Crowe v. Boyle

I concur in the conclusion reached by Mr. Justice Wilbur, but I do not agree with his opinion construing the contract of guaranty as specified in the ordinance. I cannot accept the construction placed upon Ordinance 5107 that the requirement for a contractor's guaranty that the "cost to the city shall not exceed a specified maximum cost per unit" applies alone to the contractor's fee. There are four references to this guaranty in the ordinance. First, the board of public works is authorized to invite proposals and let contracts "on the basis of cost-plus-fee with guaranteed maximum cost to the city and county." Second, the board is authorized to enter into contracts for the construction of "said water supply and works, said proposals and contracts to be based on the so-called cost-plus-fee plan with a guarantee by the contractor that the total cost to the city shall not exceed a specified maximum price per unit." Third, there is the provision that the board of public works may in its discretion award the contract to the bidder submitting the "lowest maximum cost guarantee, or to the bidder proposing to do the work for the lowest contractor's fee." Whatever this last paragraph may mean, it seems clear that the maximum cost guaranty referred to in the first clause is not the contractor's fee indicated in the second clause. The fourth reference is to the fact that "the city and county is to pay the actual cost of doing the work within the guaranteed limit," and providing that no expenditure chargeable to the city and county shall be incurred for labor and material, supplies, or equipment required for such work except on written authorization, etc. The cost and work here referred to as being within the guaranty are clearly the cost and work of the whole contract. It furthermore is an incontrovertible fact that all the parties to the proceedings under this ordinance, in the proposals, specifications, acceptances, and contract have treated this required guaranty as applying to the total maximum cost of the entire work, including the contractor's fee.

These considerations are conclusive to my mind that the guaranty named in the ordinance was intended as a security against any excess unit cost of the entire construction work.

But, with this interpretation of the ordinance I concur in the conclusion of Justice Wilbur that the contract cannot be held invalid for failure of compliance with either the charter or the ordinance, first, because, as pointed out in Justice Wilbur's opinion, the resolutions adopted by the board of supervisors were in legal effect a ratification of the contract; and, second, because if there was not a valid ratification, the acceptance of the contract rests upon a reasonable interpretation by all the parties of the guaranty requirement.

This court is agreed upon the vital point of the opinion that the supervisors had the power under the amended charter to authorize by ordinance a departure from the procedure therein prescribed for negotiating public contracts. They did by ordinance change the procedure not only in adopting the cost-plus-fee plan, but by demanding a guaranty from the contractor where the charter required a surety bond. It is fair to presume that the contract of guaranty as executed and accepted was the security contemplated by the ordinance.

The ordinance authorizes the board of public works to enter into a contract on the so-called cost-plus-a-fee plan "with a guarantee by the contractor that the total cost to the city shall not exceed a specified maximum price limit."

Pursuant to this requirement the contractor, in the contract as executed with the board of public works, agrees as follows:

"The contractor hereby guarantees that the unit costs to the city of such work determined in the manner provided in the specifications, including the contractor's fee hereinafter mentioned, but excluding the general overhead costs of the city's engineering and administrative offices in San Francisco and Groveland will not exceed the sum named in the schedule of guaranteed maximum unit costs; and agrees that if the actual unit costs to the city of San Francisco so determined, exceed such guaranteed costs, the total amount of such exceess on all work to which the same applies may be deducted from any payments due or withheld from the contractor under the contract."

Stopping with the words "unit costs" preceding the semicolon, we have, so far as is necessary to bind the contractor, an express guarantee as required by the ordinance.

I doubt if there is anything in the subsequent language which modifies the liability of the contractor. The added terms are not a limitation upon the guaranty, but a supplementary provision for securing the liability assumed to the extent of any unpaid moneys due the contractor.

It is claimed that the bond which was given to secure performance of the contract expressly construes the above agreement and exempts both the surety and the principal from any liability "on this bond" for the guaranty, and limits the liability of the principal to "a charge against said principal as provided in such specifications."

The provisions of the specifications referred to do not contain any limitation upon the liability of the contractor under the guaranty, but it is the manner of ascertaining the amounts to be deducted from the contractor's fee that is referred to as being "provided in the specifications."

This proviso in the bond, of course, destroys any recourse on the bond for such maximum excess costs, but it cannot and does not purport to construe the extent of the principal's liability on the guaranty, but, on the contrary, refers to the contract for the measure of his liability; and, in my opinion, after having made an express guaranty covering any extent of excess maximum cost, it cannot be held to have been limited by a supplemental agreement in the nature of an assignment of moneys remaining in the hands of the debtor, as partial security for the promise.

But even conceding, as seems to be the construction of the parties themselves, that the contract of guaranty limits the contractor's liability thereon to such deductions as may be made from his stipulated fees, is there such a failure to comply with the requirement of the ordinance in this regard as to nullify the contract? There is at least a partial guaranty, and who shall say that it is not a full and complete protection to the city against its liability for any excess maximum unit costs that may happen or that were within the contemplation of the board of supervisors?

In this consideration of the sufficiency of the guaranty most of the reasoning in the opinion of Mr. Justice Wilbur in his analysis of the nature and purposes of a cost-plus-a-fee contract applies. In determining the character and extent of the guaranty required, we may properly consider the nature and limitations of the relation of the parties under the contract. All of the purchases and expenditures were to be made by the city and were under its immediate control. No greater liability need be assumed than the city approves. The specifications provided for frequent estimates of the progress of the work and the maximum unit costs indicated. The city reserved the right to curtail expenditures and suspend operations at any time it saw fit, and was empowered to hold out from the contractor's fees twenty-five per cent of all amounts other than the advance payments, and after the first year such portion of the yearly advance payments as the board of public works from its investigations finds necessary to cover any excess over the maximum unit costs.

Before this contract was finally entered into it had been certified by the city engineer as his opinion that the work could be completed within the agreed maximum limits. The contract and guaranty were accepted and ratified by the city with knowledge of the form of the guaranty. No question is raised in the pleadings as to there not having been a sufficient compliance with the terms of the ordinance in this respect. Indeed, the plaintiffs recite in their complaint that the board of public works "acting under authority of Ordinance No. 5107 and not otherwise" awarded this contract on the contractor's bid, and that thereafter "a contract in writing in accordance with such proposal made by Construction Company of North America, and such acceptance thereof by the Board of Public Works . . . was executed." This proposal referred to contained the same provision of guaranty as is incorporated in the contract. The answer of the city and county of San Francisco avers that under the authority of Ordinance No. 5107 the successful bidder was to assume charge and superintendence of the construction of said waterworks under the direction and control of the city engineer. All labor and material bills were to be paid directly by the city and county of San Francisco, "but no such expenditures were to be incurred except upon the previous written approval of the Board of Public Works." Materials, supplies, and expenditures were to be purchased directly by the city in accordance with the usual procedure. The contractor, however, was to guarantee that the unit costs of the various classes of work involved would not exceed the sums specified in the bids. It is further alleged in the answer that a bid was received from the defendant Construction Company of North America. That the guaranteed maximum price of the bid was approximately two million dollars less than any competing bid; that its acceptance was recommended by the city engineer; that it was accepted by the board of public works and the contract "was finally awarded under specification No. 76C to the Construction Company of North America."

It is stipulated in the record that all the allegations of the answer are to be taken as true.

These recitals constitute an admission that the contract contained a guarantee as required under the ordinance.

Even on this appeal no serious question is raised by appellants as to a sufficient compliance with the ordinance in the matter of this guaranty.

Certainly in the light of all these facts there cannot be said to have been such a failure to comply with the requirements of the ordinance as will render the contract void and inoperative at the petition of a taxpayer.

The point is urged that the contractor's guaranty should have been secured by the statutory bond required by section 21 of article VI, chapter 1, of the charter. It is there provided:

"Every contract entered into by the Board of Public Works shall be signed," etc.; "and at the same time with the execution of the contract the contractor shall execute to the city and county, a bond named in the notice for proposals, for the faithful performance of the contract."

Ordinance No. 5107 directs that in soliciting proposals and letting such contract the provisions of the charter shall be followed so far as applicable.

But the performance of the guaranty is not an obligation that comes within the terms of the charter provision quoted. The primary contract here was the agreement on the part of the contractor to organize, superintend, and carry on the work of construction which was to be financed by the city itself. As security for the faithful performance of this service he furnished a bond in the penal sum of one hundred thousand dollars fixed by the board of public works. It was the city's part of the obligation to authorize the expenditures, purchase the materials, employ the labor, and pay the bills. It was further required of the contractor in consideration of his employment that he secure the city against loss by a guaranty that the work would be completed for a specified maximum unit cost. This might have been accomplished by requiring the execution of a surety bond. Instead the supervisors by ordinance elected to take as their security the personal guarantee of the contractor. They might have stipulated that he furnish the guarantee of John D. Rockefeller, or John Smith, in which event it would not be claimed that by virtue of the charter requirements he must supplement such guaranty by a bond for its faithful performance. His performance of the guaranty was no part of the original obligation of employment. It was a secondary obligation of indemnity against possible excess in cost in the city's part of the contract. In the absence of this agreement the burden of any excess cost would fall on the city.

Let us suppose, again, that the ordinance had required the contractor to execute a mortgage, or place in escrow a sum of money, to secure against this excess cost; would it be contended that he must secure the performance of this condition by a bond? On the contrary, the execution of the mortgage or escrow would be performance, just as here the contract of guaranty, with the creation of a lien on the contractor's fee, was performance. Not performance of the secondary obligation to pay in the event of an excess cost, but performance of the agreement to pledge his credit as security against such excess, the agreement to guarantee.

When the supervisors elected to take the contractor's personal obligation for security rather than to exact a bond, they exercised the power possessed under subdivision 8 of section 9 of article VI, chapter 1, of the charter, empowering them to vary by ordinance the method of procedure in the matter of public utilities.

The provision of the ordinance for the contractor's guaranty was a modification in this respect of the charter procedure, and it may be fairly inferred was intended to supply such indemnity as would otherwise be required under the charter by a bond. It may be conceded that just what form of guaranty was contemplated does not appear from the ordinance. The board of public works interpreting and acting upon this authorization entered into this agreement with the contractor fixing the maximum unit costs and accepting in lieu of the charter bond this form of guaranty or indemnity against an excess cost. It certainly is some form of a guaranty. Both the board of public works and the board of supervisors have recognized and ratified it as a compliance with the charter and the ordinance.

It is a recognized rule of construction of a statute or ordinance that its contemporaneous interpretation by those charged with its execution is entitled to consideration. (25 R. C. L. 1043; Edwards v. Darby, 25 U.S. (12 Wheat.) 206, 209, [6 L.Ed. 603, see, also, Rose's U.S. Notes]; United States v.Alabama G. S. R. R. Co., 142 U.S. 615, [35 L.Ed. 1134,12 Sup. Ct. Rep. 306]; Arnett v. State, 168 Ind. 180, [8 L.R.A. (N.S.) 1192, 80 N.E. 153, 156].)

Another salutary rule is that where a statute is uncertain as to its interpretation, or fairly susceptible of more than one construction, a construction to which it is fairly susceptible may be followed which will avoid unreasonableness, hardship, or even inconvenience (25 R. C. L. 1018).

"If the language is not clear and it is obvious that by a particular construction in a doubtful case great public interests would be endangered or sacrificed, the court ought not to presume that such construction was intended by the makers of the law." (Pickering v. Day, 3 Houst. (Del.) 474, [95 Am. Dec. 291]; People v. Lambier, 9 Denio (N.Y.), 9, [45 Am.Dec. 273].)

I think in this case it sufficiently appears that the requirement of the guaranty was intended by the ordinance as a substitution for the bond, and that the guaranty executed was in substantial compliance with the ordinance.

Rehearing denied.

Lawlor, J., Wilbur, J., Lennon, J., and Sloane, J., concurred.

Shaw, J., Olney, J., and Angellotti, C. J., dissented from order denying rehearing.