Case Name: HEGNESS v. CHILBERG
Court: United States Court of Appeals for the Ninth Circuit
Jurisdiction: United States
Decision Date: 1915-05-10
Citations: 224 F. 28
Docket Number: No. 2523
Parties: HEGNESS v. CHILBERG.
Judges: Before GILBERT and ROSS, Circuit Judges, and WOLVER-TON, District Judge.
Reporter: Federal Reporter
Volume: 224
Pages: 28–38

Head Matter:
HEGNESS v. CHILBERG.
(Circuit Court of Appeals, Ninth Circuit.
May 10, 1915.)
No. 2523.
1. Contracts <©=>132 — Legality of Object — Partnership to Bid for Mail Contracts. ' '
A contract of partnership to bid for certain mail contracts, and if obtained to carry out the same and divide the net profits on an agreed percentage basis, is not illegal as against public policy, where it does not appear that its purpose or effect was to prevent or lessen competition in bidding.
(Ed. Note. — For other cases, see Contracts, Cent. Dig. §§ 659-661; Dec. Dig. <@=>132.]
2. Contracts <@=>113 — Mail Contracts — Validity—Partnership.
Such a contract is not invalid for fraud merely because it provides that the bids shall be made and the contracts taken in the name of one only of the partners.
[Ed. Note. — For other cases, see Contracts, Cent. Dig. §§ 521-541; Dec Dig. <@=>113.]
3. United States <@=>71 — Government Contracts — Prohibition of Transfer. ■
Rev. St. § 3737 (Comp. St. 1913, § 6890), which prohibits the transfer of any government contract or any interest therein by the party to whom siich contract is given to any other party, under penalty of annulment of the contract “so far as the United States are concerned,” is for the protection of the United States only, and does not affect the rights of the parties to any such transfer.
[Ed. Note. — For other cases, see United States, Cent. Dig. § 54; Dee. Dig. <@=>71.]
4. United States <@=>111 — Assignment of Claim Against United States — ■ Validity.
A contract of partnership to bid for a mail contract in the name of one partner and to carry out the same, if obtained, is not invalid under Rev. St. § 3477 (Comp. St. 1913, § 6383), as an assignment of a claim against the United States because of a provision therein requiring the partner in whose name the contract was to be taken to indorse the warrants received and deliver the same to the other partner.
[Ed. Note. — For other cases, see United States, Cent. Dig. §§ 94-9S; Dec. Dig. <@=>111.]
Ross, Circuit Judge, dissenting.
Appeal from the District Court of the United States for the .Second Division of the District of Alaska; J. R. Tucker, Judge.
Suit in equity by Eugene Chilberg against John Hegness. From orders granting a preliminary injunction and appointing a receiver, defendant appeals.
Affirmed.
The appellee, who was the plaintiff in the' court below, brought a suit against the defendant for an accounting of the business of a partnership which was formed by written agreement between the parties as follows:
“Memorandum of agreement made and entered into this 25th day of August, 1909, by and between Eugene Chilberg, of Nome, Alaska, party of the first part, and John Hegness, also of Nome, Alaska, party of the second part, witnesseth:
“That, whereas, the parties hereto are desirous of securing mail contract to carry, the United States mail between Nome, Alaska, and Unalakleet, Alaska, and are desirous of bidding upon proposal route No. 78130 and proposal route No. 78137, in the name of the party of the second part; and
“Whereas, the parties are desirous of forming a copartnership for tho purpose of operating the said mail routes, or either of them, should the said contracts be obtained, and are desirous of evidencing the terms of their said copartnership in writing:
“Now, therefore, for and in consideration of the mutual promises and other good considerations, it is agreed between the parties hereto as follows:
“First. That each of the parties hereto shall endeavor so far as he can to obtain the said contracts above mentioned, or either of them, and to that end the party of the first part agrees to advance all necessary funds needed for such purposes, and to obtain the bond required in tho proposals for said mail routes, and, if either or both of said contracts are secured, party of the first part agrees to furnish the necessary bond required by the government therefor, and to advance the necessary money to begin and operate the said mail route or routes under the said contract or contracts until the payments are made by the government according to the contract; or contracts.
“Second. Party of the second part agrees to furnish his own dog team, sled, and equipment, and give his personal service as a carrier on said route or routes, and shall reside, when not on the mail route, in the town of Nome, and give his personal attention and supervision to the fulfillment and carrying out of said contract or contracts, if the samo is obtained in his name as bidder.
“Third. That the party of the second part shall receive the same compensation for his personal services for his attention to the said work as the other carriers employed'by this partnership, and shall receive in addition thereto fifteen per cent. (35%f) of the net profits derived or made from the said contract or contracts, after all other expenses are paid.
“Fourth. That the party of the first part for his share shall receive eighty-five per cent. (85%) of the net profits derived, or made from the said contract or contracts, after all expenses are paid for operating the same.
“Fifth. That all warrants issued and delivered by the government in payment under the said contract or contracts shall be signed by tho party of the second part and delivered to tho party of the first part, or his representative or agent, who shall keep a strict and accurate account of the same and act as treasurer of the partnership.
“In witness whereof, the said parties hereto have hereunto set their hands and seals the day and year first above written. ”
“[Signed] Eugene Chilberg. LSoal.]
“[Signed] John ITegness. [Seal.]
“Signed, sealed, and delivered in the presence of:
“[Signed] William A. Gilmore.
“fsigued] Mabel Searl.”
The complaint alleged that tho contract was obtained for carrying mail between Unalakleet and Nome, Alaska, for a period of four years, at the rate of $16,000 per year, and alleged that the defendant had retained, and was threatening to retain, more than his share of the money paid and to be paid by the government. The plaintiff prayed for an accounting and for an order restraining and enjoining the defendant from secreting or cashing any of tho warrants thereafter received by him from the United States in payment on the mail contract until the final hearing and determination of the suit. The defendant demurred to the complaint, and affidavits were filed by both partios. A restraining order was obtained as prayed for, and thereafter an order was made appointing a receiver, with authority to demand, receive, and hold, subject to the further order of the court, all postal warrants received in payment for services rendered under the mail contract, or warrants thereafter received, and that all such warrants be delivered to the receiver. From the restraining order, and. from the order appointing the receiver, the defendant appeals.
G. J. Lomen, of Nome, Alaska, and Ira D. Orton and Thomas R. Lyons, both of Seattle, Wash., for appellant.
William A. Gilmore, of Seattle, Wash., for appellee.
Before GILBERT and ROSS, Circuit Judges, and WOLVER-TON, District Judge.

Opinion:
GILBERT, Circuit Judge
(after stating the facts as above). The defendant contends that the contract of partnership which is sued upon is against public policy and void, for the reason that it tends to prevent or diminish competition. The defendant relies upon the decision of this court in Hoffman v. McMullen, 83 Fed. 372, 28 C. C, A. 178, 45 L. R. A. 410, affirmed by the Supreme Court in 174 U. S. 639, 19 Sup. Ct. 839, 43 L. Ed. 1117, and Atcheson v. Mallon, 43 N. Y. 147, 3 Am. Rep. 678. In Hoffman v. McMullen this court held that 9. contract to prevent competition and bidding for public works is contrary to public policy and cannot be enforced. Thé court said:
"The rule is universal that agreements which, in their necessary operation upon the action of the parties, tend to restrain their natural rivalry and competition, and thus to result in the disadvantage of the public or third parties, are against the principle of sound public policy, and are void."
And the Supreme Court said:
"It might readily he surmised that, if these) parties had bid in competition, one or both of the bids would have been lower than their combined bid."
The law as applied to contracts to carry the mails is _ expressed in section 3950, Rev. Stats. (Copip. St. 1913, § 7437), which' provides:
"No contract for carrying the mail shall be made with any person who has entered, or proposed to enter, into any combination to prevent the making of any bid for carrying the mad, or who has made any agreement, or given or performed, or promised to give or perform, any consideration whatever to induce any other person not to bid for any such contract."
1. The statute and the decisions in Hoffman v. McMullen and Atche-son v. Mallon would be applicable and controlling here, if there were any evidence in the case tending to show that the contract between the plaintiff and the defendant had a tendency to prevent competition in bidding. But there is no evidence, either in the contract or elsewhere in the record, that the plaintiff ever at any time contemplated bidding for the mail contract, or would have made a bid, or ever thought of making a bid, oh his own behalf. Nor is there any fact or circumstance from which such a purpose on his part might be inferred. If any inference is to be drawn from the evidence and from the circumstances, it is that the plaintiff would not have applied for the contract for himself alone. He was a banker, a man of means, and it is not to be supposed that he would think of undertaking to- contract to carry mail between Nome and Unalakleet through the winter months. In Hoffman v. McMullen this court said:
"There is no valid objection to such voluntary combinations, if tbe joint action of tbe parties is done honestly and in good faitb. .In all contracto secured in sucb a manner, tbe courts should never hesitate to protect parties in their agreements with each other, and compel them to comply with the terms thereof. It is only where the facts and circumstances surrounding the •case clearly show that illegal means or improper and deceptive influences and methods were used to procure the contract that the maxim 'in pari delicto' .applies."
In 9 Cyc. 492, it is said:
"On familiar principles, an agreement that one should bid for several for a public contract is not illegal per se."
In Bellows v. Russell, 20 N. H. 427, 51 Am. Dec. 238, it was held that an agreement that one shall bid for several for a mail contract is not void, unless made for some illegal purpose affecting public policy. We agree with the conclusion of the court below, which is thus stated in the opinion:
"The contract here shows on its face nothing more or less than an agreement that the parties shall endeavor to obtain a contract for carrying the mail in Alaska, and that they shall divide the net profits upon an agreed percentage basis, after the objects of the contract are completed, and after the money due oil same is paid by the United States. There is no suggestion of a purpose to lessen the bids, nor is that the effect or tendency of the contract."
2. Nor is there anything in the case to show that the contract contemplated that the plaintiff would, or that he ever did, employ funds in any improper way, or exert influence in any improper manner to obtain the contract. It is not seen how it was possible to use money or exert influence for that purpose. The contract was necessarily and according to law let to the lowest bidder. The case differs totally from Tool Co. v. Norris, 2 Wall. 45, 17 L. Ed. 868, cited by the defendant. That was a case in which the contract was not let to the highest bidder, but was obtained by personal solicitation. The Civil War having just begun, the government was in need of arms. The Tool Company was a manufacturer of arms. Norris set to work to concentrate influence upon the War Department. He got senators to go with him to the War Office. By one means and another he got influential introduction to the Secretary of War, and secured the contract. There was nothing of that kind in the present case. The agreement provided that each party should endeavor to obtain the mail contract, and to that end the plaintiff agreed to advance all necessary funds and to obtain the bond; and although he alleged in his complaint that the contract was secured through his efforts, and without any aid or assistance from the defendant, and that he obtained and furnished the bond required by the government of the United States, and advanced the necessary money and made such financial arrangements that he and the defendant were able to and did comply with the terms and conditions of the said contract, it nevertheless does not appear, and it is not shown, that the agreement contemplated, as preliminary to engaging in the mail carriage contract, that the plaintiff should expend any sum of money, except such as might be necessary to obtain the bond. The evidence shows that he did this at a cost of $1,200.
3. Nor is there anything in the case to show that the plaintiff is not entitled to recover for the reason that his connection with the mail contract was concealed. There is no evidence that it was agreed that it should be concealed. The contract does not so provide, nor is there anything in the record to indicate that such was, the intention. On the other hand, the agreement was openly signed in the presence of two witnesses, and one of the affidavits slates that the post office of ficials were aware of the plaintiff's connection with the mail contract. There was nothing fraudulent in the mere fact that the agreement contemplated that the mail contract should be taken in the name of the defendant. A considerable sum of money was needed" to finance the mail contract, and this the plaintiff agreed to furnish, while the defendant agreed to do the work. The fact that the plaintiff was to receive 85 per cent, of the rfet profits, and the defendant 15 per cent, is not ground for setting aside the orders appealed from. As a matter of fact, so far as the facts are shown, the stipulated division of the profits does not seem to> have been inequitable. A large portion of the gross profits was received by the defendant in the way of wages, thereby reducing the sum of the net profits to be divided. The contract was to carry the mails only- during the winter months, from November to May, inclusive. The first year the defendant received $3,600 as his wages; the second year, $3,600; and the third year $3,675; and at the end of that year it is said that he appropriated the additional sum of $1,800, claiming it as extra compensation. The sums, advanced by the plaintiff to carry out the contract during those years ranged from $10,833 to $14,000 each year.
4. There is no evidence that either the plaintiff or the defendant violated any of the regulations of the Post Office Department. Counsel for the defendant refers to the new postal laws and regulations of 1913, issued under the act of Congress approved August 24, 1912 (37 Stat. 539, c. 389), in which, in section 1414, it is provided that proposals for carrying the mails shall be made on forms prescribed by the Postmaster General, and he states in his brief that the forms prescribed under that authority contain the following, to which the bidder must certify:
"This proposal is made in my own interest, and not by me as the agent of any other person or company, with full knowledge of the distance of the route, the weight of the mail to be carried, and all other particulars with reference to the route and service, and also upon careful examination of the instructions attached to said advertisement."
And he argues that the defendant must have signed such a certificate, and that therefore the contract he made with the plaintiff was in violation of the postal rules and regulations. To this there are two answers:
First. It nowhere appears in the record that the defendant signed such a certificate. What were the rules and regulations in force in 1909 is not shown. Nor do the postal laws and regulations of 1913 contain any specification of such a form to be signed by bidders. All that the volume contains on that subject is the statute of the United States (18 Stat. 235 [Comp. St. 1913, § 7433]), which provides that no proposal shall be considered unless—
"there shall have been affixed to said proposal the oath of the bidder, taken before an officer qualified to administer oaths, that he has the ability, pecuni-arily, to fulfill his obligations, and that the bid is made in good faith, and with the intention to enter into contract and perform the service in case his bid is accepted."
If anything in the proposal which the defendant signed stands in the way of the plaintiff's right to recover in this suit, it has not yet been shown in the record, and for that reason, if there is anything in the proposal that affects the controversy, its consideration should await the final hearing on the merits.
Second. But, even if it should be shown that the defendant signed the certificate which the defendant quotes, there is nothing in the facts to impeach its verity; for it was true that the proposal was made by the defendant in his own interest, and not by him as the agent of ány other person or company.
5. The contract between the parties is not void by virtue of section 3963 of the Revised Statutes (Comp. St. 1913, § 7451), which provides that:
"No contractor for transporting the mails within or between the United States and. any foreign country shall assign or transfer his contract, and all such assignments or transfers shall he null and void."
There is in this case no assignment or transfer of the mail contract. It remained at all times in the name of the original bidder, and for the benefit of the partnership. The statute prohibits only the transfer of a mail contract that has been made and entered into.
6. Nor is the contract made void by section 3737, which prohibits the transfer of any government contract or order or any interest therein "by the party to whom such contract or order is given, to any other party," and provides that:
"Any such transfer shall cause the annulment of the contract or order transferred so far as the United States are concerned."
That statute is for the protection of the United States only, and does not affect the rights of the parties to such a transfer. Dulaney v. Scudder, 94 Fed. 6, 36 C. C. A. 52; Goodman v. Niblack, 102 U. S. 560, 26 L. Ed. 229.
7. Nor is the reversal of the order of the court below required by the provisions of section 3477, which prohibits the transfer or assignment of any claim upon the United States, unless the assignment is executed and attested in the manner prescribed in the section, and after the allowance of the claim and the issuance of the warrant, It is contended that this statute is violated by two provisions of the partnership contract: First, in that it provides that all warrants issued and delivered by the government in payment under the mail contract shall he signed by the defendant and delivered to the plaintiff; second, in that the agreement makes the plaintiff the owner of a large interest in the mail contract.
In answer to the first proposition, it is sufficient to say, so far as the case here on appeal is concerned, that if it be conceded that the provision in the agreement for the indorsement of the warrants from the defendant to the plaintiff is void, it does not make void the entire contract. It is still a valid partnership agreement, calling for division of profits in the proportions therein specified,, and the case comes within the principle announced in Nutt v. Knut, 200 U. S. 12, 26 Sup. Ct. 216, 50 L. Ed. 348, in which the court gave effect to a similar agreement, and said:
"Snell an agreement did not give 'tile attorney any interest or share in the claim itself, nor any interest in the particular money paid over to the claini- ant by the government.' It only established an agreed basis for any settlement that' might be made, after the allowance and payment of the claim, as to the attorney's compensation. It simply created a legal obligation npon the part of the estate, which, if not recognized after the collection of the money, could have been enforced by suit for the benefit of the attorney, without doing violence to the statute or to the public policy established by its provisions." ' .
Such being the equitable right of the plaintiff, the court below did not abuse discretion in enjoining, pendente lite, the defendant from secreting or disposing of the postal warrants, or sending the same without the jurisdiction of the court. In National Bank of Commerce v. Downie, 161 Fed. 839, 843, 88 C. C. A. 657, 661, this court said:
"Hence, where a claim has been allowed by the accounting officers of the United States, a warrant issued therefor and delivered to the claimant, the government is no longer concerned with his disposition of the draft, of the funds which it represented"—citing York v. Conde, 147 N. Y. 486, 42 N. E. 193, and Farmers' National Bank v. Robinson, 59 Kan. 777, 53 Fac. 762.
Second. The provision of the agreement by which the plaintiff is given an interest in the profits of the mail contract is not an assignment of a claim against the United- States. Hobbs v. McLean, 117 U. S. 567, 6 Sup. Ct. 870, 29 L. Ed. 940, is decisive of that question. In that case, .in considering the effect of section 3477, the court said:
"When the contract of partnership was made, Peck had no claim which he could present for payment, or on which he could have brought suit. lie therefore had no claim the assignment of which the statute forbids. It is so clear that the articles of partnership do not constitute such an assignment as is forbidden by the section under consideration that it would be a waste of words further to discuss the point."
The orders áre affirmed.