Landau v. County of Putnam, 48 N.Y.2d 439 (1979)

A party who contracts with a municipality, knowing a municipal employee has an undisclosed conflict of interest as required by General Municipal Law § 803, cannot enforce the contract against the municipality.

Summary

Landau sought specific performance of a land sale contract with Putnam County. Frank Barbarita, a county employee, acted as the real estate broker but did not disclose his interest as required by General Municipal Law § 803. Landau knew of Barbarita’s role and the lack of disclosure. The New York Court of Appeals held that because Landau knew of the undisclosed conflict of interest, they could not enforce the contract against the county. The court reasoned that allowing enforcement would undermine the purpose of conflict of interest laws, which are designed to protect the public from contracts influenced by self-serving municipal officers.

Facts

The County of Putnam needed a new garbage disposal site because the Town of Carmel’s site was closing. Town Supervisor Thomas Bergin contacted real estate broker Frank Barbarita about a “for sale” sign on Landau’s 50-acre property. Barbarita arranged meetings between Bergin and Landau, resulting in an agreement for the county to purchase the land. Barbarita was a part-time, salaried County Director of Civil Defense. Prior to signing the contract, Barbarita expressed concerns about receiving a commission to Bergin and the County Attorney, suggesting it could be “embarrassing.” The contract falsely stated that “no broker [was] in any way concerned with the transfer of this realty” to conceal Barbarita’s involvement and expected fee.

Procedural History

After the State Investigation Commission revealed Barbarita’s participation, the county rescinded its approval of the purchase contract. Landau sued for specific performance. The trial court ruled in favor of Landau, but the Appellate Division reversed, finding Barbarita’s undisclosed interest nullified the contract and that enforcing the contract would violate public policy. Landau appealed to the New York Court of Appeals.

Issue(s)

Whether a contract with a municipality is enforceable by the seller when the seller knows that a municipal employee has an undisclosed interest in the contract in violation of General Municipal Law § 803, even if that interest is not a prohibited interest under General Municipal Law § 801.

Holding

No, because Landau’s knowledge of, and participation in, the concealment of Barbarita’s interest in the contract bars their petition for the equitable remedy of specific performance. Allowing enforcement would frustrate the purpose of General Municipal Law Article 18.

Court’s Reasoning

The court clarified that General Municipal Law § 804, which nullifies contracts, applies only to “prohibited interests” as defined in § 801 (i.e., where the municipal officer has the power to negotiate, approve, or audit the contract). Barbarita did not have such power. However, the court emphasized that compliance with the disclosure requirement of § 803 is crucial. The court stated that the purpose of Article 18 of the General Municipal Law is “to protect the public from municipal contracts influenced by avaricious officers.” Since Landau knew of Barbarita’s duty to disclose his expected broker’s fee, and actively participated in concealing it by signing the contract with a false statement, enforcing the contract would be against public policy. The court reasoned that “[p]laintiffs’ knowledge of and participation in Barbarita’s failure to fulfill the obligation imposed on him by section 803 infected the rights created in them by the agreement and serves to bar their petition for the equitable remedy of specific performance.” The court explained that Barbarita, as an agent of the county, had a duty of loyalty. By knowingly participating in Barbarita’s violation of that duty and of his statutory duty of disclosure, Landau could not benefit from the transaction. The court quoted United States v. Mississippi Val. Co., 364 U.S. 520, 563, stating that the consequences of violating these duties “militates against enforcement of the contract”.