PETROVICH v. CITY OF ARCADIA

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

PETROVICH et al. v. CITY OF ARCADIA et al.

Civ. 16714.

Decided: April 21, 1949

T. Guy Cornyn, of Arcadia, and Burke, Marshall & Burke, of Los Angeles, for appellants. Stephen Monteleone, of Los Angeles, for respondents.

The action herein was instituted by Martin Petrovich, a contractor, for rescission and cancellation of a bid to construct a sewer system for the City of Arcadia. The complaint also prayed for the release of principal and surety on a bid bond which had been posted with the contractor's bid. The City of Arcadia filed a cross-complaint against the contractor and the surety Great American Indemnity Co., seeking to recover the full amount named in the bid bond, $37,500.

The trial court decreed, in the language of appellant's brief, that the plaintiff contractor “take nothing by his complaint in which he asked for a cancellation of the bid, that he and his surety on the bid bond be discharged of all obligations thereunder, and that the city clerk return the bid bond to him, and also decreed that the city take nothing by its cross-complaint in which it prayed judgment against the contractor and the surety”.

The record discloses that, after voting a bond issue of $350,000 for sewer construction, the city council approved plans and specifications for the sewer system, and on August 6, 1946, instructed the city clerk to advertise for bids for the construction thereof, which bids were to be opened on August 20, 1946. On the latter date bids were opened and read at a meeting of the council and referred to the city engineer for tabulation, inspection, and report. In addition to the Petrovich bid, there were bids by five other contractors which were duly opened. On August 22, 1946, the city engineer and the consulting engineer recommended that the city council award the contract to respondent Petrovich; on August 26, 1946 all bids save that of respondent were rejected, respondent's bid of $347,129.40 was accepted and a contract covering the work was tendered to Petrovich.

Respondent Petrovich contends that “after these bids were opened, but before the alleged acceptance of his bid by the City of Arcadia, he discovered that his office man, who computed the bid, made an error in his computation and unintentionally failed to include in the bid the cost of certain material of a substantial amount, and accordingly, on August 22, 1946, he filed * a written notice indicating the above error * and requested that he be permitted to withdraw his bid”. However, as hereinbefore stated, on August 26, 1946, the City accepted respondent's bid and presented a proposed contract which Petrovich refused to execute. As mentioned in respondent's brief, “The improvement project was never readvertised or awarded to the next highest bidder”.

The City's invitation for bids provided that “Each bid must be accompanied by either a cashier's check or bid bond for the sum of Ten Percent (10%) of the total amount of the bid and made payable to the City of Arcadia as a guarantee that the bidder, if his bid is accepted, will enter into a satisfactory contract and furnish a good and sufficient bond for the faithful performance thereof and for the payment of labor and material costs in accordance with the requirements of the contract documents”.

The printed form of bid furnished to prospective bidders by the city contained the provision that “A *cashier's check properly made payable to the City of Arcadia* a Bid Bond in favor of the City of Arcadia for _ Dollars ($_), which amount is not less than ten per cent (10%) of the total amount of this proposal, is attached hereto and is given as a guarantee that the undersigned will execute the Agreement and furnish the required bond if awarded the contract and in case of failure to do so within the time provided *said check shall be forfeited to the City.* Surety's liability to the City will be established.”

In this connection it may be further noted that the bid stated that the bidder had investigated the site of the work and conditions affecting the cost thereof, and that “The undersigned fully understands the scope of the work and has checked carefully all words and figures inserted in this bid and * that the City will in no way be responsible for any errors or omissions in the preparation of this bid”.

As stated in respondent's brief, “Before submitting his bid * Martin Petrovich eliminated from said bid form the following words: ‘Cashier's check properly made payable to the City of Arcadia’ and ‘said check shall be forfeited to the City’ ”. Accompanying said bid was a bid bond providing that the Mike Miller Company (under which name Petrovich transacted business), as principal, and Great American Indemnity Co., as surety, are held and firmly bound unto the City of Arcadia in the sum of $37,500. As stated therein, “The condition of this bond is such that if any awards made by said obligee to the above bounden principal under public invitation for proposals for (sewer) construction * shall be accepted by said principal and said principal shall enter into the contract for the completion of said work and give bond * for the faithful performance thereof, then this obligation shall be null and void; otherwise to remain in full force and effect”.

The trial court found that no “error or mistake was committed by any employee of said plaintiff * in preparing * said bid, and it is not true that said bid contained any error or mistake”. It was likewise found that the city, as cross-complainant, had failed to establish “that it was or is impracticable or extremely difficult to fix the amount of any damage or loss” by reason of the contractor's failure to enter into the bid contract with the City; that the $27,500 specified in the bid bond “was not liquidated nor was the same correlated to an estimate of what the actual damage might be in order to establish that it was a reasonable sum as liquidated damages;” and that “the evidence does not establish a forfeiture nor does said invitation for bid of said City of Arcadia, said bid of cross-defendant (Petrovich) or said bid bond provide for a forfeiture of the amount specified in said bid bond or any other amount for the failure of cross-defendant to enter into said contract”.

The trial court in making the ruling, said: “And the Court is of the opinion that there was a willful failure to perform a duty here; and under Section 3275 of the Civil Code, there could have been a provision in the bid and in the bond providing for forfeiture in case of willful breach of duty, gross neglect, or fraudulent breach of duty. * But the Court does not believe that the bid itself, the form of the bid or the form of the bond, called for a forfeiture. At least, so far as the forfeiture is concerned, the language has to be very explicit that it is a forfeiture”.

The City of Arcadia, as appellant, contends that the bond provides for a forfeiture and for “a statutory penalty”; that Sections 1670 and 1671 of the Civil Code, making void contracts fixing damages to be paid, except that parties may agree “upon an amount which shall be presumed to be the amount of damage sustained by a breach thereof, when, from the nature of the case, it would be impracticable or extremely difficult to fix the actual damage”, do not here apply “since the case is not one for breach of any obligation”; that such sections do not apply because “the obligee of the bond is a political subdivision”. It is further argued that “the bond is within the exception of Section 1671 since the actual damage is impracticable, extremely difficult and even impossible to fix in anticipation of a breach”.

Respondent Petrovich takes the position that “As the records now stand, it is devoid of any evidence from which the court can state, with reasonable certainty, the parties intended the bid bond to be subject to forfeiture rather than security for actual damages sustained”. In the respondent's brief it is also averred that, “Without taking any further action towards the construction of the project involved, which, from the evidence, cannot be attributed to respondents, and without showing any actual loss, appellant (city) now seeks to unjustly enrich itself at the expense of respondents”.

The record herein discloses substantial evidence in support of the findings of the trial court and the resulting judgment in favor of the plaintiff. These findings were to the effect that although the plaintiff “committed a wilful breach of duty in refusing to enter into the contract” after having been declared the successful bidder, nevertheless, since the bid bond did not expressly provide for a forfeiture, and since it was not established that the $37,500.00 amount specified therein represented reasonable liquidated damages “correlated to an estimate of what the actual damage might be”, the City was not entitled to recover on its cross-complaint.

As stated in respondent's brief, “There appears to be no reasonable basis, either in law or in fact, justifying a reversal of the judgment on any of the contentions submitted by appellant in its brief”. The cases cited by appellant, in which recovery has been approved on various theories of forfeiture or liquidated damages, are not, because of factual differences, particularly helpful in the present controversy. Nor do any of such cases require a reversal of the trial court's judgment. Appellant's contention that “It is the conduct of the contractor which made this litigation”, does not solve the problem nor does it furnish a ground for reversal.

Appellant's position is, in part, predicated upon the fact that the bid bond originally contained a provision for deposit of a cashier's check and expressly stipulated that “said check shall be forfeited to the City”, from which fact appellant reasons that a like situation should prevail in respect to the bid bond furnished by the contractor. However, as pointed out by respondent, the above mentioned check provision was not made use of since a bond was furnished, and the quoted provision had accordingly been deleted. It therefore formed no part of the executed arrangement, and hence can have no weight in arriving at a decision. With this provision eliminated, there is no specific, direct or indirect reference to any forfeiture.

Appellant's further contention that the bond provision “Surety's liability to the City will be established”, should be deemed equivalent to the term “forfeiture”, is clearly untenable. It may likewise be noted that the word “guarantee” which was employed is not synonymous with the word “forfeiture”.

Section 1442 of the Civil Code states that “A condition involving a forfeiture must be strictly interpreted against the party for whose benefit it is created.” And, as hereinbefore mentioned, under Section 1670 of the Civil Code, “Every contract by which the amount of damage to be paid, or other compensation to be made, for a breach of an obligation, is determined in anticipation thereof, is to that extent void,” except as provided in Section 1671 that “The parties to a contract may agree therein upon an amount which shall be presumed to be the amount of damage sustained by a breach thereof, when, from the nature of the case, it would be inpracticable or extremely difficult to fix the actual damage.”

Under these sections and the case law on the subject, it was the duty of the City, if it expected to recover either on the theory of a forfeiture or on that of liquidated damages, to bring the case clearly within the law relating thereto. This cannot be done by means of the broad interpretation here contended for. That forfeitures and the like are no special favorites of the law, needs no citation of authority.

“On the issue of liquidated damages”, quoting from respondent's brief, “whether it would be impracticable or extremely difficult to fix the actual damages was a question of fact decided adverse to appellant”. Since the record discloses substantial evidence in support of the trial court's finding in this as in other particulars, under the well established rule appellate interference is unwarranted.

The judgment is affirmed.

DORAN, Justice.

WHITE, P.J., concurs.