement to bo made.
    The ordinance, under which the tax was levied, fails to designate any lots or lands other than the bounding and abutting lots. It does not declare that any other lots or lands will’be specially benefited and accommodated by the proposed improvement, or that it would be equitable to charge them with a proportion of the cost; and it fails to fix the amount with which they should be assessed.
    No other steps were taken by the city to make non-abutting lands chargeable with the cost.
    The ordinance simply declares that all lands benefited by the improvement shall be charged according to their frontage.
    This is sufficient for charging the abutting lands, but has no further effect.
    The only pretense of the city that their duties were performed is, that the board of improvements made the first reported estimate of the assessment.
    By section 584, the city may require this reported estimate therein provided for to be done by the boai’d of improvements or three disinterested freeholders.
    The board of improvements, under this section, simply act as an assessing board, and are required to put the tax on the lands to be charged, nearly as may be, according to benefits.
    But this assessing duty is an entirely different thing from the judicial determination required by section 579, and is not necessarily to be recorded among its proceedings.
    Their action is reported to the council, in the shape of a report, to be confirmed or not by the council.
    The language of section 584 would indicate that before this assessment is made that the assessing board, whether it is composed of the three freeholders or board of improvements, is concluded by the previous action of the council as to the territory to be charged.
    Not only must the council or board of improvements determine that some other than the abutting property is specially benefited or accommodated, but there must be a further determination that it would be equitable to charge such, property with a portion of the cost, and the amount is to be fixed.
    Now, the duty imposed by section 584 is to assess the cost on the property benefited, according to the benefits on each lot.
    This is not power to divide the cost, as between the abutting and non-abutting land.
    That is required to be done under section 579.
    When this is done, then upon each class of territory the assessing board may assess upon the lots embraced in •each the amount fixed, and distribute the amount chargeable on each, either by frontage, value, or benefits.

      J. K. Hord, J. P. Hawley, aud S. M. Stone, also for the plaintiffs in error:
    In the pleadings it appears as a fact admitted that the lands of these plaintiffs do" not adjoin or abut on the street ■upon which the improvement was made.
    That the improvement to grade, drain, and improve Wilson avenue did not involve the appropriation or purchase •of land.
    And that the lands, other than those bounding or abutting upon the avenue, which have been assessed for the improvement, were not designated by the council or by the board of improvements previous to the making of the improvement and assessment of the tax.
    This not being an improvement specially provided for, it is regulated by chapter 49 of the municipal code, passed May 7th, and took effect July 1, 1869. 66 Ohio L. 245.
    Section 579 (66 Ohio L. 247) of said chapter provides that if, in the opinion of the council or board of improvements, it would be equitable, a proportion of the cost •of making the improvement may be assessed upon such lands not bounding or abutting upon the street to be improved as will, in the opinion of the council or board, be specially accommodated and benefited thereby. And the board or council shall fix the amount to be so assessed.
    And in section 584 (66 Ohio L. 248) it'is provided that “ in all cases in which it is determined to assess the whole or any part of the costs of any improvement upon the lots or lands bounding or abutting upon the same, or upon other lots or lands benefited thereby,” the council may require the board of improvements, or appoint a board of assessors, to report to the council an estimated assessment of the cost of the improvement on the lots or lands to be charged therewith.
    Under these sections we claim that it is optional with the council and board whether the abutting property is, charged with the tax, or property benefited by the improvement, or both. But, in regard to non-abutting property, they must exercise this option before it has been assessed or the equalizing board ordered to equalize the assessment. If' they do not, the language of said sections clearly imports that only the abutting property shall bear the burden.
    And, in addition to designating what property shall bear the tax, the council and board must also designate the amount which said property shall bear.
    And that the office of the equalizing board is simply to-distribute the amount equitably over the property so designated.
    The record shows that the provisions of these sections were entirely disregarded by the council.
    This assessment being without authority of law, and, therefore, void, it is not such an irregularity or defect as is-cured by section 550 of the municipal code. Welker v. Potter, 18 Ohio St. 85 ; Stephan v. Treasurer, 27 Ohio St. 528.
    The statutory power of taxation and assessment must be clearly given and strictly pursued. 2 Dillon, 706, §§ 605-610, and cases cited ; Moore et al. v. Mich. Cline, 47 Ind. 565.

      Grannis $ Griswold, also for plaintiffs in error.

      Heisley, Well $ Wallace, for defendants in error:

      ~We see no reason why an assessment made in accordance with benefit for a street grading case should not be governed by the same principles as an assessment made according to benefits in a street appropriation case. If so,, then the case of Meissner v. Toledo, 31 Ohio St. 387, is decisive of this case.
    There is but one scheme of making assessments according to benefits. It is developed by sections 584-589 of the code, and is applicable to all cases of street improvements. This court has decided that in the development of this-scheme it requires no preliminary designation of the property to be assessed for the improvement. Meissner v. Toledo, ante; Krumberg v. Cincinnati, 29 Ohio St. 69.
    If, however, the court be of opinion that section 579 of the municipal code of 1869 should receive a construction in connection with the provisions for making and levying an assessment to pay the cost and expense of an ordinary street improvement, then we beg to say:

      First. Iu our judgment section 579 has no reference to-an assessment made in accordance Avith benefits, by the interposition of assessing and equalizing boards. It refers alone to an assessment made by the foot front, or according-to valuation upon the assessable value of the land, Avhich the council may make directly (section 576). Section 579' is simply a continuation of 576, and a part thereof, although disconnected therefrom by intervening sections^ Making an assessment “ as herein provided,” means as provided in that part of the code which virtually forms a part, of section 579, to wit, section 576. It has no relation to-the provisions designated-by the code for making an'assessment hy the scheme of benefits (sections 584-589), either as an essential or necessary part thereof, or as standing in juxtaposition thereto.

      Second. If it bo thought by the court that section 579’ has some connection with the provisions of the code for-making an assessment according to benefits for an ordinary-street improvement, then we beg to reply that section 5791 has reference to something to be done after the work is finished, when the council or its boards come to make the .assessment to pay for the improvement. An analysis of chapter 49 of the code shows this.. Sections 563, 564, and 565, under the first and second subdivisions of the chapter, provide for the initiation of the improvement, the passage .and publication of the declaratory resolution to improve, the filing of claims for damages, and the determination by the council whether or not to proceed with the improvement. And lastly, under subdivision three, the chapter provides for making and levying the assessment to pay the ■cost and expense of the improvement. If by the foot front or valuation' upon the abutting property alone, section 576 is invoked; but, if upon the non-abutting as well .as upon the abutting property, then section 579, in connection with section 576, is applicable. If, however, it is determined to make the assessment by the system of benefits, then sections 584-589 are used. When the council ■confirms the assessment, if made by benefits, it designates the lots to be assessed, both abutting and non-abutting, and fixes the amount to be placed on each lot. Subsequently it passes an ordinance levying the assessment as thus confirmed. This is a literal compliance with section 579 of the code.

      Third. Section 579 must be construed with reference to .sections 584-589, inclusive, when an assessment is made according to benefits; and then it should receive the same construction that section 539 (the proviso therein) did by this court in the case of Meissner v. Toledo, 31 Ohio St. 387. Section 584 says the assessment must be placed “on the lots or lands to be charged therewith.” It was elaborately .argued in the street appropriation cases that to place the .assessment “ on the lots and lands to be charged therewith,” it was necessary for the council or board of improvements to designate the abutting, contiguous, and adjacent property to be assessed, before the apportionment was made. Section 539. The court, however, held otherwise. If, now, in a street appropriation case, the lots or lands to be charged for the improvement need not he designated in advance of the apportionment, neither need they he, by parity of reasoning, in a street improvement case.

      Fourth. It is not required by the code, at the inception of an improvement, to set forth or indicate how the same shall be paid for. Municipal Code, §§ 563-565.
    If the ordinance providing for the street improvement were silent as to how the cost and expense thereof should be paid, the council could then elect to provide for it by special assessment or general taxation. Sections 576, 584, 580, 581, 590.
    We think, therefore, we can safely say the provisions of the code require no preliminary enunciation as to the manner of providing for the cost of a street improvement, and, in the absence of such enunciation, the council may elect to provide for it by special assessment or general taxation; and if there is any presumption to be gathered from the entire code, when applied to the city of Cleveland, it is that it should be paid in the former rather than in the latter manner. Upington v. Oviatt, 24 Ohio St. 232; Municipal Code, § 561.
    In Hubbard v. Norton, 28 Ohio St. 116, it was held that “the city council of a city of the first class, having a board of improvements, may order the improvement of a street,, ■without a report of such board ‘ that an assessment will be required, and the proper amount to be assessed.’ Such report is not a condition precedent to the making of such order.”
    Section 579 was then substantially in force. Abutting and non-abutting property could then be assessed for an ordinary street improvement, if, in the opinion of the board of improvements, it would be specially accommodated or benefited thereby. S. & S. 836.
    In Allen v. Charlestown, 111 Mass. 123, the question arose as to the validity of an assessment levied to pay the cost of a drain or sewer. It appears that no notice was given as to what property would be charged to pay for the sewer, before the making thereof, but, subsequently to its completion, benefited lands were charged therefor. The assessment was held, to be valid. We also cite: Meissner v. Toledo, 31 Ohio St. 387; The State v. Newark, 2 Vroom (N. J.), 360; Hungerford v. Hartford, 39 Conn. 279; Clapp v. Hartford, 35 Conn. 66; Woodhonse v. Burlington, 47 Vt. 300; Whitney v. Boston, 106 Mass. 89; Commonwealth v. Woods, 44 Penn. St. 113 ; Stuart v. Palmer, 17 N. Y. Sup. Ct. 23 ; Soady v. Wilson, 3 Adol. & Ellis, 248; Cooley on Taxation, 447-450, inclusive.
   McIlvaine, J.

Power to make a special assessment to pay the whole or any part of the costs of the improvements specified in the ordinance of September 9, 1873, was •conferred upon the city by sections 576 and 579 of the municipal code of 1869. Section 576 reads as follows: “For the payment of the costs of making said improvements the council may, by ordinance, levy and assess a tax on all the lots and lands bounding or abutting on the proposed improvement, such tax to be either in proportion to the foot front of the lot and lands so-bounding or abutting, or according to the value of such lot or lands, as assessed for taxation under the general law of the state, as may be equitable, and as the council may in each case determine.” The ordinance in question can not be supported under this section, for the reason that it does not limit the assessment to abutting lots and lands; nor does it necessarily embrace such lots or lands. This would depend on the fact whether or not the abutting lots and lands were benefited by the improvement. Sectiou 579 provides: “If, iu the opinion ■of the council or board of improvements, the same would be equitable, a proportion of tbe cost of making the improvement may be assessed, as herein provided, upon such other lots or lands within the corporation, not bounding or abutting upon the improvement, as will, in the opinion of the council or board, be specially accommodated and benefited thereby; and said board or council shall fix the amount to be so assessed.” The ordinance of September 9 was not in execution of the power conferred by this section, for the reason that it does not designate the non-abutting lots or lands which, in the opinion of the council, would be specially accommodated and benefited by the improvement, nor does it fix the proportion or amount of •costs which should be assessed upon the non-abutting property.

But the council, without exercising the power conferred by either of these sections, assumed to act under the provisions of section 584, and required the board of improvements to make and report an estimated assessment of the •costs of the improvement upon the lots and lands chargeable therewith. This section reads as-follows : “ In all cases in which it is determined to assess the whole or any part of the cost of any improvement upon lots or lands bounding or abutting upon the same, or upon other lots or lands benefited thereby, the council may require the board of improvements, or may appoint three disinterested freeholders of the corporation or vicinity, to report to the council an estimated' assessment of such cost on- the lots .and lauds to be charged therewith, in proportion, as nearly .as may be, to the benefits which may result from the improvement to the several lots or parcels of land so assessed,” •etc. This action of the council, as well as all the subsequent proceedings, was premature and unauthorized, as, in our opinion, resort may not be had to the powers conferred by section 584, until those conferred in section 576, or in 576 and 579, have been exercised. In all cases of street improvements, when it is determined, in pursuance of the powers conferred by sections 576 and 579, to assess, etc., then, and not till then, may the council, under section 584, for the purpose of relieving against injustice resulting from the arbitrary apportionment, according to the front foot or the valuation, require an estimated assessment, in proportion to the benefits, on the lots and lands which, in pursuance of such previous determination, are to be charged therewith.

It is contended by defendants that, under the rule laid down in Meissner v. Toledo, 31 Ohio St. 387, it was not essential that the lots and lands to be assessed should have been designated before an estimated assessment could be required under section 584. It is true that it was held in that case that the confirmation by the council of the estimated assessment was a sufficient determination by the council of the lots and lands to be charged with the assessment. But it must be kept in mind that the assessment, in that case, was to pay for lands condemned for street purposes, as authorized by section 539, and that sections 576 and 579 were not embraced in the scheme provided for-levying special assessments in such case, while the rule in this case depends on the construction of sections 576 and 579,, which are fundamental in the scheme for levying special assessments to pay for the improvement of streets already in existence. The difference in the schemes accounts for the difference in the rules. It is not a question as to what the statute should be in either case, but what is it in each.

It is also contended, in this case, that, inasmuch as the estimated assessment was made by the board of improvements, section 579 has been substantially, if not literally, complied with. In our judgment, the board of improvements, when required, under section 584, to make an estimated assessment, can exercise no function different in any respect from the- power conferred upon a committee of disinterested freeholders in making such assessment; and clearly the committee could not exercise the powers conferred in section 579.

And further, it may be said, as it seems to us, that Empower conferred on the board of improvements by section 579 must be exercised by the board, if it desires to exercise it at all, at the same time that the improvement is recommended.

In cities having a board of improvements, of which Cleveland is oue, it is provided by section 501 that no improvement or repairs shall be ordered or directed by the council for any street, etc., except on the recommendation of the board of improvements; and section 503 provides that all petitions for improvements from owners of property shall be presented to the board, who shall report from time to time to the council, when any improvement is necessary or proper; and when any assessment is required, they shall report the same and an estimate of the amount to be assessed, and the council .shall take such action thereon as. may be deemed proper.

Erom this view, it follows that the defendants should have been restrained from certifying the assessment so-made to the auditor to be placed upon the duplicate for collection as other taxes ; and it only remains to determine-whether the plaintiffs were entitled to an injunction restraining the collection by action.

Section 550 provides that in an action for the recovery of an assessment, no irregularity or defect, whether in the proceedings of the board of improvements or of the council, whereby the assessment has not been properly made,, shall prevent a recovery, when it is shown that expense has-been incurred, which is a proper charge against the defendant, or against the lot or parcel of land in question ; and it seems plain that an unrestricted order enjoining the collection of an assessment should not be granted in a case-w'here, if an action had been brought for the collection of an assessment against the persons assessed, they could not resist a recovery on the ground of irregularities or defects in the proceedings.

We are of opinion, however, that the informalities and irregularities above mentioned are so fundamental and radical that the case does not fall within the curative provisions of section 550. In street improvement proceedings, where there-is no ordinance in substantial conformity to the provisions of section 576, and where non-abutting property has not been designated by the board or council, or the amouut to be assessed thereon has not been fixed, as required by section 579, it can not be said that any expense has been incurred that is a proper charge against the person or property sought to be assessed.

Whether the facts bring the case within the provisions-of section 551, which authorize a re-assessment, is a question we have not considered, and do not determine.

Judgment reversed, demurrer to answer sustained, and •cause remanded to the district court for such further proceedings as may be authorized be law.


author: Gilmore, C. J.

text:
    S. O. Griswold v. F. W. Pelton, Treasurer et al.
    1. In an assessment by frontage upon abutting land in bulk, section 542 confines the assessment to the front of such land to the usual depth of lots, which is to be ascertained in the manner prescribed in said section; and the per centum limitations of section 543 apply to the value of the frontage to that depth alter the improvement is made.

      2. Where an assessment has been made and placed upon the duplicate of the county upon land in bulk, the depth of which exceeds the usual depth of lots, to pay for the improvement of a street upon which it abuts, the collection of such assessment will be enjoined at the suit of the owner of the land, without prejudice to the right of the corporation to collect the amount properly chargeable against the frontage of the land.
    ■ti. In an action to enjoin the collection of such an assessment, which is a proper charge against the abutting front of the land, the parties may so frame their pleadings as to enable a court of equity, on finding the assessment to be merely irregular and defective, to proceed under section 550 to ascertain the amount properly chargeable against the front of the land.
    Error to the District Court of Cuyahoga county.
    By virtue of an ordinance passed on the 3d of March, 1874, the city of Cleveland, in that year, improved Chestnut Ridge street, from Lorain street to the southerly limits of the city.
    The ordinance provided that the costs and expenses of the improvement, except the cost of street intersections, should be levied and assessed upon the frontage of the several lots or parcels of land bounding and abutting on said street between the points aforesaid.
    The plaintiff is the owner of twenty acres of unallotted land, which has a frontage of over 1,200 feet on the west •side of the street improved, and extending back to an average depth of 800 feet.
    After the improvement was completed, the city, on the 8th of September, 1874, by ordinance, assessed a special tax, payable in five annual installments, at the rate of $3.52 on each foot front, on the abutting lots and lands, for the purpose of paying the costs and expenses of the improvement. The aggregate amount assessed on the plaintiff’s land was $4,359.80.
    This assessment was certified to the county auditor, who has placed the same on the duplicate of the county as a charge upon the plaintiff’s tract‘of twenty acres of land.
    Before the first installment of the assessment became payable, the plaintiff commenced an action in the Superior Court of Cleveland against the defendants, to enjoin the collection of the assessment.
    The grounds upon which the injunction was sought are substantially these :
    1. That the preliminary steps essential to the jurisdiction of the council to order the improvement to be made were not taken.
    2. That if the tax is not wholly illegal, it is to such an extent excessive that its collection should be enjoined.
    If the assessment is held not to be void, but only excessive, then the injunction is asked as to such excess, and the plaintiff says, that if the amount he ought to pay can be ascertained in any way, he is ready and willing “ to pay the same now into court, as well as his proportion of the installments due as those to become due.”
    By their answer, the defendants deny each and every irregularity, informality, and defect set forth in the petition, relative to said special assessment; and they ask that the petition may be dismissed, and for other proper relief.
    On appeal, the cause was heard in the district court, and ■a decree rendered dismissing the petition. A motion for a new trial was made and overruled. The plaintiff took a bill of exceptions, setting out all the testimony taken on the hearing, including the recommendations, declarations, resolutions, ordinances, etc., of the board of improvements- and city council, relating to the improvement, assessment, etc., which is made part of the record.
    By this proceeding the plaintiff in error seeks a reversal1 of the judgment of the district court.

      Grannis $ Griswold, for the plaintiff in error:
    The tax assessed is greatly in excess of the amount with which the council could legally charge the land of plaintiff.
    When the ordinance ordaining the improvement was-passed, viz., March 3,1874, sections 543 and 648, as amended in 1871, were both in.force. By the limitation of section 648, the amount of any annual assessment was limited to-ten per cent, of the duplicate value of the land to be charged, and by section 543, the aggregate amount of the levy could not exceed twenty-five per cent, of the value of the land after the improvement. It is true that section 543 was subsequently amended, so that as to cities of the first class, the-annual levy could be ten per cent, of the value of the land after improvement. The ordinance levying the tax was not passed until after this amendment; but it is confidently submitted, that the statutes in force at the time of the-passage of the ordinance, by which the improvement was ordered to be done at the expense of the property holders, governed and fixed the rights of the parties. We claim, this, both on the ground of the statute and of common honesty. This matter of special assessments, w'e submit, is-a proceeding within the meaning of the act of February 19, 1866 (8. & S. 1). Neither the ordinance for the improvement, nor for the levy of the assessment, are independent transactions.
    If it be true that this matter is a proceeding, within the-meaning of the statute, then clearly the repeal of section-543, or rather implied repeal of section 648, so far as it applies to cities of the first class, could, in no wise, affect the-rights of the owners of this land. But whether or not this is a proceeding within the meaning of the statute, c-common honesty requires that the owners of the land to be charged for a special improvement should not be charged in excess of what the law provided, when, by the ordinance ■of the city, their lands were made subject to the charge, because the legislature subsequently enlarges the power of the city to tax.
    It appears from the record that this .land of plaintiff is a tract of about tw’enty acres, and has never been allotted or .subdivided. It stands upon the tax duplicate listed as an entire tract and the assessment is charged upon the whole twenty acres. The record shows that the southern boundary of the tract is a county road, and that all the land upon the street improved, except a tract directly opposite, is allotted, and that the average depth of such lots does not exceed one hundred and fifty feet. The average valuation of the alloted lands, as appears from the record also upon the ■duplicate, is less than a dollar and a half per foot. In Cincinnati v. Oliver, 31 Ohio St. 371, it was held, that when lauds lie in bulk upon a street improved, they can only be •charged with an assessment to the depth of the adjoining •or neighboring lots, and that section 542 applies as well when the assessment is by the rule of frontage as by the •duplicate value. In that case, the assessment was not made a tax, but simply a. charge to be enforced by suit, the question of the value of so much of the frontage as was liable could be inquired into, and was ascertained, and the owner of the land released from the excess over the value of that portion subject to charge. But in this case, the city made the assessment a tax in the first instance, certified it to the auditor, and he placed the same with the general taxes on the whole tract. If of any validity, it is made a lien and charged on the whole twenty acres, and if not paid, the treasurer can return the whole land as delinquent, and proceed to sell the whole, or if less than the w7hole will produce the tax, then a parcel not subject to the assessment .might be sold. Here then is a tax levied on land not subject thereto, and w'-hich may be sold, although never liable for the tax charged. If such a tax can be upheld, then surely the restriction of the constitution upon the power of assessment becomes a nullity, and the power of municipalities becomes omnipiotent.
    • Heisley, Weh § Wallace, for defendants in error: ■
    The limitation of ten per centum of the duplicate valuation of the lots and lands assessed for any one year should control in this case.
    As to the twenty-five per cent, limitation, see section 543 of the code, as amended May 2, 1871 (68 Ohio L. 125); Wilder v. Cincinnati, 26 Ohio St. 287; Goodale v. Fennell, 27 Ohio St. 426; Krumberg v. Cincinnati, 29 Ohio St. 69 ; Cincinnati v. Oliver, 31 Ohio St. 871.
    It is said, however, that defendants can collect only ten per centum of the duplicate valuation of the lot or land assessed in any one year, because the ordinance providing for the improvement was passed before the amendment of section 543 in 1874.
    The ordinance providing for the improvement was passed March 3,1874, section 548, as it pertained to ten per centum of the value of the lot or land in cities of the first class, was-amended March 30, 1874. The proposals to do the work were advertised for; bids received; the work let, prosecuted, and finished; and the assessment made and levied, subsequently to said amendment.
    The clause in section 648 did not limit section 543, as it pertained to cities of the first class.
    By the amendment of section 548, May 2,1871 (68 Ohio L. 125), cities of the first class could levy and assess for any improvement upon any lot or land twenty-five per centum of the value of such lot or land after such improvement was made. The excess thereof should be chargeable to the general revenue.
    By the amendment of section 648, May 2, 1871 (68 Ohio L. 133), it was provided that no more than ten per centum, of the duplicate valuation of the lot or land should be assessed thereon for any oue year.
    It will be observed that this proviso is inserted in a chapter (51) referring alone to general taxation, and tacked on a section (648) that pertains solely to general taxation. See Meissner v. Toledo, 31 Ohio St. 394.
    We say, assessments and limitations for ordinary street improvements are provided for in chapters 48 and 49, and not in chapter 51, containing section 648 of the code, and therefore this section does not apply in this case.
    For an illustration of our argument, take a case on the same street, pertaining to the same assessment as the one at bar, as found by the same judges that tried the case at issue, at the same term of the district court.
    Duplicate valuation of lot- forty feet front, $40 for the entire lot; assessment, $3.50 per front foot, making $140; made payable by ordinance in five equal annual installments ; hence should collect each year $28; value of land, after improvement was made, as found by the court, $14 and upward per front foot.
    By section 543, may collect $140 in the aggregate, because that is not more than twenty-five per centum of the value of the lot after the improvement was made. May also collect interest on the deferred installments. Code, §§ 544, 666; Butler v. Toledo, 5 Ohio St. 225; Steese v. Oviatt, 24 Ohio St. 248; Gest v. Cincinnati, 26 Ohio St. 275.
    By section 648, can only collect ten per centum of the duplicate valuation of the lot per year, or on the whole lot, $4.
    The interest on $140, at seven per centum per annum, would accumulate twice as rapidly as that. . Hence the assessment could never be collected, and the lot would run more and more in debt to the city.
    A statute that is impossible to be performed has no validity. Hence the proviso in section 648 does not modify or limit section 543, as it pertains to cities of the first class.
    There is no right without a remedy. Municipal Code, § 561. A city must have a remedy to collect its tax. See Municipal Code, § 561; Upington v. Oviatt, 24 Ohio St. 232; Meissner v. Toledo, 31 Ohio St. 394; Blanchard v. Bissell, 11 Ohio St. 96; Warner v. B. & O. R. R. Co., 31 Ohio St. 265; Butler v. Toledo, 5 Ohio St. 225; Brevort v. Detroit, 24 Mich. 322; Mills v. Charleton, 29 Wis. 400 ; Schenley v. Com., 36 Pa. St. 29; Hines v. Leavenworth, 3 Kan. 186 ; Hunsaker v. Borden, 5 Cal. 288.
    The assessment covers the plaintiffs’ entire tract of land.
    In the trial of this cause the plaintiff offered no testimony .to show the value of his land to the depth of an ordinary lot on the street, or any depth whatever, after the improvement was made. The court, therefore, was bound to presume the land to the depth of an ordinary lot was at least'worth four times the assessment placed thereon after the improvement was made. McAuley v. Chicago, 22 Ill. 563; O'Kane v. Treat, 25 Ill. 557 ; Smith v. Leavenworth, 9 Kan. 296, 302; McNamara v. Estes, 22 Iowa, 246; In the matter of Brasford, 50 N. Y. 509; Ridenour v. Saffin, 1 Handy, 464.
    The court further found, undoubtedly, that the assessment levied by the-city upon the frontage of the land covered the same to the usual depth of lots, which was sufficient for the purposes of the collection of the assessment, however much farther the assessment may have run.
    The city has the privilege of collecting its assessments in three ways: first, by suit (section 456); second, by the city treasurer or other officer (section 651) ; third, by,the county treasurer, from the county duplicate (sections 554, 652, 653). The city had the right to collect this assessment by means of the county duplicate, and resorting to that mode of collection it had to take the duplicate as it found it.
    If the city could tamper with the county duplicate, and divide land placed upon it into lots, the owner having the constitutional right to divide his land into lots, inextricable confusion would ensue.
    When an assessment is made by the foot front or valuation, the value of the land, if unallotted, shall be ascertained to the usual depth of lots in the vicinity. Municipal Code, § 542 ; Cincinnati v. Oliver, 31 Ohio St. 371. But no powei is given to allot a man’s property and place the same on record.
   Gilmore, C. J.

It is unnecessary to examiue at length the objections that the plaintiff urges against the validity of the proceedings and ordinances under which the street improvement was made, and the special tax assessed in this case. In our opinion the record shows that the requirements of the law, in passing these ordinances, were sub•stantially complied with both by the board of improvements and the city council, and that the proceedings and •ordinances are not invalid. This being so, we are at once brought to the inquiry whether the assessment which has been charged upon the entire tract of twenty acres of abutting but unallotted land owned by the plaintiff is a valid .assessment under the assessing ordinance.

Subject to limitations, some of which will be noticed below, section 576 of the municipal code confers power to assess the entire costs and expenses of improving a street upon the lots and lands bounding and abutting upon it.

To prevent the abuse of this great power, the general assembly, as was its duty under section 6, article 13 of the constitution, has imposed certain restrictions upon the exercise of the power, which are not merely directory, but .are intended for the protection of the property-owners, and are, therefore, mandatory.

The most important of these restrictions are found in .section 542, which, as construed in Cincinnati v. Oliver, 31 Ohio St. 371, confines the assessment by frontage, where “the abutting lands are unallotted, to the front of such lands to the usual depth of lots, and in section 543, as amended March 30, 1874 (71 Ohio L. 45), which limits'the amount that may be assessed upon such frontage to twenty-five per ■cent, of the value of the property assessed after the improvement is made, and further limits the amount that may be assessed and collected each year to ten per cent, of the value of such lot or land after the improvement was made. These sections were in force at the time the assessing •ordinance was passed, and govern the rights of the parties in this controversy, in respect to the limitations named, to •the protection of which the plaintiff is clearly entitled.

It is apparent that in an assessment by frontage to pay for a street improvement, the assessment district, where the' abutting lots are all subdivided and numbered, consists of the lots so abutting on the improvement. If unallotted lands, as well as subdivided and numbered lots, abut upon the street improved, then such lots and the front of such unallotted lands, to the usual depth of lots, constitute the assessment district, and no assessment or charge can be made on lots or lands outside of or beyond the limits of the district as thus defined ; and it is by the value of the-respective lots and lands within the limits of this district, after the improvement is made, that the twenty-five percent. and ten per cent, limitations respectively are to be ascertained and made effective.

The record shows that the plaintiff’s lands are situate at the south end of the street improved, and have never been allotted, but that the premises next northerly, on both sides-of the street, had been and were allotted to Lorain street at the time the improvement was ordered and the assessment made, and the testimony tends to show that the average-depth of the lots next northerly, and in that neighborhood, did not exceed one hundred and fifty feet. Of course the-assessment upon these lots is limited to their depth; but-the plaintiff’s lands, which adjoin them and are unallotted, are assessed to the depth of eight hundred feet. Eor the-reason that the assessment, as certified to the auditor and placed on the duplicate, is made a charge on the entire tract of land belonging to the plaintiff, when only the front thereof, to the usual depth of lots, is legally liable to be-assessed to pay for the improvement in question, the assessment as made is clearly irregular and defective; and may be for a sum in excess of the amount that can be legally assessed upon the front of the plaintiff’s lands to the depth above indicated.

It follows that the judgment dismissing the petition must be reversed, and the collection of the assessment upon the tract of land, as placed on the tax duplicate, ought to> be perpetually enjoined.

But, inasmuch as the record shows that expenses have-been incurred in improving the street, which are a proper charge, subject to the restrictions above mentioned, on the front of the plaintiff’s lands to the usual depth of lots, the injunction must be without prejudice to the right, of the city to collect the amount properly chargeable against the plaintiff’s lands. The record does not furnish the- data from which this court can either fix the depth to which the plaintiff’s lands are assessable, or determine the-value of the land to such depth after the improvement is-made, and hence this court is unable to apply the limitations contained in sections 542 and 543, and enter a final decree in the case.

And having found that the assessment is not void, but. merely irregular and defective, the case, we think, is within the curative provisions of section 550, and the plaintiff" having framed his petition with a view to enjoining the entire assessment in case the proceedings and assessment were held to be void, or, in the alternative, of enjoining the collection of the excess only in case the assessment was found to be merely irregular and defective, and offers to pay the-amount justly due, and to become due, if it can be ascertained, and the defendants having asked for proper relief in the case, we can see no reason why the protection of the statutory limitations or restrictions can not be extended to-the plaintiff, and the rights of the parties be ascertained,, determined, and enforced in this ease under the provisions-of section 550, the same as if the parties were reversed and the city had brought an action against the plaintiff', under section 549, to recover the assessment. Cincinnati v. Oliver, 31 Ohio St. 371.

The cause is remanded to the district court for further proceedings, in accordance with the principles settled in the ease.