Texas Highway Commission v. Texas Ass'n of Steel Importers, Inc.

372 S.W.2d 525

• Court: Texas Supreme Court
• Decided: November 6, 1963
• Docket: A-9515
• Status: Published

Opinions

NORVELL, Justice.

Article 6674h, Vernon’s Ann.Tex.Stats. provides in part that:

“All contracts proposed to be made by the State Highway Department for the improvement of any highway constituting a part of the State Highway System or for materials to be used in the construction or maintenance thereof shall be submitted to competitive bids.”

On March 28, 1960, the Texas Highway Commission passed its Minute Order No. 48,644 which reads as follows:

“All construction contracts, beginning with the January 1961 letting, shall include a provision that materials furnished under such contracts shall be manufactured in the United States, its territories and possessions. It is further understood and directed that where finished construction material is manufactured in a United States or territories mill it will be considered as a domestic product and will be acceptable under the terms of this Order provided all other requirements of the specifications are met.”

The Court of Civil Appeals has held that Minute Order No. 48,644 is void because it is contrary to the provisions of Article 6674h above quoted. See 364 S.W.2d 749. The effect of the order would be to eliminate from the field of bidders upon highway construction contracts all those who owned or intended to acquire foreign materials and use them in carrying out highway construction contracts. Quite obviously the field of material suppliers would be drastically reduced. For example, it is shown without dispute that during the first seven months of the year 1960, the year in which the anti-foreign order was passed, forty-four per cent of all reinforcing steel and ninety-five per cent of all prestressed wire strand used in Texas highway construction was manufactured outside the United States. As an incidental matter, it was admitted that all the foreign materials used had passed the same tests and met the same specifications as their domestic counterparts and that no instance of a failure of imported materials used in highway construction was known to the Department. If the suppliers in one field of materials, such as steel, will be reduced by approximately fifty per cent, it seems obvious that the clear purpose for which Article 6674h was enacted is being circumvented.

It is stated by McQuillin that where the subject matter of the contract is not a monopoly, but where there are several manufacturers who produce a certain article or where the material can be secured from two or more different localities, “it is held in nearly all the decisions that bidding cannot be restricted to bids on an unpat-ented article manufactured by a particular firm or material from a particular locality (Emphasis supplied.) 10 McQuillin Municipal Corporations, 3rd Ed., Sec. 29.49, pp. 304-5. If the Highway Commission could (without express statutory authority) restrict the locality from which it would accept manufactured materials, it could as well restrict such materials to those manufactured within the State of Texas or any particular county within the state. We are not here concerned with restrictions which could be imposed by the Congress of the United States or the Legislature of the State of Texas but with the order of an administrative authority which must act in accordance with and not contrary to the acts of the legislative branch of government. Had the Legislature proscribed foreign materials, we would have an entirely different question. There might be some constitutional objection to such a statute, but in the present case the Legislative decision is one favoring free and unrestricted bidding.

A number of cases hold that provisions in an ordinance or an administrative order restricting hours of labor and providing that no aliens may be used on public improvements are invalid. Such restrictions have been avoided on both constitutional and statutory grounds. Undoubtedly some of the cases construing various constitutional provisions with reference to restrictions on the hours of labor would not be followed today. Texas has statutes relating to such matters which are applicable to highway construction. Article 5165, Vernon’s Ann.Tex.Stats. See, Scott v. Vilbig Const. Co., Tex.Civ.App., 140 S.W.2d 874, no wr. hist. However, aside from any constitutional question that may be involved, it seems that a nonstatutory restriction in the form of an ordinance or administrative order restricting employment to native and naturalized Americans is invalid because it is contrary to a statute providing for competitive bids. Glover v. People ex rel. Raymond, 201 Ill. 545, 66 N.E. 820; Taylor v. City of Philadelphia, 261 Pa. 458, 104 A. 766. Cf. Bohn v. Salt Lake City, 79 Utah 121, 8 P.2d 591, 81 A.L.R. 215, wherein it appeared that a state statute provided that in the employment of labor upon public works, preference should be given to citizens of the United States and those having declared their intention to become citizens and it was held that the City could not restrict the employment preference to heads of families who were residents of Salt Lake City.

The purpose and intent of competitive bidding ordinances and statutes are well stated in Sterrett v. Bell, Tex.Civ.App., 240 S.W.2d 516, 520 (no wr. hist.) wherein it was said:

“ ‘Competitive bidding’ requires due advertisement, giving opportunity to bid, and contemplates a bidding on the same undertaking upon each of the same material items covered by the contract; upon the same thing. It requires that all bidders be placed upon the same plane of equality and that they each bid upon the same terms and conditions involved in all the items and parts of the contract, and that the proposal specify as to all bids the same, or substantially similar specifications. Its purpose is to stimulate competition, prevent favoritism and secure the best work and materials at the lowest practicable price, for the best interests and benefit of the taxpayers and property owners. There can be no competitive bidding in a legal sense where the terms of the letting of the contract prevent or restrict competition, favor a contractor or materialman, or increase the cost of the work or of the materials or other items going into the project.”

In Taylor v. City of Philadelphia, 261 Pa. 458, 104 A. 766, the Supreme Court of Pennsylvania was concerned with the validity of' ordinances of the City of Philadelphia which in effect provided that “in all contracts * * * for the construction of public buildings, * * * it shall be specified that the work of cutting and preparing (building) stone for use shall he done in Philadelphia.”

The two lowest bidders submitted alternative bids. The bid of Fuller & Company was $2,570,000, subject to a deduction of $155,000 if the provisions of the ordinances as.to the Philadelphia preparation of building stone were eliminated. Gill and Sons submitted a bid of $2,535,000 with a $110,-000 reduction if the Philadelphia stone preparation requirements were eliminated. The; ..Gill bid. was accepted despite the fact that the Fuller bid was lower if the requirement as to place of cutting and preparing, the, building .stone be eliminated. Taylor, as a taxpayer, sought to' enjoin the execution of the proposed contract-■ with :Gill and Sons- The’ Supreme Court' held that a purported legislative enactment' which- sought- fo'authorize the insertion of' stich restrictive clauses in municipal ordinances was invalid b'ecaus'e it was a species- of special legislation not permitted by'-the'-Pennsylvania constitution. The Court then -said, “The act of 1917 (above mentioned) being' eliminated, it remains to consider the validity of the ordinances themselves. * * * [T]he only question is whether the ordinances violate the provisions of the Act’ * * * requiring all work and materials furnished to the city under contracts to be let to the lowest responsible bidder.”

The Court made clear the distinction between a statute, — an expression of a higher legislative authority — and an ordinance. It then pointed out that, “[a]n act of the Legislature can, of course, be modified by the Legislature itself,” but this modification cannot be effected by City ordinance nor, (it would follow) by the order of an administrative body. The Court concluded by saving: ' ' v ..

“Nó cáse hás' been found which’- is direct authority to sustain the validity of municipal ordinances such as are here in question where the effect is to conflict with an express, statutory provision requiring contracts to be let to the lowest responsible bidder. That the cost here has been increased because of the ordinances cannot be disputed in view of the difference in the bids of both contestants. From what has been said the judgment of the court below must be reversed.”

See also, 10 McQuillin, Municipal Corporations, 3rd Ed., Sec. 29.30, p 268.

Undoubtedly the Minute Order is viola-tive- of the competitive bidding- law, unless it-can be supported upon the thesis asserted by the Attorney General, namely, that the Commission found that • foreign ■ steel is sometimes rusty, that it- is sometimes-imr properly or defectively threaded, that it is often difficult to test foreign materials at the- place.of manufacture, that- sometimes foreign steel is improperly marked, and .that for these reasons a rejection of substantial amounts of foreign products at the job-site takes place.

•• All- of these matters relate- to quality' of materials and convenience of the employees of the State Highway Department. ,As pointed out by the respondents, the order itself makes no effort to provide definite and objective physical and chemical standards which must be met by the contractor insofar as materials are concerned. The order does not say that steel which is rusty, improperly threaded or of substandard quality shall not be used in carrying out any highway contract. The proscription relates to “foreign, materials.”

It is admitted that prior to the passage of the order, substantial amounts of foreign steel were used in highway construction and that so far as the' Highway Department knows there have been no structural failures resulting from the use of foreign, steel. There is no showing that the' inspection processes of the Department have failed to detect the use of defective' materials. No effort was made to trace the stéel which had caused some trouble and resulted in an abnormal amount of rejections to any particular steel producing area or company. Steel from Sweden, England, West Germany, Japan and other steel producing countries having commercial relations with the United States are dumped into one common lot, labelled “foreign” and thus proscribed.

While the- State of Texas in building highways through its Highway Department is acting in a proprietary rather than a sovereign capacity, insofar as foreign commerce is 'concerned, rit is undoubtedly operating in an area largely 'controlled by agreements and treaties negotiated by the central government.' While this record will not support a- finding that the Commission is attempting through- indirection to invade the’ field of - foreign - commerce regulation and-grant a-preference-tó domestic manufacturers Over their- foreign counterparts, it- is nevertheless suggested that if the true basis Of the: order and the festilts sought- to be obtained thereunder are the securing of quality products for highway construction purposes, as the Department’s witnesses- say, — then, that' result should be secured by the use'o'f direct rather than indirect means. No one questions the power and'authority of the Commission to specify the • physical and chemical ■ standards for construction materials which are to be used in Texas highway construction. If the Commission desires that no rusty steel be used, it may say so. Matters of quality should be fixed by quality specifications and not by proscriptions as to localities of manufacture or fabrication. Indirection should be avoided. If an order be one designed to secure quality products in highway construction then it should be couched in the terms of physical and chemical specifications, so that one contending that the order is Unreasonable or arbitrary may attack it directly, rather than being called upon .to meet.evidence of a.nature not suggested nor comprehended by the wording of the order. Why should not the term, “st'eélj free from rust” be used instead of “domestic steel” if that is the quality that is desired in re-enforcing materials used in highway construction ?

It is wholly unsound to say that as the competitive bidding statute has for its purpose the securing of the best work and materials at the lowest practicable price, no cause of action is shown unless it demonstrated that as a result of the restrictive order an actual rise in material costs has taken place. Many factors enter into the cost of materials. The Legislature has in effect declared that open bidding contributes to the lowering of costs while restrictive bidding tends to an increase in costs. The Legislature has said what.shall be done in the situation and impliedly said what shall not be- done. Noncompliance with the man' datory statutory procedures cannot be .excused by blandly' contending that no one was actually hurt by the law violation. One might as well argue that as the policy of the law against' mürder is the protection of society, the specific proscription, “Thou shalt not till” could be disregarded úpon a showing that actually society had been protected by the timely removal of the deceased as a member thereof'.

The- question of the necessity of proving actual harm as a prerequisite for belief was considered by the Supreme Court of Illinois in Glover v. People ex rel. Raymond, 201 Ill. 545, 66 N.E. 820 in which a property owner resisted the collection' of. a special assessment against his property Upon the ground that the contractual restrictions insisted upon by the City of Chicago in letting contracts for -special improvements were contrary to the statute providing for competitive bidding. The Court in upholding the property owner’s contention quoted from the earlier case of McChesney v. People ex rel. Raymond, 200 Ill. 146, 65 N.E. 626, as follows:

“The contract' is to be awarded to the responsible bidder offering to do'the work for the lowest sum, and any provision tending to increase the cost, and make the bids less favorable to the public and the property owners, is against public policy, illegal, and void. * * * Such a provision or restriction in a competitive bidding is unlawful and against public policy, and this is conceded by counsel for appellee. They insist, however, that, to enable one whose lands have been assessed to pay for an improvement to avail himself of such an objection, he must show that the existence of the provision has increased the cost of the work, aad this must be a definite showing of a financial injury to him, in dollars and cents. That is not the rule. The law entitles a property owner to the security afforded by its provisions, and it is sufficient for him to show that he has been deprived of the protection which the law gives him, of having bids made upon a lawful basis, and free from restrictions likely to produce a result detrimental to his interests. It would certainly be difficult, if not impossible, to prove in every instance that an illegal limitation worked unfavorably, or the amount of injury, in dollars and cents, resulting from it. The property owner is not obliged to show in each instance that he was prejudiced by unlawful restrictions and disregard of the law, but it is for the authorities seeking to impose the burden upon his lands to prove a substantial compliance with all of these provisions designed for his benefit. It would be just as reasonable to insist that if the requirements of competitive bidding were disregarded, and the work done by hiring laborers by the day, the property owner must be able to show that the price was not reasonable, or that the work was done at a greater expense than it would have been if the law had been complied with. It is a material and important right of the property owner that there shall be free and open competition, unrestricted by illegal and unconstitutional provisions, the natural tendency of which would be to increase the cost of the work; and it is undeniable that the clauses in question in this case lay down rules which would naturally increase such cost, and be detrimental to the public.”

This is a sound rule which should be followed, although there are authorities which are contrary thereto. It seems, however, that even under a number of cases following a contrary rule as to the showing of actual harm, the burden rests upon one seeking to recover despite an admitted violation of the statute to demonstrate that no harm could have resulted to the plaintiff. For example, in Pasche v. South St. Joseph Townsite Company, 190 S.W. 30, the Kansas City Court of Appeals held that while ordinarily a provision restricting the construction of a public improvement to brick manufactured in Missouri would render a special tax invalid, it would not have such effect when “it was admitted that brick manufactured in (Missouri) could be purchased for a less price than that manufactured outside the state.” The facts of this case do not bring it within the Missouri rule as there is no showing that domestic materials are less costly than foreign materials.

Once the view be adopted as it must under the record before us, that the Minute Order is void because it is contrary to the competitive' bidding statute, there can be no basis for saying that the disputed order was authorized by law. It was wholly nugatory and hence the present proceeding cannot be classed as a suit against the state. United States v. Lee, 106 U.S. 196, 197, 1 S.Ct. 240, 27 L.Ed. 171; State v. Epperson, 121 Tex. 80, 42 S.W.2d 228; Cobb v. Harrington, 144 Tex. 360, 190 S.W.2d 709; State v. Lain, 162 Tex. 549, 349 S.W.2d 579.

The respondents as plaintiffs in the District Court brought this suit for a judgment declaring Minute Order No. 48,644 to be invalid, illegal, void and of no lawful effect. Said respondents are resident citizen property taxpayers of the State of Texas or the representatives of such property taxpayers. Some of them are owners of imported foreign manufactured products suitable for highway construction purposes. All of them are actively engaged in or interested in the sale and use of imported manufactured products. As this is not a suit against the State, such parties clearly have the right and litigable interest to have the challenged Minute Order declared null and void. The order is clearly void for the reasons stated and the judgment of the Court of Civil Appeals so holding should be affirmed. It is accordingly so ordered.

GRIFFIN and STEAKLEY, JJ., dissenting. WALKER, J., not sitting.