Gerzof v. Sweeney

• Decision Date: 06 June 1968
• Citation: 239 N.E.2d 521,292 N.Y.S.2d 640,22 N.Y.2d 297
• Parties: , 239 N.E.2d 521, 33 A.L.R.3d 387 Julius M. GERZOF, Appellant-Respondent, v. Robert J. SWEENEY as Mayor of the Incorporated Village of Freeport, et al., Respondents, and Nordberg Manufacturing Co., Respondent-Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 640

292 N.Y.S.2d 640

22 N.Y.2d 297, 239 N.E.2d 521, 33

A.L.R.3d 387

Julius M. GERZOF, Appellant-Respondent, v. Robert J. SWEENEY as Mayor of the Incorporated Village of Freeport, et al., Respondents, and Nordberg Manufacturing Co., Respondent-Appellant.

Court of Appeals of New York.

June 6, 1968.

Julius M. Gerzof, Freeport, in pro. per. and Alan Manning Miller, Massapequa, and Sheldon Honig, Merrick, for Julius M. Gerzof, appellant-respondent.

Edwin J. Freedman, Freeport, for Robert J. Sweeney and others, individually, respondents.

Robert M. Stein, Hempstead, for Robert J. Sweeney, as Mayor, and others as trustees, respondents.

David E. Beckwith, Foley, Sammond & Lardner, Milwaukee, Wis., for respondent-appellant.

FULD, Chief Judge.

On this appeal--the case was previously before us three years ago (16 N.Y.2d 206, 264 N.Y.S.2d 376, 211 N.E.2d 826)--we are concerned only with the question of remedies. However, to place the issues in proper perspective, it will be helpful to summarize the facts established not only by the present record but by the earlier one as well.

The Village of Freeport having decided, in 1960, through its regularly authorized officials that there was a need to supplement its power plant by the acquisition of a 3,500 kilowatt generator, advertised for bids for the purchase and installation of such an engine. In early 1961, two bids were received, one from Enterprise Engineering Co. and the other from Nordberg Manufacturing Co. Enterprise's bid was $615,685, while Nordberg's, higher by some $58,000, was $673,840. The Village Water and Light Commission (the agency which initially passed on the matter), following the recommendation of its engineer, urged the Board of Trustees to accept Enterprise's lower bid. However, before further action was taken, a new Mayor and two new trustees were elected and, upon the request of the former, the matter was deferred.

When, a short time later, the reconstituted Board of Trustees meet, it summarily dismissed the members of the Water and Light Commission, accepted Nordberg's higher bid and awarded the contract to that company. ¹ Enterprise thereupon brought suit to rescind the award and succeeded in having the contract set aside. Then, despite the court's direction that it 'award the contract as provided by law', the Board of Trustees arranged, over the objection of a majority of the Water and Light Commission, of the drawing up of new specifications for a larger generator of 5,000 kilowatts. These specifications, as we noted in our earlier opinion (16 N.Y.2d, at pp. 210, 212, 264 N.Y.S.2d at pp. 380, 381, 211 N.E.2d at pp. 828--829), were prepared 'with the active assistance of a representative of the defendant Nordberg' and were 'so slanted as to make impossible a bid on the second contract by any other manufacturer.'

As had been anticipated, Nordberg was the only bidder. Its bid, of $757,625, was accepted and it was awarded the contract.

These were substantially the facts which led us to hold in 1965 that there was such 'unlawful manipulation' in preparing and submitting the specifications as to render the contract illegal (16 N.Y.2d, at p. 209, 264 N.Y.S.2d at p. 379, 211 N.E.2d at p. 827). We remitted the case for rendition of a judgment in favor of the plaintiff. The trial court, after a hearing, held that the Village should retain the generator, which was installed and in full operation, and should, in addition, recover from Nordberg the purchase price of $757,625 which it had paid. In reaching this conclusion, the court declared that the defendants, before 'final determination of litigation and with full knowledge of the possible consequences of an ultimate reversal * * * elected to proceed under the contract, make the installation and make payment.' And, the opinion continued, '(a)s a result of this perseverance in the face of uncertain consequences the Village now * * * is in the intolerable position of being faced with the payment of positions' (52 Misc.2d at p. were the Court to make an attempt to restore the parties to their original positions' (52 Misc.2d at p. 507, 276 N.Y.S.2d 485, at p. 488). The judgment rendered also directed that the defendant Nordberg and the individual defendants, the Mayor and the trustees, pay counsel fees of $25,000.

On cross appeals by all parties, the Appellate Division, 29 A.D.2d 646, 286 N.Y.S.2d 541, modified the judgment by providing that, while Nordberg was to pay back the purchase price of the generator, it could retake the machine upon posting a bond of $350,000 to secure the Village against any damages stemming from the removal and replacement of the equipment. In addition, the Appellate Division absolved the individual defendants of personal liability for payment of counsel fees, directing that the sum fixed (by Special Term) be awarded the plaintiff out of the fund to be paid to the Village by Nordberg.

Both the plaintiff and the defendant Nordberg have appealed to us from the Appellate Division's order of modification.

We have not previously been called upon to fashion a remedy appropriate to a case such as this, where an illegal and void contract for public work, entered into in defiance of the competitive bidding statute (General Municipal Law, Consol.Laws, c. 24, § 103) has been performed in full on both sides. We have, however, dealt with the situation, one step removed in which the municipality has consumed or had the full benefit of illegally purchased goods or services but the vendor or supplier has not been paid. We have repeatedly refused, in such cases, to allow the sellers to recover payment either for the price agreed upon or in quasicontract. One of our salient purposes in adopting this rule has been to deter violation of statutes governing the spending of public moneys for goods and services. The restrictions imposed by such legislation, we recognized, are designed as a safeguard against the extravagance or corruption of officials as well as against their collusion with vendors. If we were to sanction payment of the fair and reasonable value of items sold in contravention of the bidding requirements, the vendor, having little to lose, would be encouraged to risk evasion of the statute; by the same token, if public officials were free to make such payments, the way would be open to them to accomplish by indirection what they are forbidden to do directly. (See, e.g., Albany Supply & Equip. Co. v. City of Cohoes, 18 N.Y.2d 968, 278 N.Y.S.2d 207, 224 N.E.2d 716, affg. 25 A.D.2d 700, 268 N.Y.S.2d 42; Seif v. City of Long Beach, 286 N.Y. 382, 387--388, 36 N.E.2d 630; People ex rel. Coughlin v. Gleason, 121 N.Y. 631, 717, 25 N.E. 4; Dickinson v. City of Poughkeepsie, 75 N.Y. 65, 74--75; McDonald v. Mayor, etc., 68 N.Y. 23, 28; Lutzken v. City of Rochester, 7 A.D.2d 498, 184 N.Y.S.2d 483; cf. Jered Contr. Corp. v. New York City Tr. Auth., 22 N.Y.2d 187, 292 N.Y.S.2d 98, 239 N.E.2d 197.) ²

There should, logically, be no difference in ultimate consequence between the case where a vendor has been paid under an illegal contract and the one in which payment has not yet been made. If, in the latter case, he is denied payment, he should, in the former, be required to return the payment unlawfully received--and he should not be excused from making this refund simply because it is impossible or intolerably difficult for the municipality to restore the illegally purchased goods or services to the vendor. In neither case can the usual concern of equity to prevent injust enrichment be allowed to overcome and extinguish the special safeguards which the Legislature has provided for the public treasury. Although this court has not had occasion to pass on the question, appellate courts of at least two other states have so decided, holding that the vendor must pay back the amount received from the purchaser even though the items sold are not capable of being returned (see County of Shasta v. Moody, 90 Cal.App. 519, 523--524, 265 P. 1032; McKay v. Town of Lowell, 41 Ind.App. 627, 638, 84 N.E. 778), ³ and we strongly favor this view. Only thus can the practical effectiveness and vigor of the bidding statutes be maintained. ⁴

There was, therefore, justification--and precedent--for Special Term's decision directing Nordberg to repay the full purchase price of $757,625 and allowing the Village to retain the machinery which had been installed and was in operation. We conclude, nevertheless, though the patently illegal conduct of the defendants entitles them to little consideration, that the amount to be awarded should be less than that. We may adopt this course, in the unusual circumstances of the present case, without disturbing the salutary rationale and policy underlying such decisions as Albany Supply & Equip. Co. v. City of Cohoes, 18 N.Y.2d 968, 278 N.Y.S.2d 207, 224 N.E.2d 716, affg. 25 A.D.2d 700, 268 N.Y.S.2d 42, supra. The sheer magnitude of the forfeiture that would be suffered by the defendant Nordberg, as well as the corresponding enrichment that would enure to the Village of Freeport, under Special Term's determination adds an element to this case not to be found in any of those in which the principles we have been discussing have been applied.

Ordinarily, the application of the law to particular cases may not, of course, vary with the sums involved. But we must recognize that the rule with which we are concerned has unique aspects that make it appropriate for us to take into account the severity of its impact in cases as extreme as the present one. The purposes of our competitive bidding statutes may be fully vindicated here without our rendering so Draconian a decree as to subject the defendant Nordberg to a judgment for over three quarters of a million dollars. Justice demands that even the burdens and penalties resulting from disregard of the law be not so disproportionately heavy as to offend conscience. This, more than likely, was the reason for the ...