McMullen v. Hoffman

2,204
Decided Circuit Court, D. Oregon
Disposition
reversed
full scope · unanimous
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Court
Circuit Court, D. Oregon
Decided
Judge
BELLINGER, District Judge
Posture
Suit in equity for accounting of profits
Plaintiff (1)
John McMullen
L. I!. Cox, H. Percy Wright
v.
Defendant (1)
Lee Hoffman
Rufus Mallory

Overview

The court reversed its prior ruling and held that McMullen is entitled to an accounting for his share of profits. Hoffman's defense based on immoral means and fraud fails, and Hoffman is allowed $1,000 per month salary in the accounting. The case is remanded for further proceedings consistent with this opinion.

Case summary

John McMullen sued Lee Hoffman for an accounting of profits from a joint contract to construct a water pipe line for Portland. The parties had agreed to bid jointly under the name Hoffman & Bates, while McMullen also made a separate, higher bid not seriously intended. The contract was awarded to Hoffman & Bates, yielding nearly $140,000 in profits. Hoffman refused to account, arguing the agreement was immoral and lessened competition, and that McMullen failed to contribute capital. The court reversed its earlier view, holding that immoral means do not bar profit-sharing between joint owners, as distributing profits does not violate public policy. It found no evidence the second bid influenced the award, so any attempted fraud was unsuccessful. The court also upheld Hoffman's entitlement to $1,000 monthly salary due to his bearing the entire financial and supervisory burden after McMullen's failure to contribute.

Abstract

Parties agreed to jointly bid on a water pipeline construction contract under a shared name, with one party also submitting a separate higher bid. After the joint bid won and generated significant profits, the non-contributing party sought an accounting, which the defendant resisted claiming immorality, reduced competition, and lack of capital contribution. The court held that immoral means do not bar profit-sharing among joint owners, found no evidence the second bid affected the award, and allowed the defendant a monthly salary deduction for bearing the financial and supervisory burdens, remanding for accounting proceedings.

Opinion of the court

Majority
opinion
BELLINGER, District Judge
  • Immoral means to obtain a contract do not bar accounting between joint owners
  • No obligation to disclose private cost estimates to the city
  • Unsuccessful fraud does not affect profit-sharing rights
  • Hoffman entitled to salary due to McMullen's failure to contribute

Jurisdiction

not challenged
Subject matter
Equity suit for accounting of profits from a joint contract
Jurisdictional facts
  • Suit filed in Circuit Court, D. Oregon
  • Involves construction contract with city of Portland

Procedural posture

Posture at trial
Suit in equity for accounting of profits
Posture on appeal
Direct appeal from trial court decision
Preserved issues
  • Whether immoral means to obtain contract bars accounting
  • Whether second bid constituted fraud
  • Amount of salary for Hoffman's services

Legal categories

Business

Case record

Full case name
McMULLEN v. HOFFMAN
Docket number
2,204
Court
Circuit Court, D. Oregon
Trial court
Circuit Court, D. Oregon
Trial court judge
BELLINGER, District Judge
Decided
Opinion author
BELLINGER, District Judge
Opinion type
published
Precedential status
precedential
Judges on panel
BELLINGER, District Judge

Issues & holdings

3
Issues raised
1
reversed
2
affirmed
4
Holdings
Standard of review

de novo

Disposition rationale

Court held that distribution of profits between joint owners does not violate public policy, distinguishing from cases involving enforcement of illegal agreements

Preservation

Issue preserved for review

Standard of review

clearly erroneous

Disposition rationale

No evidence that the second bid influenced the committee; attempted fraud was unsuccessful

Preservation

Issue preserved for review

Standard of review

abuse of discretion

Disposition rationale

Hoffman bore entire burden and responsibility; salary is justified

Preservation

Issue preserved for review

Holdings of the court

Effect of immoral means on profit sharing
Immoral means to obtain a joint contract do not bar one party from suing the other for a share of profits
Distribution of profits between joint owners does not violate public policy; differs from enforcing illegal agreements or paying for prohibited services
unanimousbinding precedent
Obligation to disclose cost estimates
A bidder is not obligated to give the city the benefit of knowledge acquired at his own expense, even if unavailable to the city
No moral duty to lower bid based on private engineering estimates
unanimousbinding precedent
Fraudulent second bid
An unsuccessful attempted fraud does not bar accounting for profits
No evidence the second bid influenced the award; city engineer's estimate was higher, and there were higher bids
unanimousbinding precedent
Contractor's salary in accounting
Hoffman is entitled to $1,000 per month salary given his full burden and McMullen's failure to contribute
Hoffman bore all financial responsibility and supervision; McMullen's failure justified the salary
unanimousbinding precedent

Error analysis

  • Earlier ruling that agreement was unenforceable as against public policy — procedural · error foundError corrected in current opinion; does not affect outcome · harmless

Burden of proof

Prosecution burden
Not applicable
Defence burden
Hoffman had burden to show fraud or immorality bars accounting
Burden met
false

Standards of review

  • Interpretation of public policy and contract enforceability — de novo Legal question of whether immoral means bars accounting reviewed de novo
  • Factual finding on fraud influence — clearly erroneous Trial court's factual determination on whether bid influenced award reviewed for clear error
  • Award of salary compensation — abuse of discretion Trial court's discretion in accounting matters reviewed for abuse

Timeline

5
Events
After award — Prior to suit
Span
After awardfactual eventcited in opinion

Contract awarded to Hoffman & Bates; written agreement entered for joint execution between McMullen and Hoffman

Outcome: Contract awarded at $405,667

Formalized joint venture

John McMullen · Lee Hoffman · City water committee
Before biddingfactual eventcited in opinion

McMullen and Hoffman agreed to bid jointly for the pipe line contract, with McMullen coming from San Francisco for this purpose

Established joint intent rather than competition

Whether agreement lessened competition
John McMullen · Lee Hoffman
Bidding periodfactual eventcited in opinion

Hoffman bid in name of Hoffman & Bates; McMullen made separate higher bid in name of San Francisco Bridge Company, not seriously intended

Raised issue of potential fraud

Whether second bid constituted fraud
John McMullen · Lee Hoffman · City water committee Portland, Oregon
During constructionfactual eventcited in opinion

McMullen failed to contribute capital despite Hoffman's appeals; Hoffman bore all financial responsibility and supervision

Basis for Hoffman's salary claim and potential abandonment

Amount of salary for Hoffman's services
John McMullen · Lee Hoffman
Prior to suitprocedural eventcited in opinion

Earlier ruling on exceptions to answer (69 Fed. 509) held the agreement unenforceable as against public policy

Outcome: Ruling against enforceability

Initial legal position reversed in current opinion

Whether immoral means bars accounting
trial court

Facts & evidence

Incident

Location
Portland, Oregon

Key facts

7 facts
  1. City of Portland advertised bids for construction of a water pipe line
  2. McMullen and Hoffman agreed to bid jointly in the name of 'Hoffman & Bates'
  3. McMullen, with Hoffman's knowledge, made a separate higher bid in the name of San Francisco Bridge Company, not seriously intended
  4. Contract awarded to Hoffman & Bates at $405,667
  5. Profits from contract amounted to nearly $140,000
  6. Hoffman refused to account to McMullen for profits, citing immoral means and McMullen's failure to contribute capital
  7. McMullen failed to provide his share of capital; Hoffman bore entire financial burden and supervision

Disputed questions

  • Whether the second bid influenced the award
  • Whether the agreement lessened competition
  • Appropriate compensation for Hoffman's services

Procedural history

3 steps
  1. Suit filed by McMullen for accounting
  2. Earlier ruling on exceptions to answer (69 Fed. 509) held agreement unenforceable as against public policy
  3. Current opinion reverses that earlier view

Evidence in the record

Direct
  • Written agreement for joint execution of contract
  • Testimony of Hoffman regarding McMullen's influence on bid amount
Testimonial
  • Chairman of water committee testified second bid had no influence
  • Hoffman's statements to witnesses about McMullen's impact on bid
Documentary
  • City engineer's estimate of cost
  • Bid amounts from various contractors
Circumstantial
  • Second bid was $49,000 higher, suggesting lack of serious intent
  • McMullen's failure to provide capital despite appeals
Expert
  • Expert name: McMullen's engineer in New York · Expertise: Engineering · Opinion: Estimated cost at $416,088 with $80,500 profit
  • Expert name: Hoffman's engineer at Portland · Expertise: Engineering · Opinion: Estimated cost at $420,000
Challenged
  • Evidence type: Second bid by San Francisco Bridge Company · Challenge basis: fraud · Trial court ruling: admitted · Reasoning: No evidence it influenced award; attempted fraud unsuccessful · Challenged on appeal: true · Appellate outcome: affirmed

Objects of relevance

Water pipe line for city supplyEngineering estimates documents

Policy considerations

  • Public policy against enforcing illegal agreements
  • Promotion of fair competition in public bidding
  • Moral obligations in joint ventures

Authorities

Cited authorities (2)

69 Fed. 509
reversedprecedent
Prior ruling on exceptions to answer holding agreement unenforceable
Atcheson v. Mallon, 43 N.Y. 150
distinguishedquoteddistinguished
Cited by defendant for principle that agreements lessening competition are unenforceable
at Cited in opinion Involving agreement that removed earnest bidder and lessened competition

Related cases (2)

69 Fed. 509
prior appeal
Ruling against enforceability, reversed in current opinion
Atcheson v. Mallon, 43 N.Y. 150
related prosecution
Cited by defendant; distinguished as involving agreement that lessened competition

Standards & doctrines

  • Public policy against enforcing illegal agreements
  • Clear error standard for factual findings

Legal principles applied

  • Distribution of profits between joint owners does not violate public policy
  • No duty to disclose private cost estimates to public entity

Notable quotes

“However immoral the means by which the award of that contract was secured to them, it does not lie in the mouth of either to dispute upon such grounds the right of the other to share in the profits of that contract.”
majority — Discussing whether immoral means bar accounting
Establishes principle that joint owners cannot use immorality to deny profit-sharing
“An attempt to deceive must be successful in order to operate as a fraud.”
majority — Analyzing the second bid's potential fraud
Sets standard for fraudulent influence in contract awards
Index terms62
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Judges
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Procedural terms
Substantive offenses
Entities and documentation
Legal actions
Action type
reversed
Target
prior ruling on exceptions to answer (69 Fed. 509)
Appealed from
Circuit Court, D. Oregon
Context
Court reverses its earlier view that the agreement was unenforceable as against public policy
Scope
full
Further instructions
Remand for accounting consistent with opinion
Disposition vote
unanimous
Action type
affirmed
Target
trial court's findings on fraud and salary
Appealed from
Circuit Court, D. Oregon
Context
Court affirms that second bid did not influence award and Hoffman is entitled to salary
Scope
in part
Disposition vote
unanimous
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