Court Opinion

ID: 6568539
Source: CourtListenerOpinion
Date Created: 2022-07-20 19:21:55.607115+00
Date Added: 2024-06-11T15:56:49.704112
License: Public Domain

ROSS, Circuit Judge
(dissenting).
This is a suit in equity brought upon a written instrument which is 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. 78136 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 the purpose of operating the said mail routes, or either of them, should the said contracts be obtained, and *329are 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 purpose, and to obtain the bond required in the 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 same 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. (15%) 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 the party of the second part and delivered to the party of the first part, or his representative *330or 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. [Seal.]
“[Signed] John Hegness. [Seal.]
“Signed, sealed, and delivered in the presence of:
“[Signed] William A. Gilmore.
“[Signed] Mabel Searl.”
The bill alleges, among other things, that thereafter the complainant and the defendant obtained, in the name of the defendant, the United States mail contract for carrying the mail between the points named, for a period of four.years, for the sum of $16,000 a year; that the contract was secured under the terms of the said agreement through the efforts of the complainant, and without any aid or assistance from the defendant, and that the complainant furnished the bond required by the government, and advanced the money necessary to enable the complainant and defendant to comply with the terms of the said contract throughout its term; that immediately after the contract was obtained the complainant and defendant agreed that the Pacific Cold Storage Company, a corporation doing business at Nome, Alaska, should act as the agent and treasurer of the complainant and defendant, and as their auditor, and should receive all warrants from the government, to be properly indorsed by the defendant, and should pay all of the bills against the alleged copartnership, and render an accounting to the complainant and defendant at the end of each mail season in accordance with the terms of the alleged agreement; that thereafter the defendant took charge of the delivery of .the mails under the contract, and in addition to carrying the regular amount of mail imposed by the weight limit of the said mail contract, the defendant, using the carriers, teams, equipment, and credit of the alleged copartnership, carried excess mail amounting to several thousand dollars, for which he refuses to account; that in or about the month of June, 1913, the defendant, in violation of the alleged agreement, indorsed one of the warrants issued by the government in the sum of $3,406.11, and instead of depositing the same with the *331Pacific Cold Storage Company, cashed it at a bank in Nome, and from the proceeds thereof took the sum of $1,-800, and subsequently, and in the month of May, 1914, drew from the Pacific Cold Storage Company $600, claiming that amount to be due him, in violation of the alleged agreement; that the said mail contract had been completed, and that there remained due from the government to the alleged copartnership for services rendered during the then past year $9,551.55, besides a large amount for carrying excess mail during that year, all of which would soon be paid by the government in warrants made payable to the order of the defendant; that the alleged copartnership re-' mained indebted to the Pacific Cold Storage Company in about the sum of $8,500, for advances made by it during the then past year, and that the defendant had admitted taking $2,400 during that year in excess of what was due him under the terms of the alleged agreement, and threatened to appropriate to his own use all warrants received from the government for excess mail carried during the four year term, and otherwise violated the terms of the alleged copartnership, and is wholly insolvent and unable to respond to any judgment that the complainant might recover against him. The prayer of the bill was for an accounting, and for a restraining order and injunction, and such other relief as might be proper.
A demurrer to the bill was overruled by the court below, after which the defendant filed an answer thereto, in which, while admitting the execution, set up the invalidity, of the alleged agreement between him and the complainant upon various grounds therein stated, and, among other things, alleged therein that before and at the time of the making of the alleged agreement between the complainant and the defendant the former was negotiating with one Chester, who was a man of means, and represented to the latter that he (complainant) — “was in favor of bidding for such contract to carry the mails aforesaid under contract with said plaintiff, or said Chester, or both, then and there knowing that defendant would also be a bidder for such contract ; that defendant had no knowledge of said negotiations of plaintiff and said Chester at the time of making said pretended agreement with plaintiff; that plaintiff at all times before entering into said agreement, to wit, said paper *332writing set forth in the complaint, enjoined the defendant and demanded of him absolute secrecy in regard to their negotiations, and failed and neglected to inform the said Chester of the negotiations pending between himself and defendant, intending then and there to cause said Chester to neglect bidding for said mail contract and for the purpose of stifling the bids for said contract and preventing competition in the bidding therefor; that by reason of the premises the said H. S. Chester and said plaintiff, so defendant is informed and believes, did in fact neglect to bid for said mail contract or contracts, and the bidding for said contract was thereby in fact stifled, and the government of the United States was thereby in fact deprived of competition in the bidding for said contracts to carry mail, and prevented from knowing that a stranger to the contract, to wit, said plaintiff, was also interested in said mail contract awarded to the defendant.”
The answer contained various other allegations, admissions, and denials. On the filing of the bill, together with an affidavit of the complainant’s attorney, the court made an order directing the defendant to show cause why a restraining order should not be granted, and' subsequently granted an injunction pendente lite, and thereafter, on motion of. the complainant, made an order appointing a receiver in the cause, from which orders the present appeals are takén.
I am unable to take the view of the agreement upon which the suit is based that was taken by the court below and that is taken by the majority of this court; It is declared by statute that: “All contracts for carrying the mail shall be in the name of the United States, and shall be awarded to the lowest bidder tendering sufficient guarantees for faithful performance,” etc. R.S. § 3949 (39 U.S.C.A. § 429).
And section 3963 of the same statutes (39 U.S.C.A. § 444) reads as follows: “No contractor for transporting the mail within or between the United States and any foreign country shall assign or transfer his contract, and all such assignments or transfers shall, be null and void.”
There may be nothing in the statutes nor in public policy which would have prevented the complainant and the defendant from forming a partnership and openly making á joint bid for carrying the mail. In McMullen v. Hoff*333man, 174 U.S. 639, 652, 19 S.Ct. 839, 844, 43 L.Ed. 1117, the Supreme Court quoted with approval this from the opinion of Judge Folger in Atcheson v. Mallon, 43 N.Y. 147, 151, 3 Am.Rep. 678: “But a joint proposal, the result of honest co-operation, though it might prevent the rivalry of the parties, and thus lessen competition, is not an act forbidden by public policy. Joint adventures are allowed. They are public and avowed, and not secret. The risk, as well as the profit, is joint, and openly assumed. The public may obtain at least the benefit of the joint responsibility, and of the joint ability to do the service. The public agents know, then, all that there is in the transaction, and can more justly estimate the motives of the bidders, and weigh the merits of the bid.”
And the Supreme Court added: “We have here nothing to do with a combination of interest which is open and avowed, which appears upon the face of the bid and which is therefore known to all. Such a combination is frequently proper,, if not essential, and, where no concealment is practiced and the fact is known, there may be no ground whatever for judging it to be in any manner improper.”
In the case in hand, however, there was nothing open and aboveboard in the dealings with the government, but, on the contrary, there was concealed from it the fact, appearing upon the very face of the bill in the present suit, that the bid for carrying the mails, while made in the name of Hegness, was in truth made mainly in the interest of one who was to receive 85 per cent, of the net profits of the undertaking, and who had agreed “to advance all necessary funds needed” for the procuring of the contract or contracts, 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,” as well as to furnish the required bond to the government.
It is, in my opinion, wholly unimportant whether the agreement entered into between the complainant and the defendant was or was not detrimental to the government. If its natural tendency was to injuriously affect the public interests, it was against public policy and void. That is the well-established law. The case of Hoffman v. McMullen, 83 F. 372, 28 C.C.A. 178, 45 L.R.A. 410, in this *334court — afterwards affirmed by the Supreme Court, 174 U.S. 639, 19 S.Ct. 839, 43 L.Ed. 1117 — was in principle quite similar to this. There the city of Portland, through its water committee, having advertised for bids for the construction of a pipe line, Hoffman and McMullen entered into an agreement by which Hoffman put in a bid for the work in the name of Hoffman & Bates, and McMullen put in a higher one in the name of the San Francisco Bridge Company. The contract having been awarded to Hoffman & Bates, that firm and McMullen entered into a partnership agreement by which each party to it should pay one-half of the cost of executing the contract and receive one-half of the profits or bear one-half of the loss resulting, therefrom. The contract having proved profitable, Hoffman refused to account to McMullen for any part of the profits, and in the suit brought by the latter against the former therefor the agreement was held by this court, as well as by the Supreme Court, against public policy and absolutely void. A large number of authorities were cited by both courts in that case, and it is useless to again cite them here.
It is true that in the present case only one bid was made, while there two actually fraudulent bids were submitted. Here, however, the direct tendency of the agreement and of the actions of the parties was to prevent competitive bids, and to thus injure the interests of the government, besides which there was a concealment and fraud practiced upon it in misrepresenting the actual bidder and in evading and violating the statutory provisions of the government, ’ if not its postal regulations, which have the force and effect of law. Moreover, the provisions in the agreement of these parties that Chilberg, in the event the bid made in the name of Hegness should be accepted, was to furnish the necessary bond, “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,” was to receive 85 per cent, of the net profits resulting therefrom, and was “to advance all necessary funds needed” for procuring the contract or contracts, are very significant and suspicious. I find it difficult to understand how any funds should be needed to procure a contract which the law expressly re*335quires shall be let to the lowest bidder, beyond the trifling cost of putting in the bid. In my opinion the case is one which a court of equity should not entertain, and, accordingly, that the orders appealed from should be reversed, and the court below directed to sustain the demurrer to the bill and dismiss the suit, at the cost of the complainant. See Tornanses v. Melsing et al., 109 F. 710, 47 C.C.A. 596.