Colowyo Coal Co. v. City of Colorado Springs

• Decision Date: 24 February 1994
• Docket Number: No. 92CA2077,92CA2077
• Parties: COLOWYO COAL COMPANY, Plaintiff-Appellee, v. CITY OF COLORADO SPRINGS, Defendant-Appellant. . III
• Court: Colorado Court of Appeals

Page 438

879 P.2d 438

COLOWYO COAL COMPANY, Plaintiff-Appellee, v. CITY OF COLORADO SPRINGS, Defendant-Appellant.

No. 92CA2077.

Colorado Court of Appeals Div. III.

Feb. 24, 1994.

Rehearing Denied April 7, 1994.

Certiorari Denied Sept. 12, 1994.

Davis, Graham & Stubbs, Andrew M. Low, Christopher L. Richardson, Robert A. Gatter, Jr., Denver, for plaintiff-appellee.

Collins & McConnell, Jeffrey C. Collins, Robert M. McConnell, Colorado Springs, James G. Colvin II, City Atty., Gregory L. Johnson, Asst. City Atty., Patricia K. Kelly, Sr. Litigation Atty., Colorado Springs, for defendant-appellant.

Alison Maynard, Craig, for amicus curiae City of Craig.

Opinion by Judge DAVIDSON.

Defendant, City of Colorado Springs, appeals from the declaratory judgment entered by the trial court in favor of plaintiff, Colowyo Coal Co. (Colowyo), and which determined that the long-term coal supply contract between the parties is valid, binding, and enforceable. We affirm.

In 1976, the parties entered into a long-term agreement under which Colowyo was to supply coal to Colorado Springs for use in its electrical power generation plants. Colowyo was attempting at that time to arrange long-term coal supply contracts in order to secure the financing necessary to open operations at a coal mine near Craig, Colorado. At the same time, Colorado Springs was expanding its coal generated electrical power capacity and, as coal prices were expected to rise dramatically in the coming years, was interested in acquiring an assured coal supply at a fixed price.

This long-term contract was approved by resolution of the Colorado Springs city council. Because the price of coal did not rise as originally predicted, the agreed upon pricing system included in the contract--which to a large extent functioned independently of the prevailing market price for coal--soon led to a contract price which was substantially above the market price.

In 1982, and again in 1987, when the contract was revised, Colowyo agreed to lower the contract price. In 1991, the parties again attempted to negotiate a modification of the price. When the negotiations were unsuccessful, Colorado Springs appropriated an amount for the contract coal purchases in its 1992 budget which did not meet the terms of the contract. Colorado Springs then offered to pay this lower amount for the coal due to be delivered under the contract and refused to pay the higher contract price.

Colowyo filed suit in January 1992 for declaratory judgment as to the validity of the contract and for breach of contract and damages resulting from Colorado Springs' refusal to pay full contract price. Without waiving its rights to enforce the contract as written, Colowyo agreed to supply coal to Colorado Springs under the budgeted price. Colorado Springs filed a counterclaim for declaratory judgment claiming that the contract was unenforceable because of a prior appropriation provision in the Colorado Springs city charter.

Pursuant to a stipulated statement of facts, both parties moved for summary judgment on the declaratory judgment claim and counterclaim. After oral argument, the trial court entered judgment in favor of Colowyo and against Colorado Springs. The trial court found that the contract was a valid, binding, and enforceable agreement between the parties because a fund, separate and apart from the general city revenues, had been used to pay for the coal under the contract and this removed the contract from the effect of the city charter provision. Additionally, the trial court determined that running a utility is a proprietary activity to which the city charter provision did not apply. The trial court further found that Colorado Springs was estopped from disavowing the contract by representations made in the contract and by its behavior in abiding by the contract for a number of years. Pursuant to C.R.C.P. 54(b), the trial court certified the judgment as final for purposes of appeal.

I.

The fundamental question raised in this appeal is whether Colorado Springs, by the authority of Colorado Springs City Charter § 40 and through the exercise of its police power, can nullify, without liability, a long-term contract which it agrees was otherwise valid and which has been performed for 15 years. We hold that it cannot.

As a preliminary matter, in order properly to frame the issues, it is necessary to set forth the development of the city's arguments in these proceedings.

Section 40 of the Colorado Springs City Charter (previously § 44 at the time the contract was entered into) provides for a limitation on the ability of the city to incur contractual liability, with specific exceptions for emergencies, bonded indebtedness, and special assessments for local improvements. According to § 40:

No Liability Without Appropriation--Neither the Council nor any administrative officer or employee of the City shall have authority to make any contract involving the expenditure of public money, or impose upon the City any liability to pay money, unless and until a definite amount of money shall have been appropriated for the liquidation of all pecuniary liability of the City under such contract or in consequence thereof to mature during the period covered by the appropriation. Such contract shall be ab initio null and void as to the City for any other or further liability, provided, first that nothing herein contained shall prevent the Council from providing for payment of any expense, the necessity of which is caused by any casualty, accident or unforeseen contingency arising after the passage of the annual appropriation ordinance; and, second, that the provisions of this Section shall not apply to or limit the authority conferred in relation to bonded indebtedness, nor for monies to be collected by special assessments for local improvements.

Pursuant to this section, purchases and expenditures made by the city must be funded by monies which have already been appropriated by the city council.

In the trial court proceedings, Colorado Springs first took the position that § 40 created a means for the city to protect its ratepayers from runaway utility costs by requiring yearly appropriations of the funds necessary to pay for the scheduled deliveries of coal for that year. At the beginning of any fiscal year, Colorado Springs argued, if the city determined that the prices called for by the contract were too high, the city could, by simply failing to appropriate the necessary funds, declare the contract void as of that time and avoid "any other or further liability." In effect, Colorado Springs contended that § 40 engrafted an option upon the contract allowing it to renew yearly, and because Colowyo was aware, or should have been aware, that all relevant portions of the city charter applied to the formation of the contract, Colowyo should have realized the contract was subject to annual renewal.

Later, Colorado Springs argued, in the alternative, that the city's failure to appropriate funding for the entire 23-year term of the contract in 1976 rendered the contract ab initio null and void and that the delivery of coal and acceptance of payment by the city for 15 years was undertaken by Colowyo on a "volunteer" basis.

During oral argument on appeal, the city clarified its position and stated that it no longer wished to maintain that the contract was void ab initio. The city's reason for discarding its previous argument is not apparent. We note, however, that Colorado Springs behaved as if the contract were binding and enforceable for a significant portion of its intended length, including years in which the contract price significantly exceeded the market price. Because a party may not both affirm and disaffirm an agreement, if the city were now to assert that the contract was void ab initio, a reasonable inference could be drawn that, despite knowing of the invalidity of the contract, Colorado Springs affirmatively misled Colowyo as to that fact. See Tayyara v. Stetson, 30 Colo.App. 250, 492 P.2d 73 (1971).

As Colorado Springs now contends that the contract's validity from year to year was dependent upon annual appropriations by the city council, we will conduct our analysis accordingly.

II.

Colorado Springs argues that the trial court's finding that § 40 did not operate to allow the city to nullify its long-term contract with Colowyo was in error. Specifically, Colorado Springs contends that the trial court erroneously determined that, in operating its utilities, Colorado Springs was acting in its business, or proprietary function, rather than its governmental function. We agree with the trial court that, pursuant to this distinction, the contract is valid and represents a binding agreement throughout its expressly stated term.

A.

Colorado courts have recognized in several contexts the distinction between the actions of a city in its governmental, or legislative capacity, in which it is a sovereign and governs its citizens, and the actions of a city in its proprietary capacity, in which it acts for the private advantage of its residents and for itself as a legal entity. City of Denver v. Hubbard, 17 Colo.App. 346, 68 P. 993 (1902); see also 2 E. McQuillin, Municipal Corporations § 10.05 at 988 (3d rev. ed. 1988) ("Private, municipal, proprietary functions and powers are those relating to the accomplishment of private corporate purposes in which the public is only indirectly concerned, and as to which the municipal corporation is regarded as a legal individual. Private functions are those granted for the specific benefit and advantage of the urban community embraced within the corporate boundaries.").

"The governmental functions of a municipal corporation are those functions exercised ... for the public good generally, whereas proprietary functions are those exercised for the peculiar benefit and advantage of the citizens of the municipality." City of Pueblo v. Weed, 39 Colo.App. 415, 418-19, 570 P.2d...