Layne Minnesota Co. v. Town of Stuntz

• Decision Date: 22 July 1977
• Docket Number: No. 46703,46703
• Citation: 257 N.W.2d 295
• Parties: LAYNE MINNESOTA COMPANY, Appellant, v. TOWN OF STUNTZ, Respondent.
• Court: Minnesota Supreme Court

Page 295

257 N.W.2d 295

LAYNE MINNESOTA COMPANY, Appellant, v. TOWN OF STUNTZ, Respondent.

No. 46703.

Supreme Court of Minnesota.

July 22, 1977.

Syllabus by the Court

1. Since the contract for the drilling of a well between Layne Minnesota Company and the town of Stuntz was not let pursuant to the mandatory competitive-bidding requirement of Minn.St. 365.37, the contract is void and unenforceable.

2. While Minnesota has adopted the rule that contractors may recover to the extent of the benefit received by the municipality even though the contract is otherwise void and unenforceable, the municipality did not benefit in this case because no water was ever obtained through the drilling efforts of Layne.

3. The trial court properly concluded that the partial progress payment made by Stuntz to Layne, in the absence of fraud or collusion on the part of Layne, need not be repaid to Stuntz.

Carlsen, Greiner & Law and John E. Rode, Minneapolis, for appellant.

Clarence H. Kleffman, Hibbing, for respondent.

Heard before PETERSON, MacLAUGHLIN, and SCOTT, JJ., and considered and decided by the court en banc.

MacLAUGHLIN, Justice.

This is an action brought by plaintiff, Layne Minnesota Company (Layne), for the balance owed on a contract for drilling a water supply well for the town of Stuntz (Stuntz), a municipal corporation in St. Louis County. Stuntz counterclaimed to recover a partial progress payment made to Layne during the performance of the contract. The trial court found the contract void for failure to comply with the applicable competitive-bidding statute and denied recovery to both parties. Layne appealed from the judgment and Stuntz sought review of the dismissal of its counterclaim. We affirm.

The essential facts are not disputed by the parties. For 25 years iron mining companies had supplied water to Kelly Lake, located within the municipal boundaries of Stuntz, as part of the operation of open pit mines in the area. The natural flow of water into Kelly Lake was disrupted by these mining operations and, when the mining companies ceased production and removed their pumps in 1969, the level of the lake declined, resulting in stagnant water and insufficient overflow from the lake into a creek which carried effluent downstream from the town sewage plant.

Stuntz brought a lawsuit in 1969 against the mining companies and received a settlement to be used for drilling a well to supply water to Kelly Lake. Shortly thereafter, Stuntz hired Robert R. Wallace, a member of a Hibbing firm of consulting engineers, to prepare a preliminary study of lake levels and to develop plans and specifications for a new well to supply water to the lake. At a special meeting on April 10, 1970, the Town Board of Stuntz (board) declared an emergency with respect to Kelly Lake. The board authorized Wallace to supervise the construction of a sheet-piling dam at the outlet of the lake and called for bids for the construction of a water supply well in accordance with the plans and specifications which Wallace had prepared.

After advertising for bids, Stuntz entered into a contract on May 4, 1970, with the sole bidder, Mead Well Drilling Co., Inc. (Mead), for drilling a test well, an observation well, and a 150-foot water-supply well, to be constructed in an area selected by Wallace. The Mead contract called for completion of the work within 45 days, at a cost to be computed on a unit-price basis. In the event of Mead's default, Stuntz had the right to terminate the Mead contract and to complete the work by reletting the contract, with additional costs to be paid by Mead or its bonding company.

On September 2, 1970, after the board became dissatisfied with Mead's progress in drilling the water-supply well, it adopted a resolution that Mead be given 5 days notice, pursuant to the contract, to complete its performance or be terminated for default. Mead was given the requisite notice but after the 5 days had expired, the board failed to serve timely notice on Mead's bonding company as required by the contract. In October, notice to Mead was given once again and subsequently, notice to the bonding company was made in timely fashion. However, the bonding company refused to take over and complete Mead's contract.

Throughout the fall, Stuntz continued to negotiate with Mead as to possible terms and conditions upon which Mead would be reinstated and permitted to continue the work but these negotiations were unsuccessful and were discontinued on December 29, 1970. In January 1971, Stuntz commenced an action against Mead and the bonding company for breach of contract, and Mead counterclaimed for the alleged balance due under the contract for services already rendered. On April 6, 1972, Stuntz agreed to dismiss the action against Mead with prejudice and stipulated that judgment be entered against Stuntz on Mead's counterclaim for $16,784.50.

In the meantime, in September 1970, Wallace telephoned Richard Netz, a sales representative of Layne, which specializes in municipal well drilling and development, and asked Netz to come to Hibbing to discuss the completion of Mead's work. Shortly thereafter Netz met with Wallace and inspected the Mead well site. Wallace told Netz that a notice of termination had been sent to Mead and explained that the Mead contract provided for a change in contractors in event of Mead's default.

At a special meeting of the board on February 13, 1971, after the lawsuit against Mead had been commenced, the following motion was adopted:

"Moved by Supervisor Chamernick, that based upon all of the files and records and correspondence relative to the Kelly Lake Water Well, and upon the recommendation of the project engineer, Robert R. Wallace and Associates, Inc., that said engineer be instructed to obtain the services of a competent contractor to perform the contract according to the specifications as set out in the contract between the Town of Stuntz and Mead Well Drilling Company, Inc., dated May 4, 1970."

Pursuant to this motion, Wallace called Netz, asking that Layne take over the construction of the water-supply well since the Mead contract had been terminated and Stuntz was suing to recover from Mead's bonding company. Netz agreed but told Wallace that Layne could do the work only on a time-and-materials basis. Netz returned to Hibbing a few days later, and drew up a one-page handwritten contract for the construction of a water-supply well which was signed on February 18, 1971, by Netz on behalf of Layne and by Peter Terzich, chairman of the board.

On March 1, 1971, Layne sent men and equipment to the site and began to drill a new well about 50 feet from the holes left by Mead. Testimony was offered that Layne chose to drill a new well because of the unreliability of Mead's drilling records and to avoid interference with Mead's work and materials in light of the pending litigation between Mead and Stuntz.

By early April, Layne had reached a depth of 200 feet without finding water. Wallace directed Layne to continue drilling deeper and by the end of April, Layne had reached the taconite level at 334 feet. After extensive efforts to obtain water from the slaty material between 274 and 334 feet had failed, Wallace ordered Layne to drill into the taconite below. Layne needed special equipment and subcontracted with Anderson Well Drilling of Duluth which had a special air rotary drill for this purpose. After Anderson had drilled to a depth of 700 feet without reaching water, Wallace and the board decided to terminate Layne's efforts and Layne moved out of the site on August 17, 1971. ¹

On May 31, 1971, during the performance of the contract, Stuntz had made a partial progress payment to Layne of $19,637.56 pursuant to an invoice for work completed through April 29, 1971. However, Stuntz refused to pay Layne for the balance of its work and in September 1972 Layne brought this action against Stuntz. Stuntz denied liability on the basis that the contract had been let without advertising for competitive bids pursuant to Minn.St. 365.37, ² and was thus void and of no effect. Stuntz counterclaimed to recover the $19,637.56 already paid to Layne on the first invoice.

The trial court found that the minutes of the board contained no declaration of an emergency nor was there an emergency in fact to allow for a waiver of the competitive-bidding statute, and that the "force" provision in the Mead contract was not applicable and did not serve to waive the statutory requirement. Therefore, the trial court concluded that the Layne contract was void and unenforceable. Further, since no water had been found, Layne had conferred no benefit on Stuntz and could not recover in quasi-contract even though the unpaid value of the services and materials furnished was $28,551.79. The trial court also denied recovery to Stuntz of the $19,637.56 paid to Layne during its performance.

Three issues have been raised on appeal: (1) Whether the Layne contract was excepted from the competitive-bidding requirement set forth in Minn.St. 365.37; (2) whether Layne should have been allowed to recover for the services and materials furnished to Stuntz under a theory of quasi-contract; and (3) whether Stuntz should have been granted recovery of the amount paid to Layne during the course of Layne's performance.

1. Although the trial court found the Layne contract had been ratified by the subsequent acts of the board, despite the board's failure to authorize it in the first instance, ³ the trial court determined that the contract was void since it had been let without advertising for competitive bids pursuant to Minn.St. 365.37.

Layne argues that the competitive-bidding requirement was not applicable to its contract with Stuntz for the following reasons: (a) Layne was the only contractor available with the requisite skill to perform the work; (b) Stuntz had entered into the contract with Layne to complete the Mead contract; and (c) there was a ...