Court Opinion

ID: 3435403
Source: CourtListenerOpinion
Date Created: 2016-07-05 20:08:02.622766+00
Date Added: 2024-06-11T13:56:35.738263
License: Public Domain

I. I cannot agree with the majority opinion in this case. It is the claim of the defendants (appellees) that inasmuch as there is here no attack made upon the validity of the proceedings on the part of the City Council, therefore, the City Council had jurisdiction in the matter of ordering the improvement and entering into the contract, and that this suit in equity will not lie to question the legality of the contract.
It is the contention of the defendants (appellees) that the procedure set out in Sections 6016, 6029, 6063, and 6065 of the Code is exclusive, and that it was the only remedy open to the appellants in this case.
This court said in Clifton Land Co. v. City of Des Moines,144 Iowa 625, that:
"Save only in cases where the order or proceedings sought to be enjoined is absolutely void — not voidable merely — it is well settled that a special remedy created by statute is exclusive as to all the controversies coming within its scope, and if a party to whom such remedy is given fails to take advantage of it, he can not resort to equity for relief." Citing many Iowa cases.
In Manning v. City of Ames, 192 Iowa 998, this court said:
"At the outset, we are confronted with the question whether, under the facts of this case, the appellees can maintain this action in equity, or whether they are required to pursue the statutory remedy, by filing objections before the city council, with right of appeal therefrom. If the proceedings were such as to render the assessments absolutely void, then a court of equity has the power to enjoin the collection of such void assessment. Such have been our repeated holdings. Chicago, M.  St. P.R. Co. v. Phillips, 111 Iowa 377; Fort Dodge E.L.  P. Co. v. City of Fort Dodge, 115 Iowa 568; Davenport Locomotive *Page 892 
Works v. City of Davenport, 185 Iowa 151; Shaver v. Turner Impr. Co., 155 Iowa 492; Nixon v. City of Burlington, 141 Iowa 316; Dunker v. City of Des Moines, 156 Iowa 292; In re Appeal of Apple, 161 Iowa 314; Spalti v. Town of Oakland, 179 Iowa 59; Polk v. McCartney, 104 Iowa 567."
In Tjaden v. Town of Wellsburg, 197 Iowa 1292, this court said:
"We have recognized two methods by which the validity of an assessment of this character (sewer assessment) may be tested. One remedy is by objections before the council, as provided by Code Section 824 (Section 6029, Code of 1927), with the right of appeal therefrom, under Code Section 839 (Section 6063, Code of 1927). * * * The other method, that of attacking an assessment by suit for injunctive relief, where fraud is shown, or where it is established that the proceedings are wholly and absolutely void, has also been recognized. The respective remedies, and when they are available to the taxpayer, are discussed in Owens v. City of Marion, 127 Iowa 469; Clifton Land Co. v. City of Des Moines,144 Iowa 625; Durst v. City of Des Moines, 164 Iowa 82; Ellyson v. City of Des Moines, 179 Iowa 882; Manning v. City of Ames,192 Iowa 998."
In Owens v. City of Marion, supra, this court said:
"It goes without saying that, if the assessment was without any authority, plaintiff was not bound to file objections with the council, or to appeal from its action in the premises. Ft. Dodge v. Ft. Dodge, 115 Iowa 568. But if irregular, unequal, or erroneous simply, then, as a tribunal is provided for the correction thereof, plaintiff must resort to this tribunal."
It is unnecessary to here analyze the many cases cited by the appellee. It will be found, upon close examination, that they all involve irregularities of one sort or another, and in no case has it been held that if the contract under which an assessment is sought to be made and enforced, is illegal, that then the interested party is prevented from proceeding in equity and the remedy by objections before the City Council and appeal is exclusive. Neither has it been held that the payment of public funds created by taxation cannot, under such circumstances, be enjoined by an action in equity, and the complainant *Page 893 
is confined to the statutory procedure of filing objections and appeal. Manifestly, this case should be decided against the appellee on this particular contention.
II. Is the contract involved in this case illegal? Section 6004 of Code of 1927 provides, among other things, as follows:
"All contracts for the construction or repair of street improvements and for sewers shall be let in the name of the city to the lowest bidder by sealed proposals." (Quoter's italics.)
The purpose of the statute has been expressed by this court in Saunders v. City of Iowa City, 134 Iowa 132, as follows:
"The statute providing for letting a work of public improvement to the lowest responsible bidder was enacted to secure competition, to prevent fraud and defeat graft. It was enacted to remove as far as possible all favoritism and to secure the performance of public work at the lowest possible price." (Quoter's italics.)
Again this court said, in commenting on the statute, in Atkinson v. City, 177 Iowa 659:
"The object of such provisions is to prevent favoritism, corruption, extravagance and improvidence in the awarding of municipal contracts, and they should be so administered and construed as to fairly and reasonably accomplish such purpose."
See also McQuillin on Municipal Corporations, 2d Ed., Vol. 3, Section 1286. This eminent writer, among other things, says, in reference to such statutory provision:
"These provisions are strictly construed by the courts, and will not be extended beyond their reasonable purport."
In Plagmann v. City of Davenport, 181 Iowa 1212, a suit in equity to enjoin the collection of special assessment for the cost of paving, this court said:
"Fraud, as used in this connection, has reference to conduct, words or representations which partake in some material degree of artifice or deception employed to deceive, cheat or circumvent another; it is some form of deception consciously employed for the purpose of misleading another." *Page 894 
This court has also said in Dickinson v. Stevenson, 142 Iowa 567
:
"`Fraud in a court of equity properly includes all acts, omissions and concealments which involve a breach of either a legal or equitable duty, trust or confidence justly reposed and are injurious to another or by which an undue or unconscientious advantage is taken of another.'"
In the case at bar the defendant company had a monopoly as a patentee. The materials used are ordinary, common materials that can be bought on the market by any one. By the testimony of competent witnesses on the trial, it appears that the cost of these ingredients at the time in question was about 77 cents per square yard of pavement. Having filed a price to all bidders of $1.34 per square yard, it is apparent that the defendant company gave a price to contractors of 57 cents per square yard more than the cost of the material. It was entitled to compensation for the use of its monopoly. The record clearly shows that the cost of laying the materials, after the fully prepared product was placed in the contractor's trucks, was about 27 or 28 cents per square yard. For doing this work the defendant company charged in its bid only one cent per square yard.
There is nothing in the record which warrants the inference that the defendant company intended to donate its services in the laying of this paving. There is no showing of advantage to them in so doing. They were not introducing a new product nor were they introducing a new method of performing contracts. The only reasonable and practical inference which can be drawn from the foregoing figures is that, under the guise of a reasonable patentee's royalty, the defendant company was in fact adding to the reasonable patentee's royalty, substantially the entire cost of laying the paving, after the prepared material was placed in the contractor's trucks. True enough, the patentee could charge any price for his monopoly which he saw fit. He was under no obligation to sell it to the city at all, but the method adopted partakes "in some material degree of artifice or deception employed to deceive, consciously employed for the purpose of misleading another."
Was there competitive bidding in this case, as is required *Page 895 
by the statute, or was there a mere showing or pretense of competition? Manifestly, had the defendant company not been a bidder, all other bidders would have been competitive because they would all have been upon substantially an equal basis and upon an equal basis as to materials and patented process. Every contractor would have started with the basic price of $1.34 per yard. Each contractor would then compete, one with all the others, in the matter of the cost of handling and laying the prepared material. Into this would enter various elements of equipment, labor costs, management, overhead, insurance, and other similar questions. Under some circumstances, one contractor might reasonably be expected to be able, with a reasonable profit, to lay this material in accordance with requirements for, as for illustration, 25 cents per square yard, while another contractor, because of limitations of equipment or other elements entering into the total cost, could not lay the same, including a reasonable amount of profit, for less than perhaps 30 cents per square yard. It is very apparent, however, that no one could compete with the defendant company on the basis of one cent per square yard. No witness testified to a cost of less than 27 cents per square yard for laying the prepared material. It is utterly unreasonable to conclude that, whatever may have been its equipment or its labor and overhead costs, or what not, it could lay this prepared product on the streets of Muscatine for one cent per square yard. It is not claimed by the defendants that they could do this work for less than 27 cents per square yard.
In its final analysis, permitting the patentee to bid enables him, if he sees fit so to do, to eliminate competition. To do so is illegal. In this case the patentee was permitted to add his price of one cent per square yard for laying the pavement to the price given to the bidders for the prepared material. This was a mere sham and deception. There was no competition in the procurement of the contract at bar and it is illegal.
To hold that there was competition in letting this contract would be, by judicial fiat, to abrogate the statute. It would be trifling with legislative intention and enactment.
With the knowledge on the part of the patentee that he is to be permitted to bid, and knowing full well that, by raising his general price to all contractors to the point where he can afford not only to furnish the materials and the use of his patent, *Page 896 
but likewise to do the work, he is thus given the opportunity to absolutely eliminate all competition in so far as doing the work or laying the material is concerned. The whole scheme of thus including in his price to contractors his profit for doing the work, or a very large portion thereof at least, is in the nature of a fraud upon those who are entitled to protection under the statute by competitive bidding among the contractors who are to lay the material on the streets in the form of a completed paving.
Under the guise of competition the defendant company, in fact, exercised an absolute monopoly, not only in the matter of its patent, but also in the matter of laying the materials under its patent on the streets of Muscatine. There were four different kinds of material specified and competitive bids taken on each of them. When the City Council selected Warrenite Bitulithic, all other materials passed out of the picture. Competition among materials is not sufficient. There must be competition on the material selected. After the selection of Warrenite Bitulithic was there competition in the bidding on that material?
This court has already made some significant statements pertaining to this general subject.
In Miller v. Oelwein, 155 Iowa 706, the notice to bidders called for bids on bitulithic pavement. One of the bidders (Ford), whose bid was low, bid on "bitulithic or its equal pavement." The council rejected this bid and awarded the work to the next higher bidder. The property owner brought an action to enjoin the defendant city and its officers from entering into the contract. The lower court granted the injunction and this court affirmed it. In so doing, it said:
"The result of the council's action was to avoid the acceptance by it of Ford's bid as the lowest and the necessary acceptance of a higher bid by intervener, the only other bidder. This was evidently in its result a fraud on the property owners, for it compelled them to pay a higher rate for the pavement ordered. No doubt, the council had authority to accept intervener's bid as the lowest if there was no other bid proper for their consideration (Dubbert v. Cedar Falls, 149 Iowa 489; Saunders v. Iowa City, 134 Iowa 132); but the council committed a legal wrong in rejecting Ford's bid without reasonable ground *Page 897 
for doing so, and thus putting them in the position of being bound to accept a higher bid or postpone the letting of the contract." (Quoter's italics.)
In McMullen v. Hoffman, 174 U.S. 639, this court said:
"It is not too much to say that the most perfect good faith is called for on the part of bidders at these public lettings, so far as concerns their position relating to the bids put in by them or in their interest. The making of fictitious bids under the circumstances detailed herein is in its essence an illegal and most improper act; indeed, it is a plain fraud, perpetrated in the effort to obtain the desired result."
In the McMullen case, prior to making their bids, two contractors entered into an agreement under the terms of which they agreed that if either one of them got the work, the profits resulting therefrom should be shared between them.
This question has been before several of our courts of last resort. In fact many courts have held that where an article is monopolized, no matter whether legally or not, as under a patent, and the statute provides that work of public improvement shall be let to the lowest bidder, such monopolized article cannot be used, for the reasons, first, that monopolies are odious in law, and second, because without free competition there is always opportunity for favoritism, fraud, graft and oppression. This court has, however, in Saunders v. City of Iowa City, 134 Iowa 132, settled that question in this state in favor of the monopolized article. It will be noted, however, that in the Saunders case Warren Brothers, who were the owners of the patent,did not bid at the letting. This court said:
"But it is not true that there may not be competition in a patented article. This case is a demonstration that there may be. Competitive bids were received, which were not the same, but varied as above stated. The Warren Bros. Company agreed to furnish its patented material at a flat price to all bidders. The proposition was filed with the city council, and the price named. Bidders knew just what they would have to pay for the material, just as they might have known what they would have to pay for brick, sand, and cement had the pavement been made of brick. * * * There is no claim of fraud and no implication *Page 898 
of bad motive, and in our opinion there was all the competition which was necessary to justify the letting of the contract."
This court has said in Johnson County Savings Bank v. City of Creston, 212 Iowa 929, that:
"It is a general principle that a municipal contract entered into in violation of a mandatory statute, or a contract in opposition to public policy, is not merely voidable but void (Coggeshall v. Des Moines, 78 Iowa 235), and that no contract for services rendered or goods furnished pursuant thereto can be implied, nor may the acceptance of benefits thereunder be made the basis of a liability by estoppel. Reichard v. Warren County,31 Iowa 381; Cedar Rapids Water Co. v. Cedar Rapids, 118 Iowa 234, 253; Langan v. Sankey, 55 Iowa 52, 54; Barngrover v. Pettigrew, 128 Iowa 533; Cole v. Brown-Hurley Co., 139 Iowa 487; McPherson v. Foster Bros., 43 Iowa 48; Citizens' Bank v. Spencer,126 Iowa 101, 105; Iowa Electric Co. v. Winthrop, 198 Iowa 196, 201; Stropes v. Board of Commissioners, 72 Ind. 42; Peck-Williamson Co. v. Steen School Township, 66 N.E. (Ind.) 909; Worrell Mfg. Co. v. Ashland, 167 S.W. (Ky.) 922; Eaton v. Shiawassee County, 218 Fed. 588; Van Buren Light  Power Co. v. Inhabitants of Van Buren, 109 A. 3, 118 Me. 458; 43 C.J. 248; 44 C.J. 120, 138; 3 McQuill. Mun. Corp., Section 1164; Strickler v. Consolidated School District, 291 S.W. (Mo.) 136; Carter v. Reynolds County, 288 S.W. (Mo.) 48; Carter v. Bradley County Road Improvement District, 246 S.W. 9, 155 Ark. 288; Gaddis v. Barton School Township, 164 N.E. (Ind.) 499. * * * A municipal contract let without competitive bidding when the statute requires competitive bidding, is void, and no recovery may be had either upon the purported express contract or upon an implied contract to pay the reasonable value of the services or material furnished thereunder. Weitz v. Independent District, 79 Iowa 423; Zottman v. San Francisco, 20 Cal. 96; 81 Am. Dec. 96; Brady v. Mayor, 16 How. Pr. (N.Y.) 432; (see discussion of these cases in Reichard v. Warren County, 31 Iowa 381). Reams v. Cooley, 152 Pac. (Cal.) 293; Dickinson v. Poughkeepsie, 75 N.Y. 65; Cawker v. Central Bitulithic Paving Co., 121 N.W. 888, 140 Wis. 25; Richardson v. Grant County, 27 Fed. 495; Bristol v. Dominion *Page 899 
National Bank, 149 S.E. (Va.) 632; Springfield Milling Co. v. Lane County, 5 Or. 265; Detroit v. Robinson, 38 Mich. 108; Twohy Bros. Co. v. Ochoco Irr. Dist., 210 Pac. (Ore.) 873; Nellis v. Minton, 216 Pac. (Okla.) 147, 149; People v. Gleason, 25 N.E. (N.Y.) 4; McDonald v. Mayor, 68 N.Y. 23; Wagner v. Milwaukee, 220 N.W. (Wis.) 207; 19 R.C.L. 1068; Strauch v. San Mateo, 286 Pac. (Cal.) 173; 44 C.J. 136; 43 C.J. 248; 3 McQuil. Mun. Corp., Section 1196, 1st Ed.; Id., 2nd Ed., Section 1283."
In McEwen v. City of Coeur d'Alene, 132 P. 308 (Ida.), that court said:
"It clearly appears in this case that the patented invention for the manufacture and use of the bitulithic process was issued to Warren Bros. Company, and that such patentee agreed to allow the use of the patented mode and material at a specified price per square yard by any one bidding upon the contract. The proposal for bids afforded competition by reason of the fact that many things were to be done, in connection with the contract and its fulfillment, in addition to the furnishing of the bitulithic process. There is no evidence that the Warren Bros. Company werebidders for such contract, or that the Warren ConstructionCompany had any interest whatever in the patent of the bitulithicprocess; and it not being shown that Warren Bros. Company, the owner of the patent process, had any interest whatever in the bid made by the Warren Construction Company, which was accepted by the City, this court is not justified in concluding that competitive bidding was prevented in any way whatever.
"There can be no question but that the authorities relied upon and cited by the respondents are not applicable to the facts in this case and the statute which we have heretofore discussed. Itwould be a very different question, and one which seems to berecognized in the authorities above cited in support of theposition contended for in this case by the respondents, if theWarren Bros. Company, the patentee of the bitulithic process, wasa bidder, but the facts do not support such contention. In this case the Warren Bros. Company, the patentee, filed an agreement to allow the use of the patented process at a specified price by any one bidding upon the proposal, and *Page 900 
who made a contract with the City of Coeur d'Alene for the construction of bitulithic pavement. The only rule to be adopted by this court, under the facts, is the rule heretofore announced and approved in the cases heretofore cited."
In a concurring opinion, Sullivan, J., said:
"If it appear from the record that Warren Bros. Company, the owner of said patent, had any interest whatever in the bid which was accepted by the city, the city authorities should be enjoined from proceeding under said contract. The owner of a patented paving material is not permitted to bid, or to have any interest in a bid, for paving a street, under the laws of this state. If he were allowed to do so, there would be no real competition in the bids; for if the owner of the patent agreed to furnish the patented material to any one bidding for the contract, say, at $2 per square yard, and then bid for the contract at $2 per square yard there would be no competition, and could be none, in the matter. But where each bidder can procure the patented material on the same terms, and the owner of the patent is not permitted to bid, nor to have any interest in any bid whatever, for the paving of the street, then there would be legitimate competition. But, as the point is not made on this appeal that the owners of the patent have any interest in the bid, I concur in the conclusion reached by Mr. Justice Stewart."
In Sanborn v. City of Boulder, 221 P. 1077 (Colo.), that court said:
"* * * where, as in the case at bar, the owner of the patented pavement has filed with the City Council a binding agreement that it will furnish the pavement in question to all persons alike upon precisely the same terms and at the same cost, and is itselfnot a bidder, it has been held by the majority of the courts in this country not to make the specifications of a City Council in selecting the patented pavement, repugnant to the provision of a statute, or a charter, or an ordinance requiring competitive bidding."
In Burns v. The City of Nashville, 221 S.W. 828 (Tenn.), that court said: *Page 901 
"While there is some conflict of authority upon the question of the right of the officers of a municipality to prescribe a patented material for street paving under a statute or charter requiring competitive bidding, the great weight of the more recent authorities is in favor of such right, where the owner ofthe patent does not himself bid for the contract, but makes an offer to furnish the patented material or mixture for a stipulated price, on equal terms to all bidders." (Quoter's italics.)
In City of Springfield v. Haydon, 288 S.W. 337 (Ky.), a case in which while the question of the right of a patentee to bid was not involved, nevertheless that court used some significant language on the subject, as follows:
"When a certain rock is known to be good, no risk is taken in requiring its use. Competitive bidding must not be destroyed or impaired. But, if there may be free and fair competitive bidding when a certain rock is required, the City Council may, if it thinks best, take no risks and require the use of the known material. In this case the Kentucky Rock Asphalt Company had been getting out rock for a number of years. With this rock a number of streets and roads in this and other states had been built. Thecompany was not in the construction business. It simply got out its rock and sold it upon the market. It had no interest in thebids or in the work. Three responsible bids were made. To hold that there was a substantial denial of competitive bidding here is for the court to shut its eyes to the facts.
"This case is entirely unlike Fineran v. Central Bitulithic Paving Co., 116 Ky. 495, 76 S.W. 415, 25 Ky. Law Rep. 876, 3 Ann. Cas. 741. In that case the company alone made the material of which the street was built. It not only made the material, but it was in the business of constructing streets. It was one of the bidders for the contract, and got the contract to construct the street out of the material which it alone manufactured, and which no other bidder could get except from it. Under suchcircumstances there could reasonably be no real competitivebidding, and the ordinance was therefore held void." (Quoter's italics).
See, also, Johns v. Pendleton, 133 P. 817 (Ore.). *Page 902 
Appellees cite in support of their position the following cases:
LaCoste v. City of New Orleans, 119 La. 469; Litchfield v. City of Bridgeport, 103 Conn. 565; Whitmore, Rauber  Vicinus v. Edgerton, 149 N.Y. Supp. 508.
The theory of the said three cases cited by appellee is, in substance, the patentee, if he becomes a bidder, must, by first paying his royalty to himself, stand upon the same fundamental basis with all contractors in competition, that is to say: he is in competition with all other contractors on the amount of his bid over and above the basic price made to all contractors alike. (In one of these cases, Whitmore, Rauber  Vicinus v. Edgerton, 149 N.Y. Supp. 508, the patentee was not the lowest bidder.) Such a situation would have been impossible under the facts in the case at bar. No contractor could compete with the bid of one cent for doing 28 cents worth of work. What was done in the instant case is eloquently illustrative of the vice of the rule of permitting the patentee to bid. When the patentee is permitted to bid, the law places in his hands, not only a monopoly on the patented article, but, if he chooses to use it, an equally secure monopoly upon the laying of the patented article on the streets. The contract at bar is, on its facts, under the law of Iowa, illegal. I think the case should be reversed.
STEVENS, ALBERT, and KINDIG, JJ., join in this dissent.