McMullen v. Hoffman
174 U.S. 639 (1899)

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U.S. Supreme Court

McMullen v. Hoffman, 174 U.S. 639 (1899)

McMullen v. Hoffman

No. 271

Argued April 27-28, 1899

Decided May 22, 1899

174 U.S. 639

Syllabus

The City of Portland, in Oregon, proposing to receive bids for the construction of what was called the Bull Run pipeline, Hoffman of Portland and McMullen of San Francisco entered into a contract in writing as follows:

"This agreement, made and entered into by and between Lee Hoffman, of Portland, Oregon, doing business under the name of Hoffman & Bates, party of the first part, and John McMullen, of San Francisco, California, party of the second part, witnesseth: That, whereas, said Hoffman and Bates have with the assistance of said McMullen at a recent bidding on the work of manufacturing and laying steel pipe from Mount Tabor to the head works of the Bull Run water system for Portland, submitted the lowest bid for said work, and expect to enter into a contract with the water committee of the City of Portland for doing such work, the contract having been awarded to said Hoffman and Bates on said bid, it is now hereby agreed that said Hoffman and said McMullen shall and will share in said contract equally, each to furnish and pay one-half of the expenses of executing the same and each to receive one-half of the profits or bear and pay one-half of the losses which shall result therefrom. And it is further hereby agreed that, if either of the parties hereto shall get a contract for doing or to do any other part of the work let or to be let by said committee for bringing Bull Run water to Portland, the profits and losses thereof shall in the same manner be shared and borne by said parties equally, share and share alike."

Both put in bids for the work which forms the subject of dispute in this case. Hoffman's bid was for $465,722. McMullen's was $514,664. There were several other bids, but Hoffman's was the lowest of all. The contract was awarded to him. He did the work and received the pay. This

Page 174 U. S. 640

action was brought by McMullen to recover his portion of the profit according to the contract. Held that this contract was illegal, not only as tending to lessen competition, but also because the parties had committed a fraud in combining their interests and concealing the same, and in submitting the different bids as if they were bona fide, and that the court will not lend its assistance in any way towards carrying out the terms of an illegal contract, nor will it or any court enforce any alleged rights directly springing from such a contract.

While distinguishing Brooks v. Martin, 2 Wall. 70, from this case, the Court holds that, taking that case into due consideration, it will not extend its authority at all beyond the facts therein stated.

This action was originally brought by the complainant, McMullen, against one Lee Hoffman, and, he having died before the trial, the action was revived against the defendant, Julia E. Hoffman, as the executrix of his will. When the defendant is hereinafter spoken of, the original defendant is intended.

The complainant filed his bill against the defendant seeking an accounting of profits that he alleged had been made by the defendant upon a certain contract for the construction of what is termed the "Bull Run Pipe Line," and which contract was entered into between the City of Portland, in the State of Oregon, and the defendant on or about March 10, 1893. The complainant bases his right to share in the profits of that contract by virtue of another contract in writing between himself and the defendant herein, executed March 6, 1893. That agreement reads as follows:

"This agreement, made and entered into by and between Lee Hoffman, of Portland, Oregon, doing business under the name of Hoffman & Bates, party of the first part, and John McMullen, of San Francisco, California, party of the second part, witnesseth that whereas said Hoffman and Bates have, with the assistance of said McMullen at a recent bidding on the work of manufacturing and laying steel pipe from Mount Tabor to the headworks of the Bull Run water system for Portland, submitted the lowest bid for said work, and expect to enter into a contract with the water committee of the City of Portland for doing such work, the contract having been awarded to said Hoffman and Bates on said bid. "

Page 174 U. S. 641

"It is now hereby agreed that said Hoffman and said McMullen shall and will share in said contract equally, each to furnish and pay one-half of the expenses of executing the same and each to receive one-half of the profits or bear and pay one-half of the losses which shall result therefrom."

"And it is further hereby agreed that if either of the parties hereto shall get a contract for doing or to do any other part of the work let or to be let by said committee for bringing Bull Run water to Portland, the profits and losses thereof shall in the same manner be shared and borne by said parties equally, share and share alike."

"Witness our hands and seals this 6th day of March, A.D. 1893."

"John McMullen [Seal]"

"Lee Hoffman [Seal]"

The contract for manufacturing and laying the steel pipe was awarded to the defendant at a public letting of the whole work at Portland, of which the manufacturing and laying of the pipe was a part, and the whole work was divided into classes, and separate bids called for and received for each class.

The defendant put in bids in the name of Hoffman & Bates for several classes, while the plaintiff, in the name of the San Francisco Bridge Company, of which he was an officer, put in separate bids for the same classes.

The bids of complainant and defendant for the several classes of the work were as follows:

Conduit from head works to Mt. Tabor of wrought iron or steel, making and laying pipe:

Hoffman & Bates . . . . . . . . . . . . . . . $465,722.00

San Francisco Bridge Company. . . . . . . . . 514,664.00

(The profits arising out of this contract are the subject of the controversy herein.)

Head Works:

Hoffman & Bates . . . . . . . . . . . . . . . $ 17,800.00

San Francisco Bridge Company. . . . . . . . . 16,550.00

Page 174 U. S. 642

Bridges:

Hoffman & Bates . . . . . . . . . . . . . . . $ 33,562.94

San Francisco Bridge Company. . . . . . . . . 31,279.07

Also for steel conduit for headworks to Mt. Tabor:

Hoffman & Bates . . . . . . . . . . . . . . . $359,278.00

San Francisco Bridge Company. . . . . . . . . 348,781.00

There were several other bids by different bidders for these various classes. The bid in the name of Hoffman & Bates for the manufacture and laying of the wrought iron or steel pipe from the head works to Mt. Tabor, being $465,722, was the lowest out of eight bids; the various bids from the highest to the lowest being as follows:

The Risdon Iron & Locomotive Works. . . . . . $600,737.00

The Bullon Bridge Company . . . . . . . . . . 533,507.00

Oscar Huber . . . . . . . . . . . . . . . . . 521,775.40

San Francisco Bridge Company. . . . . . . . . 514,664.00

Wolff, Buener & Zwicker . . . . . . . . . . . 495,682.00

Ferry Hinckle & Robert Wakefield. . . . . . . 481,040.00

E. W. Jones & O. W. Wagner. . . . . . . . . . 477,552.00

Hoffman & Bates . . . . . . . . . . . . . . . 465,667.00

All these bids were before the committee on the part of the city, and were taken into consideration at the time the award was made to the defendant. After the acceptance of his bid for the manufacturing and laying of the pipe, the defendant entered into a contract with the City of Portland to do the work mentioned in such bid, and commenced the performance of the contract as provided for therein. The work was duly completed, and the city paid defendant the contract price for the same; retaining the percentage provided for therein as security that the terms of the contract had been fully complied with.

The complainant alleges that defendant, after securing the contract, went on with the work thereunder, but refused to permit him to participate in the profits arising therefrom or to examine the books of the partnership, and that, although he (complainant) furnished some of the capital and performed

Page 174 U. S. 643

some of the services provided for in the contract with the city, and participated in some of the expenses of the execution of the contract, and devoted some of his time and attention to the proper performance thereof, and was at all times ready to do everything required of him by his agreement of partnership, yet that the defendant received all the moneys paid by the city and absolutely refused to account to him for any part thereof, and denied that he had any interest in or right to any portion of such moneys. The complainant therefore asked for an accounting between himself and defendant, as partners, and for a decree for the payment to him of one-half the profits arising from the contract, the whole of which he alleged amounted to $80,000 (the courts below say the evidence shows they were $140,000); that a receiver might be appointed to take charge of the property of the partnership, its records, books, papers, etc., and that the defendant might be restrained during the pendency of the suit from making sale or other disposition of the tools, equipment, or other personal property belonging to the partnership, and from drawing from the City of Portland the moneys withheld by it on account of the contract, as well as any other money due for other work done by the defendant under the contract of partnership.

The answer of the defendant, while denying many of the allegations of the complaint, set up as a special defense the making of an agreement between the parties (of which the partnership agreement was a portion), by the terms of which they were to put in bids for the construction of the work, the complainant in the name of the San Francisco Bridge Company and the defendant in the name of Hoffman & Bates; that the bids should not be in reality competitive, but should be submitted to each other before they were put in, and their terms should be mutually agreed upon, the higher bids to be merely formal, and the bids themselves, as agreed upon, should be delivered to the water committee; that, if either party received the contract, they should both share in the profit or loss resulting from its performance, but that their mutual interest in each other's bids should not be made known when the bids were offered, so that it would appear that they were apparently

Page 174 U. S. 644

competing for the various classes of the work and for furnishing the material, when in fact they were not. This agreement, the defendant alleged, was carried out, and the contract secured by means thereof.

The court, upon motion of the complainant, granted a temporary injunction as prayed for in the bill. Exceptions were taken to certain parts of the answer of the defendant as being insufficient. Material portions of these exceptions were overruled by the court upon the ground that the answer set up an illegal contract between the parties, and one which could not be enforced by either. 69 F. 509.

Upon the final hearing of the case, the same judge, becoming convinced that he had erred in his former decision in overruling the exceptions to the answer, decided that the case, as made on the part of the defendant, showed no defense to the complainant's cause of action, and thereupon he made a decree for an accounting, substantially as asked for in the complainant's bill. 75 F. 547.

An appeal from the decree of the circuit court was taken to the United States Circuit Court of Appeals for the Ninth circuit, and that court held that the contract between the parties was illegal, and that no action could be maintained thereon by either, and the decree in favor of the complainant was therefore reversed. 83 F. 372. Complainant then applied to this Court for a writ of certiorari to review the judgment of the circuit court of appeals, which was granted May 9, 1898. 170 U.S. 705.

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