Opinion ID: 2281883
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Heading: quasi-contractual liability of municipal corporations

Text: The substantial question involved in this case is whether there may be any recovery on the quantum meruit for services performed under the ultra vires contract with the public corporation, the authority. The basic rule, applied in the Scatuorchio case, supra, is that there can be no recovery under an express municipal contract entered into without observing the mandatory legal requirements specifically regulating the mode by which a municipal power is to be exercised. Cf. 10 McQuillin, Municipal Corporations (3 d ed. 1950), sec. 29.26, p. 257. Where express contracts must be preceded by certain steps or made in a certain way there is considerable authority, however, to support the rule that a recovery may be had on a quantum meruit    upon the theory that it is not justice, where a contract is entered into between a municipality and another, in good faith, and the corporation has received benefits thereunder, to permit the municipality to retain the benefits without paying the reasonable value therefor    (Emphasis supplied). Id., sec. 29.112, pp. 458-460. Compare Driscoll v. Burlington-Bristol Bridge Co., 8 N.J. 433, 475 (1952), certiorari denied Burlington County Bridge Comm. v. Driscoll, 344 U.S. 838, 73 S.Ct. 25, 97 L.Ed. 652 (1952), rehearing denied 344 U.S. 888, 73 S.Ct. 181, 97 L.Ed. 687 (1952). The American law on this subject has incurred academic criticism for its apparent confusion. In 1911 it was said The cases upon this subject are truly bewildering. Jerome C. Knowlton, The Quasi-Contractual Obligation of Municipal Corporations, 9 Mich. L. Rev. 671 (1911). It was suggested by Knowlton that favoritism and extravagance on the part of municipal officials call for limiting, rather than extending, the remedy of recovery by a contractor on the quantum meruit. Id., p. 676. See also Id., p. 683. Twenty-three years later it was observed, The liability of municipal corporations in quasi -contracts, that is upon contracts implied in law, has never been satisfactorily worked out by our courts    C.W. Tooke, Quasi-Contractual Liability of Municipal Corporations, 47 Harv. L. Rev. 1143 (1934). The latter essay discusses the varying juridical philosophies on the subject and reaches the conclusion that    there would seem to be no reason why a municipal corporation should not be held to respond upon principles of quasi -contract for services rendered or materials furnished under invalid contracts intra vires the corporation. Id., p. 1171. A similar current analysis of the authorities on the subject demonstrates that no clear-cut solution has been attained. Chester James Antieau, The Contractual and Quasi-Contractual Responsibilities of Municipal Corporations, 2 St. Louis Univ. L.J. 230 (1953). While these articles, as well as McQuillin's work, cited ante, and other authorities on the subject, point to seeming divergent judicial expression, the general principles, namely the contrapositive principles of public policy and unjust enrichment, appear to have general recognition. It is the application of these principles under varying constitutional and statutory provisions and factual circumstances that sets the scale of justice for or against the contractor. For example, the California Supreme Court in Reams v. Cooley, 171 Cal. 150, 152 P. 293 (1915), held that recovery on the quantum meruit may be had where the general power to contract concerning the subject matter exists except where the power is limited by statute. The Commission of Appeals of Texas, on error to the Court of Civil Appeals of Texas, analyzed the authorities elsewhere (including New Jersey) and in Texas, in Sluder v. City of San Antonio, 2 S.W. 2 d 841 (1928). The Sluder case holds (2 S.W. 2 d, at page 842):    while such contracts are void, and no recovery is permitted thereon, our courts hold that common honesty and fair dealing require that a county or municipality should not be permitted to receive the benefit of money, property, or services, without paying just compensation therefor    In the Sluder case, supra, the general power to contract on the subject existed, but the municipality failed to follow the mandate of a statutory (charter) provision as to the mode of contracting. Recovery was allowed not in reference to the void contract but on implied contract. However, Sluder was deprived of unconscionable profits. Cf., for example, W.W. Cook & Son v. City of Cameron, 144 Mo. App. 137, 128 S.W. 269 ( Ct. App. 1910); Lively v. Webb City, 106 S.W. 2 d 517 ( Mo. Ct. App. 1937); Watterson v. Mayor, etc., of City of Nashville, 106 Tenn. 410, 61 S.W. 782 ( Sup. Ct. 1901); J.A. Kreis & Co. v. City of Knoxville, 145 Tenn. 297, 237 S.W. 55 ( Sup. Ct. 1921). The implied contract theory was approved but held inapplicable for other reasons in Luzerne Tp. v. Fayette County, 330 Pa. 247, 199 A. 327 ( Sup. Ct. 1938). In New Jersey, recovery on the quantum meruit where a contract was invalid was approved in Armitage v. Essex Construction Co., 88 N.J.L. 640, 641 ( E. & A. 1916). In State v. Kuehnle, 85 N.J.L. 220, 227-228, 88 A. 1085, 1089 ( E. & A. 1913), the former Court of Errors and Appeals held that, if the express contract was not binding, there was still an implied contract, and approved the rule that a recovery against a municipal corporation (exists) upon an implied contract, where the express contract is set aside by the court. The case of Eckert v. Town of West Orange, 90 N.J.L. 545, 549 ( E. & A. 1917), was not basically opposed to the foregoing authorities and approved them and other similar decisions (see 90 N.J.L., at pages 550-552). In the Armitage case, supra, good faith was relied on as an essential factor of the contractor's claim (see 88 N.J.L., at page 642). Cf. State v. Kuehnle, supra (85 N.J.L., at pages 228-229). In the Eckert case, supra, no resort to emergency powers (if any then existed) was attempted and the statute referred to was not complied with. The former Court of Errors and Appeals, in the Eckert case, supra, held that recovery on the quantum meruit may be had where there has been some unimportant irregularity in the proceedings, or an innocent mistake as to some matter of fact  (emphasis supplied), but in the case before it found a direct defiance of an act of the Legislature. (90 N.J.L., at page 550). Eckert, the former Court of Errors and Appeals held, was a party to a scheme to evade and nullify a well-defined public policy of this state (90 N.J.L., at 552). Cf. Wentink v. Board of Chosen Freeholders of County of Passaic, 66 N.J.L. 65, 67 ( Sup. Ct. 1901). Compare 2 Restatement of the Law, Contracts (1932), sec. 599, comment ( c ), p. 1113. We held in Scatuorchio v. Jersey City Incinerator Authority, supra , that the authority was a municipal body having and exercising essential governmental functions (14 N.J., at page 89); that it had exclusive power over scavenger contracts in Jersey City (14 N.J., at page 89); that R.S. 40:50-1 and R.S. 40:66-4, as am. L. 1942, c. 133, sec. 1, controlled its actions on scavenger contracts; that bids were not properly received under these statutes, and the purported invoking of the emergency clause of R.S. 40:50-1, supra, was abortive (14 N.J., at pages 84 et seq. ). We therefore held that the contracts, failing to comply with the mandatory statutory procedures, were ultra vires. As above noted, we held that the power to contract existed (14 N.J., at pages 84, 87, 89-91, 93). Our holding in the Scatuorchio case, supra, in other words, was that the power existed in the authority to make an emergency contract, both in December 1952 and in February 1953. The directory provisions of the statute ( R.S. 40:50-1, supra ) were not complied with. The December 1952 declaration of emergency was held defective for failure to state the nature of the emergency and the approximate amount to be expended in meeting the emergency (14 N.J., at page 87); the February 3, 1953 declaration of emergency was held to be an incomplete declaration of the fact of the alleged emergency (14 N.J., at page 93). In both instances we held the alleged emergency did not exist in fact. (14 N.J., at pages 92, 93). It is true that we observed that the declaration of emergency by the authority appears at best to have been an attempt to avoid the pertinent legislative enactments and public responsibility (14 N.J., at page 88), but we did not determine the question. We expressly decided that the element of bad faith was not an issue determined in the Scatuorchio case, supra (14 N.J., at page 92). Bauer v. City of Newark, 7 N.J. 426 (1951), is not contrary to the views hereinbefore expressed. In the Bauer case, supra, the present question was not reached because a specific statute precluded resort to the quantum meruit theory, namely R.S. 40:2-29, as am. L. 1945, c. 155, sec. 1. In summary, we find that the New Jersey law pertinent to this type of case is that where the contract was not within the corporate power no recovery may be had by the contractor either on express or implied contract; where the Legislature expressly prohibits the incurring of liability on contract or otherwise no recovery may be had either on express or implied contract; but where the power to contract lies within the competence of the municipal corporation and there has been an irregular exercise of that power in good faith, recovery on the quantum meruit may be had although the express contract is void. Cf. Potter v. Borough of Metuchen, 108 N.J.L. 447, 450-451 ( Sup. Ct. 1931). The final facet of this subject is the extent to which recovery may be allowed. The ordinary rule for the measure of damages where the suit is based on the quantum meruit is the reasonable value of the services rendered. In the Burlington-Bristol Bridge Co. case, supra (8 N.J., at p. 475), the county was allowed to keep the bridge, i.e., to retain the benefits of the contract, while the selling syndicate were required to disgorge the profits which they received from this illegal transaction. (8 N.J., at pages 499-500). In the present case the benefits were received by the defendant authority (and incidentally by the City of Jersey City and the taxpayers therein). The services rendered cannot be restored to Hudson. If the contracts were entered into and the services were performed by Hudson in good faith, the measure of damages in the present case is the reasonable expense of the performance of services actually rendered, but not in excess of its actual expenses, and deleting profits.