Lathrop Co. v. City of Toledo

• Citation: 34 O.O.2d 278,5 Ohio St.2d 165,214 N.E.2d 408
• Decision Date: 16 February 1966
• Docket Number: No. 39416,39416
• Parties: , 34 O.O.2d 278 The LATHROP CO., Appellant, v. CITY OF TOLEDO, Appellee.
• Court: United States State Supreme Court of Ohio

Page 165

5 Ohio St.2d 165

214 N.E.2d 408, 34 O.O.2d 278

The LATHROP CO., Appellant, v. CITY OF TOLEDO, Appellee.

No. 39416.

Supreme Court of Ohio.

Feb. 16, 1966.

Syllabus by the Court

1. Where a private contractor and a municipal corporation duly execute a public-improvement contract, and where the contractor performs his contract obligations, such contractor may recover on the contract from the municipal corporation for breach of its promise to fulfill the conditions precedent as expressed in such corporation's charter.

2. Where the city of Toledo and a private contractor duly execute a public-improvement contract which expressly prescribes the rights and duties of the parties in the event extra work becomes necessary and which sets a reasonably ascertainable standard for determining the cost of the extra work, Sections 225 to 229 of the Charter of the city of Toledo are inapplicable, where the contractor sues on the contract for the performance of the extra work. (City of Portsmouth v. Nicola Building Co., 106 Ohio St. 550, 140 N.E. 174, approved and followed.)

This cause arose out of a contract between the appellant, The Lathrop Company (hereinafter called Lathrop) and appellee, the city of Toledo (hereinafter called City).

In 1960, the City advertised for bids on a public-improvement contract for the repair and improvement of the Anthony Wayne Bridge in Toledo, Ohio. Lathrop was awarded the $1,285,000 contract. The portion of the work concerning the cleaning and repainting of the steel was priced at $215.000.

The contract was prepared exclusively by the City. It contains detailed specifications controlling both the method of preparing the steel surface and the composition of the paint to be used.

When the painting phase of the contract was about one-half completed, the paint that was applied failed. Lathrop had two independent testing laboratories investigate. They reported that the paint met the specifications prescribed but could not be made to give satisfactory performance. The City ordered Lathrop to remove the paint and to redo the work in accordance with the City's new paint specifications. However, the City refused to pay Lathrop for the extra work involved, contending that the guarantee clause of the contract required Lathrop to do the extra work without compensation. The guarantee clause reads as follows:

'All materials and workmanship covered by this contract, including all additions or alterations to the contract shall be guaranteed by the contractor against any defects of material or faulty workmanship for a period of one (1) year from the completion of this contract and the acceptance of this project by the City. The contractor shall make good at his own expense any such defects or faulty workmanship during the life of this guarantee.'

Lathrop performed the extra work not because it was subject to the guarantee clause but because of section 19 of the contract, which reads in part as follows:

'* * * inasmuch as the prompt completion of the work is a matter of public importance, all work required by the director shall be promptly performed in accordance with his directions and to his satisfaction, reserving to the parties, however, the right to have determined by the method hereinafter provided [arbitration ^* all questions relating to compensation, damages or other payments of money.

'* * * the city shall have entire freedom in the accomplishment of the work in accordance with the judgment of the director without power on the part of the contractor to delay it by legal proceedings, reserving, however, to the contractor his right to money damages in the event that any action be taken by the city shall be wrongful.'

Lathrop asserted such reservation of its rights and then proceeded to do the extra work. Section 12(c) of the contract, pertaining to such extra work, provides that:

'Any additional labor or material found to be necessary as the work progresses which may be beyond the scope or intent of this contract as set forth in these specifications, will be paid for at the same unit prices as bid. The extent of any work other than herein specified will be determined by the engineer and the cost of such additional work must be made in writing and filed with the Division of Harbors and Bridges. All such extra work will be included in a supplementary contract and will be paid for at the time of the final payment on this contract.'

The City found extra work to be necessary and ordered it to be done. However, the city engineer refused to reduce the cost of such work to writing and to file it with the Division of Harbors and Bridges and further refused to included such extra work in a supplementary contract and to pay for it at the time of the final payment on the contract.

Lathrop brought an action for specific performance in the Common Pleas Court of Lucas County. Lathrop seeks to require the City to issue a formal change order and execute a supplementary contract to compensate it for the extra work done at the order of the City pursuant to the terms of the original contract. It alleges that 'the reasonable value of said extra work and the amount of additional compensation and/or damages to which Lathrop is entitled under the contract between the parties is $114,696.17' and prays for such sum with interest. At the commencement of the trial, the court denied equitable relief to Lathrop and relegated it to its action at law for damages. The issue put to the jury was whether the failure of the paint was due to the painter or the paint specified by the City.

The jury found for Lathrop and awarded $50,000 in damages. The Court of Appeals reversed the judgment of the Court of Common Pleas on the grounds (1) that the charter of Toledo had not been complied with when the City changed its contract specifications and ordered extra work to be done, and (2) that an action for quantum meruit does not lie against the City.

The relevant provisions of the charter are as follows:

'Sec. 225. Alterations or Modifications in Contract.

'When, in the prosecution of any work, or improvement under contract, it becomes necessary to make alterations or modifications in such contract, such alterations or modifications shall be made only upon the written order of the city manager. No such order shall be effective until the price to be paid for the work and material, or both, under the altered or modifid contract, shall have been agreed upon in writing and signed by the contractor and the city manager in behalf of the city.' This section of the charter brings into focus the provisions of section 12(c) of the contract, supra.

'Sec. 226. Certification by City Auditor.

'No contract shall be executed or order involving the expenditure of money shall be made unless there is attached thereto a certificate of the city auditor that the amount required to meet the same has been lawfully appropriated for such purpose and is in the treasury or in the process of collection to the credit of and appropriate funds free from any previous incumbrance as prescribed by the General Code of Ohio [Section 5625-33(d), now Section 5705.41(D) of the Revised Code]; and all expenditures of money shall be subject to the provisions thereof.

'The term contract as used herein shall be construed as exclusive of current payrolls of regular employees and officers.

'Sec. 227. What Shall Authorize Certification.

'All moneys actually in the treasury to the credit of the fund from which they are to be drawn, and all moneys applicable to the payment of the obligation or appropriation involved, that are anticipated to come into the treasury before maturity of such contract, agreement, or obligation, from taxes or assessments, or from sales of services, products, or byproducts, or from any city undertakings, fees, charges, accounts and bills receivable or other credits in process of collection; and all moneys applicable to the payment of such obligation or appropriation, which are to be paid into the treasury prior to the maturity thereof, arising from the sale or lease of lands or other property, and moneys to be derived from lawfully authorized bonds sold and in process of delivery shall, for the purposes of such certificate, be deemed in the treasury to the credit of the appropriate fund and subject to such certification.

'Sec. 228. Contracts and Purchases in Excess of Five Hundred Dollars.

'No contract shall be executed or purchase made involving an expenditure or five hundred dollars or more unless the same shall have been first authorized by the council. Every such contract shall be in writing and shall be executed in behalf of the city of Toledo by the city manager. In case of such a purchase no bid shall be accepted without the written approval of the city manager.

'Sec. 229. Certain Contracts and Measures Void.

'All contracts, agreements, or other obligations entered into, and all ordinances, resolutions, and orders adopted, contrary to the provisions of the three preceding sections, shall be void, and no person shall have any claim or demand against the city thereunder, nor shall the council, or any officer of the city, waive or qualify the limits fixed by any ordinance, resolution or order, complying with this or the three preceding sections, or fasten upon the city any liability whatever in excess of such limits, or release any party from an exact compliance with his contract under such ordinance, resolution, or order.'

This court allowed Lathrop's motion to certify the record, it appearing that questions of 'public interest' concerning the inter-relationship of contract law and the powers of a municipal corporation are involved.

Shumaker, Loop & Kendrick, John W. Hackett, Jr., and Carl V. Bruggeman, Toledo, for appellant.

Louis R. Young, Director of Law, John J. Burkhart and James W. Proctor, Toledo, for appellee.

HERBERT, Judge.

The basic question presented here is whether Lathrop may recover for the extra work...