Opinion · South Dakota Supreme Court
Norbeck & Nicholson Co. v. State
Norbeck & Nicholson Co. v. State, 32 S.D. 189 (S.D. 1913)
- Type
- Opinion
- Court
- South Dakota Supreme Court
- Jurisdiction
- South Dakota
- Date
- 1913-07-11
- Topic
- general
holding that a contract between the state board of regents and a corporation is void because a member of the legislature which authorized the contract is also a stockholder in the corporation | holding that a contract between the state board of regents and a corporation is void because a member of the legislature which authorized the contract is also a stockholder in the corporation | court denying recovery on theory of quantum meruit due to contract being void and illegal | court denying recovery on theory of quantum meruit due to contract being void and illegal
Citator
- Cited by
- 25 opinions
This is an original action commenced by Nor-beck & Nicholson Company, plaintiff, against the state of South Dakota, under the provision of the Code of Civil Procedure, providing that when the State Auditor shall refuse to allow any just claim against the state, that any person deeming himself aggrieved thereby may maintain an action in the Supreme Court against the state to determine the legality or justness of such claim. From plaintiff’s complaint it • appears that one Peter Norbeck, during the year 1911, was president of the plaintiff corporation, and was also, during 1911, state senator for Spink county, state of South Dakota; that during the legislative session of 1911 (Laws 1911, c. 38), an act was passed and became a lav/, appropriating $5,000 to sink and equip an artesian well and provide necessary water mains in connection -therewith upon the State University grounds at Vermillion; that after the passage of said law, and about the 15th of March, 1911, the said Peter Norbeck, acting as president of plaintiff corporation, entered into a contract with the state board of regents of education to construct, sink, and equip said artesian well mentioned and provided for in said legislative act; that in and by the terms of said contract plaintiff was to furnish all labor and materials for the sinking and construction of said well, and was to receive as compensation therefor a certain sum per foot depth; that under and by virtue and in pursuance of said contract plaintiff did sink and construct said well to the dept of 442 feet and furnished the materials therefor, between the 20th day of March and the 8th day of April, 1911, upon the State University grounds, and that the state ever since has been, and now is, enjoying the full and exclusive use and benefit of said well, and of plaintiff’s labor and materials furnished in the construction thereof; that thereafter, on about the 1st day of May, 1911, and in due form of law, the plaintiff presented its claim in the sum of $2,-602.89 to the State Auditor for allowance and issuance of a warrant upon the State Treasurer therefor, and that the State Auditor refused to allow such claim- on the ground that the same was in conflict with section 12, article 3, of the state -Constitution; that the reasonable value of the work and materials furnished by plaintiff in the construction and sinking of said well is the -sum of $2,602.89, for which amount plaintiff demands judgment against the defendant, state of South Dakota. To which’ complaint de
[1] It is the contention of the defendant state that this contract entered into by Norbeck & Nicholson Company to sink and equip said well is an illegal contract by reason of its being prohibited by section 12, article 3, of the Constitution, and is against public policy, and that plaintiff cannot acquire any legal right of any kind or character under such an illegal contract, either on the express contract, or an implied contract, or on quantum meruit; while, on the other hand, it is the contention of plaintiff that although the said contract is illegal and void and prohibited by law, still plaintiff should be permitted to recover on quantum meruit— that is, implied contract — the reasonable value of the labor and materials furnished the state in pursuance and performance of such prohibited contract. We are clearly of the opinion that, under the great weight of judicial authority, the state is right in its contention that said contract is wholly illegal and void, and against public policy, and cannot be enforced, in whole or in part, on any theory of any kind. Section 12, article. 3, state Constitution, among other things provides: “Nor shall any member of the Legislature during the term for which he shall have been elected,, or within one year thereafter, be interested, directly or indirectly, in any contract with the state or any county thereof, authorized by any law passed during the term for which he shall have been elected.” Section 3, article 12, of the state Constitution further provides, among other things: “The Legislature shall never * * * authorize the payment of any claims or parts thereof created against the state, under any agreement or contract made without express authority of law, and all such unauthorized agreements or contracts shall be null and void.” Here, then, we have a contract which is expressly .prohibited by the Constitution, the highest law of the state, and which unauthorized contract is declared to be null and void, in whole and- in part.
The illegality of some contracts consists in the fact that the subject-matter of the contract is illegal without reference to the parties who enter into such contracts, such as contracts relating to the sale of intoxicating liquors in territory where such sale is prohibited and made penal, and such contracts are almost univer
[2] A member of the state Legislature, by virtue of his office, stands in a fiduciary and trust relation towards the state; in other words, 'he is the confidential agent of the state for the purpose of appropriating the state’s money in payment of the lawful contractual obligations, of the state, and it seems to be almost universally held that it is against sound public policy to permit such an agent, or any agent occupying a like position, to himself be directly or indirectly interested in any contract with the state or other municipality, during the period of time of -the existence of such trust and confidential relationship. The private interest of such an agent should not become antagonistic to his public
[3] The general rule is that illegal contracts — illegal by reason of being expressly prohibited by law — are unenforceable, and no one can acquire any legal right under such a contract. If one of the parties has performed in whole or in part he cannot avoid the contract and recover from the adversary party a reasonable compensation for such performance. No right, therefore, arises out of an illegal transaction even on the theory of constructive contracts. The "law leaves the parties to illegal contracts where it finds them, and gives them no assistance in extricating themselves from the situation in which they have placed themselves — no recovery can be had- for services rendered thereunder, either on the express contract, or on an implied contract, or on quantum meruit. Palmer v. State, 11 S. D. 78, 75 N. W. 818; Page on Contracts, § 519; Berka v. Woodward, 125 Cal. 119, 57 Pac. 777, 45 L. R. A. 420, 73 Am. St. Rep. 31; Smith v. Albany, 61 N. Y. 444; Milford v. Milford Water Co., 124 Pa. 610, 17 Atl. 185, 3
[4] To the general rule above stated there are exceptions which permit the party who has performed an illegal contract, and who has parted with consideration, to recover such consideration on the quantum meruit or quantum valebat. One exception to this general rule is where the law itself provides for such recovery. Another exception is where the parties are not in pari delicto, in which case the party not participating in the wrong may recover his consideration, but not the other party. It might be said that in the case present the defendant state is not in pari delicto, but this would not apply to plaintiff nor to the state officials who entered into this contract on behalf of the state. Another exception is where the contract prohibited is neither declared void by the law nor made or relates to a penal matter, but is prohibited only; and although the parties are in pari delicto, and where one party has received something of value from the other in execution of the contract, and where such contract involves no moral turpitude, or other reason of public policy forbidding the same, the courts will grant relief only to the extent of compelling the restoration of such property or the value thereof. Page on Contracts, §§ 519 to 525; Manchester Ry. Co. v. Railway Co., 66 N. H. 100, 20 Atl. 383, 9 L. R. A. 689, 49 Am. St. Rep. 582; Brooks v. Martin, 69 U. S. (2 Wall.) 71, 17 R. Ed. 732. Contracts falling within this last-mentioned exception are said by some courts to be voidable as distinguished from null and void. Such contracts were at common law regarded as voidable only. Note to Bay v. Davidson,
[5] Some contracts are prohibited by law for the benefit of some particular class of individuals, and it seems to be held that the persons for whose individual benefit such contracts are prohibited may waive such prohibition, or by their acts may be estopped from asserting such unlawfulness, and the courts grant recovery of the consideration on the quantum meruit or quantum valebat, under the exception to the general rule we are now considering, but this exception to the rule is not available when in contravention of any public reason or public policy. Section 2412, Civil Code; Berka v. Woodward, supra; Fowler v. Scully, 72 Pa. 156, 13 Am. Rep. 699.
[7] The fact that the contract in question was made between Norbeck & Nicholson Co., a corporation, and the state, and not directly between Peter Norbeck and the state is immaterial. Section 12, article 3, Const., says: “Nor shall any member of the Legislature * * * be interested, directly or indirectly, in any contract with the state.” The interest of a stockholder of a corporation is within the reason of the rule prohibiting an officer from being interested, directly or indirectly, in a contract with the state or municipality, of which such stockholder is a public officer. This point was also directly in issue in the Northport Case. In San Diego v. San Diego Co., 44 Cal. 106, the court said: “To hold, therefore, that one' intrusted with property in a fiduciary capacity may rightfully bargain in reference to it with a corporation in which he holds stock would be to ignore all the evils which the rule in question was intended to prevent.” Mechem, Pub. Off. 839; Milford v. Milford Waterworks, 124 Pa. 610, 17 Atl. 185, 3 L. R. A. 122.
[8] That there was no personal moral turpitude or dishonesty of any kind involved in this case, and that the state may have made an advantageous contract and has suffered no loss by reason thereof is also immaterial, so far as the issues presented in this case are concerned. We cannot and do not assume but what plaintiff, and the officers thereof, entered into the contract in question innocently and with the best of motives, but that fact
[9] Some contention is made that section 3, art. 12, is not
The demurrer to plaintiff’s complaint may be and hereby is sustained.
WHITING, P. J.While I am unable to concur with much that has been said by Justice McCOY in the foregoing opinion, yet it seems clear to me that he is correct in bis conclusion that the demurrer to the complaint should be sustained. The importance of the questions presented must be my excuse for setting forth, at some length, the reasons for, my special concurrence.
I do not believe that section 3, art. 12, of the Constitution has any application whatsoever to the facts of this case. As I read that section, it relates only to contracts which a Legislature might have authorized, and forbids the Legislature to pay for anything done for the state when, at the time the thing was done, no contract therefor had been authorized by statute; and provides that such unauthorized deeds and contracts shall be null and void. I am therefore of the opinion that, in so far as Justice McCOY has
That no man can properly serve two masters — and especially that no man can properly serve another and at the same time be interested adversely to such other in the subject of such service has long been recognized in that rule — applied, even at common law, to all agents and persons in fiduciary positions, including members of such administrative boards as city councils, school boards, etc., forbidding such persons from contracting with the corporation of which they are officers. Based upon the same rule of human nature and action, we find both constitutional and statutory enactments forbidding public administrative officers from contracting with their corporations, such enactments oft-times declaring such contracts to be null and void and even imposing the penalties of the criminal law upon an officer who enters into same. These constitutional and statutory provisions, as they have changed from time to time, reflect the public conscience and reveal that which is deemed public policy at the time of their enactment. It is interesting to note that not one single authority cited in my colleague’s opinion construes a constitutional or statutory provision pertaining to contracts entered into by legislative officers, and the only case that I have been able to find, where the court had before it such a provision, is the case of Lillard v. Freestone County, 23 Tex. Civ. App. 363, 57 S. W. 338. In that case the only question determined was that the express contract was void and unenforceable; in the opinion, not a word is to be found suggesting the reasons upon which the constitutional enactment in question is based.
I believe that there will be found no case wherein the precise question before us has been presented and discussed. While from the earliest days of the common law it 'has been recognized as against public policy to allow administrative officers, acting in their official capacity, to contract with or to perform work for that public corporation of which they are officers, yet there can be found upon the statute books of the states few, if any, statutes forbidding an officer, such as a city councilman (who has not only executive but also legislative power), from entering into a contract with the city after his term of office has expired, and
While statutes prohibiting administrative officers from contracting in their own behalf with the corporate body recognize the same fundamental proposition as does the constitutional provision now before us — namely, that no man can serve two masters, and that .it is therefore against public policy to allow any one to act for himself when it is his duty to act for the public — yet there is a fundamental distinction 'between such provisions and those forbidding contracts by legislative officers, which distinction will be recognized when we stop to consider the nature of the service that is sought to be protected by each class of enactments. In -the case of the administrative officer, the evil sought to be prevented is one liable to affect the contract itself, and one which would be present even after the contract had been entered into, because, so long as such officer holds his position of trust and confidence, there remains the danger that he will fail to perform, fully his duty in •carrying out the provisions of the contract, though the contract itself be perfectly fair in its terms. Speaking of the members of the Legislature, Justice McCoy says: “It seems to be almost universally held that it is against sound .public policy to permit such an agent, or any agent occupying a like position, to himself be directly or indirectly interested in any contract with the state or other municipality during the period of time of the existence of such trust or confidential relationship,”
My colleague is in error in such statement. The only contract -that a legislator is forbidden to enter into with the state is a contract authorized by a lamw passed while he was a legislator. Even while a member of the Legislature, he is as free as any other person to enter into other contracts with the state. We have this constitutional provision, not because it is feared that a member of the Legislature would or might use his position to obtain an unfair contract, or would or might, owing to such position, at
In the case of an enactment forbidding a legislative officer from being interested in a contract authorized by a law passed during his term, the law looks to a time prior to- and entirely separate and distinct from the time of the entering into, or of the performance of, the -contract. Such a contract is not forbidden because the contractor as such would be occupying an inconsistent position, in that he would, in entering into the contract, be attempting to serve the state as well as himself. So far as the' state and he are concerned, when entering into the contract, they deal with one another at arm’s length exactly as would the state and any other contractor; as a member of the Legislature, the contractor is not presumed to be in any better position to- obtain an unfair contract than if the contract related to some matter concerning whicih he was not forbidden to contract. That the framers of our Constitution recognized that the legislator’s position did not tend to affect the contract itself appears from the fact that the law not only forbids his entering into such a contract during the term for which he was elected, but during -one year thereafter. Under some -Constitutions such prohibition extends for all time. No person can presume that the framers of the Constitution imagined that a-ny 'legislator, after he had go.ne out of office, would occupy a fiduciary relation to the state, or would be in a position enabling him to take an undue advantage of the state when contracting. In enacting this provision -of the Constitution the framers thereof had in mind, not the time of entering into the contract n-or the relation of the parties at that or any subsequent time, not even any danger that the legislator might obtain an unfair contract but they had in mind solely the time and his relation to the
In the case of a contract entered into 'by an administrative officer though forbidden by law, the public could often be protected by simply holding the express contract void and allowing a recovery on quantum meruit, it being the contract only that is tainted, and the evil to be guarded against being an unfair contract or a failure to fairly perform the contract. By a recovery upon the quantum meruit the wrongdoer would reap no benefit from the wrong and the .public might be amply protected. But this is not true in the case of a contract entered into by a legislator in breach of a constitutional provision such as the one before us. The spirit of this constitutional provision would be fully broken, and as great evils might result where the legislator' voted for a certain law when influenced, either consciously or unconsciously, by the -hope of doing work thereunder and recovering the fair value of such work, as where such legislator was influenced by a hope of benefiting through an express contract; the fountain of legislation would be polluted in like manner though perchance not in like degree. The difficulty of determining the motives which may influence the legislator in his vote renders it not only impracticable but impossible to insure the purity of legislation except by the enforcement of provisions, such as the one before us, which do not permit of inquiry into such motives, but do remove the source from which might spring wrong motives. It follows that, under the constitutional provision in question, we can neither inquire into the motives of the legislator, nor into the value of the services rendered under the forbidden contract. Therefore, under the facts pleaded in the complaint, conceding, as I fully believe, that the plaintiff’s president was not consciously— and probably not even unconsciously' — influenced in his vote, or in anything that he may have done or failed to do as a member of the Legislature in relation to the bill which authorized the contract in question, by any motive of gain, and conceding that the state has been greatly benefited by the services performed, this court