Universal By-Products, Inc. v. City of Modesto

• Decision Date: 15 November 1974
• Docket Number: BY-PRODUCT,INC
• Citation: 117 Cal.Rptr. 525,43 Cal.App.3d 145
• Court: California Court of Appeals Court of Appeals
• Parties: UNIVERSAL, Plaintiff and Appellant, v. CITY OF MODESTO, Defendant and Respondent. Civ. 1887.

Page 525

117 Cal.Rptr. 525

43 Cal.App.3d 145

UNIVERSAL BY-PRODUCTS, INC., Plaintiff and Appellant, v. CITY OF MODESTO, Defendant and Respondent.

Civ. 1887.

Court of Appeal, Fifth District, California.

Nov. 15, 1974.

[43 Cal.App.3d 148] Loeb & Loeb and Robert A. Holtzman, Los Angeles, for plaintiff-appellant.

Elwyn L. Johnson, City Atty., J. David Fitzsimons, Asst. City Atty., Modesto, for defendant-respondent.

OPINION

FRANSON, Associate Justice.

Appellant appeals from a judgment dismissing its amended complaint against respondent for damages allegedly arising out of a fraud, a breach of contract and a conspiracy. The trial court sustained a general demurrer to each cause of action. We affirm.

The basic issue is whether a municipality, having elected to submit to competitive bidding an exclusive contract for garbage collection within the city, ¹ and having expressly reserved the right to reject all bids, incurs a liability by way of tort or breach of contract to the low bidder upon rejecting the bids. We hold that it does not.

The salient facts giving rise to appellant's action are as follows: On March 15, 1971, the respondent issued a notice to bidders that it would receive bids for the granting of an exclusive license to provide garbage collection services within the city for a term of eight years. The notice and accompanying specifications and instructions stated that each bid had to be accompanied by a $10,000 bond that a bid could be withdrawn at any time prior to, but not for 60 days after, the date of the opening of the bids, that the City reserved the right to reject any or all bids, and that the granting of the license would be by resolution passed by the City Council. ² The specifications stated that the award of the license, If made, would be made to the lowest responsible bidder taking into consideration the price of the bid, the bidder's experience, the type of equipment available and the quality of personnel.

Detailed operational requirements, schedule of charges and assessments, and statistical 'to carefully examine all of the bid documents, to visit and survey and study the City from the point of view of conducting a garbage collection service, and to become fully informed as to all existing conditions and limitations which might affect his proposal.'

information regarding the City were included in the notice to bidders. The notice also cautioned bidders

The bidders were required to furnish detailed information concerning their organization, personnel, business interests, experience and finances, agreements with others regarding the proposed license, and a detailed statement of the preparations to be made in order to be fully equipped, staffed and ready to commence operations on January 1, 1972.

In its amended complaint, appellant alleged substantially the facts regarding the notice to bidders. In addition, in its first cause of action for fraud, appellant alleged that it was 'required to perform a market analysis and other complex studies' in the course of preparing its bid at a cost of about $10,000; that respondent represented it would receive and consider the bids; that in so representing respondent impliedly represented that it would consider the bids in good faith and that the bids were not being sought 'merely to gain plaintiff's research data, expertise, analysis and monetary investment;' that respondent's 'implied representation' of good faith was false in that respondent never intended to award the license, and, to the contrary, respondent made the 'representations with the intent to deceive and defraud plaintiff and to induce plaintiff to prepare and submit said detailed specifications.' Appellant alleged justifiable reliance and knowledge on the part of respondent that appellant would so rely and claimed damages in the sum of $10,000.

In its second cause of action for breach of contract, appellant alleged that the notice to bidders constituted an offer in writing, the terms of which were a request to prepare and submit the bid; that respondent impliedly agreed that it would receive and give the bid a fair and equitable review; that appellant accepted the 'offer' by preparing and submitting the bid; that on the day the City opened and rejected all bids, it 'materially breached the implied covenant of good faith and fair dealing contained in said contract' by failing to consider in good faith the appellant's bid; that if respondent had performed 'said contract,' appellant would have been awarded the license; that respondent instead rejected all bids and was negotiating with parties other than appellant for the award of the license. Damages of $10,000 and lost profits of $100,000 were claimed.

In the third cause of action, appellant alleged a conspiracy to defraud appellant. Appellant concedes that this cause of action depends upon the validity of either the first or second cause of action.

Each count alleged the making and rejection of a timely claim against the City.

TORT ACTION

Preliminarily, we observe that in testing the sufficiency of a pleading against a general demurrer, all well pleaded allegations, including those that arise by reasonable inference, are deemed admitted irrespective of the difficulty of proof at trial. (3 Witkin, Cal.Procedure (2d ed.) Pleading, § 800, pp. 2413--2414.) The allegations are to liberally construed with a view to substantial justice between the parties. (Code Civ.Proc., § 452; Mix v. Yoakum, 200 Cal. 681, 687, 254 P. 557.)

Appellant's first cause of action is framed as a tort action for deceit. We first will discuss the sufficiency of the pleading apart from the question of governmental immunity.

The essential allegations of a deceit action are a misrepresentation, knowledge of its falsity, intent to defraud, justifiable reliance and resulting damage. (4 Witkin, Summary of Cal. Law (8th ed.) Torts, § 466, p. 2711.) The gravamen of appellant's action is that respondent impliedly represented A misrepresentation need not be express but may be implied by or inferred from the circumstances. For example, it has been held that a person who sells securities impliedly represents that the applicable provisions of law have been complied with and the falsity of that representation may give rise to an action for fraud. (Mary Pickford Co. v. Bayly Bros., Inc., 12 Cal.2d 501, 519, 86 P.2d 102; see also 37 Am.Jur.2d, § 42, p. 67.)

that it would consider the bids in good faith and not merely to gain the benefit of appellant's research and expertise, that this implied representation was false in that respondent never intended to award the license and that appellant justifiably relied on the misrepresentation to its resulting damage.

Moreover, in pleading a fraud action based on the alleged falsity of a representation or of a promise to perform a future act it is not necessary to allege the circumstantial evidence from which it may be inferred that the representation or promise was false--these are evidentiary matters which give rise to the misrepresentation. The only essential allegation is the general statement that the representation or promise was false and that the defendant knew it to be false at the time it was made. (3 Witkin, Cal.Procedure (2d ed.) Pleading, § 585, pp. 2222--2224.)

In keeping with these rules we construe the allegation that respondent's implied representation to consider the bids was false 'in that said (respondent) never intended to award the license' as meaning that at the very time it issued the notice to bidders it did not intend to consider the bids in determining if the license should be awarded. If proved, this misrepresentation of an existing fact, i.e., as to respondent's Present intent, would constitute an actionable deceit, assuming proof of the other requirements.

We believe that such a representation, to the extent we have described it, reasonably and fairly can be inferred from the notice to bidders. Such a representation is in keeping with the high standard of ethics of public officials; a public entity should not be permitted to call for bids if, in fact, At that time it does not intend to consider the bids. A businessman is entitled to rely on the good faith of the entity in soliciting the bids.

Contrary to appellant's contention, however, the implied representation does not go so far as to include a promise that the entity will consider the bids in good faith before rejecting them. Such a promise would be contrary to a well established rule which allows a public body where it has expressly reserved the right to reject all bids, to do so for any reason and at any time before it accepts a bid. If the entity so decides, it may return all bids unopened.

The courts have consistently refused to interfere with the exercise of a public body's right to reject bids, however arbitrary or capricious. Thus, in Stanley-Taylor Co. v. Board of Supervisors, 135 Cal. 486, 67 P. 783, it was held that mandamus would not lie to force an award of a contract to the lowest bidder for printing forms under an advertisement for bids where the advertisement stated that the board reserved the right to reject any and all bids 'if the public good so require(d).' The board rejected all bids for the stated reason that 'public policy demands such action be taken.' The low bidder sued, alleging the real reason for the rejection of its bid was that it did not have the union label on its printing. The Supreme Court held it could not interfere to substitute its judgment for that of the board; that the board was the final arbiter of the public interest and its decision, however capricious or erroneous, could not be set aside. (See also Charles L. Harney, Inc. v. Durkee, 107 Cal.App.2d 570, 237 P.2d 561; Laurent v. City & County of S.F., 99 Cal.App.2d 707, 222 P.2d 274; Baldwin-Lima-Hamilton Corp. v. Superior Court, 208 Cal.App.2d 803, 816--817, 25 Cal.Rptr. 798.)

The competitive bidding statutes are for the benefit and...