Kotschevar v. Township of North Fork

¹ Reported in 39 N.W.2d 107. Plaintiff is a road builder. He was employed by defendant township of North Fork, Stearns county, to construct a five-mile stretch of road. An additional two and one-half miles were added later. The road was constructed by plaintiff and accepted by the town board. The board, because of the objections here presented for decision, was unable to pay the bill in full. Plaintiff brought action and recovered a verdict, reduced by the court to $3,886.39. Defendant appeals from an order denying its alternative motion for judgment or a new trial.

In June 1945, the town board sent for plaintiff and entered into an agreement with him to build the contemplated road. No formalities of any kind, as required by statute, were observed. There were no plans or specifications, no bids, no written contract, and no bond. The town board agreed to pay plaintiff so much per hour for the use of his road-building machinery and operators at varying rates for the different machines and so much per hour for other labor. Other details entered into the arrangement. Property owners along the proposed improvement contributed and paid into the town treasury $1,225 to help pay for same.

Plaintiff commenced construction July 13 and completed the job August 30. The road was built according to the county engineer's specifications. On September 6 plaintiff filed an unverified claim for $11,874.76. On that same day, the town board voted that the roads built were satisfactory and by resolution accepted them. On September 10 it voted to pay plaintiff $3,000 on his account. He received $1,500 in cash and was issued a town order for $1,500, which has not been paid. On December 30, 1946, the board rejected a verified bill submitted by plaintiff on December 6, 1946.

The valuation of all property in the township, real and personal, for 1944, was $253,019. At the annual town meeting held on March 14, 1944, the electors voted a tax levy of $1,500 payable in 1945 for road and bridge purposes, and an additional $5,000 for postwar road work. This latter amount was to be used for the improvement of the road in question. The town clerk reported the levy to the county auditor. It appeared to the county auditor that the amount voted at the annual town meeting would call for a tax levy in excess of 15 mills, the maximum allowed by law for road and bridge purposes in the absence of an emergency. M.S.A. 163.05. So the auditor reduced the total amount to be levied to $3,500 — $1,500 for the road and bridge fund and $2,000 for incidentals. The latter could be used for road and bridge purposes. The total amount which might have been levied under the 15-mill limitation was $3,795.28.

1. The record discloses no fraud or collusion in the transaction, and there is no claim by defendants that any exists. Plaintiff was employed to build the road on an hourly basis. Construction work could have been stopped at any time. The chairman of the town board supervised the work. It was voted satisfactory by the board and by resolution accepted. The plaintiff in all fairness would be entitled to the full amount asked for in any such transaction between man and man. The fact that he was dealing with a township, a public corporation, creates the legal difficulties which he is encountering in attempting to get paid for his work.

The township does not contend that the work done by plaintiff was not reasonably worth the amount claimed or that the township did not benefit to the extent of the claim. The town had the legal power to enter into a contract for the construction of the road, such as was here attempted to be made. The agreement between the town board and plaintiff was therefore ultra vires in the secondary sense only. We are not dealing with a case where ultra vires in the primary sense is involved.

As stated, the township had the power to let a contract to build the township road in question. But in so doing none of the statutory requirements for the letting of such a contract was complied with. The town board by resolution employed plaintiff to do the work, supervised the same, and after its completion by resolution approved and accepted it. Being intra vires, or within the powers of the township, the question arises whether plaintiff in quasi contract may recover the reasonable value of the benefits received by the township. The authorities are in conflict. In many jurisdictions, a distinction is made between mandatory and directory statutory provisions. If the violated provisions are considered mandatory, a majority of the courts deny recovery; if directory only, as a general rule recovery for benefits conferred is allowed. Then a conflict arises as to which provisions are mandatory and which are directory. There is even a split of authority as to whether statutory requirements of competitive bidding are mandatory provisions. Then, the further question arises whether recovery is forbidden by the statutes or constitution of the jurisdiction. If in this state any one of the statutory provisions applicable to the letting of a contract is mandatory and this court should say that a violation of mandatory provisions precludes recovery on a quantum meruit basis, then clearly in this case there could be no recovery by plaintiff, as all statutory provisions were ignored. In 10 N.Y. U. L. Q. Rev. 68, 72, the writer makes this statement:

"A distinction is often made between mandatory and directory provisions in the charter or statute bearing upon the method of making a contract. A mandatory provision is held to be exclusive and no recovery is allowed for violations of it. A recovery is not denied, on the other hand, for departures from directory provisions. The distinction seems obvious and would probably be accepted by all courts where recoveries in contract are concerned, but it certainly does not account forquantum meruit recoveries. The fact in itself that a provision is mandatory bear no relation to a recovery of the reasonable value of benefits received, unless the provision itself can be shown to apply to that kind of action.

* * * * *

"A few states like Minnesota allow a recovery in almost any situation within the general powers of the corporation, * * *."

We need not, however, consider and analyze the holdings of other jurisdictions, as this court has several times passed on similar facts. The question submitted to us is not a stranger in this state. This jurisdiction has probably gone further in permitting recovery for benefits received on a quasi-contractual basis, under situations as here, than any other jurisdiction, and its earlier holdings have been criticized. But as is pointed out in several notes in law journals, there is a definite trend to broadening the application of the quasi-contract remedy against municipal corporations. 16 N.Y. U. L. Q. Rev. 494; 36 Mich. L.Rev. 855-860; 21 Neb. L.Rev. 54. In Minnesota Annotations to Restatement, Restitution, § 62, the Minnesota rule is stated as follows:

"* * * the court has been more liberal perhaps than most courts in allowing quasi contractual recovery. The rule as most recently stated 'is that where a municipal corporation receives money or property of another under and pursuant to a contract upon a subject within its corporate powers, and the contract was made and carried out in good faith and without purpose or intent to violate or evade the law, but is invalid because not entered into or ratified by the officers of the corporation having power to contract, or for some other failure to comply with the statutory requirements, and money or property so received is retained by the corporation and devoted to a legitimate corporate purpose, resulting in benefits to the corporation, the one so furnishing the money or property may recover in quasi contract to the extent of the benefits received by the corporation.' "

In First Nat. Bank v. Village of Goodhue, 120 Minn. 362,139 N.W. 599, 43 L.R.A.(N.S.) 84, the municipality failed to comply with the requirements of statutes made essential to a valid contract, in other words it failed to comply with mandatory provisions, and recovery was had against it as upon an implied contract. In that case, plaintiff bank made two loans to the village. Both of them were illegal and void for the reason that the village council was not authorized to make such a loan of money without first submitting the question to the legal voters for approval, which had not been done. One of the loans was illegal and void for the further reason that the president of the village council was also a managing officer of the plaintiff bank, and was prohibited by law from entering into any contract with the village in which his bank was interested. In doing what he did, he was guilty of a crime. The money received by the village from plaintiff bank was used and expended in the purchase of a site and the erection thereon of a fire and jail building for use of the village. Mr. Chief Justice Brown, writing for the court, said (120 Minn. 366, 139 N.W. 600):

"In this case the money was loaned to the municipality by plaintiff in good faith, it was paid into the village treasury, and subsequently expended for a purpose authorized by law. * * *

"We are unable to assign a good reason for differentiating between the private and the municipal corporations as respects the rule of justice and common honesty. The private corporation in a case of this kind would not be heard to dispute its liability, nor should a public corporation be permitted to do so where, as in the case at bar, there is no question of fraud or collusion, and no concerted purpose between the village officers and plaintiff intentionally to evade or violate the law.

* * * * *

"* * * The foundation of the rule is found in the fact that the municipality has received money or property for a legitimate municipal purpose for which equity and good conscience require payment."

In the earlier case of Village of Pillager v. Hewett,98 Minn. 265, 107 N.W. 815, the village entered into a contract with defendant to build a bridge. The contract was within the power of the village to make, but it was entered into privately and not upon and after advertisements for bids as required by law. The bridge was built and accepted. The village paid defendant $500 in money and delivered to him its bonds for $1,300. The bridge was afterward carried away by a flood, not because of any fault of defendant or anyone else. The village sought to recover the sum of $500 paid to defendant and the village bonds it had delivered to him, upon the ground that the contract for building the bridge was void. Mr. Chief Justice Start in the opinion states (98 Minn. 266, 107 N.W. 816):

"* * * It may be conceded that the defendant could not have maintained an action on the contract to recover the contract price for the bridge, although he had fully performed the contract on his part; * * *. After the acceptance of the bridge it became public property, which from its nature could not be restored to the defendant, and, of necessity, the plaintiff would retain and enjoy the benefits thereof so long as it stood. The defendant in good faith received the money and bonds in payment of the bridge which he had built for the plaintiff. The consideration for such payment was full and fair, and, in equity and good conscience, it ought to have been made by the plaintiff. Such being the case, it would be most inequitable and unconscionable to compel the defendant to return the money and bonds paid to him under the circumstances found by the trial court, and we hold that the plaintiff cannot maintain this action to recover them."

In State ex rel. Morris v. Clark, 116 Minn. 500, 503,134 N.W. 129, 130, 39 L.R.A.(N.S.) 43, a contract for road work for a town was involved. No bond was furnished as required by statute. The work was performed and approved and accepted by the town board. The court in allowing recovery said:

"* * * The statute provides that the contract shall not be valid for any purpose if the bond is not given and approved.

"But conceding that the contract is void, and that it cannot be validated or vitalized, nevertheless it is clear that relator, on full performance of his work and the acceptance thereof by the town, had a moral and legal claim against the town for the reasonable value of his labor and the materials furnished. This is practically conceded by respondent, and is clearly correct under numerous decisions of this court."

In Fargo Foundry Co. v. Village of Callaway, 148 Minn. 273,274, 181 N.W. 584, the contract let by the village for work was void because not let upon competitive bids as required by statute. The contract was one which the village had power to make. This court, in holding that the village should pay the value of what it had received, said:

"The improvement served a municipal purpose and the contract was one that the city had power to make, and, had the essential requirements of the law been complied with, the contract would have been enforceable. In such a situation the village may be compelled to pay the value of what it has received. The express contract disappears from the case. The cause of action arises, not from any contract on the subject, but from the general obligation to do justice which binds all persons, natural and artificial. First Nat. Bank v. Village of Goodhue, 120 Minn. 362,139 N.W. 599, 43 L.R.A.(N.S.) 84. The obligation to pay is measured by the benefit which the village has received."

In Lundin v. Township of Butternut Valley, 172 Minn. 259,214 N.W. 888, involving a contract to build a bridge, there was no compliance with the statute as to plans and specifications or the furnishing of a bond. It was held that there could be no recovery for the reasonable value of the labor and material furnished, as plaintiff offered no evidence to prove that the town had received any benefit therefrom or had appropriated any part to its beneficial use, the bridge upon which same were expended having collapsed before it was finished or accepted by the town. The court said (172 Minn. 262, 214 N.W. 889):

"This is not a case like Laird Norton Yards v. City of Rochester, 117 Minn. 114, 134 N.W. 644, 41 L.R.A.(N.S.) 473, or First Nat. Bank v. Village of Goodhue, 120 Minn. 362,139 N.W. 599, 43 L.R.A.(N.S.) 84. In the first case the defendant had used and had had the benefit of the coal furnished, and in the latter defendant had expended for legitimate purposes the money borrowed without lawful authority, so that in both instances the municipality had benefited to the full amount for which a recovery was permitted. Where a contract is void but both parties have acted in good faith, as here, the law permits a recovery to the extent that the municipality has accepted of and benefited by a plaintiff's labor or material. This is held by the cases cited, and to the same effect is Fargo Foundry Co. v. Village of Callaway, 148 Minn. 273, 181 N.W. 584; Williams v. National Con[tracting] Co. 160 Minn. 293, 199 N.W. 919; Frisch v. City of St. Charles, 167 Minn. 171, 208 N.W. 650. So, under the law, we see no way in which plaintiff may recover of the town either on the contract or for the reasonable value of his work."

In Olsen v. Independent and Consol. School Dist. 175 Minn. 201,204, 220 N.W. 606, 607, we said:

"The defendant could legally make the contract involved had it first been authorized by the voters. As made, it was void because the requirements of the law were not met. The rule of law applicable to such a situation is that the district is obliged to pay for the reasonable value of any benefits which it receives. Williams v. National Contracting Co. 160 Minn. 293,199 N.W. 919. The intended contract was not real. Hence the law substitutes the quasi-contractual obligation." (Citing cases.)

In Wakely v. County of St. Louis, 184 Minn. 613,240 N.W. 103, 84 A.L.R. 920, without authority from the county commissioners, a member thereof purchased clay and sand from plaintiff and used it in improving a county highway. The transaction was invalid, but made in good faith, and without any intention to violate the law. The county benefited by the improvement. The work done and the purchase of material for same were within the powers of the county board. This court held that plaintiff was entitled to recover in quasi contract an amount equal to the benefit that the county received. Three of the justices dissented. Mr. Justice Loring in his dissent to the original majority opinion said (184 Minn. 617,240 N.W. 105):

"* * * Had the board authorized the resurfacing and had its employes taken the clay under an unauthorized or illegal contract with plaintiff, I could agree with the majority; but where the project itself was wholly unauthorized, as here found by the trial court, I can see no basis for the doctrine of quasi contract. The county should not be compelled to pay for benefits which it did not want and did not authorize and which in the nature of things it cannot return."

In the instant case, the town board made the contract with plaintiff, and upon completion of the work approved and accepted it. It was an improvement which the town wanted and which it authorized. It failed to comply with the statutory formalities required for the making of a valid contract.

In Mares v. Janutka, 196 Minn. 87, 264 N.W. 222, taxpayers sought to require defendant to restore to the treasury of the city money received by him from the sale to the city of merchandise while he was a member of the city council, which sale constituted a gross misdemeanor. This court held that liability could be enforced quasi ex contractu, but not beyond the value of such property to the municipality. In the course of the opinion it was stated (196 Minn. 91, 264 N.W. 224):

"Plaintiffs' argument to the effect that permitting recovery here is a roundabout way of upholding an invalid contract, thereby enabling a municipality to do indirectly that which it cannot do directly, is forceful. But that very argument was fully considered in First Nat. Bank v. Village of Goodhue,120 Minn. 362, 366, 139 N.W. 599, 601, 43 L.R.A.(N.S.) 84, * * *."

To the same effect, see Lindgren v. Towns of Algoma and Norland, 187 Minn. 31, 244 N.W. 70; Laird Norton Yards v. City of Rochester, 117 Minn. 114, 134 N.W. 644,41 L.R.A.(N.S.) 473; Frisch v. City of St. Charles, 167 Minn. 171,208 N.W. 650. Other Minnesota cases are State ex rel. St. Paul Gaslight Co. v. McCardy, 62 Minn. 509, 64 N.W. 1133; Farmer v. City of St. Paul, 65 Minn. 176,67 N.W. 990, 33 L.R.A. 199; Kreatz v. St. Cloud School Dist.82 Minn. 516, 85 N.W. 518; Bell v. Kirkland, 102 Minn. 213,113 N.W. 271, 13 L.R.A.(N.S.) 793, 120 A.S.R. 621; White v. City of Chatfield, 116 Minn. 371, 133 N.W. 962; Oliver I. Min. Co. v. Independent School Dist. 155 Minn. 400, 193 N.W. 949; Williams v. National Contracting Co. 160 Minn. 293,199 N.W. 919; Tousley v. Thompson, 166 Minn. 261, 207 N.W. 624. The rule which we follow has been the law of this state for over 40 years, and we fail to see where the interests of the municipalities have been prejudiced or damaged or endangered thereby. By the application of this rule, inequitable and unconscionable results have been avoided. By the application of this rule in the instant case, such result is clearly avoided.

2-3. Although there is no contention that the work performed was not reasonably worth the amount of plaintiff's claim or that the town did not benefit to the extent of the claim, plaintiff is not permitted to recover in full. Section 163.05, which limits the amount a town may raise by taxation for road and bridge purposes, provides:

"The electors of each town shall have power at their annual town meeting to determine the amount of money which shall be raised by taxation for road and bridge purposes, not exceeding 15 mills per dollar on the taxable property of town."

In case of an emergency, an additional five mills may be levied. In view of the statute, the court properly instructed the jury that in no event could plaintiff recover more than the amount which the town was authorized to pay for road and bridge purposes in the year 1945, plus certain items to be hereinafter mentioned. The jury returned a verdict of $3,993.39, which included interest. The court ordered the verdict reduced to $3,886.39 because of too large an allowance for interest.

Under the facts in the case and the law as cited, it is apparent that plaintiff is entitled to recover. Consideration will therefore be given to the question of the amount to which he may legally be permitted to receive. He would not be entitled to recover in excess of certain available funds. As stated, the electors at the annual town meeting of 1944 voted $6,500 for road and bridge purposes, which amount was cut to $3,500 by the county auditor for reasons stated. Therefore, $3,500 is the amount available out of taxes collected in 1945 for such purposes. Under the 15-mill limitation, $3,795.28 could have been levied — $295.28 more than was actually levied. The court permitted the jury to find that plaintiff was entitled to recover the amount which legally could have been levied, that is, $3,795.28, plus $1,225, the amount donated by benefited property owners, plus the amount in the road and bridge fund immediately after the town meeting of March 1945, minus the amount appropriated for other road and bridge purposes, prior to the making of the agreement with plaintiff, and also minus the $1,500 which he had already been paid. There can, of course, be no dispute that the $1,225 paid in was available to plaintiff. The court calculated that, after deducting the amount allocated by the town board for other road and bridge purposes for work done in 1945 after the town meeting, prior to the making of the contract with plaintiff, there remained $121.03 cash on hand in the fund when the contract with plaintiff was entered into. We shall not recite in detail the evidence on which such amount was arrived at. To take such fund into consideration was entirely proper under Evans v. Town of Stanton, 23 Minn. 368; Great Northern Bridge Co. v. Town of Finlayson, 133 Minn. 270, 158 N.W. 392; and Lindgren v. Towns of Algoma and Norland, 187 Minn. 31, 244 N.W. 70.

4. There remains to be considered the question whether the amount levied, namely, $3,500, is the maximum amount which may be taken into consideration in connection with the payment of this claim, or whether the amount which legally could have been levied, namely, $3,795.28, is such amount. Section 365.43 provides:

"No town shall contract debts or make expenditures for any one year exceeding in amount the taxes assessed for such year, unless such debt or expenditure is authorized by the vote of a majority of the electors of such town, and no taxes in excess of the amounts authorized by law shall be levied by any town in any one year."

In this case, the $3,500 levied is the ceiling for such expenditures from taxes in 1945, unless the larger amount was authorized by a vote of the electors at the 1944 meeting. At that meeting, as stated, the electors authorized a tax levy of $1,500 for road and bridge purposes and an additional $5,000 for postwar road work. When they voted the $5,000 they had in mind the road in question. Mr. Engen, chairman of the county board, was asked: "Now, this $5,000.00 that was voted on by the people there was intended to be used to construct this road * * *?" He answered: "Yes, to build a road, yes." Then he was asked: "The road that Mr. Kotschevar built?" This was answered in the affirmative. Thus, it would seem that the electors at the annual meeting in March 1944 authorized an expenditure in excess of the $3,500 later levied, but limited by the 15-mill limitation. We so hold. The court was therefore right when it instructed the jury that plaintiff could not recover more than the town was authorized to pay out for road and bridge purposes in the year 1945, and that a 15-mill tax levy would produce $3,795.28.

The total amount plaintiff was allowed on his claim of $11,874.76, undisputed on its merits, was $5,141.31, plus interest. In our opinion, the court did not err, and the result gives plaintiff partial justice.

Order affirmed.