City of Findlay v. Pertz

¶80LURTON, Circuit Judge,

¶81after stating the facts, delivered the opinion of the court.

¶821. The objection that the bill of exceptions was not filed during the term is not well taken. During the term at which the judgment was rendered, and on the 19th of September, 1893, leave was granted to file a bill of exceptions within 40 days. By an order made December 13, 1893, it was recited that a bill of exceptions had been allowed and signed and filed on the 24th of October, 1893. This was within the time allowed by the order made during the trial term, and was entirely within the power of the court to permit.

¶832. The objection that the bill of exceptions does not show that exceptions to the ehárge of the court were taken before retirement of the jury is equally groundless. The charge is made a part of the bill of exceptions, and follows the evidence, being preceded only by a request made for a peremptory charge for plaintiff, and by two requests for special charges by defendant. Immediately following the charge there follows: “Mr. Blackford [one of the attorneys, representing the plaintiff in error]: The defendant excepts,” etc. Then follows the ground of exception, including the refusal to charge as requested, and exceptions to the charge as delivered. We think it sufficiently appears that exceptions to the charge were seasonably taken. The learned trial judge took from the jury all consideration of the defenses presented by the plaintiff in error, and instructed them that the only issue for their determination was to determine the reasonable market value of these separators when delivered. As the proof was uniform that the patentees and makers had but one price, and that they were to.be obtained only from them and at their price, the instruction Avas equivalent to a peremptory instruction for the full amount of the account sued on.. This view of the court seems to have been in a large part due to the evidence tending to show a continued use of these machines after the discovery of the alleged dual relation occupied by its superintendent, Melvin M. Brooks. He seems also to have attached great weight to the fact that the defendants in error had not especially induced or procured Brooks to influence this particular sale. The latter consideration seems to us not at all important. There was evidence tending quite strongly to establish the fact that defendants in error regarded Brooks as- having acted for them in procuring the order forwarded by him for these separators.

¶84In support of the defense there was evidence: First. That Brooks had acted as their (Pertz & Stewart’s) agent on commission for a long time before going to the Findlay gas district, and that he had *433gone into the Findlay district for the purpose of continuing the sale of these separators. Second. The separators delivered to the city were all billed at §105 each, and no discount or credit was proposed, allowed, or mentioned as due to the city by virtue of the relation its superintendent bore to them. Third. They remitted to Brooks personally a commission on the first order, and gave the city no notice of this fact, and held themselves liable to Brooks for commissions on his subsequent orders, so soon as their account: was paid. Fourth. When the city discovered the commission allowed its superintendent, and when that superintendent directed the defendants in error to allow' the city a credit for these commissions, then and only then did they propose such a credit.

¶85Another undisputed fact is that Brooks concealed his relation to the sellers, and concealed his receipt of a commission, and, when confronted with the charge, utterly denied that he had been allowed any commission or discount on the sale, or that the separators could be bought with a discount off the market price. The answer suggested by defendants in error to all this was that the sellers did not know' that the buyer was ignorant that its agent was likewise the agent of the sellers, and supposed that eventually this double agent would give the buyer for whom he bought the benefit of the commission paid him by the sellers for whom he sold. This defense is absolutely frivolous. Undoubtedly there are circumstances under which the same person may act as the agent of two distinct principals, and in regard to transactions and dealings between the principals. As said by Campbell, J., in Mining Co. v. Seuter, 26 Mich. 76: “The authority of agents may, where no law is violated, be as large as their employers may choose1 to make it,” etc. “There can be no presumption that the agent of the two parties will deal unfairly with either. And when they both deliberately put him in charge of their separate concerns, and there is any likelihood tha* he may have to deal with the rights of both in the same transactions, instead of lessening his powers, it may become necessary to enlarge them far enough to dispense with such formalities as one man would use with another, but which could not be possible for a single person to go through with alone.” It is most obvious that in all such cases of a double agency it is absolutely essential that both principals shall know of and assent to the dual character. Capener v. Hogan, 40 Ohio St. 203; United States Rolling-Stock Co. v. Atlantic & G. W. R. Co., 34 Ohio St. 450; Bell v. McConnell, 37 Ohio St. 400; Mechem, Ag. § 67.

¶86The evidence we have recited, to say the least of it, strongly tended to establish the fact that Brooks understood himself to have an arrangement with the defendants in error by which he would be allowed personally a commission on each separator which he, as an employé of the plaintiff in error, should buy from the defendants in error, and it tends with equal force to establish the fact that the defendants in error recognized that Brooks was personally entitled, under an existing arrangement with them, to demand and receive the same commission he would have earned by a like sale to any other customer. There was therefore evidence entitling the plaintiff *434in error to go to the jury upon the defense of fraud invalidating the contract of sale.

¶87Any agreement or understanding between one principal and the agent of another, by which such agent is to receive a commission or reward if he will use his influence with his principal to induce a contract, or enter into a contract for his principal, is pernicious and corrupt, and cannot be enforced at law. This principle is founded upon the plainest principles of reason and morality, and has been sanctioned by the courts in innumerable cases. “It has its foundation in' the very constitution of our nature,” says Judge Dillon, “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.” 1 Dill. Mun. Corp. § 444. “An agent cannot be allowed to put himself in a position in which his interest and his duty will be in conflict.” Leake, Cont. (3d Ed.) 409. The tendency of such agreement is to corrupt the fidelity of the agent, and is a fraud upon his principal, and is not enforceable, “even though it does not induce the agent to act corruptly.” “It would be most mischievous to hold that a man could come into a court of law to enforce such a bargain on the ground that he was not in fact corrupted. It is quite immaterial that the employer was not damaged.” Wald’s Pol. Cont. 245, 246, note; citing Harrington v. Dock Co., 3 Q. B. Div. 549, and other cases. Taussig v. Hart, 58 N. Y. 425; United States Rolling-Stock Co. v. Atlantic & G. W. R. Co., 34 Ohio St. 450-460; Smith v. Sorby, 3 Q. B. Div. 552; Young v. Hughes, 32 N. J. Eq. 372; Yeoman v. Lasley, 40 Ohio St. 190. Such agreements are a fraud upon the principal, “which entitle him to avoid a contract made through such agency.” Leake, Cont. 409; Panama & S. P. Tel. Co. v. India Rubber G. P. & Tel. Works Co., 10 Ch. App. 526. “Where there are a principal, an agent, and a third party contracting with the principal, and cognizant of the agent’s employment, and there are dealings between the third party and the agent which gives the agent an interest against his duty, then the principal, on discovering this, has the option of rescinding the. contract altogether.” Wald’s Pol. Cont. 247. “Any profit made by an agent in the execution of his agency must be accounted for to the principal, who may claim it as a debt for money received to his use. A gratuity given to an agent for the purpose of influencing the execution of his agency vitiates a contract subsequently made by him, as being presumptively made under that influence; and a gratuity to an agent after the execution of the agency must be accounted for to his principal; as in the case of a servant employed to make payments accepting discounts or presents from the creditor.” Leake, Cont. 409. The same-author says: “If an agent stipulates with a contractor for a commission upon the work to be done for his principal, he must account for the commission, and it is good ground for his dismissal.” Page 410; Ice Co. v. Ansell, 39 Ch. Div. 339; Stoner v. Weiser, 24 Iowa, 434; Bell v. Bell, 3 W. Va. 183; Moore v. Mandlebaum, 8 Mich. 433. The principle which prevents an agent from contracting with himself, or from entering into any agreement which *435gives him an interest conflicting with. Ms duty, applies more strongly to the officers, servants, and agents of a municipal government than to private parties. 1 Dill. Mun. Corp. § 441.

¶88Brooks, as we have already stated, was an employ'd of the city of Findlay. This Pertz & Stewart knew. The letter heads and his official signature fully advised them that he was the agent o£ a public corporation. Now', if with this knowledge they dealt with the city of Findlay knowing the relation which he bore to them, they knew that his interest in making a sale for them conflicted with his duty and fidelity as a public agent. The agency of Brooks for the city was one which required expert knowledge, and involved a considerable degree of trust and confidence. His duty was to give to the xniblic service the full benefit of a disinterested judgment and the utmost fidelity'. Any agreement or understanding by which his judgment or duty conflicted with his private interest was corrupting in its tendency. We know of no more pernicious influence than that brought about through a system of commissions paid to public agents engaged in buying public sup-' lilies. Such arrangements are a fruitful source of public extravagance and peculation. The conflict created between duty and interest is utterly' vicious, unspeakably pernicious, and an unmixed evil. Justice, morality, and public policy unite in condemning such contracts, and no court will tolerate any suit for their enforcement.

¶89The forcible language of Mr. Justice Field, in speaking for the court in Tool Co. v. Norris, 2 Wall. 45, and repeated in Oscanyan v. Arms Co., 103 U. S. 274, is quite as applicable to the debauchery of the agent of a municipal corporation as it was when the interests of the federal government were sought to be affected by the same kind of pernicious influence. In the case cited the learned justice said, concerning such contracts:

“Considerations as to the most efficient and economical mode of meeting the public want should alone control in this respect the action of every department of government. No other consideration can lawfully enter into the transaction so far as the government is concerned. Such is the rule of public policy, and whatever leíais to introduce ¡my other element into the transaction is against public policy. That agreements like the one under consideration have This tendency is manifest. They tend to introduce personal solicitation and personal influence as elements In the procurement of contracts, and thus directly lead to inefficiency in the public services and to unnecessary expenditures of the public funds. … All agreements for pecuniary considerations to control the business operations of the government, or the regular administration of justice, or the appointments to public offices, or ordinary course of legislation, are void as against public policy, without reference to the question whether improper means are contemplated or used in their execution. The law looks to the general tendency of such agreements, and it closes-the door lo temptation by refusing them recognition in any of the courts of the country.'’ Oscanyan v. Arms Co., 103 U. S. 274.

¶90This principle of public policy finds full recognition in section, 6969 of the lievised Statutes of Ohio, by which it is provided that any public officer, agent, servant, or employé who, while acting as such public officer, agent, or employé, shall become directly or indirectly interested in any contract for the purchase of any property for the state, county, or municipality, shall be guilty on conviction of a- penitentiary offense. This statute has been construed as ap *436plying to tbe agents, officers, and employés of towns, villages, and cities of the state, and as a prohibition upon all contracts between such a municipality and an agent or servant interested therein. Doll v. State, 45 Ohio St. 445, 15 N. E. 293.

¶91The contract or arrangement between defendants in error and Brooks, the servant of the plaintiff in error, was no more illegal after this statute than it was under common-law principles before the statute. What was the effect of that arrangement or contract on the contract with plaintiff in error? We must distinguish between the bargain for a commission between the defendants in error and the agent of the city, and the contract between the two principals. The first was clearly illegal and incapable of enforcement; the latter was on its face altogether within the contracting power of the parties, was free from any immorality, and altogether legitimate. The means by which the city may have been induced to enter into it was the vicious element in the trade. The board of gas trustees had no intention to deal with Brooks or any one else incapacitated under the Ohio statute, or under principles of public, policy, from contracting with the city. That board was Avholly ignorant of the secret arrangement between its agent and the persons with whom it proposed to bargain. Neither that board nor the city council knew of the double agency of Brooks. Undoubtedly, upon the authorities we have already cited, the city, upon discovery of the dealings between its agent and the defendants in error, had a right to repudiate the contract, and sue for damages sustained by the fraud. So, upon the other hand, if the buyer had been a private party or a business corporation, the fraud might be waived, and the contract affirmed, notwithstanding the corruption of the agent through whom it had been made. But it has been pressed upon us that, inasmuch as the agent corrupted was a public agent, the contract made through his corruption was absolutely void, and incapable of ratification, and that no subsequent conduct of the plaintiff in error in retaining and using the machines bought can furnish a basis upon which the guilty party can maintain a suit founded upon the corrupt contract. It seems to us that 1his argument confounds the corrupt agreement between the agent of the city and the other principal with the contract between the principals. There can be no question about the ratification of the arrangement for a commission. No one pretended to act for the city in bargaining for or receiving an illicit commission. “The principle of ratification only applies Avhere the agent had professed to contract for the person who afterwards ratifies.” Leake, Cont. 391.

¶92The question we have to deal with is this: Can the city, notwithstanding the surreptitious dealing between its agent and the seller, Avaive the fraud as a private individual might and ratify the purchase? This is not a purchase of property from an agent or officer of the city. Neither is it a purchase of property in which any such agent or officer has an interest. It is simply a case of where an agent for the purchase of property from one capacitated to deal with the city is given a gratuity, reward, or commission bv *437Urn seller, which tended to give that agent an interest conflicting with fidelity to his principal. Upon this discovery of this improper inducement operating upon its agent, the city had a right to repudiate the purchase and return the property bought. This right it might exercise without regard to any actual injury it had sustained, and without regard to the effect of the allowance of the commission upon the integrity of its agent. Harrington v. Dock Co., cited above, and Lister v. Stubbs, 45 Ch. Div. 1. Under such circumstances, a contract, neither immoral nor prohibited, between private parties, would not be incapable of affirmance and enforcement by the principal who had been defrauded. The innocent principal would have an option to affirm or avoid it, on discovery of the facts. The authorities upon this are clear and numerous. Wald’s Pol. Cont. 247; Leake, Cont. 409.

¶93The learned trial judge was of opinion, and so instructed the jury, that, upon discovery of the improper dealing with its agent, the city might repudiate or affirm the contract as it should elect. We entirely agree with him in tins. The contract it made was neither malum in se nor malum prohibitum. No question of public policy is involved by a. ratification of the bargain. That involves no affirmance or adoption of the corrupt agreement for illicit commissions. Upon the contrary, it would have the right to hold the agent liable as for money had and received to its use. It might go still further, and sue the seller for the fraud, and recover all damages consequent upon an improper dealing with the buyer’s agent. It would be no answer to a suit by the city for a breach of the contract, as to the automatic operation of these separators, to say that the agent of the plaintiff had been corrupted by ihe defendant, and induced to make the contract through improper considerations. The buyer, not being a party lo the corruption of its own agent, has the undoubted right to enforce the coni rack Clearly, the court would not be aiding in the enforcement of an illegal or corrupt contrae!; if the city was not in pari delicto and the agreement in itself was unobjectionable. The fact that unlawful means were adopted to induce a contract which is lawful itself, and capable of being' lawfully pferformed, does not of itself mala; the contract unlawful as to the innocent party, nor does any principle of public policy forbid the enforcement thereof by the defrauded principal. The unlawful means by which the seller induced the buyer to deal with him is a matter collateral to the principal agreement. We recognize the genera,! rule (hat money or property paid or delivered on an unlawful agreement cannot be recovered back. That principle, as stated by Lord Mansfield, in Holman v. Johnson, 1 Cowp. 343, is this:

“The principie of public policy is this: ‘Ex dolo malo non oritur aciio.’ No court, will lend its aid to a man who founds Ms cause of action upon an immoral or illegal act. If from the plaintiff’s own stating, or otherwise, the cause of action appears to arise ex turpi causa, or the transgression of a positive law of this country, there the court says he has no right to he assisted. It is upon that ground tía; court goes; not for the sake of the defendant, hut because they will not lend tlieir aid to such a plaintiff. So If ihe plaintiff and defendant were to change sides, and the defendant was to bring his action *438against the plaintiff, the latter would then have the advantage of it; for, where both are equally in fault, ‘potior est conditio defendentis.’ ”

“The test for the application of this rule is whether the plaintiff can make out his case otherwise than through the medium and by the aid of an illegal transaction to which he was himself a party.” Wald’s Pol. Cont. 332.

¶94.This principle bas no application bere. The city was not a party to any illegal or unlawful or immoral agreement. If it were a plaintiff suing upon a breach of warranty contained in the contract in question, it would not be obliged to make out its case “through the medium and by the aid of any illegal transaction to which it itself was a party.” The contract between the city and the sellers of these chattels was neither malum in se nor malum prohibitum. It is therefore enforceable by either party, unless the unlawful dealings between the agent of one of the parties‘and the other principal is a ground for rescission. If the contract was one which the city could have lawfully made or authorized in the first instance, then it is one which, if made by an unauthorized agent or through the fraud of its agent, to which the other party was alone privy, it may ratify upon full knowledge of all the facts. State v. Buttles, 3 Ohio St. 309. The case .last cited affords an interesting instance of the .power of a principal to ratify an act of an agent wholly unauthorized, and which the agent was by law prohibited from doing. Certain agents for the state of Ohio had loaned the state’s money, and taken a bond therefor, payable to them as agents for the state. The lending of the state’s money was prohibited under a penal statute. The state, through its legislature, ratified this unlawful act, and sued at law on the bond. The opinion was by Ranney, J., who, among other things, said that the state had a perfect right to waive the wrong, and adopt the contract made in her name:

“If, when adopted, the consideration upon which it was made, or its performance by the other party, is found to be illegal or immoral, it will no sooner be enforced for her than for the most obscure citizen; but, if it then stands without objection in both these particulars, it is no defense to say she was wronged by ,her agents, when they assumed, without authority, to act in her name. That is a matter between her and her agents. The option whether she will make herself a party to their acts, and be bound by the contract they have made, belongs to her, and not to those who haye not and could not have been injured. In short, any contract that an individual or body corporate or politic may lawfully make they may lawfully ratify and adopt, when made in their name without authority; and, when adopted, it has it's effect from the time it was made, and the same effect as though no agent had intervened. The state could lawfully have loaned this money, and the defendant’s testator could lawfully have bound himself to repay it. If the contract has been ratified and adopted by the state, in judgment of law, the state did loan the money, and the defendant’s testator did promise the state to repay it.” State v. Buttles, 3 Ohio St. 322, 323.

¶95The case of Milford v. Water Co., 124 Pa. St. 610, 17 Atl. 185, bas been cited as entertaining an opposing doctrine. Rightly understood, it bas no very forcible bearing upon tbis case. A statute of tbe state absolutely prohibited any municipality from entering into any contract in which members of the city council were concerned, and made participation in such a contract by members of the city government a penal offense. The city council contracted *439with a wat company for a supply of water for a term of years. A, majority of the council constituted, a majority of the directors of the water company. Subsequently, when the council, contained none of the directors of the water company, rents were paid, and use of the water continued. The water company relied upon this as a ratification, and sued for other rents. It was held that the contract was void and incapable of ratification. The case seems to stand upon the principle that the party to be held by ratification must be capable, not only of doing the act at the time it is ratified, but at the time the act ratified was done. Wald’s Pol. Cont. 108; Cook v. Tullis, 18 Wall. 338. “Ratification relates back to the original making of the contract, and confirms it from that time.” Leake, Cont. 393. The town was incapable of making a contract with that water company when it was made, and while it might, at the date of ratification, have made a new contract, it was held incapable of confirming the old one.

¶96We do not agree with the trial judge that the evidence of ratification, after full discovery of the fraud, was so clear as to leave no issue for the jury. The city did by letter repudiate the agreement, and notify the sellers to remove the machines. This it had a clear right to do. But it is said that, while the city said it would not he bound by the bargain, its acts in retaining and using them thereafter was inconsistent with rescission, and amounted to ratification. Undoubtedly, the subsequent retention and use of these machines was evidence tending to contradict the letter repudiating tiie purchase. Dodsworth v. Iron Works (Feb. 5, 1895) 66 Fed. 483. In the case last cited, a like repudiation of an agreement for failure of machinery to comply fully with precedent conditions was held to have been rendered nugatory by subsequent conduct. But in that case there was a subsequent continued use for more than two years, in the ordinary course of the buyer’s business, which was held such clear evidence of an intention to accept as to leave no issue of fact for the jury. The city could not be held estopped by ratification until after full discovery of the fraud. A mere suspicion was not enough to put it to an election. Mining Co. v. Watrous, 9 C. C. A. 415, 61 Fed. 163. The letter of November 18, 1890, was written as soon as any satisfactory evidence of the improper dealing with its agent came to its knowledge. There was evdience tending to show that between that date and the bringing of this suit (January 16, 1891) the city had continued to use at least some of these machines. Such use would, of course, be evidence of an intention to affirm a contract otherwise avoidable for fraud. But this use was for less than two months, and falls in that respect far short of a like retention and use held to be conclusive in Dodsworth v. Iron Works, which we have before cited, and was not an act determining the intention to ratify so conclusively as to leave no question for the jury. Slight acts of use will not bar rescission. Bigelow, Frauds, 434, 435. In a case of this kind, where a public municipality has been defrauded, there ought to he, where mere acts -are relied upon as evidence of ratification, such clear evidence of an intentional exercise of the right of ownership as would-be incon*440sistent with any other theory than that of an intention to waive the right of rejection. The question of ratification should have been submitted to the jury.

¶97Finally, if the city is found to have ratified the contract, it would operate as'a confirmation of the trade as originally made. If representations were made by Brooks as to the automatic operation and general capacity of these machines to perform the work needed, and thus induced the purchase, these representations, in case a right to rescind is found to have been waived, may be treated as warranties made by the agent of defendants in error. Ratification operates as' an adoption of the entire agreement and all of its parts. If the sale was upon a guaranty, or under representations amounting to a warranty, ratification confirms it subject to the guaranties of warranty, and the buyer may, when sued for the purchase price, recoup to the extent of any damage sustained by breach of the contract with respect to any warranty concerning the capabilities of the machine. The case of Dodsworth v. Iron Works, heretofore cited, controls this aspect of the case.

¶98For the error indicated, the judgment must be reversed.