Opinion
For Opinion on Rehearing, see 140 Cal.Rptr. 884.
Opinion on pages 1-22 omitted.
REHEARING GRANTED [*]
[138 Cal.Rptr. 744]Burt Pines, City Atty., Edward C. Farrell, Chief Asst. City Atty., for Water and Power, J. David Hanson, Deputy City Atty., for defendant, cross-complainant and appellant.
Monteleone & McCrory, David P. Yaffe, and William N. Cohen, Los Angeles, for plaintiff, cross-defendant and respondent.
Judge of the Superior Court of Los Angeles County, assigned by the Chairman of the Judicial Council.
Appellant, Department of Water and Power of the City of Los Angeles, a department of the City of Los Angeles, a municipal corporation (DWP), entered into a written contract (and addendum) (contract 709) with Shea-Kaiser-Lockheed-Healy, a joint venture composed of four corporations--J. F. Shea Company, Inc., Kaiser Industries Corporation, Lockheed Shipbuilding and Construction Company and S. A. Healy Company (SKLH) --on December 19, 1968, [138 Cal.Rptr. 745] under which DWP agreed to purchase and SKLH agreed to sell certain described aggregate (sand, 3/4 inch, 1 1/2 inch, 3 inch, natural material) 'for concrete and other uses for the Castiac Power Project ordered by the Department during the period beginning with the date of award of contract and ending July 1, 1972' (contractual period) at a price of $1.90 per ton with a '0.10 per ton discount for payment within 30 days.'
Prior to July 1, 1972, SKLH was succeeded by a new joint venture, apparently involving the same parties which was denominated SKLH #2. However, for sake of simplicity, we will refer to plaintiff respondent as SKLH since the change does not appear to have any legal significance insofar as this case is concerned.
Since DWP appears to have always taken advantage of the 0.10 per ton discount, we will hereafter treat the contract as a contract to supply aggregate at $1.80 per ton.
SKLH filed an action against DWP seeking damages for breach of contract. The first cause of action alleged that under the contract SKLH was required to deliver only 604,000 tons of aggregate, whereas DWP demanded and received 796,742 tons of aggregate which caused damage to SKLH in the sum of $267,911. In a second cause of action SKLH alleged that DWP ordered a disproportionate quantity of sand and three-quarter inch aggregate which caused additional damage in the sum of $149,292. Plaintiffs' fourth cause of action alleged that DWP made false representations regarding the quantities of aggregate which it would require. After non-jury trial, the court found in favor of DWP on the fourth cause of action. No appeal was taken by SKLH from the judgment based on such finding. We will therefore affirm the judgment in favor of DWP insofar as it relates to the fourth cause of action.
The complaint contained a third cause of action which was voluntarily dismissed prior to trial. We, therefore, disregard the third cause of action.
On the first and second causes of action, the court found that DWP demanded that SKLH deliver 795,957 tons of aggregate, whereas the contract, as interpreted by the court, only required SKLH to deliver 604,000 tons of aggregate with the result that SKLH 'produced and delivered under protest to [DWP] 191,957 tons of material over and above that required by the contract.' The court found that said 191,957 tons of aggregate had a fair market value of $2.90 per ton, of which sum DWP paid only $1.80 per ton, causing damages to SKLH in the sum of $211,152. The court further found that DWP demanded 'an unreasonably disproportionate quantity of 3/4 inch nominal size aggregate in relation to the other sizes demanded,' which caused damage to SKLH in the additional sum of $14,000. Judgment was rendered in favor of SKLH in the total sum of $225,152 with prejudgment interest at 7 per cent from February 2, 1973. DWP appeals from this judgment.
DWP filed a cross-complaint against SKLH alleging that SKLH delivered 731,572 tons of aggregate but billed for and was paid for 796,742 tons resulting in an overpayment by DWP of $117,306. The trial court made findings and rendered judgment against DWP and in favor of SKLH on DWP's cross-complaint from which judgment DWP appeals.
ISSUES
Although DWP presents several claims of error we regard one claim of error as [138 Cal.Rptr. 746] dispositive of this appeal. DWP contends that a chartered city is not liable in quasi contract or implied contract for materials delivered, because such a city can purchase only under competitive bid contracts and therefore it can only be liable for goods delivered under the written 'Time and Price' competitive bid contract at a price not to exceed the contract price.
'I
FACTS
As a part of the Feather River Project, DWP planned on building a power plant to produce electrical energy at the Castaic Dam at Castaic, California. The Castaic Power Project (Project) would require substantial amounts of concrete which in turn would require substantial amounts of aggregate. DWP, pursuant to the provisions of the Los Angeles City Charter, called for bids on aggregate of five different grades: 'sand, 3/4 inch, 1 1/2 inch, 3 inch and natural material.' The specifications for contract 709 described the quantity required in the following language:
'2. Quantity: For the purpose of comparing bids to determine the lowest bidder, it will be assumed that the following respective quantities of aggregate will be purchased during the contractual period:
Subitem No. Designation of Sizes Tons ----------- -------------------- ------- 1(a) Sand 117,000 1(b) 3/4inch 89,000 1(c) 1 1/2inch 105,000 1(d) 3inch 62,000 1(e) Natural Material 25,000The Department, however, agrees to purchase aggregate during the contractual [138 Cal.Rptr. 747] period in the following respective quantities:
Subitem No. Designation of Sizes Tons ----------- -------------------- ------ 1(a) Sand 98,000 1(b) 3/4inch 75,000 1(c) 1 1/2inch 88,000 1(d) 3inch 52,000 1(e) Natural Material 10,000'In consideration of the agreed purchase and in addition thereto, the Department shall have the option of purchasing, from time to time during the contractual period, additional quantities of aggregate up to the Department's maximum requirements for operation and storage during the contractual period. Said option shall be exercised by the issuance and delivery to the Contractor of orders for any portion thereof by the Purchasing Agent or his duly authorized representatives.' (Emphasis ours.)
By addendum 1, quantity requirements were amended as follows:
'With reference to Page Fl-1, Article 2, Quantity, the first two paragraphs in such article are hereby replaced with the following:
2. Quantity: For the purpose of comparing bids to determine the lowest bidder, it will be assumed that the following respective quantities of aggregate will be purchased during the contractual period:
Subitem No. Designation of Sizes Tons ----------- -------------------- ------- 1(a) Sand 149,000 1(b) 3/4inch 116,500 1(c) 1 1/2inch 138,500 1(d) 3inch 66,000 1(e) Natural Material 25,000 -------'The Department, however, agrees to purchase aggregate during the contractual period in the following respective quantities:
Subitem No. Designation of Sizes Tons ----------- -------------------- ------- 1(a) Sand 120,000 1(b) 3/4inch 93,000 1(c) 1 1/2inch 110,000 1(d) 3inch 53,000 1(e) Natural Material 10,000' -------Deliveries were to be governed by the following contractual provision:
'3. Deliveries: The Contractor shall make deliveries on Mondays through Saturdays, inclusive, excluding holidays and only upon receipt of orders issued by the Purchasing Agent or his duly authorized representatives. The Department will notify the Contractor not less than one calendar day for orders of 600 tons or less, and not less than three days, for orders over 800 tons, excluding Sundays and holidays, in advance of its delivery requirements, stating the time, quantities and designating the size to be delivered. No order will require deliveries earlier than March 1, 1969.
The Department's maximum demand for aggregate will be 1700 tons per day, with a maximum of 6800 tons per week.
Aggregate shall be delivered to the Department's hoppers at its batching plant or to stockpiles as designated by the Department. Access to these facilities will be provided by the Department.
The Contractor shall deliver the aggregate in either bottom-dump truck or enddump trucks. No order will require less than 14 tons.'
Paragraph 11 of the contract provided for extra work to be effected by written change orders and provided 'Changes shall not be binding upon either the Department or the Contractor, unless made in writing. . . .'
During the summer of 1971, a dispute arose between DWP and SKLH over the quantity of aggregate which DWP could order under contract 709. Mr. Shank, representing SKLH, wrote DWP stating that he had talked to a lawyer and he was repudiating the contract insofar as quantities in excess of 604,000 tons might be ordered. Shank stated that quantities in excess of 604,000 tons would be delivered if extra compensation were paid. SKLH delivered 604,000 tons by August 1971. DWP replied that such repudiation was a breach of contract and that it would call for bids on a new contract. DWP did advertise for new bids. The parties held several conferences and before DWP could accept any new bids, SKLH wrote a letter to DWP in which it agreed to continue deliveries of aggregate in excess of 604,000 tons 'under protest' without waiver of rights, if DWP would consider in good faith SKLH's claim for extra compensation because of extra costs.
The letter (plaintiff's exh. 19) reads:
[138 Cal.Rptr. 748]DWP replied by letter that it would consider claims for extra compensation when supporting data was submitted. This letter recited that in the conferences SKLH 'has agreed to submit in detail the costs they claim to have incurred which are not covered by the subject contract. . . . Please note that claims must be submitted in accordance with the terms of the contract and applicable law. Any resolution of these claims will be subject to approval by the Board of Water and Power Commissioners.' Thereafter, SKLH submitted five claims for extra work, four of which were denied. DWP did issue a change order on the fifth claim, the effect of which was that SKLH would become entitled to payment for extra costs incurred for deliveries prior to October 31, 1971, in excess of 1,700 tons per day and a maximum of 6,800 tons per week. SKLH finally abandoned any claim for extra compensation under this change order.
This claim was apparently embodied in the third cause of action which SKLH voluntarily dismissed prior to trial.
DWP fell behind in its work schedule and by December of 1971 it became apparent that it would not be able to complete the project by July 1, 1972. It decided to stockpile the amount of aggregate which it would require to complete the project after July 1, 1972. SKLH put in evidence an interdepartmental memo from the files of DWP which explained that the reason for this decision was because if DWP did not order aggregate under contract 709 during the contractual period prior to July 1, 1972, and purchased aggregate after July 1, 1972, under a new contract it would probably be required to pay a price substantially in excess of $1.90 per ton because the 'current estimated prices for concrete aggregate are $4.50. Under existing contract 709, the price of aggregate is $1.90 per ton for a gross savings to the Department of $2.60 per ton. The existing aggregate contract 709 permits the Department to stockpile aggregate on the project site.'
Thereafter, commencing in January 1972, DWP ordered under contract 709 and primarily stockpiled the maximum daily quantity of aggregate allowed under contract 709 which totalled approximately 190,000 tons. Of this quantity DWP allegedly ordered a disproportionately high percentage of 3/4 inch aggregate which the trial court found to be 30,647 tons of 3/4 inch aggregate more than authorized by the contract. Because of the quantities involved, DWP had to designate an additional site at which the aggregate was to be stockpiled, which site appears to have been in the general vicinity of the site at which the original deliveries had been made on the east side of Castiac Creek near the Castiac Power Project. SKLH does not claim that DWP ordered aggregate in excess of its requirements to complete the project. However, SKLH does claim that DWP's requirements increased by reason of changes in the project which occurred as the work progressed. SKLH submitted claims for its alleged damages which were denied by the project engineer.
There was a conflict in the evidence before the trial court regarding SKLH's costs of production which is not here relevant.
[138 Cal.Rptr. 749]The trial court in reliance on Commercial Code section 2306(1) interpreted contract 709 as requiring SKLH to deliver no more than 604,000 tons of aggregate and concluded that by demanding delivery of 796,742 tons of aggregate, DWP demanded delivery of 191,957 tons more than it was entitled to demand under the contract, which was stockpiled and some portion of which was for use after June 30, 1972. The court also concluded in reliance on the same code section and comments that DWP demanded 30,717 tons of 3/4 inch aggregate in excess of what DWP was entitled to demand under contract 709.
The court arrived at the figure of 604,000 by subtracting the minimum of 386,000 tons set forth in paragraph 2 of the contract from the 'estimate' of 495,000 tons set forth in paragraph 2 of the contract and adding the difference--109,000 tons, to the estimate--which equals 604,000 tons. The court did this in reliance on comments 2 and 3, Uniform Commercial Code Comments to section 2306, which read:
DISCUSSION
DWP is a Department of the City of Los Angeles, which is a chartered city. The charter has the effect of a law of the State of California. (City of San Francisco v. Workmen's Comp. App. Bd. (1968) 267 Cal.App.2d 771, 73 Cal.Rptr. 429; C. J. Kubach Co. v. McGuire (1926) 199 Cal.215, 248 P. 676.) It has the full force and effect of a legislative enactment (Bruce v. Civil Service Bd. (1935) 6 Cal.App.2d 633, 45 P.2d 419; Tilden v. Blood (1936) 14 Cal.App.2d 407, 58 P.2d 381), and 'is the supreme law of the State with respect to the government of such chartered city.' (Adams v. Wolff (1948) 84 Cal.App.2d 435, 440, 190 P.2d 665, 669.) The charter acts not as a grant of power but as an instrument of limitation and restriction on the exercise of power over municipal affairs. (City of Marysville v. Boyd (1960) 181 Cal.App.2d 755, 5 Cal.Rptr. 598; City of Santa Monica v. Grubb (1966) 245 Cal.App.2d 718, 54 Cal.Rptr. 210.) Section 385 of the Charter of the City of Los Angeles requires that every contract by the city or department thereof involving an expenditure of more than $500.00 shall be in writing executed by designated persons.
Section 385 reads:
[138 Cal.Rptr. 750]Section 386(b) of the charter provides that (subject to certain exceptions in subparagraph (a) which are not here applicable) 'The City of Los Angeles shall not be, and is not bound by any contract involving the expenditure of more than twenty thousand dollars ($20,000.00) unless the officer, board, or employee authorized to contract shall first have complied with the procedure for competitive bidding established by this section.' (Emphasis ours.)
Subdivision (d) of section 386 requires every bidder to submit a certified check 'for an amount not less than ten per cent of the aggregate sum of the bid' or surety bond in like amount. Various other subparagraphs of section 386 establish detailed procedures for such competitive bidding.
The law is well established that failure to comply with charter provisions relating to the making of purchases renders such purchases void. Where the power is thus limited liability cannot arise by estoppel or ratification. (Gamewell F.A.T. Co. v. City of Los Angeles (1919) 45 Cal.App. 149, 187 P. 163; Reams v. Cooley (1915) 171 Cal. 150, 152 P. 293; Fountain v. City of Sacramento (1905) 1 Cal.App. 461, 82 P. 637; Nash v. City of Los Angeles (1926) 78 Cal.App. 516, 248 P. 689.) The mode of entering into contracts as prescribed by the city's charter is the measure of the power of the city to contract and a contract not made in conformity with the prescribed mode is void and unenforceable. (T. Kelly & Sons, Inc. v. Los Angeles (1935) 6 Cal.App.2d 539, 45 P.2d 223.) Bidders are charged with notice of the charter provisions. (Palo and Dodini v. City of Oakland (1947) 79 Cal.App.2d 739, 744, 180 P.2d 764.)
Contracts which are beyond the power of the municipality or which its officers have no authority to make or which are not made in the manner required by its charter, are void and the city is not bound by such contracts, (City of Pasadena v. Estrin (1931) 212 Cal. 231, 298 P. 14; Dynamic Ind. Co. v. City of Long Beach (1958) 159 Cal.App.2d 294, 323 P.2d 768) even on the theory of an implied undertaking to pay the reasonable value. (Williams Bros. & Haas v. City & Co., San Francisco (1942) 53 Cal.App.2d 415, 128 P.2d 56; City of Oakland v. Key System (1944) 64 Cal.App.2d 427, 149 P.2d 195.)
California Constitution, article 11, section 10, subparagraph (a) (adopted in 1970), reads in part as follows: 'A local government body may not grant extra compensation or extra allowance to a . . . contractor after service has been rendered or a contract has been entered into and performed in whole or in part, or pay a claim under an agreement made without authority of law.' (See note 84 A.L.R. 954 and cases collected wherein it is stated:
'By the weight of authority, where by statute, charter, or constitutional provision, the power of a municipality, or other political subdivision, to make a contract, is limited, particularly where it is limited to a certain mode or manner of contracting, and any other manner of entering into a contract or obligation is expressly or impliedly forbidden, no implied liability arises against a municipality for benefits received under a contract entered into in violation of these mandatory provisions, for no liability can result as a matter of implication where the express provisions of the statute or Constitution negative its existence.'
See also note 33 A.L.R.3d 1172 wherein it is stated: [138 Cal.Rptr. 751]
'In cases involving contracts between a municipality and a contractor or vendor which were invalid because they were let without compliance with bidding requirements of an applicable statute or charter, the courts have generally taken the view that the municipality ordinarily cannot be held liable on quasi contract, unjust enrichment, or the like.')
As already stated, in the case at bar the trial court, interpreting contract 709 in accordance with the provisions of Commercial Code Section 2306(1), concluded that under contract 709 DWP did not have the right to order more than 604,000 tons of aggregate at $1.80 a ton or more than 224,460 tons of 3/4 inch aggregate; that DWP ordered a total of 191,957 tons of aggregate more than was authorized by contract 709, of which total there were 30,647 tons more of 3/4 inch aggregate than was authorized by contract 709.
We see no escape from the conclusion that either: (1) the excess aggregate was supplied under contract 709 at the contract price of $1.80 per ton which had been arrived at by competitive bidding in compliance with the city charter; or (2) the excess aggregate was not supplied under contract 709, in which event it was not supplied under a contract let by competitive bidding as required by City Charter section 386. An award of money based upon the court's calculation of the reasonable value of the excess aggregate on the theory of a quasi or an implied contract or on the theory of damages for breach of contract is in direct contravention of section 386 of the Charter of the City of Los Angeles which provides that the city shall not be bound by any contract which is not executed in accordance with charter provisions for competitive bidding and also in direct contravention of California Constitution, article 11, section 10, which prohibits DWP from granting an extra allowance to a contractor after a contract has been entered into and performed in whole or in part.
There is one further and unavoidable consideration. If DWP did not have the right under contract 709 to demand delivery of aggregate in excess of 604,000 tons (as the trial court found), then DWP did not have the power to pay for what it demanded without contractual authority. If this were true, DWP would be required to sue to recover the $1.80 per ton which it paid for the 191,957 tons of aggregate which it did not have the right to purchase or the power to pay for, since such purchase and payment for excess tonnage would be an illegal expenditure of public money and an ultra vires act. Upon the failure of DWP to collect such contractually unauthorized payment, a taxpayer could institute such an action on behalf of DWP. (Miller v. McKinnon (1942) 20 Cal.2d 83, 124 P.2d 34; Martin v. City of Corning (1972) 25 Cal.App.3d 165, 101 Cal.Rptr. 678.) Such a result would clearly not be in the interest of SKLH.
In Greer v. Hitchcock (1969) 271 Cal.App.2d 334, 76 Cal.Rptr. 376, Contra Costa Storm Drainage District Zone 13 called for bids for the construction of a drainage system. Northbay Pipeline Company was the low bidder at $64,199.10. The next day Northbay notified the district that it had made clerical errors in its bid and its bid was too low by $22,392.58. An increase by that sum would still leave Northbay the low bidder by $10,000. The district rejected Northbay's request to revise its bid and awarded it the contract at $64,199.10. A week later the district reconsidered its decision and executed an agreement with Northbay for reformation of its bid under which district agreed to pay Northbay $71,955.88. Greer, a taxpayer, filed an action to restrain the county treasurer and auditor from paying any money to Northbay. Northbay filed an action against district and others to recover the $22,000 clerical error. The district had paid Northbay the original bid price. The cases were consolidated. Pursuant to this revised contract, the trial court awarded Northbay $7,000 in excess of the original bid. Northbay and Greer appealed.
The appellate court held that the agreement for reformation of bid under which the district agreed to pay Northbay an additional [138 Cal.Rptr. 752] $7,000 was void. The court said (p. 336, 76 Cal.Rptr. p. 378):
'Upon discovery of the error, Northbay may well have had the right to rescind its bid (M. F. Kemper Constr. Co. v. City of Los Angeles, 37 Cal.2d 696, 235 P.2d 7). It chose not to suggest rescission. Rather, it sought an increase in the contract price. Granting of such an increase directly violated the statutory requirement that contracts be let only to the lowest bidder answering a published call for bids. (Paterson v. Board of Trustees, 157 Cal.App.2d 811, 321 P.2d 825; see Lemoge Electric v. County of San Mateo, 46 Cal.2d 659, 297 P.2d 638.) Because the board could make no contract in excess of the bid, its resolution of November 30 purporting to fix a price of more than $71,000 was void, and created no enforceable contract against the district. Although the trial court correctly declined to allow Northbay recovery for the $22,000 it sought it erred in allowing more than $7,000 in excess of the bid.' (Emphasis ours.)
With reference to Greer's claim that no money at all be paid to Northbay, the appellate court said (p. 337, 76 Cal.Rptr. p. 378):
'No party, either at trial or here, argued the propriety of the district's having paid anything at all to Northbay. But the rule not only precludes recovery for work done without compliance with a competitive bidding requirement; but requires return to the municipality of payments made upon an invalid contract if sought in an action by a taxpayer (Miller v. McKinnon, 20 Cal.2d 83, 124 P.2d 34, 140 A.L.R. 570). Failure of the parties to urge such illegality does not relieve an appellate court its duty to protect the municipality (Stockton Morris, etc., Co. v. California, etc., Corp., 112 Cal.App.2d 684, 690, 247 P.2d 90; see Fewel & Dawes, Inc. v. Pratt, 17 Cal.2d 85, 92, 109 P.2d 650). Here, the taxpayer's complaint seeks to enjoin all payments under the contract. Thus, even though the issue was not argued below or here, we asked counsel to brief the right of Northbay to retain the payments made to it. Upon careful consideration of this question, we are satisfied that payment to Northbay of the original bid price was proper.' (Emphasis ours.)
The reason for the court's conclusion was that the original contract had been executed pursuant to the requirements for competitive bidding.
If, as Greer holds, a municipality may not by express written contract agree to pay more than the bid price even where clerical error has been committed, it is difficult to see how a municipality can be held liable for an implied contract or breach of contract for a price higher than the contract price merely because it ordered a greater quantity than it had the right to do under a valid written contract.
As we hereafter conclude, in the case at bar since contract 709 is a valid contract, DWP is obligated to pay for all aggregate which it ordered under that contract but only at the contract price of $1.80 per ton.
The closest case in point from out of state which our research discloses is the case of Hess, Inc. v. Hazle Township (1973) 9 Pa. Cmwlth. 409, 305 A.2d 404, where Hazle Township called for bids on 100 tons 'more or less' of aggregate. Hess, Inc. was the low bidder at $3.50 per ton or a 'total contract price of $350.00.' Hess, Inc. delivered 6,000 tons of aggregate and sued on the contract for $23,625 money damages for breach of contract. The trial court rendered judgment for $350 and Hess, Inc. appealed. The Commonwealth Court of Pennsylvania affirmed the judgment for $350, stating (p. 406): [138 Cal.Rptr. 753]
In the case at bar plaintiff's complaint was on the contract for damages for breach of contract. SKLH does not sue in quantum meruit.
In Hess, Inc. v. Hazle Township, supra, the appellate court stated that Hess, Inc. might have a valid claim in quantum meruit under pennsylvania law, which is not permitted under California law. However, in a subsequent decision in the same case, Hess, Inc. v. Hazle Township (1976) Pa.Cmwlth., 363 A.2d 844, the appellate court held that Hess, Inc. did not have a meritorious cause of action in quantum meruit.
'The legislative directives [regarding competitive bidding] in these provisions are mandatory and must be observed. Luzerne Township v. Fayette County, 330 Pa. 247, 199 A. 327 (1938). Where the statutory mode of making a public contract is not observed, it cannot be enforced against the governmental agency. Willis Bancroft, Inc. v. Millcreek Township, 335 Pa. 529, 6 A.2d 916 (1939); Luzerne Township v. Fayette County, 330 Pa. 247, 199 A. 327 (1938). These rules preclude appellant's recovery in this case. The compensation claimed ($23,650) fails because it does not comply with the terms of the Code which require competitive bidding, a precise and stated total contract figure and the posting of a 50% bond. Continued acceptance by the municipality of deliveries beyond the 100 ton specification could not bind the township to pay compensation under the existing contract. Those dealing with a township through its officers must, at their risk, take notice of the scope and limitations of the authority of those officers and must stand ready to accept the consequences if the requirements prescribed by law have not been met. Willis Bancroft, Inc. v. Millcreek Township, 335 Pa. 529, 6 A.2d 916 (1939); Luzerne Township v. Fayette County, 330 Pa. 247, 199 A.2d 327 (1938). See 10 McQuillin, Municipal Corporations § 29.04; 3 Antieau, Municipal Corporation Law, § 23.15.'
It is manifest that if we were to affirm the judgment in the case at bar, municipalities would be thereby provided with a simple process by which they could circumvent the public policy involved in requirements for competitive bidding and they could also evade the constitutional limitations expressed in article XI, section 10, subparagraph (a), supra. A municipality could simply let a contract by competitive bidding for only a fraction of its needs for a particular commodity and then demand delivery of more than was required by the contract and thereby become obligated to pay prices in excess of the price established by competitive bidding. Such a result would nullify the presumed benefits to be derived by the general public from charter, statutory or constitutional requirements for competitive bidding and would provide an open invitation for corrupt practices.
We are not indifferent to the predicament that SKLH found itself in during the summer of 1971 when it was saddled with a contract, even though voluntarily entered into, which fixed the price of aggregate at substantially less than could be obtained in the open market, and DWP was demanding delivery of more aggregate than SKLH believed that it had the obligation to supply or that DWP had the right to demand under contract 709. In our view SKLH misconceived its remedy. It should not have made deliveries 'under protest.' SKLH argues that it had the right to make deliveries 'under protest' under Commercial Code section 1207 which reads: 'A party who with explicit reservation of rights performs or promises performance or assents to performance in a manner demanded or offered by the other party does not thereby prejudice the rights reserved. Such words as 'without prejudice,' 'under protest' or the like are sufficient.'
SKLH argues that by virtue of the provisions of section 1207 the fact that it made deliveries 'under protest' now entitles SKLH to recover the reasonable market value of the aggregate delivered in excess of the quantity required by the contract as interpreted by the trial court. SKLH asserted at oral argument that section 1207 applies equally to both public and private contracts and that all of the cases uniformly so hold. We have been unable to find any California cases so holding and none has been cited to us. In fact, our research indicates that, according to Shepard's California Citations, no California case has cited section 1207 and only one federal case has done so: Teledyne Mid-America Corporation v. Hoh Corporation (9 Cir. 1973) 486 F.2d 987, 993, which involved a private contract and in which the only reference to [138 Cal.Rptr. 754] Commercial Code section 1207 was that it was not 'pertinent.' (p. 993, n. 6.) Our examination of the Uniform Laws Annotated Uniform Commercial Code, Master Edition, fails to disclose any state or federal case anywhere in the United States which holds that Commercial Code section 1207 applies to public contracts to which municipal charters or constitutional provisions requiring competitive bidding apply. In any event Commercial Code section 1207 must be read in conjunction with Commercial Code section 1103 which reads:
'Unless displaced by the particular provisions of this code, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions.'
We have found no case in the United States which interprets Commercial Code section 1103 in the factual context involved in the case at bar. However, the express use of the phrase 'the law relative to the capacity to contract, . . .' (emphasis ours) in section 1103 persuades us that section 1207 was not intended to affect the California law relative to the capacity of municipal officials to contract where the power to contract is governed by the commpetitive bidding requirements of a municipal charter and also by the provisions of the California Constitution (art. 11, § 10, supra). Furthermore, we notice that Commercial Code section 2201 provides that a contract for the sale of goods for a price of more than $500 is 'not enforceable' unless there is a writing signed by the party to be charged or his 'authorized' agent or broker and that even when in writing the 'contract is not enforceable . . . beyond the quantity of goods shown in such writing.' (Emphasis ours see also Com.Code § 1206.) Commercial Code section 2201 clearly establishes that contract 709 is not enforceable by SKLH 'beyond the quantity of goods shown in such writing.'
The net effect of SKLH's position is that it asserts rights under an alleged implied contract for the reasonable market value of excess aggregate where the critical factor--price--is not in writing and is dependent upon oral testimony and which price was not arrived at by competitive bidding. By the present action SKLH is attempting to collect from DWP the market price for 191,957 tons of aggregate more than was specified in contract 709 as contract 709 was interpreted by the trial court.
What we are concerned with is not a question of contract interpretation but a question of power to contract. Did the municipal officials have the power to demand delivery of more aggregate than was authorized by contract 709? The law is clear that where a municipality is one of the contracting parties, the mode of contracting is the measure of the power to contract. (Dynamic Ind. Co. v. City of Long Beach, supra, 159 Cal.App.2d 294, 323 P.2d 768.) If plaintiff's cause of action is based on contract, express or implied, other than for the price specified in contract 709, then the contract is void under section 386(b) of the City Charter and consequently SKLH had no right to collect. At the very most the notice that SKLH was proceeding 'under protest' merely constituted 'a reservation of rights' under Commercial Code section 1207. If the alleged contract for the market price of quantities of aggregate in excess of 604,000 tons was void under City Charter section 386(b), then SKLH had no 'rights' which could be reserved by use of the words 'under protest.'
We conclude from all of the foregoing that the use of the term 'under protest' as provided in Commercial Code section 1207 merely protects 'the rights reserved' and that the rights reserved could not balidate an otherwise invalid contract or validate a demand for aggregate by DWP officials which they had no contractual right to demand or create a power where none existed or provide a legal substitute for the legal requirements for competitive [138 Cal.Rptr. 755] bidding. When SKLH elected to proceed and make deliveries of aggregate demanded by DWP, it proceeded at its peril, charged with full knowledge of the charter and constitutional limitations on the power and authority of such municipal officials. SKLH thereby waived its right to recover more than $1.80 a ton since it knew as a matter of law that such DWP officials had no legal power to pay more than $1.80 a ton. The statement by SKLH that it was not waiving its rights was a nullity since in contemplation of law that is precisely what it did. SKLH could not change the legal effect of what it did by declarations that it was not changing that legal effect.
Insofar as DWP's cross-complaint is concerned, DWP has presented no contention or argument with reference thereto and appears to have abandoned any appeal in connection with the judgment on the cross-complaint. The judgment on the cross-complaint will, therefore, be affirmed.
The judgment insofar as it is in favor of the Department of Water and Power of the City of Los Angeles on the fourth cause of action of the complaint is affirmed. The judgment as to the first and second causes of action of the complaint is reversed, with instructions to enter judgment in favor of the Department of Water and Power of the City of Los Angeles; the judgment on the cross-complaint is affirmed.
FORD, P. J., and COBEY, J., concur.
Rehearing granted; LORING, J., dissenting.
[*] See 73 Cal.App.3d 679 for subsequent opinion.
No Breach of Contract Where Contract, Secured by Consideration, Gives Buyer the Option to Specify Quantity to Be Delivered From Time to Time, and Buyer Does so and Pays for Quantities so Delivered at the Agreed Price.
II
Allegations of Complaint Calculated to Mislead and Fail to State Facts Sufficient to Constitute Cause of Action.
* * *
III
City Not Liable in Quasi-Contract or in Implied Contract for Materials Delivered; City Is Liable Only for Goods Delivered Under the Written 'Time and Price' Contract, at a Price Not to Exceed the Contract Price.
IV
Reformation Is Not Appropriate as Both Parties Intended the 'Time & Price' Contract They Signed and Both so Understood Their Agreement.
V
There Is No Liability for Compensation Beyond That Provided for by Written Contract Since No Written Modification of Such Contract Was Made by Department; Only Writings Are Those of SKLH #2 Agreeing to Deliver Under the Contract Terms.
VI
Court Failed to Make Unambiguous Findings on Material Issues Even Though Timely Requested to Do So.
VII
Where One Party Acts Openly According to Its Understanding of Contract Right Which Other Party Agreed With, Not Proper to Find Lack of Good Faith; but Court's Failure to Make Finding on Plaintiff's Good Faith Was Error.'
'August 30, 1971
'Mr. J. L. Mulloy
Engineer of Design and Construction
Los Angeles Department of Water & Power
Post Office Box 111
Los Angeles, California 90054
Attention: Mr. K. O. Cartwright
Castaic Project Manager
Serial Letter No. 16
Subject: Contract No. 709
Dear Sir:
This letter will supplement the information set forth in our letter dated July 27, 1971 regarding the status of our Contract.
As a result of meetings between Department personnel and our representatives it is our understanding that the Department will proceed with a review and evaluation of the additional costs and damages which we have incurred and continue to incur for various reasons and causes for which we feel we should be reimbursed. It is also our understanding that the Department will expedite resolution of these claims. We consider that final settlement of our claims should be achieved by September 30, 1971.
This letter shall serve as notice that we will continue deliveries of aggregate in excess of the 604,000 tons indicated in our letter of July 27, 1971 as long as good faith review and negotiation of these claims are carried out.
However, neither this letter nor the continuing delivery of aggregate in excess of 604,000 tons shall be construed as a waiver of our position regarding our legal obligation to deliver a maximum of 604,000 tons of aggregate under the Contract. Accordingly, we should be deemed to be proceeding under protest and it should be understood that we are reserving all rights legal and equitable with respect to our Contract and our work in connection therewith.
Serial Letter No. 16
August 30, 1971
Page -2
We have included an approval block on this letter for the Department Project Manager's signature as an assurance of the Department's intention to expedite good faith review and negotiation. We would appreciate the return of one (1) signed copy in the self-addressed return envelope which is enclosed.
Very truly yours,
SHEA-KAISER-LOCKHEED-HEALY
(s) M. L. Shank
M. L. Shank
Project Manager
Approved by:
________
Castaic Project Manager
MLS:sd
cc: Stan Belland
Monteleone & McCrory
1912 Lee Tower
5455 Wilshire Boulevard
Los Angeles, California'
'(1) A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.'
'2. Under this Article, a contract for output or requirements is not too indefinite since it is held to mean the actual good faith output or requirements of the particular party. Nor does such a contract lack mutuality of obligation since, under this section, the party who will determine quantity is required to operate his plant or conduct his business in good faith and according to commercial standards of fair dealing in the trade so that his output or requirements will approximate a reasonably foreseeable figure. Reasonable elasticity in the requirements is expressly envisaged by this section and good faith variations from prior requirements are permitted even when the variation may be such as to result in discontinuance. A shut-down by a requirements buyer for lack of orders might be permissible when a shut-down merely to curtail losses would not. The essential test is whether the party is acting in good faith. Similarly, a sudden expansion of the plant by which requirements are to be measured would not be included within the scope of the contract as made but normal expansion undertaken in good faith would be within the scope of this section. One of the factors in an expansion situation would be whether the market price had risen greatly in a case in which the requirements contract contained a fixed price. Reasonable variation of an extreme sort is exemplified in Southwest Natural Gas Co. v. Oklahoma Portland Cement Co., 102 F.2d 630 (C.C.A.10, 1939). This Article takes no position as to whether a requirements contract is a provable claim in bankruptcy.
'3. If an estimate of output or requirements is included in the agreement, no quantity unreasonably disproportionate to it may be tendered or demanded. Any minimum or maximum set by the agreement shows a clear limit on the intended elasticity. In similar fashion, the agreed estimate is to be regarded as a center around which the parties intend the variation to occur.'
'Every contract involving an expenditure of more than five hundred dollars ($500.00) shall, except in cases of urgent necessity, as provided in Section 386 of this charter, be made in writing, the draft whereof shall be approved by the board, officer or employee authorized to make the same, and signed on behalf of the city by the Mayor, or some other person authorized thereto by resolution of the Council in the case of a contract authorized by the Council, or, in the case of other contracts, by the board, officer or employee, as the case may be, authorized to make the same; provided, however, that the approval of the City Attorney of any such contract as to form, as required by this charter, except contracts for the purchase of materials or of labor and materials involving the sum of twenty thousand dollars ($20,000.00) or less, shall be endorsed thereon before the Council, or such board, officer or employee shall have power to approve the same.
Excepted from this provision are all contracts for purchases made by the Purchasing Agent under the provisions of Section 391.'