Case Name: The United States Rolling Stock Company v. The Atlantic and Great Western Railroad Company
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1878-12
Citations: 34 Ohio St. 450
Docket Number: 
Parties: The United States Rolling Stock Company v. The Atlantic and Great Western Railroad Company.
Judges: 
Reporter: Ohio State Reports, New Service
Volume: 34
Pages: 450–468

Head Matter:
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 plaint iff, 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.

Opinion:
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 trans action, 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 ratifieation 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 defend ant, 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.