Grand Island Gas Co. v. West

• Decision Date: 25 February 1890
• Parties: GRAND ISLAND GAS CO. v. JOHN W. WEST ET AL
• Court: Nebraska Supreme Court

45 N.W. 242

28 Neb. 852

GRAND ISLAND GAS CO. v. JOHN W. WEST ET AL

Supreme Court of Nebraska

February 25, 1890

APPEAL from the district court for Hall county. Heard below before HARRISON, J.

Affirmed.

O. A Abbott, and R. R. Horth, for appellants:

Appellee was a competing bidder for the contract, with full knowledge of the alleged disability of its successful competitor. It was guilty of gross laches in failing to assert its rights as a taxpayer in time, and is now estopped to do so. (Clark v. Dayton, 6 Neb. 192; Follmer v. Nuckolls County Id., 204; Brown v. Merrick County, 18 Id., 355; Tash v. Adams, 10 Cush. [Mass.], 252; Chamberlain v. Lyndeborough, 23 Am. & Eng. Corp Cas., 609.) The Light & Fuel Co. would be entitled to compensation for services rendered, even if it were not without fault in connection with the contract. (Thomas v. Brownville, etc., R. Co., 109 U.S. 522.) The city should either have ratified the contract, and claimed its benefits, or repudiated it entirely; it could not do both. (Story, Agency, sec. 210 and cases.) Its passive acceptance of the benefits, and acquiescence in the performance, are negative acts of ratification, as binding as a formal instrument.

Thompson Bros., contra:

The contract was in violation of the statute (sec. 46, ch. 14, Comp. Stats., 1887), and contrary to public policy, and whether or not it was reasonable and just, was immaterial. (State v. Jersey City, 34 N. J. L., 390; McCortle v. Bates, 29 Ohio St. 419; Gardner v. Ogden, 22 N.Y. 332; Butts v. Wood, 37 Id., 317; Smith v. Albany, 61 N.Y. 444; Bd. Com'rs v. Reynolds, 44 Ind. 509; Fort Wayne v. Rosenthal, 75 Id., 156; McGregor v. Logansport, 79 Id., 166; Mayor v. Huff, 60 Ga. 222; Thomas v. Richmond, 12 Wall. [U. S.], 349; Keating v. City of Kansas, 84 Mo. 415; Buck v. First Nat. Bk., 27 Mich. 293; People v. Board, 11 Id., 222; Martin v. Wade, 37 Cal. 68; 1 Dillon, Mun. Corp., 436; 29 Cent. Law J., 309, and cases cited.) There is a radical distinction between a contract which is illegal through failure to comply with a formality of law, and one which is in violation of the city charter and of public policy. (Brown v. Merrick County, 18 Neb. 364; East St. Louis v. G. L. & C. Co., 98 Ill. 415; 1 Wharton, Contracts, sec. 43.) The latter cannot be ratified and neither a city nor a taxpayer can be estopped by laches from enjoining performance thereof. (Reichard v. Warren County, 31 Iowa 381; Durango v. Pennington, 8 Colo., 257; Churchman v. Indianapolis, 110 Ind. 259; 2 Rorer, Railroads, 943.) To allow appellants to recover on a quantum meruit would be offering a bonus for entering into illegal and prohibited contracts.

OPINION

NORVAL, J.

On the 22d day of May, 1888, one of the defendants, the Grand Island Light & Fuel Company, entered into a written contract with the city of Grand Island to furnish the city electric light for an agreed price per month, for the period of one year, with the privilege of two years at the option of the city. The Light & Fuel Company furnished light under the contract during the months of July, August, September, October, and November of that year, and presented bills to the city council therefor, and the same were duly audited and allowed. The plaintiff, as a taxpayer, brought an action in the district court of Hall county against the various officers of the city and the Light & Fuel Company to restrain the city from paying the two warrants drawn in payment of the light so furnished to the city and to cancel and annul the said written contract, and to restrain the city from allowing or paying for any light so furnished, or thereafter furnished, under said contract. A trial was had, and a decree was rendered in favor of the plaintiff, restraining the city from paying the warrants in question, or for any light that had been or might be thereafter furnished, and restraining the Grand Island Light & Fuel Company from prosecuting any suits at law or in equity to recover any compensation for any light furnished, or that it might thereafter furnish. The defendants appeal.

It appears from the pleadings and the evidence that at the time of the entering into of said contract, one Charles Wasmer was a member of the city council of the city of Grand Island, and at the said time was a stockholder in and was the secretary and treasurer of the Grand Island Light & Fuel company, a corporation; that said Wasmer continued to be the secretary and treasurer of said company until about December 1, 1888; that the claims as allowed by the city were for the contract price; and that the plaintiff and other taxpayers protested against the city recognizing said contract on the ground that said Wasmer was a stockholder and officer of said Light & Fuel Company.

It is claimed that the contract is void because the same was against public policy, and for the further reason that the contract was prohibited by statute. The precise question presented by the record for our consideration and decision has never been passed upon by this court. That an agent cannot act in a double capacity is elementary. The fact that the principal is a municipal corporation instead of a natural person, does not change the rule. The obligations and duties resting on a member of a city council are of such a character that he will not be allowed to reap any advantage his position may give, to speculate at the expense of the municipality. He must act solely for the welfare of the city. The temptation would be great to abuse the confidence reposed in him by the people if allowed to contract with it. That an action cannot be maintained on such a contract is well sustained by the authorities.

Judge Dillon in his work on Municipal Corporations, in discussing this question, says, sec. 444: "It is a well established and salutary rule in equity, that he who is entrusted with the business of others cannot be allowed to make such business an object of pecuniary profit to himself. This rule does not depend upon reasoning technical in its character and is not local in its application. It is based upon principles of reason, of morality, and of public policy. It has its foundation in the very constitution of our nature, for it has authoritatively been declared that a man cannot serve two masters, and is recognized and enforced wherever a well regulated system of jurisprudence prevails. One who has power, owing to the frailty of human nature, will be too readily seized with the inclination to use the opportunity for securing his own interest at the expense of that for which he is entrusted. It has, therefore, been said that the wise policy of the law has put the sting of disability into the temptation as a defensive weapon against the strength of the danger which lies in the situation. This conflict of interest is the rock, for shunning which the disability under consideration has obtained its force, by making that person who has the one part entrusted to him incapable of acting on the other side, that he may not be seduced by temptation and opportunity from the duty of his trust. The law will in no case permit persons who have undertaken a character or a charge to change or invert that character by leaving it and acting for themselves in a business in which their character binds them to act for others. The application of the rule may in some instances appear to bear hard upon individuals who had committed no moral wrong; but it is essential to the keeping of all parties filling a fiduciary character to their duty to preserve the rule in its integrity, and to apply it to every case which justly falls within its principle. The principle generally applicable to all officers and directors of a corporation is that they cannot enter into contracts with such corporation to do any work for it, nor can they subsequently derive any benefit personally from such contract."

The council of the city of Albany contracted with one of its members to furnish horses and carriages for the parade at a 4th of July celebration. He did so and brought an action to recover payment. It was held in Smith v. City of Albany, 61 N.Y. 444, that he could not recover. The court in the opinion uses this language: "The common council of the city of Albany, of which the plaintiff was a member, were the agents of the city, and while holding that relation to it each member of that body was under such an obligation of absolute loyalty to the interests of the city as prohibited any member of the board from entering into any arrangement with his associates by which his individual interests could come in conflict with the interests of his constituents, who are entitled exclusively to such an exercise of his caution and judgment in their behalf as an ordinarily prudent man would exercise in his own business. In bargaining for the city he could not be one of a party acting as an employer, and become himself, by the same bargain, an employe."

In People v. Township Board, 11 Mich. 222, a contract similar to the one at bar was held void. We quote the following from the opinion in that case: "All public officers are agents, and their official powers are fiduciary. They are trusted with public functions for the good of the public; to protect, advance and promote its interests, and not their own. And a greater necessity exists than in private life for removing from them every inducement to abuse the trust reposed in them, as the temptations to which they are sometimes exposed are stronger and the risk of detection and exposure is less. A judge cannot...