Pickard & Butters etc. v. Buttonwillow Recreation etc. CA5 ( 2020 )

Filed 12/28/20 Pickard & Butters etc. v. Buttonwillow Recreation etc. CA5
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California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIFTH APPELLATE DISTRICT
PICKARD & BUTTERS CONSTRUCTION,
INC., F078801
Plaintiff and Appellant, (Super. Ct. No. BCV-15-100179)
v.
OPINION
BUTTONWILLOW RECREATION & PARK
DISTRICT,
Defendant and Respondent.
APPEAL from a judgment of the Superior Court of Kern County. David R.
Lampe, Judge.
Law Offices of F. Glenn Nichols and F. Glenn Nichols for Plaintiff and Appellant.
Clifford & Brown, John R. Szewczyk and Daniel T. Clifford for Defendant and
Respondent.
-ooOoo-
INTRODUCTION
This appeal involves a dispute between a general contractor and a public agency
over a public works contract for the improvement of a park in the unincorporated
community of Buttonwillow. Plaintiff Pickard & Butters Construction, Inc. (PBC) filed
suit against Buttonwillow Recreation & Park District (District) for, among other claims,
breach of contract and for prompt payment penalties under Public Contract Code
section 7107. PBC sought the unpaid balance due on the contract and additional sums for
extra work outside the scope of the contract performed at District’s request, and prompt
payment penalties.
Prior to trial, the court granted District’s motion in limine and excluded any
evidence PBC performed extra work without a written change order based on theories of
oral modification or waiver of the contract’s written change order requirement, or
evidence that PBC was entitled to payment for such extra work based on estoppel. In
making this ruling, the court relied on two appellate cases: Katsura v. City of San
Buenaventura (2007) 155 Cal.App.4th 104 (Katsura) and P&D Consultants, Inc. v. City
of Carlsbad (2010) 190 Cal.App.4th 1332 (P&D Consultants), review denied April 13,
2011.
We conclude the written change order requirement in the parties’ contract did not,
as a matter of law, preclude PBC’s claims for extra work pursuant to theories of oral
modification, waiver, or by the doctrine of estoppel. Thus, PBC was entitled to present
evidence supporting application of these theories and we reverse the judgment and
remand for a new trial. We express no view whether PBC is entitled to any
compensation for alleged extra work under any of these theories.
FACTUAL AND PROCEDURAL BACKGROUND
I. The Park Improvement Project
After a competitive bidding process required by statute, District awarded PBC a
contract to update a 12-acre park in Buttonwillow, an unincorporated area in Kern
2.
County. The parties executed an agreement on October 21, 2013, for a total of
$913,921.40. The plans and specifications for the project were designed for District by
Meyer Civil Engineering, Inc. (MCE), whose principal Richard Meyer was the engineer
of record on the project. Meyer retained the services of Brett Dawson, a licensed Civil
Engineer, to supervise the construction work.
A. Relevant Contract Provisions
Under the terms of the contract, PBC was to complete the work within 180 days
followed by a 60-day maintenance period. The original agreed upon completion date was
April 28, 2014.
Under section C-8, the contract provided that the engineer was to “give all orders
and directions contemplated under the Contract.” The engineer had authority to reject all
work and materials which did not conform to the proper execution, and any discrepancies
or misunderstandings as to the contract specifications were to be referred to the engineer
who was to decide the matter in accordance with the true intent and meaning of the
contract.
The contract also allowed the engineer to make necessary changes and request
extra work by written order. Section C-10 was devoted to the topic of “Extra Work.” If
the engineer ordered work or materials outside the scope of the plans and specifications,
the contractor was to perform such work. The contract stated that “[s]uch labor, materials
and/or equipment will be classed as extra work and shall be ordered in writing before
such work is started. No extra work will be paid for unless ordered in writing.” If the
price for extra work could not be ascertained before the order for extra work issued, the
contractor could proceed with the extra work pursuant to the contract’s schedule for
compensable extra work costs.
In the event of a dispute between the engineer and the contractor over the scope of
the contract, section C-29 stated a condition precedent to a contractor’s claim of extra
costs: “(b) Claims for Extra Cost – If the Contractor claims that any instructions by
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drawings, or otherwise involve extra cost under this contract, he shall give the Engineer
written notice thereof within fifteen (15) calendar days after the receipt of such
instructions. Each such claim shall be in reasonable detail and shall state fully the basis
of the claim and the amount of alleged extra cost incurred. Claims not so made within
said period shall be deemed waived.”
Within the first ten days of each calendar month during the project, the engineer
was to provide to District a written estimate of all work done under the contract to date,
together with any amounts due the contractor for extra work or approved claims for extra
costs. District would then pay the contractor 95 percent of the amount of each progress
estimate, payable by the 13th day of the succeeding month. The remaining five percent
was to be retained until final completion and acceptance of the work under the contract.
B. Change Order Process Followed
During the contract work, there were many items of extra work District approved
and PBC completed. There were 17 change order requests (CORs) made by PBC, which
were forwarded to Dawson. At trial, Dawson could recall only nine of the 17 CORs. For
CORs 2 through 10, Dawson took the requests to District’s monthly board meeting, made
a recommendation to approve or deny, and District made a decision as to the extra work.
Dawson then apparently orally directed PBC to undertake the work. After District board
meetings where extra work was approved, the next monthly pay estimate issued by
Dawson would reflect line items labeled as contract change orders. The monthly pay
estimate, prepared by Dawson and signed by both Dawson and PBC’s principal, Mark
Butters, would indicate whether those line items of approved changes, along with other
work within the scope of the contract, had been completed. If PBC completed change
order items, they were marked on the estimate as items to pay; if the items were not yet
completed, the estimate would indicate they had been approved but nothing was owing.
The pay estimate was then sent to District for approval and payment. District’s monthly
board meeting minutes show when it approved the extra work for PBC’s CORs 2 through
4.
10, but no written authorization by Dawson was furnished to PBC between the time
District’s board voted to approve and when the approval appeared on the next month’s
pay estimate.1
C. Disputes About Project Specifications, Extra Work, and Completion
The contract was executed on October 21, 2013, and work commenced soon
afterward. Disputes about the specifications arose quickly, one of which was whether
native soil or imported soil was required for excavated tree wells.
Another dispute centered on extra turf grading work Dawson asked PBC to
perform along Highway 58 and Meadows Street. District’s board approved $5,000 for
this work, it was listed as an approved change order on pay estimate 5, but then was
removed from pay estimate 6.
Butters testified PBC was directed to perform work only along Highway 58, and it
was initially limited to regrading and piling up the scalped materials without removal.
According to Butters, District’s General Manager, Marie Parsons, or Dawson directed
PBC to do similar grading along Meadows Street. PBC ended up grading and removing
the graded materials at a cost of approximately $16,000. Dawson said the board
approved a maximum of $5,000 for the work, to which Butters objected as far under the
actual cost of the work requested.
Dawson testified there was a change order for work along Highway 58; he had
asked PBC to prepare a time and materials estimate for that additional work; Dawson
gave that request to Parsons who in turn took it to District’s board. The board approved
work not to exceed $5,000, and the work had not been performed at the time Dawson
forwarded the request to the board. It was Dawson’s recollection that Ken Brinar, PBC’s
project manager, gave him the $5,000 figure for that extra work.
1 There was conflict in the testimony and documentary evidence regarding PBC’s COR 1.
5.
Dawson testified he approached PBC to see if it could use the regraded soil as part
of the preparation for the hydroseeding. According to Dawson, it was PBC’s obligation
to haul the regraded materials away, but if PBC spread that excess soil on areas that had
been damaged during the project, they could trade the value of that work. Dawson could
not recall whether this was entirely an oral agreement or with whom he made that deal—
nearly all of his conversations were with Brinar. In any event, that work-swap agreement
was why he eliminated the $5,000 change order line item from pay estimate 6.2
There were also disputes about the degree to which hydroseeding was part of the
original specifications, and whether PBC’s failure to preserve the original sod and other
turf damaged by PBC had caused the need for extensive regrading and hydroseeding.
Meyer testified the specifications called for preservation of the park’s existing sod by
rolling it up, putting it in storage, and keeping it healthy until it could be placed back in
the park.
Butters testified PBC had planned from the beginning to hydroseed the entire
project after the work was completed, and that was how the project had been bid given
the specifications. Butters claimed it was a “ridiculous specification” to cut the sod, save
it for six months, and then place it back in the trenches—it would not have been possible
to keep the sod alive during that time of the year.
Dawson testified PBC had been all over the existing turf during the course of the
project construction with equipment and had destroyed much or all of it; PBC had an
2 In MCE’s response to PBC’s March 6, 2015, claim filed with District, MCE stated as
follows: “Additional work was being considered by the District for grading behind the curb
along Hwy. 58 and along Meadows Street. In anticipation of these costs, Brett Dawson included
a new change order line in Pay Estimate No. 5 in the amount of $5,000,00. No payment was
posted to this $5,000.00. Instead, later in the project an exchange of work value was agreed to
and the change order was not needed, refer to item 15)b. Therefore, the line item was deleted on
Pay Estimate No. 6. Estimates 2, 3, 4, 5 & 6 were technically short by $2,079.20. This was due
[to] an error carried over from Pay Estimate No. 2. However, this was reconciled on Pay
Estimate No. 7 when Liquidated Damages exceeded work value completed for that period.”
6.
obligation to maintain the existing lawn outside their work area, but failed to do so.
Therefore, PBC had to hydroseed as a result of their mismanagement of the entire park,
and PBC was instructed to prepare the ground prior to hydroseeding. Dawson said part
of that ground preparation included rototilling the hard-pack and adjusting the soil’s pH
levels. While this was not a direct requirement of the contract documents, it was work
Dawson felt was required as a result of PBC’s inability to protect the existing landscape
and assure viability of the new landscape. After hydroseeding, the grass did not appear
healthy. Although the hydroseeding included fertilizer treatment, because the grass was
not looking good, Dawson asked PBC to add fertilizer to the grass.
Then there were continued disputes over why the hydroseed was not germinating
properly. PBC claimed the seed mix selected by Dawson was not appropriate for the soil
or the seed mix sold to PBC by Horizon (a materials supplier) was defective. There were
also conflicts about the need for fertilizer, pH adjustments to the soil, the sprinkler
schedule, adjustments to the irrigation controller, the amount of water the hydroseed
needed, and whether PBC’s failures caused trees and shrubs to die.
D. Contractor Termination
At the end of April 2014 and just prior to hydroseeding, Dawson generated a
memo with a list of project clean-up items to be completed prior to the last pay estimate
submission, typically referred to as a punch list. Brinar testified Dawson told him if PBC
prepared for hydroseeding and it was accepted, if discussed items of clean-up were
finished, and if the repair stripping of the parking lot was completed, Dawson and Meyer
would deem this substantial completion of the project. Dawson disputed ever telling
anyone at PBC that the project was substantially completed.
On April 21, 2014, District’s board extended the project completion date to May 8,
2014. Another punch list was issued by Dawson on May 7, 2014. When the project was
not deemed complete on May 8, 2014, District began to impose liquidated damages.
Dawson testified that as of May 8, 2014, he did not consider the 60-day maintenance
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period to have commenced. He believed the specifications indicated the maintenance
period would begin when the project was deemed complete by District.
On June 25, 2014, Dawson issued a notice ordering PBC to follow a specific work
schedule for remaining project tasks. The notice indicated that the failure to meet any of
these deadlines would result in the formal filing of a “‘notice to terminate the
contractor.’”
District imposed $54,000 in liquidated damages from May 9, 2014, to July 2,
2014, when PBC took down its fencing around the park. On July 22, 2014, District
issued a notice terminating PBC’s employment as contractor under section C-6 of the
contract for delay in completion.
District spent additional sums of money to complete the project and became
involved in a pending lawsuit filed against District and PBC in November 2014 for
money owed to Horizon for supplying the hydroseed. On December 29, 2014, District
recorded a notice of completion of the project. Although there was outstanding money
District owed to PBC on the final pay estimate, no payment to PBC was made. PBC
claimed full payment of the outstanding contract price plus payment for extra work was
due and owing by no later than February 2, 2015, and PBC filed a claim against District
in March 2015, which District denied. PBC thereafter filed suit against District in May
2015 for breach of contract, among other claims.
II. Procedural Background
PBC’s complaint against District was amended twice. Following summary
judgment, two claims remained: breach of contract and prompt payment penalties under
Public Contract Code section 7107. The court granted District’s pretrial motion in limine
to preclude PBC from presenting any evidence of uncompensated extra work without a
written change order. The court concluded no evidence of extra work based on oral
modification, waiver or estoppel was permitted pursuant to Katsura, supra, 155
Cal.App.4th 104 and P&D Consultants, supra, 190 Cal.App.4th 1332.
8.
Following a bench trial, the court issued a statement of decision finding District
breached the contract by failing to make final payment to PBC, but that no prompt
payment penalties were owed. The court determined District was entitled to offset the
contract price with liquidated damages, certain costs of completion, and for the money
paid to settle the Horizon litigation, and judgment was entered in PBC’s favor for breach
of contract in the amount of $27,566.53.
DISCUSSION
I. Preclusion of Evidence of Oral Modification, Waiver, or Estoppel
PBC argues the trial court erred in excluding all evidence extra work was
performed at District’s request under theories of oral modification, waiver, or estoppel.
“Generally, a trial court’s ruling on an in limine motion is reviewed for abuse of
discretion. [Citation.] However, when the issue is one of law, we exercise de novo
review.” (Condon-Johnson & Associates, Inc. v. Sacramento Municipal Utility Dist.
(2007) 149 Cal.App.4th 1384, 1392; accord, Children’s Hospital Central California v.
Blue Cross of California (2014) 226 Cal.App.4th 1260, 1277; see McIntyre v. The
Colonies-Pacific, LLC (2014) 228 Cal.App.4th 664, 670 [“‘While trial judges ordinarily
enjoy broad discretion with respect to the admission and exclusion of evidence in ruling
on motions in limine [citation], a court's discretion is limited by the legal principles
applicable to the case.’”].)
A. Background
PBC contends California Supreme Court authority recognizes that private and
public contracts are subject to the same rules of interpretation. Thus, regardless of
whether the contract involves a public entity, written change order requirements for
approving extra work are subject to modification by oral agreement or the parties’
conduct under Civil Code section 1698. The written change order requirements may also
be waived by the parties’ conduct, and under particular factual circumstances, the costs of
extra work performed by a contractor may be awarded without a written change order
9.
under a theory of estoppel. To the extent Katsura and P&D Consultants hold differently,
PBC argues they are factually distinguishable and/or contravene decisions issued by the
California Supreme Court. PBC maintains Weeshoff Constr. Co. v. Los Angeles County
Flood Control Dist. (1979) 88 Cal.App.3d 579 (Weeshoff) properly applied principles of
contract interpretation to conclude a written change order requirement in a public contract
had been waived by the public entity, and the trial court should have followed Weeshoff
rather than Katsura and P&D Consultants in deciding District’s motion in limine.
PBC argues Dawson and Parsons issued oral change/extra work orders that
modified the contract and caused PBC to incur extra costs, District waived the written
change order requirement by approving and paying for other extra work without a written
change order, and/or otherwise made promises that induced PBC to perform extra work
that entitle PBC to recover under a theory of estoppel.
District disputes that any evidence of oral modification, waiver or estoppel is
admissible to prove extra work was authorized by District due to the written change order
requirement. District contends that as a matter of law under P&D Consultants and
Katsura, written change order requirements in public contracts cannot be modified orally
or through conduct, waiver cannot apply, and recovery under the doctrine of estoppel is
not permitted.
B. Legal Framework
1. General Contract Principles
Pursuant to Civil Code section 1698, a contract in writing may be modified by an
executed oral agreement or an oral agreement supported by new consideration so long
as the statute of frauds is satisfied; and nothing in the statute precludes the application
of law concerning estoppel or waiver, among other principles. (Civ. Code, § 1698,
subds. (b)–(d).)
Construction and works contracts often contain a provision that any extra work
outside the scope of the contract performed by the contractor will be compensated only
10.
if a prior written change order was issued by the owner. If the contractor fails to obtain
a written change order approving extra work, the contractor may argue the parties orally
modified the written change order requirement. (Healy v. Brewster (1967) 251
Cal.App.2d 541, 552.) The contractor may also argue the owner freely and knowingly
gave up the right to enforce the written change order requirement by oral or written
agreement or by conduct showing the owner clearly gave up the right. (Ibid.; see
Frank T. Hickey, Inc. v. L.A.J.C. Council (1954) 128 Cal.App.2d 676, 683 (Frank T.
Hickey, Inc.).)
The question presented by PBC is whether a written change order requirement in a
public contract is subject to the principles of oral modification, waiver, or whether
recovery for extra work without a change order is available under a theory of estoppel.
As we discuss below, because public contracts are highly regulated and because public
entities are governed by differing authority shaping the public entity’s ability to contract
both in scope and mode, the ability to freely modify public contracts is very limited and
will often be precluded. Nevertheless, where no statute, code, charter or other legal
authority precludes it, or where no adopted public policy would be effectively nullified
by it, theories of oral modification, waiver, or certain equitable remedies may be
available in the public contract context.
2. Relevant California Supreme Court Public Contract Decisions
The California Supreme Court has observed that California cases do not impose
special rules of law simply because a governmental body is a party to a contract, and
typically public contracts are subject to the same rules of interpretation as contracts
between private parties. (M. F. Kemper Const. Co. v. City of L. A. (1951) 37 Cal.2d 696,
704–705 (Kemper); see Civ. Code, § 1635 [“All contracts, whether public or private, are
to be interpreted by the same rules, except as otherwise provided by this code.”].)
However, public contracts are governed and highly regulated by an array of
statutes depending on the type of contract at issue, and public entities are subject to
11.
various statutes, codes, charters, ordinances, and regulations that govern the power and
scope of their ability to contract. (See, e.g., Domar Electric Inc. v. City of Los Angeles
(1994) 9 Cal.4th 161, 171 [“[A] charter city may not act in conflict with its charter.
[Citations.] Any act that is violative of or not in compliance with the charter is void.”].)
General contract principles may yield and theories of recovery may be deemed
unavailable in the face of specific legal restrictions on public contracts and the public
entity involved.
In one of its early cases considering a public works contract, the California
Supreme Court held ratification or estoppel was an available remedy even if the contract
was improper under the entity’s charter. (Argenti v. City of San Francisco (1860) 16 Cal.
255, 266 (Argenti).) The court’s reasoning in this regard rested on the proposition that
those doctrines of recovery were applicable to public corporations to the same extent as
private corporations. (Ibid.)
Two years after Argenti, however, the court reversed course in Zottman v. San
Francisco (1862) 20 Cal. 96 (Zottman). Extra work was directed on a public works
contract, but without competitive bidding as required by the city’s charter. (Id. at p. 101.)
As a result, the court held the contract for extra work was void, the contract could not be
ratified nor was estoppel an available remedy. (Id. at pp. 105–106.) The court noted
Argenti did not control because “the Justices who pronounce[d] the judgment [in Argenti]
concurred only in the conclusion … [but] differed entirely in the grounds upon which
they rested the liability of the city[.]” (Id. at p. 108.) Justice Cope, who authored
Argenti, delivered a concurring opinion in Zottman and stated that “upon further
reflection, I am convinced of the error of the reasoning upon which my conclusions were
arrived at [in Argenti].” (Ibid. (conc. opn. of Cope, J.).) Justice Cope concluded the city
could not act contrary to its charter and, thus, no recovery on the extra work could be
obtained under any theory of implied liability. (Id. at pp. 108–109 (conc. opn. of Cope,
J.).)
12.
More than 50 years later, the court reaffirmed the rule applied in Zottman:
contracts that are formed beyond the powers of the public entity, or executed outside the
legally required mode, are void. (Reams v. Cooley (1915) 171 Cal. 150, 154–157
(Reams).) The Reams court held such contracts cannot be enforced, and no recovery
under an implied theory for quantum meruit can be obtained.3 Reams involved a public
works contract that had not been subject to the required competitive bidding process.
(Reams, supra, at pp. 151–152.) When the public entity discovered the error, it refused to
pay for the work performed under the contract, and the contractor filed suit. (Id. at
p. 151.) The trial court denied recovery, and the Court of Appeal affirmed. (Id. at
pp. 152–153.) On appeal before the California Supreme Court, the contractor argued that
even if the contract was void due to the public entity’s lack of power to enter into such a
contract without proper bidding, he was still entitled to recover under an implied contract
theory in an action on quantum meruit. (Id. at p. 153.)
The court rejected this argument on the ground that “no implied liability can arise
for benefits received under a contract made in violation of the particularly prescribed
statutory mode.” (Reams, supra, 171 Cal. at p. 154.) “Where the statute prescribes the
only mode by which the power to contract shall be exercised, the mode is the measure of
the power. A contract made otherwise than as so prescribed is not binding or obligatory
as a contract and the doctrine of implied liability has no application in such cases.”
(Ibid.) Thus, the court concluded that “[n]o contract, either expressly or impliedly, could
be entered into by the [public entity] except with the lowest bidder after advertisement,
and, of course, no implied liability to pay upon a quantum meruit could exist where the
3 “Quantum meruit” refers to the well-established principle that the law implies a promise
to pay for services performed under circumstances disclosing that they were not gratuitously
rendered. (Huskinson & Brown v. Wolf (2004) 32 Cal.4th 453, 458.) To recover in quantum
meruit, a party need not prove the existence of a contract, but must establish the circumstances
were such that the services were furnished with some expectation by both parties that
compensation for those services would be made. (Ibid.)
13.
prohibition of the statute against contracting in any other manner than as prescribed is
disregarded.” (Id. at p. 156.)
Following Reams, our high court reiterated that even if competitive bidding
requirements are met or excused, if the contract is executed in a mode not within the
public entity’s power, the contract is similarly void at inception and no doctrine of
implied liability can be invoked for recovery. (Los Angeles Dredging Co. v. Long Beach
(1930) 210 Cal. 348 (Los Angeles Dredging).) “Certain general principles have become
well established with respect to municipal contracts, … (1) The most important one is
that contracts wholly beyond the powers of a municipality are void. They cannot be
ratified; no estoppel to deny their validity can be invoked against the municipality; and
ordinarily no recovery in quasi contract can be had for work performed under them.
(2) It is also settled that the mode of contracting, as prescribed by the municipal charter,
is the measure of the power to contract; and a contract made in disregard of the
prescribed mode is unenforceable.” (Id. at p. 353, citing Reams, supra, 171 Cal. at
p. 150, boldface omitted.)
Based on these principles, the court in Los Angeles Dredging concluded that two
oral contracts entered into by the city manager violated the charter’s requirement that
such contracts be made only after competitive bidding. However, another charter
provision allowed the city council to adopt a resolution authorizing the city manager to
enter into a contract for emergency work without bids. Although no such resolution
existed at the time the city manager entered into oral contracts for emergency work, the
city council later passed a resolution ratifying the contracts made by the city manager as
emergency acts. (Los Angeles Dredging, supra, 210 Cal. at p. 358.) The court held the
doctrine of ratification applied because the ratification was within the powers of the
municipality and performed in the manner originally prescribed. (Id. at pp. 358–359.)
Without the emergency exemption from competitive bidding, however, the
contract would not have been subject to ratification because the competitive bidding
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requirements could not be satisfied after the fact. (Los Angeles Dredging, supra, 210 Cal.
at p. 359.) When bidding requirements are not satisfied, that contract is void at inception,
there can be no recovery under an implied contract theory, the contract cannot be ratified,
and no estoppel may be invoked against the municipality to deny its validity. (Miller v.
McKinnon (1942) 20 Cal.2d 83, 87–88 (Miller).)4 Miller observed that “[p]ersons
dealing with the public agency are presumed to know the law with respect to the
requirement of competitive bidding and act at their peril.… If, as we have seen, the
contract is absolutely void as being in excess of the agency's power, the contractor acts at
his peril, and he cannot recover payment for the work performed .…” (Miller, supra,. at
p. 89.)
More recently, our Supreme Court held that when application of a theory of
recovery generally available in private party contracts accomplishes an end run around
statutory public contracting requirements (specifically, competitive bidding statutes),
impairs the public policy underpinning the statutes, and implicates other public policy
concerns, that theory of recovery is not applicable in the public contract setting. (Amelco
Electric v. City of Thousand Oaks (2002) 27 Cal.4th 228 (Amelco).)
4 Miller expressly overruled Contra Costa Water Co. v. Breed (1903) 139 Cal. 432 and
Sacramento County v. Southern Pacific Co. (1899) 127 Cal. 217 for the proposition that a
municipality may not recover from the contractor payments made under a contract that is void
for lack of compliance with the statutory bidding requirements. The Miller court explained that
denying recovery to the municipality under such circumstances is based on estoppel, which does
not apply when there is failure to comply with the bidding statute. (Miller, supra, 20 Cal.2d at
pp. 90–91.) The court reasoned that the doctrine of implied liability applies where the general
power by the public entity to contract on a subject exists and the form and manner of doing so is
not expressly provided by charter or statute; but when the power to make a contract is statutorily
limited to a prescribed method, any other method of contracting is expressly or impliedly
prohibited and no implied liability can attach. (Id. at pp. 91–92.) A limited exception to this rule
was enacted by the Legislature in 2004 under Public Contract Code section 5110, which allows a
contractor to recover reasonable costs, excluding profit, for work performed under a contract
later deemed invalid due to a defect in the bidding process caused solely by the public entity.
15.
In Amelco, an electrical contractor (Amelco) argued it had been subject to so many
change orders on a public works project and the project was so different from what was
originally specified by the city, the city had abandoned the contract. (Amelco, supra, 27
Cal.4th at p. 235.) Although private parties may impliedly abandon a contract when they
fail to follow change order procedures and when the final product differs substantially
from the original, the court concluded the abandonment doctrine was fundamentally
inconsistent with the purpose of the competitive bidding statutes. (Amelco, supra, 27
Cal.4th at pp. 235, 239–240.) If the contract were set aside under the abandonment
theory, then Amelco would be like a contractor who performed under a void contract.
(Id. at p. 239.) The city could not simply contract for a quantum meruit payment, free
from any other pre-contract requirements such as bidding the project. (Id. at pp. 238–
239.)
The court explained bidding statutes were meant to protect the public, but
permitting recovery under abandonment would punish taxpayers by allowing changed
projects to be negotiated without the benefit of any competitive bidding. (Amelco, supra,
27 Cal.4th at pp. 239–240.) Practical considerations such as the difficulty of ascertaining
precisely when abandonment of a contract occurs could delay notice of claims until the
end of the project, creating uncertainty in budgeting and financing public projects. (Id. at
p. 240.) Moreover, abandonment would incentivize contractors to bid unrealistically low
with the hope of prevailing on an abandonment claim, based on the numerous changes
inherent in any large public works project. (Id. at pp. 240–241.) Notably, the court
rejected Amelco’s argument that abandonment applied because the city was liable for a
breach of its agreements in the same manner as a private party. The court observed that
while it was true the city was liable for breach in the same manner as a private party,
recovery for specific breach is very different from abandonment where the entire contract
is set aside and the contractor seeks recovery on a quantum meruit basis from the
beginning of the project onward. (Id. at p. 242.)
16.
But Amelco does not bar all equitable remedies against public entities. If a theory
of equitable recovery does not subvert public contracting law or the operation of a public
policy adopted to protect the public, such recovery may be available. (Kemper, supra, 37
Cal.2d 696.) Kemper involved a mistake in a company’s (Kemper) bid for a public
works project, which had the effect of omitting over $300,000 from the bid that was
deemed irrevocable under the city’s charter. (Id. at pp. 699–700.) Having been alerted
by Kemper to the mistake immediately after submission of the bid, the city knew the bid
was in error, but accepted it anyway at the erroneously low price and attempted to hold
Kemper to the mistake despite that it represented nearly one-third of the contract price.
(Id. at p. 700.) Kemper refused to enter a contract at the mistaken bid price, so the city
awarded the contract to the next lowest bidder, demanded forfeiture of Kemper’s bond,
and Kemper filed suit to cancel its bid and obtain discharge of the bond. (Ibid.) The trial
court entered judgment for Kemper, and, on appeal, the California Supreme Court upheld
the judgment. (Id. at pp. 700, 702–705.)
The Kemper court reasoned that the equitable remedy of recission was available
under the circumstances. The mistake was of the clerical type from which recission is
available, and the statement in the bid form that bidders would not be released on account
of errors could be given effect by interpreting it as relating to errors of judgment rather
than clerical mistakes. (Kemper, supra, 37 Cal.2d at pp. 703–704.)
The court also rejected the city’s literal interpretation that its charter precluded
bids from being withdrawn. The court noted that out-of-jurisdiction cases held rescission
for mistake and relief from forfeiture may be had in public construction contracts, even
when there were express contract or charter provisions making the bids irrevocable; and
California cases had uniformly refused to apply a different or special rule simply because
a governmental body is a party to a contract. (Kemper, supra, 37 Cal.2d at pp. 704–705.)
Beyond recission for unilateral mistake, promissory estoppel has also been
deemed available against a public entity in the pre-contract bidding context. (Kajima/Ray
17.
Wilson v. Los Angeles County Metropolitan Transportation Auth. (2000) 23 Cal.4th 305(Kajima).) The court in Kajima held a responsible bidder on a public contract who was
wrongfully denied a contract could pursue damages against the public entity under a
theory of promissory estoppel, but only bid preparation costs and not lost profits could be
recovered. (Id. at p. 308.)
The court explained that neither the doctrine of estoppel nor any other equitable
principle may be invoked against a governmental entity where it would defeat the
effective operation of a statute or policy adopted to protect the public. (Kajima, supra, 23
Cal.4th at p. 316.) Because the competitive bidding statutes are enacted for the benefit of
property holders and taxpayers, and were not meant to benefit or enrich bidders, they
must be construed and administered to accomplish that purpose. (Id. at pp. 316–317.)
Thus, awarding lost profits to a disappointed bidder would unduly punish the taxpaying
public and provide an unfair windfall to bidders for efforts they did not make and risks
they did not take. (Id. at p. 317.)
In responding to the bidder’s argument that lost profits should be available
because public and private contracts are governed by the same principles, the court
concluded that, although that “may be” so, in the case of a wronged bidder there is no
contract. (Kajima, supra, 23 Cal.4th at p. 317.) For recovery under a theory of
promissory estoppel, the court explained it was responsible to determine the remedy
justice required by considering the social consequences of any chosen remedy. (Id. at
pp. 317–318.) The court reasoned allowing lost profits for a wrongfully denied contract
could drain the public fisc in response to mere carelessness on the part of low level
government officials. (Id. at p. 318.)
Kemper, Amelco, and Kajima reflect twin principles that ordinary rules of implied
contracts or equitable doctrines may be applied against the government (see Retired
Employees Assn. of Orange County, Inc. v. County of Orange (2011) 52 Cal.4th 1171,
1176 (Retired Employees); U. S. Fid. & Guar. Co. v. State Bd. of Equal. (1956) 47 Cal.2d
18.
384, 388–389), but only so long as that application does not effectively nullify a strong
rule of policy adopted for the benefit of the public (City of Long Beach v. Mansell (1970)
3 Cal.3d 462, 493; Amelco, supra, 27 Cal.4th at pp. 239–240). When it comes to public
entity contracts that are ultra vires of a public entity’s legal authority to contract or a
specified mode of contracting, it is clear the contract is void and no doctrine of estoppel
or implied-in-fact contracts will apply. (See e.g., Reams, supra, 171 Cal. at pp. 156–157;
Zottman, supra, 20 Cal. at pp. 102–105; Los Angeles Dredging, supra, 210 Cal. at p. 353
[it is “settled that the mode of contracting, as prescribed by the municipal charter, is the
measure of the power to contract; and a contract made in disregard of the prescribed
mode is unenforceable”].)
With this legal backdrop, we consider how written change order requirements in
public contracts were considered in Weeshoff, Katsura, and P&D Consultants.
3. California Courts of Appeal
The parties’ dispute focuses on which of three California appellate cases govern
PBC’s claim the written change order requirement here was modified orally or by
conduct, was waived by District, and/or that PBC may attempt to obtain recovery under
the doctrine of estoppel. In Weeshoff, the court held a public entity’s conduct constituted
waiver of a contractual written change order requirement authorizing extra work.
(Weeshoff, supra, 88 Cal.App.3d at pp. 589–590.) Katsura and P&D Consultants
distinguished Weeshoff and held no modification of a contract or its written change order
requirement could be established. P&D Consultants broadly held “public contracts
requiring written change orders cannot be modified orally or through the parties’
conduct.” (P&D Consultants, supra, 190 Cal.App.4th at p. 1335.)
Weeshoff involved a contractor who brought suit against a flood control district to
recover damages purportedly due for extra work performed on a competitively bid public
works contract. (Weeshoff, supra, 88 Cal.App.3d at p. 582.) The project involved
construction on a section of Whittier Boulevard that was also a state highway. (Id. at
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p. 583.) The state required three lanes of traffic remain open on Whittier Boulevard
during commuting hours and prohibited the use of temporary resurfacing on state
highways. The contract likewise restricted the use of temporary resurfacing on state
highways, and required any change orders be in writing. (Id. at pp. 583, 588.)
During the project, a dispute arose about the three-lane requirement on a section of
Whittier Boulevard. (Weeshoff, supra, 88 Cal.App.3d at p. 584.) Weeshoff had
maintained the lanes with hard sand compact, but the district sent a memo stating sand
was insufficient and ordered Weeshoff to fix it. (Ibid.) Weeshoff received another letter
from the district the next day stating that if the road surface was not restored sufficiently,
the district would restore it at Weeshoff’s expense and cancel the contract. (Id. at
pp. 584–585.) About three days later, the district placed 18 tons of temporary resurfacing
material at the site and later informed Weeshoff the temporary resurfacing costs would be
subtracted from the final payment. (Id. at p. 585.) Disputes over the temporary
pavement continued, and Weeshoff’s project superintendent was purportedly instructed
by the district’s site manager to place temporary pavement at certain other locations. (Id.
at pp. 586, 592.) No written change orders were issued regarding the temporary
pavement. (Id. at p. 586.) The district ultimately refused to pay the extra costs associated
with the temporary pavement, Weeshoff filed suit, and the trial court awarded Weeshoff
damages for the extra costs incurred from the use of temporary pavement. (Ibid.)
On appeal, the court affirmed the trial court’s findings that under these
circumstances, the temporary resurfacing ordered by the district constituted a change in
the contract terms; that by its conduct in threatening to cancel the contract if the hard-
packed sand was not replaced and dumping 18 tons of temporary pavement at the job site,
the conduct constituted a change order, and the district intended to waive the contractual
provision requiring a written change order; and that the contractor was justified in
believing the district had issued a valid change order through its conduct. (Weeshoff,
supra, 88 Cal.App.3d at pp. 586–591.)
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The court observed that while California cases have generally upheld the necessity
of compliance with contractual provisions regarding written change orders, written
change order requirements may be waived if, by their conduct, the parties clearly assent
to a change. For this proposition, the court cited two decisions involving private party
contracts. (Weeshoff, supra, 88 Cal.App.3d at p. 589, citing C. F. Bolster Co. v. J. C.
Boespflug Etc. Co. (1959) 167 Cal.App.2d 143, 150–151 & Frank T. Hickey Inc., supra,128 Cal.App.2d at pp. 682–683.) The court reasoned the district had applied great
pressure on Weeshoff to use temporary pavement, and dumping 18 tons of pavement on
the roadway was conduct showing an intentional attempt to change the contract without a
change order. (Weeshoff, supra, at pp. 589–590.) As a result, Weeshoff was permitted to
recover its costs associated with the extra work performed without a written change
order. (Id. at p. 592.)
Twenty-eight years after Weeshoff, a different division of the Second District
Court of Appeal decided Katsura. Katsura entered into an engineering consultant
contract with the city which stated the maximum the city would pay for those services
was $18,485 and required any modifications to be made only by mutual written consent
of the parties. (Katsura, supra, 155 Cal.App.4th at p. 106.) The contract also authorized
special work up to $1,850 for services not within the project scope. (Ibid.) Payments for
such work were only to be made after issuance of a written notice to proceed signed by
the city engineer. (Ibid.) Katsura’s first invoice to the city was for $2,943.25, which was
paid; his second invoice was for $12,621.75, which was paid; his final invoice was for an
additional $23,743.75, which the city refused to pay because it was beyond the contract
price and it included unauthorized work. (Id. at pp. 106–107.)
Katsura filed suit for money due, common count, account stated, and open book.
(Katsura, supra, 155 Cal.App.4th at p. 107.) After a bench trial, the court found Katsura
was entitled to recover judgment against the city for $2,920, the remaining amount of the
$18,485 authorized under the contract. Katsura appealed arguing the full amount of the
21.
final invoice was due because the city breached the contract, waived its right to enforce
the contract, or the contract was orally modified to authorize the special work. (Ibid.)
The appellate court rejected each argument. (Id. at pp. 108–111.)
The court first explained the city’s charter required city contracts to be made in
writing, approved by the city council, and signed on behalf of the city by an officer
designated by the council. (Katsura, supra, 155 Cal.App.4th at p. 108.) The charter
permitted the city to pass a resolution or ordinance allowing the city manager to authorize
contracts with or without a writing for the acquisition of equipment and other items
within a budget approved by the council. (Ibid.) By resolution, the city manager was
authorized to enter into contractual relationships up to $25,000 for the relevant fiscal
year. (Ibid.) The city manager had delegated his authority to sign contracts to
department heads, including the public works director who signed Katsura’s contract on
behalf of the city. (Ibid.)
The court then explained no contract could be enforced against the city that its
charter prohibited. (Katsura, supra, 155 Cal.App.4th at pp. 108–109.) Katsura claimed
the extra work he performed, as reflected on the third invoice, had been requested by a
city engineer and an outside consultant, and these requests amounted to an oral
modification of the contract. (Id. at p. 108.) The court observed there was no provision
in the charter for the execution of oral contracts by employees of the city who do not
have requisite authority; thus, these purported oral agreements were void. (Id. at p. 109.)
As to Katsura’s theory of recovery based on an implied-in-law contract, the court
held that because the oral agreements were void under the charter, no implied-in-law or
quasi-contract theory could apply. (Katsura, supra, 155 Cal.App.4th at pp. 109–110.)
The court explained that as held by the California Supreme Court, “‘“‘the law never
implies an obligation to do that which it forbids the party to agree to do.’”’” (Id. at
p. 110, quoting Reams, supra, 171 Cal. at p. 156; accord, Zottman, supra, 20 Cal. at
p. 106; Amelco, supra, 17 Cal.4th at p. 235.) The court cited Amelco for the proposition
22.
that contracts disregarding applicable code provisions are beyond the power of the city to
make. (Katsura, supra, at p. 110.)
Katsura relied on Weeshoff, but the court found Weeshoff inapplicable and
factually distinguishable in several regards. (Katsura, supra, 155 Cal.App.4th at
pp. 110–111.) The Katsura court also questioned the viability of Weeshoff’s statement
that written change order requirements could be waived by the parties’ conduct because
the cases Weeshoff cited for this proposition involved private contracts, not public
contracts. (Katsura, supra, at p. 111.) Given that the oral modification alleged by
Katsura was prohibited by the city’s charter, the “great weight of authority” (ibid.) was
contrary to Weeshoff in this regard. The “great weight of authority” referred to in
Katsura included Reams, Zottman, Amelco and Los Angeles Dredging, among others.
(See Katsura, supra, at pp. 108–110.)
Finally, the court noted Katsura was not the victim of an innocent mistake: he
admitted he performed the extra work knowing it was outside the scope of the contract,
and he had actual knowledge of the process for obtaining authorization for extra work
because he had been involved with the city on a previous contract and had submitted
written requests authorizing extra work. (Katsura, supra, 155 Cal.App.4th at p. 111.)
The holding in Katsura was extended by the court in P&D Consultants. There, a
civil engineering firm (P&D) brought suit against the City of Carlsbad for breach of
contract, breach of implied contract, quantum meruit, and violation of prompt payment
statutes, seeking to recover for services on the redesign of a municipal golf course.
(P&D Consultants, supra, 190 Cal.App.4th at pp. 1336–1337.) The parties’ written
contract defined the scope of work and set a contract price. (Id. at p. 1336.) Importantly,
it also provided that there could be no amendments, modifications or waivers of the
contract terms absent a written agreement signed by both parties, and it contained an
integration clause that the contract and any written agreements thereto embodied the
parties’ entire agreement. (Ibid.)
23.
During the course of the work, the parties entered into five different amendments
that increased the contract price. (P&D Consultants, supra, 190 Cal.App.4th at
pp. 1336–1337.) In each of the first four amendments, P&D would submit a proposed
change order with a fixed contract price to the city’s project manager (Cahill) and he
would provide the city with the information for the preparation of an amendment. (Id. at
p. 1336.) Usually, the city took several weeks to execute an amendment, and Cahill often
authorized P&D to begin the extra work before it received the executed amendment.
(Ibid.)
The fifth written amendment resulted from a series of negotiations between P&D
and Cahill. (P&D Consultants, supra,. 190 Cal.App.4th at pp. 1336–1337.) P&D sought
additional money to complete the contract, but Cahill communicated there was only
$100,000 left in the budget, and no further costs would be authorized nor should be
needed to finish the design package. (Id. at p. 1337.) As finally approved, the fifth
amendment authorized $99,810 of additional work. (Ibid.) The written amendment
stated the intent of the parties was that the amendment was to provide all final and
complete services by the city to bid the project, and that no additional compensation was
to be requested nor would it be approved by the city related to this scope of work. (Ibid.)
P&D began work several weeks before the city executed the fifth amendment, at
Cahill’s direction, which had been the parties’ customary practice with prior
amendments. (P&D Consultants, supra, 190 Cal.App.4th at p. 1337.) After the fifth
amendment was executed, however, P&D sought more money from the city for
additional work purportedly not included in the amendment. (Ibid.) The city refused to
pay, and P&D filed suit seeking to recover another $100,000 for extra work it performed
outside the scope of the fifth amendment. (Ibid.)
P&D’s trial theory was that the contract’s written change order requirement was
modified by Cahill’s oral authorization of the extra work for which it sought payment,
and by the parties’ conduct in handling the amendments. (P&D Consultants, supra, 190
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Cal.App.4th at p. 1337.) Over the city’s objection, the jury was instructed on P&D’s oral
modification theory of breach, and the jury returned a verdict for P&D. (Id. at p. 1339.)
The city appealed after posttrial motions were denied, and argued the trial court erred in
finding the contract could be modified orally or through the parties’ conduct in handling
the amendments and allowing the matter to go to the jury on that theory. (Id. at pp. 1335,
1339.) The city argued there was no written change order for the extra work P&D
performed after the fifth amendment, in violation of the contract itself and Government
Code section 40602, which required a general law city (as Carlsbad was at that time) to
execute its contracts with the signature of the mayor or a designee as provided by
ordinance. (Id. at p. 1335, fn. 1.)
Relying entirely on Katsura, the court concluded that while Katsura involved a
purported oral modification of a public contract, its reasoning was applicable to a
purported modification through conduct—implied-in-fact. (P&D Consultants, supra,
190 Cal.App.4th at pp. 1340–1341.) The court explained the parties’ contract limited the
city’s power to contract to the prescribed method, and by relying on Cahill’s oral
authorization or direction to perform extra work without a change order, P&D acted at its
peril. (Id. at pp. 1341–1342.) The court noted the purpose of including a written change
order requirement in a municipal works contract is to protect the public fisc from the type
of situation that had occurred between the parties. (Id. at p. 1342.) Notably, however,
the court did not reach the city’s argument that any contract modification P&D alleged
with respect to the extra work would be void under Government Code section 40602
because it was not signed by the mayor or his designee. (Id. at p. 1335, fn. 1.)
The court distinguished Weeshoff factually, noting the parties’ contract in
Weeshoff included a provision allowing extra work to proceed without a fully agreed-
upon change order while P&D’s contract with the city unambiguously prohibited
commencement of extra work without written authorization. (P&D Consultants, supra,
190 Cal.App.4th at p. 1342.) The court also echoed Katsura’s criticism of Weeshoff as
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citing contract cases involving private parties and not public entities, and that the legal
proposition a written change order requirement could be waived was “‘contrary to the
great weight of authority .…’” (Id. at p. 1342, quoting Katsura, supra, 155 Cal.App.4th
at p. 111.)
Finally, the court distinguished Kemper, supra, 37 Cal.2d at pages 699 to 700,
because P&D’s case did not concern relief from a mistaken bid that caused the
municipality no damage. (P&D Consultants, supra, 190 Cal.App.4th at p. 1343.) While
Kemper noted California cases have refused to apply special rules of law simply because
a government body is party to the contract, the court was unconvinced this meant that
contract modification in the private sector applies equally to public contracts, pointing to
Amelco’s acknowledgment that “‘public works contracts are the subject of intensive
statutory regulation and lack the freedom of modification present in private party
contracts.’” (P&D Consultants, supra, at p. 1343, quoting Amelco, supra, 27 Cal.4th at
p. 242.)
C. Analysis
PBC contends that, given the longstanding prohibition on public entities
contracting in a manner or mode outside their authority as limited by charter, statute, or
code, Katsura could not have been decided differently. However, because there were no
such limits on the contracting authority of the public flood district in Weeshoff, and
because no special rules of interpretation apply to public contracts simply because one of
the parties is a public entity, the principle of waiver was properly applied in Weeshoff.
PBC argues the holding in P&D Consultants is not supported by Katsura because there
was no similar statute, charter, or code prohibiting the city from entering into implied-in-
fact contract modifications.
In many respects, Katsura is a straightforward application of the principles
recognized in Zottman, Reams, and Los Angeles Dredging: a public entity contract is
void if entered into through a prohibited mode, and the contract cannot thereafter be
26.
enforced under an implied-in-law or quasi-contract theory. Weeshoff, on the other hand,
involved the Los Angeles Public Flood District, which is a public entity not governed by
the same charter requirements as the City of San Buenaventura in Katsura. The facts of
Weeshoff do not indicate any legal prohibition on the district’s ability to modify its
agreement with Weeshoff through its conduct and waive the written change order
requirement. The long line of authority that dictated the outcome in Katsura simply was
not relevant to the facts in Weeshoff.
Katsura noted the viability of Weeshoff was questionable in holding that the
application of waiver could apply to public contracts. (Katsura, supra, 155 Cal.App.4th
at p. 111.) But, rather than stating a broad rule that no implied contract or waiver could
ever be recognized in the public contract context, Katsura’s statement in this regard is
better understood as recognizing the reality that the doctrine of waiver applied in
Weeshoff is unlikely to be applicable in many public contracts due to the laws that restrict
and govern public entities’ contracting abilities. Such an interpretation of Katsura’s
discussion of Weeshoff is consistent with the observation in Amelco that public contracts
lack the freedom of modification present in private party contracts (Amelco, supra, 27
Cal.4th at p. 242), and the recognition in Retired Employees that government entities may
be bound by implied-in-fact contracts so long as no statute or law prohibits it (Retired
Employees, supra, 52 Cal.4th at p. 1176).5 Neither the facts of Katsura nor the case
authority underpinning its determination preclude any and all oral modification of a
5 Although dicta in Green Valley Landowners Assn. v. City of Vallejo (2015) 241
Cal.App.4th 425 characterized Katsura as holding “all implied contracts against public entities
are barred because, by definition, they have not formally been approved by the entity” (id. at
p. 438), we do not agree Katsura’s holding is that broad, and even if it were, it would seemingly
contravene the California Supreme Court’s holding in Retired Employees recognizing, albeit in
the public employment context, that “a county may be bound by an implied contract under
California law if there is no legislative prohibition against such arrangements, such as a statute or
ordinance.” (Retired Employees, supra, 52 Cal.4th at p. 1176; see Youngman v. Nevada
Irrigation Dist. (1969) 70 Cal.2d 240, 246 [“Governmental subdivisions may be bound by an
implied contract if there is no statutory prohibition against such arrangements.”].)
27.
written change order requirement in a public contract where no statute, code, ordinance
or charter prohibits it.
Nor is P&D Consultants persuasive for its broad holding that “public contracts
requiring written change orders cannot be modified orally or through the parties’
conduct.” (P&D Consultants, supra, 190 Cal.App.4th at p. 1335.) There, the court did
not decide whether the city was precluded by any statute or code from modifying the
contract as alleged (through conduct). Instead, without citation to any authority beyond
Katsura, the court concluded the plain language of the contract limited the city’s power
to contract to a certain prescribed method. (Id. at p. 1341.) Yet, the contract itself is not
a source of public contracting law nor is it legal authority limiting the ultimate scope of
the city’s contracting powers, and we find no support for the proposition that a contract
itself may limit or proscribe a public entity’s ultimate power to contract.
P&D Consultants also echoed Katsura’s criticism of Weeshoff’s application of
waiver as against the great weight of authority (P&D Consultants, supra, 190
Cal.App.4th at p. 1342), but the authority cited by Katsura involved or discussed
contracts that were void as ultra vires of the public entity’s ability to contract in scope or
mode as provided by statute, charter, or code. (Katsura, supra, 155 Cal.App.4th at
pp. 108–110, citing Domar Electric, Inc. v. City of Los Angeles, supra, 9 Cal.4th at
p. 171, Los Angeles Dredging, supra, 210 Cal. at p. 353, Amelco, supra, 27 Cal.4th at
pp. 234, 242, G. L. Mezzetta, Inc. v. City of American Canyon (2000) 78 Cal.App.4th
1087, 1093–1094 & Reams, supra, 171 Cal. at pp. 156–157.) In this case, District
presents no argument how any oral or implied-in-fact modification of the written change
order requirement was precluded by statute or District’s governing document of
incorporation and thus rendered void as a matter of law.
Beyond that, P&D Consultants distinguished Weeshoff on a factual basis for
which there is no similar distinction here. The public entity’s contract with Weeshoff
allowed for extra work without a fully agreed-upon written change order that P&D
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Consultants contrasted with the contract before it that unequivocally required any
changes to be approved by prior written amendment executed by both parties. (P&D
Consultants, supra, 190 Cal.App.4th at pp. 1336, 1342.) Unlike P&D Consultants, the
written extra work order requirement here is extremely similar to that in Weeshoff. In
Weeshoff, while any change was to be made in writing, if there was a disagreement about
price for the extra work, the work could be directed without a negotiated price and paid
for based on an extra work payment schedule within the contract that provided
compensation for labor, material, equipment and other services. (Weeshoff, supra, 88
Cal.App.3d at p. 588, fns. 3 & 4.) Similarly here, though no extra work was to be paid
unless ordered in writing, if the price could not be fixed “before order for the extra work”
was issued, section C-10 provides that the contractor was to be paid based on the same
type of extra work payment schedule as in Weeshoff. Moreover, any amendment to the
contract in P&D Consultants had to be executed by the city, but here and in Weeshoff, the
engineer had express contractual authority to issue change/extra work orders without the
written approval of the public entity.
District argues P&D Consultants’s holding is consistent with generally recognized
principles that the purpose of a written change order is to protect the public entity and
taxpayer money from uncertainty that arises when contractors perform unauthorized work
without a set budget or established price, and it avoids the painstaking process of finger
pointing over payment for additional work months and years after performance and
completion of the project.
Written change order requirements in public contracts certainly serve these
important ends, but District has pointed to no legal obligation that written change order
requirements be included in public contracts; as a matter of adopted public policy or that
applying theories of modification, waiver or estoppel would implicate the kind of
significant public policy concerns discussed in Amelco with respect to abandonment.
(See Amelco, supra, 27 Cal.4th at pp. 239–241.) As we have already observed, many
29.
public entities will not be permitted by their charter or by statute or code to engage in oral
modifications or impliedly waive written change order requirements, nor will estoppel
apply as Katsura illustrates. Contractors who undertake extra work without a written
change order in such cases will do so at their peril because they are charged with
knowledge of contracting law that binds the public entity. (See Miller, supra, 20 Cal.2d
at p. 89.)
Moreover, written change order requirements are not rendered meaningless simply
because they may be susceptible to oral modification or waiver in rare instances. As
Weeshoff pointed out, written change order requirements are generally upheld.
(Weeshoff, supra, 88 Cal.App.3d at p. 589.) Thus, even though oral modification,
implied-in-fact contracts, or doctrines of waiver and estoppel may be invoked where not
in violation of the public entity’s contracting authority or adopted public policy, it does
not mean the written change order requirement is unenforceable or can be waived by any
purported agent of a public entity. Weeshoff explained waiver applied in that case
because the district itself had engaged in conduct that constituted the issuance of a change
order and waiver of the written change order requirement. (Id. at p. 590, fn. 5.)
Although a site inspector had purportedly told Weeshoff to use temporary pavement, the
site inspector had no contractual authority to issue any change to the contract even by
written order. (Ibid.)
For this reason, although P&D Consultants’s broad holding that public contracts
requiring written change orders cannot ever be modified orally or through the parties’
conduct is not persuasive, there is little reason to doubt the ultimate outcome there was
correct. In that case, the city’s project manager had purportedly told P&D to proceed
with extra work before the execution of written amendments later signed by the city.
Yet, there is nothing in the facts suggesting the project manager had the authority,
through the contract or otherwise, to approve an amendment on behalf of the city; the
contract required the written approval of the city. (See J. M. Griffith Co. v. City of Los
30.
Angeles (1898) 6 Cal.Unrep. 119, 123 (per curiam) [engineer’s oral direction to
contractor to perform extra work could not bind the city under the contract terms (which
required approval by the city for changes), or the city’s charter]; Bares v. City of Portola
(1954) 124 Cal.App.2d 813, 820 [engineer’s oral direction to contractor to perform extra
work not binding on the city because the contract required a written order by the engineer
pursuant to the authorization of the city]; Contra Costa Const. Co. v. Daly City (1920) 48
Cal.App. 622, 624–625 [the city engineer’s oral directions to contractor to perform extra
work not binding on the city because contractually extra work would not be paid for
unless authorized by resolution of the city’s board of trustees and the city charter did not
authorize engineers to contract on behalf of the city].) This distinguishes P&D
Consultants from the contracts here and in Weeshoff where contractual authority to issue
change/extra work orders was vested with the engineer and not expressly contingent on
agreement by the public entity.6
In sum, without any showing District’s contracting authority was legally limited in
scope or mode such that it was precluded from orally modifying the contract or waiving
any written change requirement, Katsura simply does not apply. Further, P&D
Consultants does not provide a persuasive basis to extend Katsura into a bright-line rule
that no written change order requirement in a public contract could ever, as a matter of
law, be modified by conduct or oral agreement. Moreover, P&D Consultants did not
preserve for appeal any argument related to waiver or estoppel, and P&D Consultants
expressly refused to decide the applicability of those doctrines. (P&D Consultants,
supra, 190 Cal.App.at p. 1344.) Within the narrow circumstances of this case, PBC was
not precluded as a matter of law from presenting evidence the written change order
6 District points out a petition for review of the decision in P&D Consultants was filed, but
the California Supreme Court denied it, which District argues reflected a conscious decision by
our high court to allow P&D Consultants to remain in force and effect with regard to future
circumstances like those in this case. Nevertheless, we are not persuaded the rule formulated in
P&D Consultants as an extension of Katsura is as broad as P&D Consultants held.
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requirement had been modified orally or by conduct of the engineer or District, or that
waiver or estoppel could be applied.
Finally, because all evidence pertaining to oral modification, waiver, or estoppel
was precluded as to alleged extra work, it cannot be determined the exclusion was
harmless. The testimony is incomplete as to the circumstances under which extra work
was purportedly requested, and there is no testimony or findings whether any of the
purported extra work was actually outside the scope of the contract. Notably, there is
evidence that at least some of the extra work claimed by PBC was performed knowing
the engineer had deemed the work within the scope of the contract—e.g., the dispute over
imported soil for the excavated tree wells.7
The parties have not had an opportunity to address these issues or present evidence
in this regard, and so it is incumbent upon us to remand for a new trial. In reversing
judgment and remanding this matter to the trial court we express no opinion as to whether
any purported extra work was actually outside the scope of the contract, whether the
written change order requirement was modified or waived by District or its engineer, or
whether estoppel is appropriate.
II. Remaining Issues
The parties dispute additional issues regarding the permissibility of liquidated
damages, whether the lack of notice of withheld amounts of the contract price precluded
any withholding by District, and whether prompt payment penalties should have been
assessed. Even to the extent they involve questions of law, the contours of these disputes
7 In the event PBC disputed the engineer’s instructions or directions as involving extra
costs not included in the contract price, section C-29 of the contract required PBC to file a claim
with the engineer for those costs within 15 days of receipt of such instructions by the engineer, or
the claim would be deemed waived. There is no evidence PBC ever filed such a claim for work
the engineer deemed within the scope of the contract but PBC believed involved extra costs not
contemplated by the contract.
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may be affected by determinations related to PBC’s claims of extra work for which a new
trial is required. Thus, we do not reach the remaining disputed issues.
DISPOSITION
The trial court’s judgment is reversed and the case is remanded to the trial court
for further proceedings consistent with this opinion. PBC is awarded its costs on appeal.
(Cal. Rules of Court, rule 8.278, subd. (a)(1).)
MEEHAN, J.
WE CONCUR:
PEÑA, Acting P.J.
DeSANTOS, J.
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