65 F. 323 | U.S. Circuit Court for the District of Southern California | 1895
When this case was before the court on demurrer to the bill, it was held that the contract entered into January 4, 1869, between the defendant corporation and Jose De Arnaz, Victor Ustassaustegui, and Francisco Molleda, in so far as it reserved to those parties the "unrestrained right to establish such rates for the supply of water to private persons as they may deem expedient, provided that such rates be general,” and subject, also, to the implied condition that the rates be reasonable, was a valid contract in the hands of Arnaz and his associates, and passed by assignment to the complainant corporation. The facts upon which those rulings were based were admitted by the demurrer filed by the defendants to the bill. Subsequently, defendants answered the bill, and, upon the issues thus joined, proofs were taken, and the case has been heard on its merits. Except in respect to two affirmative defenses, the proofs establish the same facts as formed the basis of the rulings upon demurrer; and as I am satisfied of the correctness of the conclusions then reached, and with the reasons given in support of them, it is not necessary to go over that ground again. The case on demurrer will be found reported in 56 Fed. 339.
The affirmative defenses referred to are the following: The board of trustees of the defendant corporation, under the law creating it, -consisted of five members, but three of whom — Tico, Ghateneauf,
In respect to the first of these defenses, it is contended on behalf of the defendants that there is such incompatibility between the office of trustee and clerk and trustee and treasurer of the town as rendered the acceptance by Tico of the clerkship a vacation of his office of trustee, and a like vacancy of Chateneaufs office of trustee by his acceptance of the position of treasurer. As pointed out in the former opinion herein, the defendant corporation is a municipal corporation, created by an act of the legislature of the state of California entiiled “An act to incorporate the town of San Buenaventura,” approved March 10, 1866 (St. 1866, p. 216), and was thereby invested with all the rights and privileges conferred by, and was made subject to all liabilities, restrictions, and provisions of, an act entitled “An act to provide for the incorporation of towns,” approved April 19, 1856 (St. 1856, p. 398), so far as the provisions of that act may be consistent with the provisions of that of March 10, 1866. It is provided by the act creating the defendant corporation that its officers shall consist of a board of five trastees, - — a treasurer, a clerk (who shall be ex officio assessor), a marshal (who shall he ex officio collector), an attorney, and a surveyor; and with the exception of the first boai’d of trustees, designated by the act itself, it provides that they shall he elected by the qualified, electors of the town, and shall hold their office for the term of two years, and until their successors are elected and qualified. It is also provided that the treasurer, clerk, marshal, collector, attorney, and surveyor shall bo appointed by the trustees, and shall hold their office for two years, unless sooner removed for misconduct or neglect of official duties. The seventh section of the act makes it the duty of the clerk to keep the hooks, papers, and documents of the board belonging to the town, to attend all meetings of the hoard of trustees, and keep a record of all its proceedings, sign all warrants issued by order of the hoax’d, and keep an accurate account in a suitable hook of all such warrants, their number and date, and assess all taxes levied by the board of trustees. By the eighth section it is declared that the treasurer shall take charge of all moneys of the town, pay all warrants, which shall first be signed by the clerk and countersigned hv the president, and keep a correct account of all moneys received and paid out by him, and make
It will be observed that, while the act creating the defendant corporation provides that the trustees shall appoint a clerk and treasurer, it is silent as to whether such appointments shall be made from their own number or from without tire board.' Ho special provision is made therein regarding vacancies in the office of trustee, ■but the general act for the incorporation of towns of April 19, 1856, the provisions of which, except where inconsistent, are expressly made applicable to the defendant corporation by the act creating it, provides what shall cause a vacancy in the office of trustee; that is to say, removal from the town, absence therefrom for 30 days after election, and, if bond is required, neglect to file such bond within 10 days after election. St. 1856, p. 198. And the act of the legislature of the state of April 22, 1863, regarding offices and officers (Hitt. Gen. Laws, p. 693), declared what should constitute a vacancy in office, among- which causes are not enumerated incompatibility of offices or acceptance of another office. This statutory enumeration of causes constituting a vacancy in office has been held by the supreme court of the state to be exclusive (Rosborough v. Boardman, 67 Cal. 118, 7 Pac. 261, and cases there cited), and settles the question in relation to the alleged vacancies in the office of trustee of the town of San Buenaventura at the time of the making of the contract in question against the contention of defendants, regardless of any other consideration; for it cannot be doubted that the qualifications prescribed by the state for those who shall be eligible to office under it, or under any of its subordinate subdivisions, or as to what shall constitute a vacancy in any of such offices, are conclusive upon the federal courts.
A. more serious question is that raised by the allegations of the answer to the effect that Ohateneauf had a direct pecuniary interest with Arnaz, Ustassaustegui, and Molleda at the time of the making of the contract in question; and that on October 28, 1872, when an ordinance was adopted by the board of trustees of the town purporting to ratify and confirm the contract and its subsequent assignment to the then existing complainant corporation, McKeeby and Molleda were members of the board of trustees; that their votes were essential to the adoption of the ordinance; that they voted for it, and thus passed it; and that they were, at the same time, holders of stock in the water company. The evidence shows that but three of the five members of the board of trustees — namely, Tico, Ohateneauf,
“We do not doubt that a majority of the trustees might execute the power, but the question is whether Sherman, who was a stockholder and director of the railroad company, could be one of that majority. When he entered upon the duties of trustee, his relations to the city became those of an agent to Ms principal, or of a trastee to his cestui que trust, and, while holding the office, he could do nothing- inconsistent with those relations. This is clear upon principle, and rests upon abundant authority. The general principle is that no man can faithfully serve two masters whose interests are or may be in conflict. The law, therefore, will not permit one who acts in a fiduciary capacity to deal with himself in his individual capacity. ‘It may be regarded,’ says Parsons, ‘as a prevailing principle of the law, that an agent must not put himself during his agency in a position which is adverse to that of his principal; for even if the honesty of the agent is unquestioned, and if his impartiality between his own interest and his principal’s might be relied upon, yet the principal has in fact bargained for the exercise of all the skill, ability, and industry of the agent, and he is entitled to demand the exertion of all this in his own favor.’ 1 Pars. Cont. 74. This principle has found expression in a large number of cases, involving a great variety of*328 circumstances. And it applies-equally -whether one deals with himself, acting as sole trustee, or with a board of trustees of which he is a member, or with the directors of a corporation of whom he is one.”
A similar ruling was made by the same court in the more recent case of Davis v. Mining Co., 55 Cal. 359. The principle governing-such cases is applicable alike to all officers and trustees of public and private corporations. 1 Dill. Mun. Corp. § 444. To permit a trustee to convey the interests of his cestui que trust to another, himself thereby securing an undisclosed interest with that other, would be to sanction a violation of the plainest principles of honesty and fair dealing. Such, according to the evidence in this case, was the transaction surrounding and entering into the contract in question, and it was for that reason void ab initio. If if be conceded that a contract so made admitted of ratification, precisely the same reasons which rendered the contract itself a nullity rendered ineffectual the attempted ratification and confirmation of it by the town ordinance of October 28, 1872; for the evidence shows that two of the four trustees voting for that ordinance — namely, McKeeby and Molleda — were, at the time, holders of stock in the complainant water company. That ordinance, by an act of the legislature of the state of California, entitled “An act to re-incorporate and extend the limits of the town of San Buenaventura, state of California, and also to change the name of Canyada street in said town to that of Ventura avenue,” approved March 29, 1876 (St. 1875-76, p. 534), was approved and ratified. And prior to that, to wit, on the 29th of March, 1870, a similar act was passed by the legislature ratifying and confirming, in general terms, all ordinances, acts, and proceedings of the board of trustees of the town. While the legislature may cure irregularities, and confirm proceedings which Avithout the confirmation Avould be void because unauthorized (Mattingly v. District of Columbia, 97 U. S. 690), I do not think it can be properly held that the legislature, by the acts referred to, ratified and confirmed a fraud not disclosed to it. The application of the doctrine of ratification always largely depends upon the circumstances of the case. In speaking of the application of the doctrines of ratification and estoppel, it is said in Morawetz on Private Corporations (section 631a):
“Tbe application of these doctrines necessarily depends in each case upon all tbe peculiar circumstances. Tbe equity of tbe ease must be’ determined. It is necessary to consider tbe character of the act with which it is sought to charge the corporation, the importance of the act, and the degree of publicity which was given to it. The good faith or bad faith of the parties, and their business relations, are also important considerations.”
Whether the ordinance in question violated those provisions of the constitution of the United States declaring that no person shall be deprived of his property without due process of law, and securing-every person the equal protection of the laws, need not now be determined; since, under the provisions of the state constitution and state statute pursuant to which it was enacted, its functions had .ceased long prior to the final submission of this case, the chief ■object of which evidently was to procure a- judicial determination
From the views above expressed, it results that the bill must he dismissed, at complainant’s cost; and it is so ordered.