Contra Costa Water Co. v. Breed

This is a proceeding in mandamus, instituted in the superior court to obtain a writ of mandate compelling the defendant, as auditor of the city of Oakland, to audit and draw his warrant for certain claims of plaintiff against said city. A demurrer to the complaint was overruled; and after answer by defendant judgment was rendered for plaintiff on the pleadings. From this judgment defendant appeals.

We see no good reason for disturbing the judgment of the court below. The claims of respondent are for water furnished the city of Oakland, and hydrants and materials used in connection with the furnishing of such water, during the fiscal year commencing July 1, 1900. Appellant makes some technical points not involving the ultimate merits of the case, which we do not deem it necessary to specially notice; it is enough to say as to those points that it sufficiently appears that after the claims here involved had been presented to and rejected by the appellant, they were approved and allowed by a majority of the members of the city council, as well as by a majority of the members of the board of works of the city, and approved by the mayor, and that thereafter they were again presented to the appellant as auditor, and were by him again rejected. This being so, the discretionary power of appellant to reject the claims had been exhausted, and it was his ministerial duty to audit and draw his warrants for the claims, unless they were for expenditures which the council had no right at all to incur under the law. This is the rule, as stated in section 10 of the charter of the city of Oakland, the exception there being in these words: "Provided, the said city council, board, or other body had the authority to make the expenditures." The main question in the case, therefore, is whether the city council had authority to make the expenditures involved in the case at bar. (See San Francisco GasLight Co. v. Dunn, 62 Cal. 580.)

The litigation in this case arose out of facts likely to occur in any case where the furnishing of water to a municipality is subject to the provisions of article XIV of the state constitution. That article provides that in such case the council or other governing body of the municipality, by ordinance or resolution in February of each year (or, at least, before the beginning of the next fiscal year), shall fix the rates which the party furnishing the water shall be entitled to charge during such fiscal year. When the governing body is composed of quite a large number of persons, — as is usually the case, — it may happen that a majority of such persons cannot conscientiously agree upon one entire schedule of rates; so that at the commencement of the fiscal year the rates will not have been fixed. This condition may also be the result of other causes. Water, of course, is a constant and absolute necessity to a city and to its inhabitants, and a present supply can usually be had only from the persons theretofore engaged in supplying the particular city in question and having the requisite plant and water. Under these circumstances it is not to be supposed that there are no means by which the city or its inhabitants may get the necessary water, except by inducing the water company to furnish it and then refusing to pay for it — unless the law absolutely compels such conclusion. In the case at bar the city council had on March 26, 1900, passed an ordinance fixing the water rates for the fiscal year commencing July 1, 1900; but, as the result of litigation instituted by respondent, the superior court judicially determined that such ordinance was invalid, and enjoined the city from enforcing it. An appeal was taken from this judgment, which is still pending. But during that year the respondent did actually furnish to the city water, the reasonable value of which is involved in this litigation, and the city continuously received the same, and used it, and had the full benefit thereof, although there was no previous express contract as to its price. The respondent afterward proposed, as a compromise, to take as a compensation for the first ten months of the fiscal year the rates which had been prescribed in the said ordinance which had been declared invalid, notwithstanding its claim that those rates were unreasonably low, and to remit its water rates for the last two months of that year and donate them to the high-school fund of the city. The city council on July 15, 1901, passed an ordinance, which was approved by the mayor, reciting these facts, determining that the claims of the respondent were for reasonable rates, and declaring that the claims and demands of respondent "are hereby ratified, confirmed, allowed, and approved, and ordered paid, in the sum and amount shown and set forth in each of said claims and demands." But the contention of appellant is, substantially, that the council had no power to allow these claims; that the city should repudiate payment for what she had received and used, and in good conscience and honest fair dealing ought to pay for, because a contract for the same had not been made in accordance with certain provisions of the city charter and of existing ordinances. The attitude of appellant then is this: that notwithstanding the fact that the company supplied the city with water, and seeks to recover for its service at a rate and price less than that which the city itself by its rate-fixing ordinance had declared reasonable, it ought to be denied any recovery. The provisions of the charter and ordinances mainly relied on for this contention are section 1 of an ordinance passed February 23, 1895, and attached to appellant's answer, and certain sections of the charter which provide for letting contracts for certain kinds of supplies to the lowest bidder, after published proposals, to be followed by a written contract, countersigned by the auditor. Section 1 of said ordinance is as follows: "Whenever any court, board, or officer of the city of Oakland shall require furniture, fuel, books or stationery, or other supplies of any kind necessary for the transaction of public business or for the maintenance of the departments of the city government, said court, board, or officer of the city shall make written requisition therefor upon a printed form furnished by the auditor. Said requisition shall state in clear and explicit terms the quantity and kind of supplies needed, the estimated cost thereof, how, when, and where to be delivered, and, if a contract exists, the name of the person, firm, or corporation under contract with the city to furnish the same." It is quite apparent that water to be supplied to a city in quantities, such as necessity may from time to time require is not within the category of "furniture, fuel, books or stationery, or other supplies," which a department of government needs, and for which a requisition must be made, stating in clear and explicit language "the quantity and kind" and the "estimated cost," etc. Those things are, with respect to water, within the constitutional provision which declares that the city council must determine the cost by establishing rates by ordinance; and to such matters the provision of the charter about letting contracts to the lowest bidder has no applicability.

We see no other provisions of the charter, or ordinance, or law, which undertakes to prohibit the city council from allowing and ordering paid the reasonable value of water furnished under the circumstances of this case. The city council clearly had the general power to provide for the furnishing of the supply of water necessary for the city, whatever the contention may be about the manner in which the contract for such supply ought to be made. And even if it could be shown that certain provisions of the charter or ordinances were not strictly complied with, the city, under well-settled legal principles, would not be allowed to accept and use and receive and retain constantly for a year the benefit of respondent's property, and then refuse to pay for it upon the plea that in making the contract it had not proceeded in strict conformity with some part of the complicated internal machinery of its complex corporate organization. When a municipal corporation engages in ordinary business transactions, such as purchasing supplies, it exercises merely the right of a private corporation or a natural person; and when making contracts about such matters it is not to be regarded as exercising political or governmental powers, and, like natural persons, it is subject to the principle that after it has received the benefit of a contract within the scope of its power to make, it is estopped from denying its validity in an action based upon such contract. It is only when the subject-matter of the contract is entirely outside the scope of the corporate powers, or the contract in question is clearly prohibited, that the plea of ultra vires will be listened to. The law upon the question is correctly stated inArgenti v. San Francisco, 16 Cal. 256, where the defendant sought to avoid paying for what she had received, on account of irregularity in the contract and want of power under its charter. The court, after some preliminary discussion as to the correct construction of the charter there revolved, said: "But even if we are mistaken in our construction of the charter, there is still a clear and conclusive answer to both of these objections. It is well settled in relation to the contracts of corporations that where the question is one of capacity or authority to contract, arising either on a question of regularity of organization or of power conferred by the charter, a party who has had the benefit of the contract cannot be permitted, in an action founded upon it, to question its validity. ``It would be in the highest degree inequitable and unjust,' says Mr. Sedgwick, ``to permit the defendant to repudiate a contract, the fruit of which he retains,' — citing many other authorities to the point." Further on the court says: "It is well settled that the contracts of corporations, stand upon the same footing as those of natural persons, and depend upon the same circumstances for their validity and effect. The doctrine of ratification and estoppel is as applicable to corporations as to individuals, and the former are bound by the acts of their agents in the same manner and to the same extent as the latter. There is no difference in this respect between public and private corporations; for in matters of contract a public corporation is regarded merely as a legal individual, and treated in all respects as a private person." And again the court says: "It does not follow, however, that even a want of authority is in all cases a sufficient test of the exemption of a corporation from liability in matters of contract. Of course, an executory contract made without authority cannot be enforced; but a different question arises where the contract has been executed and the corporation has received the benefit of it. In such a case the law interposes an estoppel, and will not permit the validity of the contract to be called in question." In the still earlier case of Touchard v. Touchard, 5 Cal. 307, the court says: "On the other hand, a corporation, both by the civil and the common law, is a person, an artificial person; and although a municipal corporation has delegated to it certain powers of government, it is only with reference to those delegated powers that it will be regarded as a government. In reference to all other of its transactions, such as affect its ownership in buying, selling, or granting, and in reference to all matters of contract, it must be looked upon and treated as a private person, and its contracts construed in the same manner and with like effect as those of natural persons." In San Francisco Gas Co. v. SanFrancisco, 9 Cal. 453, the plaintiff had furnished the city with gas, and the city sought to escape payment on account of irregularity of contract. Field, J. said: "Under some circumstances a municipal corporation may become liable by implication. The obligation to do justice rests equally upon it as upon an individual. It cannot avail itself of the property or labor of a party and screen itself from responsibility under the plea that it never passed an ordinance on the subject. As against individuals, the law implies a promise to pay in such cases, and the implication extends equally against corporations. This is as well established by the authorities as any principle of law can be."

It is contended that the weight of the authorities above cited was lessened by the case of Zottman v. San Francisco, 20 Cal. 96.¹ The facts in that case were materially different from those in the case at bar. In that case the plaintiff had entered into a contract with the city to construct an iron fence around a public square according to certain specifications. This contract had been made on the part of the city by ordinance, in accordance with an express provision of its charter that all contracts for "public improvements" should be made by ordinance. The contract called for a wooden base for the fence, and failed to provide for painting it. Afterwards some individual members of the council ordered plaintiff to do such additional work. The city council never approved the claims for extra work, nor in any way recognized, audited, or ordered them paid. The plaintiff's case rested entirely upon the claim that although the city had neither ordered nor ratified nor approved the work, still it must be presumed to have known that it was being done, and to have accepted it, and therefore to have made itself liable for its reasonable value. The court held, however, that the fact that the city had not removed this one isolated addition to its land did not bring it within the rule that one who accepts the benefit of a contract cannot repudiate it. In illustration of this, the court said: "Thus, if one person should erect a cottage or stable upon the land of another without request, the conduct of the architect could not be affected by a refusal of the owner of the land to accept the building. The architect could not, upon such refusal, remove the building, it having become attached to and part of the freehold; nor would the owner of the land be deemed to have accepted the building merely because he had not chosen to tear it down, or had seen fit to use it in connection with his land. From the necessity of the case, the owner receives the benefit of the building by reason of his right in the soil, and not from any supposed acceptance, without subjecting himself to any obligation of payment. So, too, in the present case, from necessity, the corporation received the benefit of the stone base to the iron fence around Portsmouth Square, and of the painting of the iron fence, without incurring any liability therefor." Moreover, the court held in that case that the city council had absolutely no authority to make the alleged contract on account of "the restrictions imposed by the charter upon their powers." Now, in the case at bar there are several marked differences from the Zottman case. In the first place, in this case the city council, in its corporate capacity, did absolutely approve respondent's claims and ordered them paid. In the second place, there were here no "restrictions imposed by the charter" absolutely prohibiting the action of the city council here involved. And, again, there was in the case at bar not merely one isolated addition to the real property of the city which the latter was not compelled to remove in order to show its want of consent; there was a continuous reception and beneficial use of the water furnished by the respondent daily and hourly throughout an entire year. It may be conceded, however, that there are expressions in the opinion in the Zottman case somewhat at variance with the former cases above referred to; but they are also at variance with subsequent decisions of this court which, we think, fully recognize the principle declared in the earlier cases. Among those subsequent cases are the following: In Brownv. Board of Education, 103 Cal. 530, an action to recover the value of certain plans and specifications, the court said: "With respect to mere ordinary business contracts a municipal or quasi-municipal corporation stands on the same footing with other corporations. If a contract for the drawing of plans and specifications in anticipation of proceedings for the building of a schoolhouse was entirely beyond the scope of the powers of the respondent, and could not be legally made by it under any conceivable circumstances, then the point sought to be made by the respondent might perhaps be raised on demurrer; but the position that respondent could not, under any circumstances, make such a contract is not tenable. . . . ``Corporations may be bound by implied contracts within the scope of their authority,' and ``municipal corporations are liable to actions of impliedassumpsit.'" In Higgins v. San Diego Water Co., 118 Cal. 524, this court held that while a certain contract with the water company for supplying water to the city of San Diego was, for reasons stated, invalid, yet the company was entitled to recover reasonable compensation for what had been furnished to and used by the city. Beatty, C.J., in delivering the opinion of the court, on page 555, said: "But the city had the general power to contract for a water supply for itself and its inhabitants, and under this power could undoubtedly have taken a lease of the water company's plant for a year, and could have renewed such lease from year to year. In effect, it has done this very thing. Its express contract to pay nine thousand one hundred and sixty-six dollars and sixty-five cents was invalid for the reasons above stated; but there is no reason why it should not pay the reasonable value of the use of the plant which it has actually enjoyed. The decisions cited by counsel for appellant from the reports of other states very clearly sustain his contention in this respect, and so we think do the decisions of this court. We cite the following:" And among the cases cited areSan Francisco Gas Co. v. San Francisco, and the Argenti case, hereinbefore noticed, as well as the Zottman case. In SacramentoCounty v. Southern Pacific Co., 127 Cal. 217, the plaintiff was endeavoring to evade the obligation to pay for what it had accepted and used, on account of irregularity and invalidity in the contract involved; but this court held adversely to that contention. The court, after a full consideration of the authorities and copious quotations therefrom, said: "From these authorities, and many others which might be cited, it is apparent that public corporations, like individuals, are bound to act in good faith and deal justly; that they cannot be allowed to enter into contracts involving others in expensive engagements, silently permit these contracts to be executed, and then repudiate them because the statutory steps have not been pursued in the letting of the contracts." There are other decisions of this court to the same effect, and many of courts of other states. (See Brown v. City of Atchison,39 Kan. 37;¹ Grand Island Gas Co. v. West, 28 Neb. 852, andTownship of Taymouth v. Koehler, 35 Mich. 22 — in all of which cases the Argenti case is cited with approval.) Cases which are cited to the contrary of this rule are generally cases where the contract in question was either entirely beyond the scope of the corporate powers or was expressly prohibited.

Appellant makes the point that respondent cannot maintain this action, because under article XIV of the state constitution it had forfeited all its franchises and property. It is doubtful if this point can be raised, except in direct proceeding to have forfeiture declared; but even in such a direct proceeding, whatever views a court might entertain in other respects as to the character of said article XIV, no forfeiture would be declared under it unless its language clearly demanded it. Section 1 of that article imposes the duty upon the governing body of a municipality to annually establish the rates to be charged for water, and declares that any person or company collecting water rates "otherwise than as so established" shall forfeit its franchises and water-works. Clearly, that language would not be construed as working a forfeiture, if susceptible of any fair, reasonable construction which would not lead to that harsh result, which the law abhors; and it is obviously susceptible of the construction that it refers to a case where the rates had been established by the governing body, and that the word "otherwise" is to be given one of its usual meanings, — namely, "contrarily," — in violation of the established rates. An expression to be found in the opinion of the court in Jacobsv. Supervisors, 100 Cal. 121, and referred to by counsel, had no reference whatever to the subject of forfeiture; it was used incidentally in reference to an entirely different subject, and is not to be taken as declaring the law upon the point here under discussion, which was not before the court in that case — the question there being whether, under the old charter of San Francisco, the mayor had legal authority to veto the water ordinance. But in Culbertson v. Kinevan, 73 Cal. 68, where forfeiture was directly involved, the decision was, in principle, clearly adverse to appellant's contention.

For the reasons above stated we think that the conclusion of the learned judge of the court below was right, and should be maintained.

The judgment appealed from is affirmed.

Lorigan, J., concurred.

¹ 81 Am. Dec. 96, and note.

¹ 7 Am. St. Rep. 515.