Bilardi Constr., Inc. v. Spencer

• Decision Date: 21 April 1970
• Citation: 86 Cal.Rptr. 406,6 Cal.App.3d 771
• Court: California Court of Appeals
• Parties: BILARDI CONSTRUCTION, INC., a corporation, Plaintiff and Cross-Defendant In Indemnity and Respondent, v. Samuel R. SPENCER, dba Spencer Construction Company, Defendants and Cross-Complainant in Indemnity, Appellant and Respondent, City of Morgan Hill, a Municipal Corporation, Cross-Defendant and Cross-Complainant and Appellant and Respondent. Civ. 25560.

Page 406

86 Cal.Rptr. 406

6 Cal.App.3d 771

BILARDI CONSTRUCTION, INC., a corporation, Plaintiff and Cross-Defendant In Indemnity and Respondent, v. Samuel R. SPENCER, dba Spencer Construction Company, Defendants and Cross-Complainant in Indemnity, Appellant and Respondent City of Morgan Hill, a Municipal Corporation, Cross-Defendant and Cross-Complainant and Appellant and Respondent.

Civ. 25560.

Court of Appeal, First District, Division 1, California.

April 21, 1970.

Frederick H. Pearson, Jr., San Jose, for Bilardi Construction, inc.

Byers & Jacobs, Gilroy, for Samuel R. Spencer.

Ernest Rusconi, City Atty., Morgan Hill, for City of Morgan Hill.

SIMS, Associate Justice.

Cross-defendant, the City of Morgan Hill, a municipal corporation, has appealed from a judgment which awarded cross-complainant, Samuel R. Spencer, the general contractor for improvement work conducted under the provisions of the Municipal Improvement Act of 1913, interest in the sum of $1,089.33 as damages for payments made after the due date under the contract, and a balance of $4,800.57, together with interest from the date of the last payment received from the city. The action was commenced by a subcontractor, Bilardi Construction, Inc., a corporation, as plaintiff to recover the balance due from the general contractor as defendant. ¹ It was stipulated that the subcontractor was entitled to $1,276.18 interest as damages for delay in payments actually made to it, and a balance of $7,837.53 together with interest from the date of the last payment received from the general contractor. In order to protect his rights against the subcontractor in the event the city's appeal is successful, the general contractor has appealed from the judgment in favor of the subcontractor.

The city contends: (1) that judgment against it is erroneous because the general contractor cannot recover a general judgment against the city, but only a judgment against such funds as may be available in the special fund created by the sale of bonds authorized under the improvement proceedings; and (2) that the trial court erroneously refused to permit the city to produce evidence to show that it was entitled to liquidated damages from the general contractor for failure to complete the work of improvement within the time fixed in the contract. The general contractor asserts that the city cannot raise the special fund doctrine for the first time on appeal, and, with respect to the second issue, that the city failed to plead an affirmative defense or cross-complaint for liquidated damages, that the trial court properly refused to permit an amendment of the pleadings at the time of trial, and that the payments made by the city after completion, without mention of damages for delay, constituted a waiver of any such claim. Since the issue of damages for delay was in fact set forth in the pretrial order, the case involves the question of the extent to which the provisions of the pretrial order supersede the pleadings.

It is concluded that the city cannot on the record in this case attempt to limit the judgment to the proceeds of a special fund, and that the trial court erred in refusing to receive evidence on and resolve the issues framed by the pretrial order. The judgment must be reversed.

Special Fund Doctrine

None of the pleadings filed by the city contained any reference to the theory that if one of the claimants were successful recovery could only be had from a special fund. The pleadings do reveal, however, that the agreement between the general contractor and the city contained the following paragraph: '9. Liability: The costs of said work and improvements will be paid from the proceeds of the construction fund created by the City under the Municipal Improvement Act of 1913 pursuant to said Resolution of Intention. In no case will the City be liable for any part of the costs thereof other than from the moneys in said construction fund, excepting where it has been provided in said Resolution of Intention, or by subsequent resolution of the City Council of said City providing for the making of a contribution to said construction fund, in which case the liability of the City shall be limited to the amount of said contribution. Under the terms of said Act, the amounts of assessments paid in cash and the proceeds of the bonds issued upon the unpaid assessments thereof will be deposited in said construction fund.' ²

The pretrial conference order recites: 'It is further the position of the City of Morgan Hill that any judgment obtained must be paid out of monies raised by the Assessment District and not from the general funds of the City.' This statement, which immediately precedes the listing of the three issues which are reviewed below, was not carried forward as an issue to be determined at the trial of the case.

The city did not raise the point at the trial. An argument did develop as to whether the final contract payment became due 35 days after the certificate of completion was recorded, or 35 days after the work was accepted by the execution of the certificate of completion by the project engineer. The city contended that the agreement incorporated a reference to the Municipal Improvement Act of 1913, and that by the terms of that act the payment could not be made until the lien period expired after the recording of the certificate. (Cf. § 10503; and see Peter Kiewit Sons' Co. v. Pasadena City Junior College Dist. (1963) 59 Cal.2d 241, 245--246, 28 Cal.Rptr. 714, 379 P.2d 18.) The trial court rejected that argument and fixed the due date as 35 days after the certificate was signed. ³ The judgment imposed unqualified liability on the city, and there was no attempt to correct it in connection with the proceedings in which the city sought a new trial.

'If at the time of entering into the obligation there is a limitation upon the extent to which a municipality may enter into such obligation, or upon the extent of taxation for the payment of its liability, or Upon the mode in which such payment is to be made, there is no violation of any provision of the constitution, or of any obligation of the municipality, in insisting that the person dealing with it shall be bound by the terms of the law as they existed when he entered into his dealings with the municipality.' (Smith v. Broderick (1895) 107 Cal. 644, 653--654, 40 P. 1033, 1037, emphasis added. See also Inyokern Sanitation Dist. v. Haddock-Engineers (1950) 36 Cal.2d 450, 453--454, 224 P.2d 709; Santa Cruz R.P. Co. v. Broderick (1896) 113 Cal. 628, 629, 45 P. 863; Weaver v. San Francisco (1896) 111 Cal. 319, 325, 43 P. 972; Conlin v. Board of Supervisors (1893) 99 Cal. 17, 24, 33 P. 753, 21 L.R.A. 474; McBean v. San Bernardino (1892) 96 Cal. 183, 187, 31 P. 49; and Gamewell F.A.T. Co. v. Los Angeles (1919) 45 Cal.App. 149, 158, 187 P. 163.)

'So far as this state is concerned, it must be taken to be settled that a provision in the contract that the city shall not be liable will prevent any recovery against such city if the assessments, for any reason, fail to discharge the cost of the work. (Citations.)' (Union Trust Co. v. State of California (1908) 154 Cal. 716, 726, 99 P. 183, 187, 24 L.R.A.,N.S., 1111. See also Inyokern etc. Dist. v. Haddock-Engineers, supra, 36 Cal.2d 450, 453--454, 224 P.2d 709; Conlin v. Board of Supervisors, supra, 99 Cal. 17, 23, 33 P. 753; and McBean v. San Bernardino, supra, 96 Cal. 183, 188, 31 P. 49.)

There are several reasons why the city cannot rely upon the last-quoted principle. Although, under principles hereinafter discussed, the city may have been entitled to raise this issue at the trial it did not do so. The contract called for a total price of $275,748.20. Under the proposal the contractor agreed to do the work 'for the unit prices and/or lump sums' set forth in the schedule on which he made his proposal. The city acknowledged that the gross amount due under the contract was $288,318.79. The court apparently found in accordance with the testimony of the contractor that the total amount due was $288,418. It appears from the contractor's final billing that the increase was occasioned by an increase in quantities called for under the contract, ⁴ and that the sum claimed for extra work (see fn. 4 above) was not at issue in these proceedings.

The resolution of intention under which the proceedings were conducted pursuant to the Municipal Improvement Act of 1913 (Sts. & Hy. Code, §§ 10000--10609) contemplated, 'A proposed assessment of the total amount of the costs and expenses of the proposed acquisitions and improvements * * *.' It also provided that serial bonds would be issued under the Improvement Act of 1911 (Sts. & Hy. Code, §§ 10600 and §§ 5000--6794, particularly §§ 6400--6632) to represent unpaid assessments. The record is silent as to what sum was assessed in these proceedings (see § 10312), or what sums were realized from paid assessments (§§ 10402.5 10403 and 10424), or what sums were realized from bonds issued and sold for unpaid assessments (§§ 10403, 10602 and 10424). It should be noted that section 10425 of the Municipal Improvement Act of 1913 provides, 'If the first assessment or the sale of bonds to represent assessments levied pursuant to this division fails to raise sufficient money to pay all costs, damages, and expenses of the improvement or acquisition, including any judgments rendered in the action and proceedings mentioned in this division and the costs and expenses thereof, the legislative body may pay the deficit out of the general funds, or may order a supplemental assessment to pay the deficit.' (See also § 10426.)

The contractor properly asserts that on this record, after failing to raise the issue at the trial, the city cannot contend for the first time on appeal that the contractor must allege and prove that there are sums in the special fund designated for the improvement proceeding (see § 10424) before he can recover. In the...