South Tahoe Gas Co. v. Hofmann Land Improvement Co.

• Decision Date: 19 May 1972
• Citation: 25 Cal.App.3d 750,102 Cal.Rptr. 286
• Court: California Court of Appeals Court of Appeals
• Parties: SOUTH TAHOE GAS CO., a corporation, Plaintiff and Respondent, v. HOFMANN LAND IMPROVEMENT CO., Inc., a corporation, and Alta Mortgage Company, Defendants and Appellants. Civ. 27743.

Page 286

102 Cal.Rptr. 286

25 Cal.App.3d 750

SOUTH TAHOE GAS CO., a corporation, Plaintiff and Respondent, v. HOFMANN LAND IMPROVEMENT CO., Inc., a corporation, and Alta Mortgage Company, Defendants and Appellants.

Civ. 27743.

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

May 19, 1972.

James R. Madison, Orrick, Herrington, Rowley & Sutcliffe, San Francisco, for respondent.

Fred F. Cooper, Oakland, for appellants.

SIMS, Associate Justice.

Defendants, a corporation which contracted with plaintiff utility for a gas main extension into a tract it was developing, and a second corporation which guaranteed the former's liability under that contract, have appealed from a judgment which awarded the utility $8,562 plus interest, representing the charges for the extension at the effective approved rates for such an extension adjusted for allowable refunds. They contend that the contract for the extension was illegal and unenforceable because the utility contracted to charge for the extension at $3.35 per foot when its allowable rate for such extensions as filed with the State Public Utilities Commission was $2 per foot, and that they were relieved of any liability for the extension because of the utility's fraud.

A review of the record and the applicable law reflects that although the purported charge of $3.35 per foot was acknowledged to be illegal, the trial court properly concluded that the utility was entitled to recover at the $2 rate fixed in the filed and approved rules, and that there is no merit in defendants' contention that the fraud, if any, of the utility precluded it from recovering these charges. The foregoing conclusions make it unnecessary to consider the utility's contention that it was entitled to recover on an account stated. ¹ The judgment must be affirmed.

The trial court found that on September 26, 1966 the utility and the developer entered into a contract under which the utility undertook to install a gas main extension to supply dwelling units to be located in the developer's tract. The contract states in pertinent part:

'The gas main extension applied for will be installed by the Company in accorance with the provisions of its filed Rule No. 15, relating to extension of main for subdivisions, tracts, housing projects, and multi-family dwellings.

'The estimated cost of said gas main extension is $30,000.00, consisting of approximately 9,000 feet of main at a unit cost of $3.35 per foot.'

The contract refers to, and has annexed to it a copy of, Section C--1a of Rule No. 15 which provides for payment of the entire estimated cost of the extension, provided that payment of such sums as it appears would be refunded within six months may be postponed if the utility is given evidence that the development will proceed promptly, and if the developer agrees to pay, at the end of the period, any balance of the amount which otherwise would have been advanced that is not refundable. The contract provides for payment in the latter manner, and for a guaranty to be approved by the utility. This guaranty, as found by the court, was furnished by the developer's codefendant.

The contract concludes: 'This agreement is subject to the Company's tariff schedules and the refund provisions thereof of on file with the Public Utilities Commission of the State of California and particularly to the Company's rule 15. The Applicant acknowledges that it has made itself familiar with the provisions of rule 15 and that it is aware that a copy thereof is available for inspection at the offices of the Company in Tahoe Valley, California. Determination of the amount which would have been refunded by the Company under rule No. 15 during the above mentioned 6 months period shall be made by the Company in accordance with the provisions of said rule 15 and the Company's standard form of contract for gas main extension pursuant thereto, a copy of which is attached hereto as Exhibit B and the terms and conditions of which form a part of this agreement.'

The contract form attached to the principal document has inserted the figure of $3.35 per foot. It again refers to Rule 15 and states: 'A copy of Rule 15 will be provided on request.' The reverse of the form sets forth the terms upon which refunds against the cost of the extension will be granted when service connections are made with the extended gas main.

At the time the contract was entered into, Rule No. 15, entitled 'Gas Main Extensions,' which had been filed with the Public Utilities Commission on May 24, 1960, pursuant to the provisions of section 489 of the Public Utilities Code, ² provided in pertinent part: '. . . ( ) B. Free Extensions to Individual Applicants for Service. ( ) 1. Free Footage Allowances. . . . ( ) 2. Conditions. . . . ( ) 3. Main Extensions Beyond The Free Length. ( ) a. Advances. ( ) (1) Extensions of mains beyond the free length will be made by the utility provided applicants for such extensions advance to the utility $2.00 for each foot of main in excess of the free length. Such extensions will be owned, operated and maintained by the utility . . ..'

The foregoing rule, effective May 29, 1960 was not revised (see Pub.Util.Code, §§ 454, 455 and 491) until May 20, 1968 (except for a special condition in effect from May 17, 1965 for one year which is not pertinent here) when the rate for extensions covered by the above paragraph was increased from $2 to $3.05 per foot.

The court found: 'The estimated cost was misstated by South Tahoe in (the contract) in that the rate of charge for gas main extensions provided in South Tahoe's Tariff Rule 15 as of the time of said agreement was $2.00 per foot.' ³

The court further found: 'The charge of $3.35 per foot for extensions set forth in (the contract) is illegal as contrary to South Tahoe's Rule 15. The court determines that (the contract) should be interpreted as excluding the improper charge and including the proper charge of $2.00 per foot.'

The utility extended its gas mains as required by the contract and brought this action to recover at the rate of $2 per foot less allowable refunds. Other facts concerning the negotiations between the parties are set forth below.

I

In their answer the defendants alleged 'that the agreement sued upon by plaintiff herein was illegal and violative of the laws of the State of California and the regulations of the Public Utilities Commission of the State of California.' They attack the finding that the contract 'should be interpreted as excluding the improper charge and including the proper charge of $2.00 per foot.'

Civil Code section 1668 states in pertinent part, 'All contracts which have for their object, directly or indirectly, . . . violation of law, whether wilful or negligent, are against the policy of the law.'

Section 1667 reads, 'That is not lawful which is: 1. Contrary to an express provision of law; 2. Contrary to the policy of express law, though not expressly prohibited; or, 3. Otherwise contrary to good morals.'

Section 1607 provides, 'The consideration of a contract must be lawful within the meaning of Section 1667.'

Section 1608 states, 'If any part of a single consideration for one or more objects, or of several considerations for a single object, is unlawful, the entire contract is void.'

The court properly found that a charge in excess of the prescribed rates was illegal. (Cf., however, in fn. 3 above.) Public Utilities Code section 532 provides in pertinent part, '. . . no public utility shall charge, or receive a different compensation for any product or commodity furnished or to be furnished, or for any service rendered or to be rendered, than the rates, tolls, rentals, and charges applicable thereto as specified in its schedules on file and in effect at the time, . . .' That code further provides that the Public Utilities Commission may order that the public utility make reparation if it has charged an unreasonable, excessive, or discriminatory amount for any product or commodity furnished or service performed (§ 734); that a court action may be brought for the payment of such reparation (§ 735); that a court action may be brought for damages resulting from a violation of the provisions of section 532 (§ 736); that exemplary damages may be awarded for a wilful violation of the provisions of the state Constitution, any state law, or any order or decision of the commission (§ 2106); that the utility may be liable for penalties for such a violation (§ 2107); and that an officer, agent or employee who is responsible for such a violation may be subject to criminal prosecution (§ 2110).

In support of their contention that the entire contract is void and that the utility, therefore, cannot recover any compensation for the extension of the gas main which it has constructed, defendants rely on the following principle: 'The general rule is that a void contract, a contract against public policy or against the mandate of a statute, may not be made the foundation of any action, either in law or in equity. (Citations.)' (Hooper v. Barranti (1947) 81 Cal.App.2d 570, 574, 184 P.2d 688, 691. See also Smith v. Bach (1920) 183 Cal. 259, 262--263, 191 P. 14; Berka v. Woodward (1899) 125 Cal. 119, 126--127, 57 P. 777; Stockton Morris Plan Co. v. Calif. etc. Corp. (1952) 112 Cal.App.2d 684, 689, 247 P.2d 90; and Del Rey Realty Co. v. Fourl (1941) 44 Cal.App.2d 399, 402--403, 112 P.2d 649.) In the case last cited the court quoted with approval from 6 California Jurisprudence, page 153, as follows: 'The rules as to the nonenforceability of illegal contracts is not based upon any consideration for the party against whom the relief is sought, and who may be benefited by the refusal of the court to grant the same, but upon consideration of sound public policy. It is not for the sake of a party, but for the sake of the law itself, that a court refuses to be made use of for the enforcement of illegal contracts and leaves the parties where it...