Merco Const. Engineers, Inc. v. Los Angeles Unified School Dist. of Los Angeles County

• Decision Date: 19 June 1969
• Court: California Court of Appeals Court of Appeals
• Parties: MERCO CONSTRUCTION ENGINEERS, INC., Plaintiff and Appellant, v. LOS ANGELES UNIFIED SCHOOL DISTRICT OF LOS ANGELES COUNTY, Defendant and Respondent. Civ. 32044.

Page 23

79 Cal.Rptr. 23

274 Cal.App.2d 154

MERCO CONSTRUCTION ENGINEERS, INC., Plaintiff and Appellant, v. LOS ANGELES UNIFIED SCHOOL DISTRICT OF LOS ANGELES COUNTY, Defendant and Respondent.

Civ. 32044.

Court of Appeal, Second District, Division 5, California.

June 19, 1969.

Hearing Denied Aug. 13, 1969.

Grant & Popovich and Irvin Grant, Los Angeles, for plaintiff and appellant.

John D. Maharg, County Counsel, and Ron Apperson, Deputy County Counsel, for defendant and respondent.

Henry B. Ely, Los Angeles, as amicus curiae, on behalf of respondent.

KAUS, Presiding Justice.

Plaintiff appeals from a judgment which followed an order sustaining defendant's general demurrer to plaintiff's amended complaint without leave to amend.

The gravamen of plaintiff's action is that the defendant Los Angeles Unified School District of Los Angeles County ('District') acted illegally in assessing a $77,000 penalty against certain sums due plaintiff for the construction of the Crenshaw High School.

The legal questions involved in this appeal are mainly: 1. the constitutionality of the 'Subletting and Subcontracting Fair Practices Act' (Govt. Code, §§ 4100--4113, the 'Act'); 2. the applicability of section 1670 of the Civil Code; and 3. the question whether under the facts alleged in the amended complaint the District is estopped to enforce the Act.

The Act

A brief outline of relevant parts of the Act will be helpful. ¹

The Act contains a legislative finding that bid shopping and bid peddling in connection with the construction of public improvements have various specified bad effects (§ 4101); it prescribes that, except as to insignificant portions of the improvement, a contractor must list all proposed subcontractors in his bid (§ 4104); it allows substitutions or deletions of subcontractors on certain conditions (§ 4107); and, in case of violation by the prime contractor, it gives the awarding authority various options to penalize the contractor, which it may exercise in its discretion: 1. cancellation of the contract; 2. assessment of a penalty in an amount no greater than 10 percent of the subcontract involved; or 3. both. Any penalty is to be deposited 'in the fund out of which the prime contract is awarded' (§ 4110).

The Complaint

Plaintiff's complaint sounds in declaratory relief. The following is a summary of its allegations.

Plaintiff, a licensed general contractor, submitted a bid for the construction of the school. In the preliminary compilation of its bid, plaintiff included as the cost of mechanical work the bid of J. A. Mitchell Co. ('Mitchell') in the sum of.$947,500.

Six minutes before the deadline for submission of bids to defendant, and in accordance with a custom of last minute bidding, plaintiff received a telephone bid for mechanical work from A. Strauss Co. ('Strauss') in the sum of $770,000. Because of the discrepancy in the bids of Mitchell and Strauss, plaintiff telephoned Strauss to confirm its bid. Plaintiff was told that the Strauss bid did not include steam heating work, but that another subcontractor had submitted a bid for that work. During this conversation no mention was made of the fact that the Strauss bid did not include the automatic fire sprinkler system.

Plaintiff found a bid of $136,000 for the steam heating from another subcontractor. This bid plus the Strauss bid totaled $906,000, $41,500 less than the Mitchell bid. Plaintiff therefore reduced its total bid by that sum.

Later that day, after the bids had been opened, plaintiff discovered that the Strauss bid did not include the automatic fire sprinkler system and that the reasonable cost of furnishing and installing such a system was $88,500. Plaintiff then phoned Ida Del Pozzo, the Senior Administrative Assistant in defendant's Planning Division. Miss Del Pozzo's duties included conferring with contractors on problems arising out of construction contracts and advising them on procedures to follow to resolve such problems and on defendant's established policies with respect to such contracts.

Plaintiff asked Miss Del Pozzo the proper procedure to follow 'to be relieved of the error which had been made in listing A. Strauss Co. as a proposed subcontractor.' She advised plaintiff that it should take no action to obtain relief until after the 'award of the prime contract' as such a request would delay award of the contract, but that a request for relief after the award of the contract would be granted because defendant 'had established a policy of permitting the prime contractor to substitute or delete a proposed subcontractor who had been inadvertently listed.' Plaintiff relied on this advice and took no action to be relieved of its mistake until after the prime contract was awarded. One week after submission of its bid, plaintiff entered into a written contract to construct the school for the price of the submitted bid.

Thereafter plaintiff requested deletion ² of Strauss from the proposed list of subcontractors. Defendant's staff found that the listing of Strauss was legally excusable error and recommended that plaintiff's request be granted as it would be in defendant's best interests to do so. Defendant, however, rejected the staff recommendation and denied plaintiff's request.

Plaintiff nonetheless failed to enter a contract with Strauss. The complaint does not allege just what plaintiff did about having Strauss' part of the work accomplished. It is stipulated, however, that plaintiff had it done by another subcontractor.

Defendant, exercising its discretion under section 4110 of the Government Code, assessed a penalty of $77,000 against plaintiff, a sum equal to 10 percent of the Strauss bid, to be deducted from the amount earned by plaintiff in performance of the prime contract. This action followed.

In order to avoid, if possible, any consideration of the constitutional issues, we first consider plaintiff's other contentions.

Civil Code Section 1670

This issue is spurious. The penalty which defendant has assessed derives its validity not from the contract between the parties, but from the Act. '* * * The Legislature, of course, has power to provide for administrative sanctions with respect to a licensee who violates a regulation deemed to be in the public interest. * * *' (Allied Properties v. Dept. of Alcoholic Beverage Control, 53 Cal.2d 141, 150, 346 P.2d 737, 742; see also Fred J. Early, Jr., Co. v. County Sanitation Dist., 214 Cal.App.2d 505, 29 Cal.Rptr. 633; Shalz v. Union School Dist., 58 Cal.App.2d 599, 606, 137 P.2d 762.)

Estoppel

At the very outset of the discussion it should be noted what this lawsuit is not about. We have here no question of plaintiff's power to rescind because of a clerical mistake. (M. F. Kemper Const. Co. v. City of L.A., 37 Cal.2d 696, 235 P.2d 7.) Had plaintiff refused to sign its contract with defendant, any differences of opinion concerning its right to do so would have reached the courts in an entirely different posture. Plaintiff claims nothing less than that, knowing of the mistake, it could nevertheless sign the prime contract without first being permitted to substitute or delete Strauss, that Miss Del Pozzo's representations gave it an absolute right to later relief and that, such relief being refused, it had the right to complete performance with a subcontractor other than Strauss without being subjected to the statutory penalty.

Estoppel may be invoked against a governmental agency only when the agency has the power to do that which it promised to do or which it led the opposing party reasonably and justifiably to believe it would do. Where, however, the procedure specified in a statute is the measure of the agency's power to act, estoppel cannot be applied to enlarge that power. (County of San Diego v. Cal. Water, etc., Co., 30 Cal.2d 817, 825, 186 P.2d 124, 175 A.L.R. 747.)

Estoppel is most frequently invoked against government entities in situations where a tort claims statute has not been complied with for reasons factually sufficient to create an estoppel. The rationale was set forth in Farrell v. County of Placer, 23 Cal.2d 624, 630--631, 145 P.2d 570, 573, 153 A.L.R. 323: 'Although it has been repeatedly held that compliance with the appropriate claim statute is mandatory 26, 230, 195 P.2d 792, 10 A.L.R.2d 826; cause of action, nevertheless the time element with respect to the filing of the claim is essentially procedural in nature (citations omitted) and is analogous to a statute of limitation. (Citations omitted.) It has been intimated by some authorities that the claim statute is the measure of the power of the governmental agency in paying the tort claims involved, and hence any deviation from that procedure cannot be dispensed with by waiver, estoppel, or otherwise. That conclusion, at least with respect to the time of filing the claim, is not supported by the statute or reason. The various reasons advanced for the adoption of the claim statute, that is, to afford the agency an opportunity to investigate the merits of the claim, and to arrive at a settlement, thus avoiding litigation, are not inconsistent with the view that The statute is not the measure of the power. From the standpoint of the agency it has general power to pay claims arising from the liability imposed by the public liability act. Hence the filing of the claim within ninety days, while mandatory upon the claimant and a condition precedent to his cause of action, is nothing more than a procedural requirement as to the agency, which, as to the claimant, may be excused by estoppel. There are cases where the procedure specified in the statute is manifestly the measure of the power. (Citation omitted.) There are instances where the procedural steps are not the measure of the power and estoppel may be invoked against a governmental agency from relying upon irregularities therein. (Citations omitted.) This court has held that compliance with the claim statute is not...