Goldmann, Freund and Haneman. The opinion of the court was delivered by Goldmann, S.j.a.d.
Defendants Capasso appeal from a Law Division judgment declaring void ab initio and setting aside their garbage removal contract with the Borough of Fair Lawn; declaring illegal and void ab initio all payments made to them under the contract; setting aside as illegal and void ab initio Fair Lawn ordinance No 688, a supplement to the borough sanitary code; and awarding $303,052.62 in favor of the borough against them.
In February 1957 the Borough of Fair Lawn advertised for bids on a contract for the collection of garbage, ashes, waste and other refuse in the municipality, pursuant to specifications prepared by the borough manager and approved by the council. Prospective bidders were required to complete under oath a standard form of questionnaire concerning experience, equipment and financial ability, and to file it with the borough manager no later than February 26. The borough reserved the right to refuse a set of the specifications to those not qualifying on the basis of the completed
questionnaire. Five contractors filed the qualification form. Of these, four were accepted by the borough manager as qualified to bid. The fifth, Thomas Viola & Son, Inc., was disqualified because it lacked the required number of trucks under the specifications.
The notice to bidders stated that bids were to be received at the regular meeting of the borough council on March 26, 1957. However, the governing body by resolution postponed the time for submitting bids until April 9, its next regular meeting, without readvertisement. The borough manager had recommended the postponement because there was then pending certain legislation regarding dumps which might affect the bids. The qualifying contractors were advised of the postponement prior to March 26. All four submitted sealed bids on April 9. These were opened, read and then referred in regular course to the borough manager for review, report and recommendation. The council members subsequently met on several occasions and reviewed the figures, analyzing costs on the basis of their own inquiry and experience. They also conferred with and sought the advice of the borough manager. Finally, the council on April 23, 1957 unanimously awarded a five-year contract for the collection and disposal of garbage in Fair Lawn to the Capassos, the lowest responsible bidder.
On May 3, 1957 the borough and the Capassos executed a written contract for the five-year period at a base price of $1,095,625. The contract, by reference to paragraph 35 of the specifications, provided that the borough was to pay $1.25 additional compensation monthly for each newly constructed unit occupied after the beginning of the contract period. Additionally, the contractor was to have the exclusive right, under paragraph 31 of the specifications, to collect all garbage, ashes and refuse in the borough and, under paragraph 32, the exclusive right to negotiate private contracts with all business and trade establishments in the borough for such service at a reasonable fee. In case of any dispute regarding the fees to be paid, the matter was
to be referred to the borough manager, and his decision as to a fair charge was to be final and binding upon both the contractor and the operator of the establishment.
The Capassos began performance under the contract on May 17, 1957, and continued not only up to the time of the institution of this action, but throughout the period of the protracted trial which followed. Their performance was considered entirely satisfactory by the Fair Lawn officials. The borough made regular payments for the garbage service until the end of the trial. At no time did it rescind the contract or take any steps to do so. After judgment was entered we granted a stay; garbage and refuse collection has continued pending the appeal upon a limited payment basis.
On August 13, 1957 the borough council adopted ordinance No. 688, supplementing the ordinance establishing a sanitary code for Fair Lawn. It provided that no permit could be granted any person for the removal and disposal of garbage, ashes and refuse within the borough unless "pursuant to a contract entered into between such person * * * and the Borough * * * in accordance with the statute in such case made and provided." In other words, it prohibited any person other than the municipal contractor (in this case the Capassos) from collecting garbage, ashes and refuse on either a public or private basis.
Subsequent to the adoption of the ordinance plaintiff Band's Refuse Removal, Inc., applied for a license permitting it to collect garbage, ashes and refuse for the year 1958. The borough manager denied the permit because of the ordinance. Plaintiff then instituted this action.
The many unusual features of the case demand an extended consideration of the pleadings and the record.
On November 25, 1957 plaintiff filed a complaint in lieu of prerogative writs stating that during 1957 it had been
and still was engaged in removing and disposing of garbage, ashes and refuse from the Western Electric Co. premises in Fair Lawn under a written contract with the company and pursuant to a permit duly issued by the borough permitting it to engage in the scavenger business. The company had invited plaintiff to bid for its 1958 contract. The complaint alleges that plaintiff, in order to be in a position to bid on that contract, applied to defendant borough and defendant borough manager on October 15, 1957 for a permit, which was refused because of the provisions of ordinance No. 688 adopted August 13 previous. The borough had in the meantime entered into an exclusive contract with the Capassos. Plaintiff claimed that the ordinance, the action of the borough in entering into the Capasso contract, and the borough manager's denial of the permit were arbitrary, discriminatory, unconstitutional and ultra vires. It demanded judgment declaring ordinance No. 688 illegal and void, and ordering the borough, and specifically its manager, to renew its previous permit or issue a new one.
Fair Lawn and its officials filed an answer alleging that the borough had entered into a contract with the Capassos as the lowest responsible bidder after proper competitive bidding under the applicable statutes, which contract designated the Capassos as the sole contractor authorized to collect garbage in the borough. By way of separate defenses it was claimed that: (1) plaintiff's action was barred by reason of the limitation period in R.R. 4:88-15; (2) the ordinance constituted a reasonable exercise of the municipal police power in protecting the health and welfare of the community and its citizens; (3) plaintiff was guilty of laches; (4) plaintiff had no proper standing to prosecute the action because it was not a resident or a taxpayer of Fair Lawn; and (5) the action, if successful, would result in a breach of the Fair Lawn-Capasso contract; plaintiff was equitably estopped from seeking relief, having slept on its rights and permitted the contract to be entered
into and the Capassos to begin work and expend money and labor thereunder.
Upon motion duly made and granted the Capassos were permitted to intervene as defendants. They thereupon filed an answer which was identical with the borough's, as well as a counterclaim demanding judgment restraining the borough from issuing any permit to plaintiff during the life of the garbage contract, restraining plaintiff from collecting garbage in Fair Lawn, and adjudging ordinance No. 688 and the contract valid.
A grand jury investigation into scavenger practices and contracts in Bergen County led to a new sequence of pleadings. On May 15, 1958 plaintiff was permitted, over defendants' objection, to file an amended complaint in three counts. The first repeated the allegations of the original complaint. The second was ultimately abandoned and is therefore of no moment here. The third count charged that the Fair Lawn-Capasso contract of a year before was not the result of open and honest competitive bidding, but of "secret agreements and understandings by and among Borough officials, Capasso Bros., and others which tainted the bidding with fraud and rendered the awarding of the contract to Capasso Bros. * * * illegal and void." Plaintiff particularized the alleged fraud by referring to the following actions taken by the Bergen County grand jury since the commencement of suit:
(1) The grand jury had voted indictments against borough council member and former Mayor Sogorko, Mayor Matule, Health Officer Begyn and Borough Manager Williamson, some of whom had been involved in awarding the Capasso contract. It had also filed a presentment setting forth certain improper practices involving borough officials in the award of garbage contracts. The amended complaint notes that the specifications provided for granting an exclusive right to collect garbage from private firms in Fair Lawn and that any dispute as to the rates to be charged was to be settled by the borough manager, and then goes on to allege that garbage collection problems were in practice referred by the borough manager to Health Officer Begyn, so that as a practical matter the rates to be charged for private garbage collection were left to
Begyn's determination. It is then alleged that the indictment returned against Begyn charges that he regularly received payments from the Capassos, and was in effect their agent; this gave them a favored position in bidding for the garbage contract since they knew that private garbage collection rates would be set by one who was not an impartial arbitrator.
(2) Immediately before the receipt of bids and the award of the garbage contract, the union representing the employees of garbage collection firms in the area had notified the borough manager and the firms that on and after May 1, 1957 truckdrivers' wages would be increased to $114 a week, with helpers getting $104, and that three men would be required on each garbage truck, instead of two as theretofore. The grand jury had charged that the Capassos were not required to pay the increased salaries until January 1, 1958, or to employ three men on each truck. Plaintiff claimed that the Capassos at the time of making their bid knew the union demands would not be enforced against them and were therefore able to adjust their bid accordingly. The result was that the bidding for the garbage contract was not honest and competitive, but fraudulent.
(3) The indictment returned against Health Officer Begyn and other borough officials charged that they received payments from Capasso Bros., so that the health officer was, at the least, directly or indirectly interested in the garbage contract. Since the statutes, including R.S. 40:83-2, made any such interest illegal, the garbage contract was illegal and void.
Plaintiff accordingly demanded judgment declaring the garbage contract illegal and void, dismissing the Capasso answer and removing the Capassos as parties defendant, and restraining defendants from interfering with plaintiff's garbage collection operations in the borough.
The answer of the borough and its officials to the amended complaint denied the fraud alleged in the third count, maintained there had been compliance with the bidding statutes, and iterated the several affirmative defenses included in their original answer. The Capassos' answer was similar.
The action was pretried on May 13, 1958 by the trial judge who later heard the case. (The amended complaint just mentioned was contemplated at the time of pretrial, obviously followed upon it, and was promptly filed on May 15.) In the light of subsequent developments, it is important
to note the contentions and issues crystallized in the pretrial order, and the stipulations and admissions of the parties. Plaintiff contended that ordinance No. 688 was arbitrary, discriminatory and ultra vires because it gave the municipal contractor an exclusive right to collect garbage in the borough. Plaintiff also contended that the Capasso contract was illegal and void because (1) the union letter (mentioned in the third count of the amended complaint) was sent out under an agreement between the business agent of the union, Seratelli, and the Capassos that its provisions would not apply in the event the Capassos were awarded the garbage contract, the purpose of the letter being to affect the bids that would be submitted; and (2) since the borough manager would refer to Health Officer Begyn any dispute as to the price to be charged for private garbage collection, and Begyn was on the Capasso payroll, the Capassos were in a favorable position in submitting bids. All this, it was said, amounted to fraud and collusion. The borough and Capasso Bros. denied the ordinance was arbitrary or ultra vires , but represented a reasonable exercise of the police power; and they also denied the alleged fraud and collusion, or that the contract was illegal. They raised the defenses that plaintiff was barred by the limitations of R.R. 4:88-15; it had no standing to attack the ordinance; and it was barred by laches and equitable estoppel. By their counterclaim the Capassos sought to enforce the ordinance and contract and thereby estop or enjoin plaintiff from collecting garbage and refuse from the Western Electric plant.
We particularly note that the parties, by the pretrial order, agreed that "the bids were advertised and the award was made pursuant to N.J.S.A. 40:50-1 and 40:66-4"; that plaintiff was not a resident or taxpayer of Fair Lawn, or a bidder for the municipal garbage contract; and that plaintiff had been refused a permit and had been collecting garbage without one. The case was set down for trial on June 19, 1958, the trial being estimated to take one day.
It will be seen that plaintiff's action, initially involving simply the validity of the ordinance and the propriety of the borough manager's denial of a garbage permit for collection from a private client, had expanded considerably by the time of the pretrial conference. As already noted plaintiff, more than a year after the award of the contract to the Capassos, and without any valid legal interest therein, amended its complaint to allege the invalidity of the basic contract, advancing as grounds therefor certain hearsay statements (the grand jury actions) of alleged fraud, detailed above. Even as to the expanded claim of fraud plaintiff's counsel frankly conceded the limited nature of the fraud issue in the course of the trial when he said:
"* * * plaintiff's theory of the case at the time the plaintiffs amended, and the pretrial conference was held, was addressed to two questions which plaintiff felt it had a reasonable chance of offering proof on. Number one, the notification from the union to all contractors as to a supposedly contemplated raise in salary. Number 2, the relationship between Begyn and Capasso Brothers as disclosed by the indictment."
Plaintiff was further committed and limited in its factual contention of fraud by its answers to interrogatories submitted just prior to the beginning of the trial: its sole objection respecting secret agreements and the absence of open, honest and fair competitive bidding was that "defendant Capasso would receive favorable treatment" -- obviously referring to the alleged relationship between Begyn and the Capassos.
We shall first deal with the issues raised by the pretrial order and properly before the court for determination. The Capassos claim that ordinance No. 688 is valid; that plaintiff may not attack the validity of the contract because it has no standing, it is barred by the provisions of R.R. 4:88-15(a) and by laches; and its case is barren of proof
of the fraud alleged in the pretrial order. The trial court held against these contentions.
In support of the validity of the ordinance defendants Capasso rely mainly on Atlantic City v. Abbott , 73 N.J.L. 281 (Sup. Ct. 1906), and Marangi Bros. v. Bd. of Com'rs. of Ridgewood , 33 N.J. Super. 294 (App. Div. 1954). Plaintiff and the borough (which, as we will see, completely changed its position months after pretrial), insist that the ordinance is invalid under the case of McKim v. South Orange , 133 N.J.L. 470 (Sup. Ct. 1945).
In McKim the ordinance provided that no one might collect ashes, garbage or refuse in South Orange without procuring a license from the village board of trustees, and that only one license might be issued and in effect at one time. Fees for scavenger service were to be fixed from time to time by resolution of the board. Such a resolution was adopted, establishing a scale of rates the scavenger might charge property users. By further resolution the trustees licensed a certain corporation to be scavenger for one year at a fee of $1 to be paid to the village. The Supreme Court held the ordinance was not a reasonable exercise of the municipal authority. Quoting from Eckert v. West Orange , 90 N.J.L. 545 (E. & A. 1917), the court noted that there are two methods of municipal disposal of garbage, ashes and refuse: the municipality may do the work itself or it may contract with someone else to do the work. However, if the latter course is chosen and more than $1,000 is to be expended, the municipality must publicly advertise for bids and the contract may only be awarded to the lowest responsible bidder. Relating all this to the South Orange ordinance, the court said:
"* * * The ordinance does not simply limit the privilege of collecting refuse to a single scavenger to be selected by the trustees (Atlantic City v. Abbott , 73 N.J.L. 281). It provides, as we have said, that the work shall be paid for by the householder to the scavenger at a price; such a price as the trustees shall fix. The work has been costing the municipality more than $75,000 per year; and the cost under the proposed method will be but little,
if any, less than that. Certainly the aggregate of such moneys to be paid to and received by the scavenger will greatly exceed the sum of $1,000, which is the cost limit for contracting without public bidding, R.S. 40:50-1 incorporated by reference in R.S. 40:66-4, supra. Obviously, the village could not contract directly for the doing of the work without calling for bids. The proposed method is, we think, in violation of a public policy, implicit in these and other statutes, that public work exceeding a limited sum shall not be awarded except upon advertisement and to the lowest responsible bidder. The evils attendant upon an award without open bidding are not less under license than under direct contract. * * *" (133 N.J.L. , at pages 473-474)
In Atlantic City v. Abbott , above, and referred to in McKim , the local ordinance prohibited anyone except the duly authorized contractor of Atlantic City from collecting or disposing of garbage or refuse, and contained regulations as to the time, means and manner of collection and disposal. After noting that the disposition of garbage is a matter of prime importance to the public health, justifying careful inspection and regulation on the part of the public authorities, the court concluded that although the ordinance created an exclusive right, it could not be said that this was not the result of an attempt to safeguard the public health by means which were reasonable and which bore a real and substantial relation to the end to be accomplished. It would seem that the Atlantic City case contractor considered the salvage value of the garbage sufficient reward to warrant his assumption of the task of collection without compensation. Therefore, the case did not raise the matter of public policy involved in McKim, i.e. , the letting out of public work for a price fixed without competitive bidding.
Marangi dealt with still another type of ordinance, which provided that the board of commissioners should have the right to grant the exclusive privilege of collecting garbage, ashes and refuse upon competitive bidding for a period not exceeding five years. Such privilege could be granted to one whose bid provided for the lowest rates for the removal of such garbage. The Marangis contended, and
the trial court agreed, that the ordinance was invalid under the McKim case. In reversing we held that the great weight of authority is to the effect that considerations of public health provide sufficient justification for the granting of an exclusive license to a scavenger to collect garbage within a municipality. See Annotations, 15 A.L.R. 293 (1921), 72 A.L.R. 523 (1931), 135 A.L.R. 1309 (1941); 7 McQuillin, Municipal Corporations (3 d ed. 1949), § 24.251, p. 90; 2 Dillon, Municipal Corporations (5 th ed. 1911), § 678, p. 1023. We held that the vice which inhered in the McKim ordinance was not present in the case then before us, for the ordinance provided for open competitive bidding after public advertisement of the board of health regulations and the specifications. Moreover, the specifications, attached to and made a part of the license agreement, set out the various classifications of users of the service for which competitive bids for rates to be charged were sought.
The Fair Lawn ordinance differs completely from those just considered. It goes no further than to provide that no permit is to be granted any person for the removal and disposal of garbage, ashes and refuse unless it be pursuant to a contract between such person and the borough "in accordance with the statute in such case made and provided." The reference, obviously, is to the bidding statute, R.S. 40:50-1, calling for open, competitive bidding.
The claim is made that there was no fair and truly competitive bidding for the garbage contract because the bids received were only for household garbage, ashes and refuse, but the successful bidder would have the right to collect from business and industrial establishments at rates to be determined between the scavenger and the establishment -- or, in event of disagreement, by the borough manager -- a clear evasion of the bidding statutes. Further, it is contended that the bids were improperly ...