Fireman's Fund Indemnity Company and Fireman's Fund Insurance Company, Cross-Defendants and Appellants, v. BREWSTER

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District Court of Appeal, Second District, Division 4, California.

P. J. HEALY, Individually and doing business under the fictitious firm name and style of Healy Construction Co., Arrow Petroleum Co., Arrow Road Construction Co., Arrow Equipment Co., and Healy Enterprises, Inc., a joint venture, Plaintiffs, Cross-Defendants and Appellants, Fireman's Fund Indemnity Company and Fireman's Fund Insurance Company, Cross-Defendants and Appellants, v. Gerald E. BREWSTER, Defendant, Cross-Complainant and Respondent.

Civ. 25728.

Decided: July 31, 1962

James D. Garibaldi, Warren J. Lane and Abe Mutchnick, Los Angeles, for plaintiffs, cross-defendants and appellants. R. H. Reeve, Fresno, Enright, Elliott & Betz and Joseph T. Enright, Los Angeles, for defendant, cross-complainant and respondent.

Plaintiffs, joint venturers (herein termed ‘Healy’), and the insurance companies, bonding companies for plaintiffs, appeal from an adverse judgment in the sum of $61,108.05 plus an additional $16,000 for attorneys' fees as an item of costs, entered against them following a jury verdict in favor of defendant Gerald E. Brewster (herein termed ‘Brewster’).

Healy, as general contractor, and Brewster, as an earth-work subcontractor, entered into a subcontract whereby Brewster agreed to do embankment work for an air strip at the Fox Airport in Lancaster, California, which Healy was erecting for the County of Los Angeles. That portion of Brewster's work out of which the litigation resulted involved removing soil from areas designated as ‘borrow pits' and compacting it in place as the subsoil for the air strip.

The contract required the excavating, transporting and compacting of approximately 182,000 cubic yards of dirt identified in the specifications as sand, three types of sandy loam and a small amount of silty clay. The specifications further provided that where rock, shale, clay, hardpan or other material unsatisfactory for subgrade is encountered, it should be excavated to a depth of at least 12 inches below the contemplated surface of the subgrade and the portion so excavated refilled with suitable selected material, which material it was contemplated would be taken largely from the so-called borrow pits.

The county supplied the bidder with plats showing the borrow pit area along with the specific location of 69 corings of the subsurface conditions of the dirt material to be used to create the embankment base for the air strips and administration area. Likewise, fifty corings of the original borrow pit were shown to depths of exceeding six feet. In the lengend for the logs of borings the subsurface materials were identified largely as sand and sandy loam and no material in the borrow pits was identified as the ‘unsatisfactory’ hardpan required by the specifications to be removed from the air strips or runways.

Under the terms of the subcontract Brewster agreed to be bound by all of the conditions imposed on Healy in his prime contract with the county. The specifications by which Brewster was also bound provided that the bidder should examine carefully the site of the work contemplated; that the plans for the work show conditions as they are supposed or believed by the county engineer to exist, ‘but it is not intended or to be inferred that the conditions as shown thereon constitute a representation or warranty, express or implied, by the County or its officers, that such conditions are actually existent nor shall the Contractor be relieved of the liability under contract, nor the County or any of its officers by liable for any loss sustained by the Contractor as a result of any variance between conditions as shown on the plans and the actual condition revealed during the progress of the work or otherwise.’

The specifications further provided that representatives of the county engineer could not advise subcontractors while plans were being figured or during construction.

Shortly after Brewster moved into the first borrow pit to start excavating he encountered large amounts of hardpan material instead of the expected soft sandy loam or sand. Brewster acknowledged that he had made no independent borings and relied upon the corings made by the county.

There followed a series of conversations with Brewster and Healy or the latter's duly authorized representatives. In these conversations Brewster called attention to the unexpected hardpan conditions and repeatedly was told by healy's foreman, engineer or attorney in fact to go ahead and rip up the hardpan, compact it and put it down; that Brewster would be compensated for the extra expense. In some of the conversations Brewster was told that Healy would take up the matter with the county and get a settlement but that Healy was to continue billing on the basis specified in the subcontract in the meantime. With extra expense continuing to mount, at one stage of the proceedings Brewster refused to continue further until some settlement was made for the extra expense, at which point he received a telegram from Healy directing him to resume the work, being assured verbally by Healy's representatives that he would get paid for what he did.

The evidence showed that the existence of the hardpan material in the borrow pits required Brewster to utilize large pieces of earth-excavating equipment which would not have been necessary had the material in the borrow pits conformed to that indicated in the specifications. This equipment was necessary in order to rip up the hardpan, break up the large chunks by means of huge disks and the use of water sprinkling equipment, and in addition required an entirely different type of heavy equipment to pulverize the hardpan lumps and to compact the material. The time required to excavate and compact the material was estimated at three to four times the time of compacting sandy loam.

It was also disclosed by the evidence that neither Healy nor his representatives actually did anything about trying to solve the problem with the county until after Brewster had completed his work. At that time Healy made a claim upon the county which was rejected. Brewster was then told by Healy's representative that nothing further was being done about the extra expense and that ‘* * * we don't care about our subcontractors, we don't care if they do go broke.’

The action originated with a complaint for declaratory relief filed by Healy against his subcontractor Brewster. Thereafter, Brewster filed a cross complaint against Healy and by motion the bonding companies, the County of Los Angeles and its auditor were joined ad additional cross defendants. Subsequently, the parties stipulated that the county, through its auditor, was merely the stakeholder of a certain sum which was intended to be payment for certain construction work performed for the county by Healy as prime contractor. The county was authorized to release the remaining sums in its possession to the prevailing party in this litigation and as a result the county is not a party to this appeal.

On appeal the following main contentions are made by appellants:

1. Brewster was not justified in relying upon the specifications in the contract.

2. The trial court committed prejudicial error in applying the doctrine of promissory estoppel.

3. Damages and attorneys' fees awarded by the trial court were excessive.

In support of appellants' first contention they assert that the subcontract entered into with Brewster incorporated the clauses in the job specifications binding Brewster to investigate the soil conditions for himself before bidding the work, which clauses disclaimed any liability for any error in the plans in respect to soil conditions. Appellants assert that Brewster made no investigation whatsoever before bidding and has no cause of action against Healy, who had nothing to do with the preparation of the plans, for any additional expense caused Brewster because of alleged error in plans. Therefore, appellants contend, Healy's motion for nonsuit should have been granted.

Appellants assert that the trial court gave two instructions, the first on its own motion, to the effect that the execution of the contract between Healy and Brewster was to a considerable degree conditioned upon evidence showing there was a mutual mistake of a substantial and material fact. This mutual mistake of fact, the court instructed, was the belief on the part of both Healy and Brewster that borrow pit number one was composed entirely of soft dirt, such as sand, sandy loam, sandy clay and silty clay, whereas as a matter of fact after the execution of the contract it developed that borrow pit number one, and later borrow pit number two, contained substantial quantities of a hard material known as ‘hardpan.’

The court further instructed that ‘This mutual mistake of fact meant that Brewster for a reasonable time after discovering the mistake had the legal right to void the contract by rescinding it. Brewster however, did not exercise his right to rescind.’

In MacIsaac & Menke v. Cardox Corp., 193 Cal.App.2d 661, 669, 14 Cal.Rptr. 523, 528, the court declared, ‘As a general proposition, it is well recognized that where plans and specifications induce a contractor to reasonably believe that certain indicated conditions actually exist and may be relied upon in submitting a bid, the contractor is entitled to recover the value of such extra work made necessary by the existence of different conditions. [Citing case.]’

In United States v. Spearin, 248 U.S. 132, 136, 39 S.Ct. 59, 63 L.Ed. 166, the court held that the contractor ought to be relieved if he was misled by erroneous statements in the specifications and that the direction to contractors to visit the site and inform themselves of the actual conditions of a proposed undertaking will not relieve from defects in the plans and specifications.

In the instant case there was ample testimony on the part of independent expert witnesses that hardpan has the characteristics of rock; that the logs of the borings identified the character of the materials in the borrow pits as sand and sandy loam; that the purpose of such borings and charting their contents as logs is to determine the quantities of suitable material for the subgrade; that sandy loam materials when spread could be compacted with two or three passes of a pneumatic compactor, whereas the breaking up of hardpan required an entirely different treatment; that any person studying the logs would come to the conclusion that there was no hardpan but on the contrary that the material was expected to be sandy loam.

We hold that under the circumstances Brewster was justified in relying upon the representations based upon extensive tests and corings contained in the contract plans and specifications.

Appellants' second principal contention is that the trial court erred to their prejudice in its application of the doctrine of promissory estoppel by allowing Brewster at the conclusion of all testimony to amend his cross complaint to conform to proof of promissory estoppel. Their claim is based upon their assertions (1) that the doctrine is inapplicable to the facts of this case; (2) there was no express promise upon which Brewster could have detrimentally relied; (3) the alleged promisors had no authority to make such a promise; and (4) Brewster did not in fact rely upon the promise.

Giving consideration first to the last three of appellants' assertions, it is clear from a review of the record in this case that there was substantial evidence to support a verdict by the jury that a promise of additional compensation was made by one in actual or ostensible authority (Civ.Code, § 2317) and that Brewster relied upon said promise to his substantial detriment.

There was testimony that the chief engineer for Healy, in urging Brewster to continue the work after the latter had stopped pending some settlement of his claims, advised Brewster as follows: ‘now look Brewster we have been crushing rock, we have got a new rock plant, we moved in a portable plant, we have got a new pit. We have opened this new pit. We have crushed a pile of rock to build this airport with. We have got a lot of money tied up in it, let's get in and get this thing done and you will get paid for what you do.’ The initial promises with respect to the change in the work were made by Joe Thomas, Healy's superintendent in charge of the work. Brewster had been instructed to perform under the direction of this superintendent.

Furthermore, the evidence disclosed that Healy, both orally and by telegram, directed and requested Brewster to continue to perform the hardpan work and that Brewster would be paid for such work.

In reliance on Healy's promise of payment for the work done, Brewster brought in large pieces of earth-excavating, pulverizing and sprinkling equipment required to cope with the hardpan condition. The unforeseen condition necessitated an estimated three to four times the labor and equipment time than would have been required had the material in the borrow pits conformed to that indicated in the plans and specifications. Brewster had to excavate, haul and compact some 413,568 cubic yards of materials instead of the 182,000 cubic yards as originally called for in the contract. The alleged total cost to Brewster in completing the job was $352,258, as opposed to his original bid of $51,870. These facts show a substantial detrimental change of position by Brewster in reliance upon Healy's promise.

There may be some merit to appellants' argument that the doctrine of promissory estoppel is inapplicable to the facts of this case. The use of the doctrine, which is based upon Restatement of Contracts, section 90 (and preferably designated ‘detrimental reliance’), is appropriate where a party is seeking to enforce a promise in a case where there is no consideration or mutual assent. In Drennan v. Start Paving Co., 51 Cal.2d 409, 414, 333 P.2d 757, 760, the Supreme Court said, ‘The very purpose of section 90 is to make a promise binding even though there was no consideration ‘in the sense of something that is bargained for and given in exchange.’ (See 1 Corbin, Contracts 634 et seq.) Reasonable reliance serves to hold the offeror in lieu of the consideration ordinarily required to make the offer binding.'

A review of authorities (examied infra) in cases which are strikingly similar to the facts of this case has led this court to the conclusion that there was consideration for Healy's subsequent promise thus making it an enforceable obligation. Therefore, the utilization by the trial court of the doctrine of promissory estoppel, if error, is not prejudicial to appellants since the same result is reached (enforcement of the promise) as would have been under the law we hold to be appropriate.

As a general rule a promise by a contractee to pay a construction contracor compensation in addition to that provided for in the contract for the performance of a contract which the latter is already under obligation to perform is without consideration and cannot be enforced even though the contractor carries the work to completion in reliance on this promise. The basis for the general rule is that there is no consideration for the second promise since there is no legal detriment to the contractor who is already bound to do the work; nor is there legal benefit to the contractee since he was already entitled to have the work done. (Western Lithograph Co. v. Vanomar Producers, 185 Cal. 366, 197 P. 103; also see Williston on Contracts, 3d ed., § 130; 25 A.L.R. 1450; 55 A.L.R. 1333; 138 A.L.R. 136; 12 A.L.R.2d 80.)

However, the general rule has often been subjected to the important qualification that such a promise will be given effect where unanticipated and substantial difficulties arise which cause the contractor to refuse to complete the work at the contract price and the contractee promises the additional compensation to induce the contractor to continue performance. (United States v. Cook, 257 U.S. 523, 42 S.Ct. 200, 66 L.Ed. 350; Lange v. United States, 4 Cir., 120 F.2d 886; Grand Trunk Western R. Co. v. H. W. Nelson Co., 6 Cir., 116 F.2d 823; Blakeslee v. Board of Water Com'rs, 106 Conn. 642, 139 A. 106, 55 A.L.R. 1319; United Steel Co. v. Casey, 6 Cir., 262 F. 889; John King Co. v. Louisville & N. R. Co., 131 Ky. 46, 114 S.W. 308.)

In Lange v. United States, supra, 4 Cir., 120 F.2d 886, both the principal contractor and the subcontractor grossly underestimated the cost of certain construction work sublet to the subcontractor because of their failure to exercise proper care in examining the specifications. A second contract whereby the principal contractor agreed to pay the subcontractor in excess of three times the original contract price was held to be valid and binding. It was held not subject to the objection of want of consideration although the subcontractor made no new concessions or undertakings and obligated himself to do nothing more than that which he was bound to do under the first contract.

The court in United Steel v. Casey, supra, 6 Cir., 262 F. 889, stated, ‘Where a contract must be performd under burdensome conditions not anticipated, and not within the contemplation of the parties at the time the contract was made, and the promisee measures up to the right standad of honesty and fair dealing, and [promisor] agrees, in view of the changed conditions, to pay what is then reasonable, just, and fair, such new contract is not without consideration within the meaning of that term, either in law or in equity.’

In the United Steel case, supra (262 F. 889), the owner misrepresented the condition of the soil in which excavation work was to be done, by pointing out certain indications in that regard, and the contractor upon those representations. The court held the subsequent promise to pay the reasonable value of the work, when the character of the soil proved wholly different from that which the parties understood it to be at the time the contract was made, would be supported by sufficient consideration, even though the representations were made by the owner in good faith.

In John King Co. v. Louisville & N. R. Co., supra, 131 Ky. 46, 114 S.W. 308, the owner had caused test pits to be sunk for the purpose of determining the character of the formation to be excavated. A contract was made on the showing indicated by these tests which disclosed only materials easily amounting, it was claimed, to nearly however, solid rock was encountered, amounting, it was claimed, to enarly half of the total materials to be excavated. To prevent stoppage of the work and abandonment of the contract, the owner agreed to pay a reasonable price if the contractor continued the work, which he did. The court said at p. 55, 114 S.W. at p. 310: ‘[Owners'] exhibiting the test pits under the circumstances disclosed was equivalent to saying: ‘This is the character of material you will have to move.’ It knew that [contractors] so understood it. After their discovery of the true condition, which was materially different from that represented and relied on, a court of equity might have relieved [contractors] from the execution of the contract under the circumstances. The relief a court might have granted it was within the competency of the parties to do voluntarily; and it was sufficient consideration upon which to base a subsequent agreement with respect to the changed conditions.'

When a railroad contractor unexpectedly encountered ‘hardpan’ which was difficult to excavate, a supplemental agreement allowing the contractor additional compensation for excavating the unforeseen material was held supported by sufficient consideration in Hart v. Lauman, 29 Barb. (N.Y.) 410.

The court set forth what it considered the requirements for bringing the ‘unforeseen difficulties' exception to the general rule into operation in King v. Duluth, M. & N. R. Co., 61 Minn. 482, 63 N.W. 1105. The court said: ‘What unforeseen difficulties and burdens will make a party's refusal to go forward with his contract equitable, so as to take the case out of the general rule and bring it within the exception, must depend upon the facts of each particular case. They must be substantial, unforeseen, and not within the contemplation of the parties when the contract was made. They need not be such as would legally justify the party in his refusal to perform his contract, unless promised extra pay, or to justify a court of equity in relieving him from the contract; for they are sufficient if they are of such a character as to render the party's demand for extra pay manifestly fair, so as to rebut all inference that he is seeking to be relieved from an unsatisfactory contract, or to take advantage of the necessities of the opposite party to coerce from him a promise for further compensation. Inadequacy of the contract price which is the result of an error of judgment, and not of some excusable mistake of fact, is not sufficient.’

The mere fact that a contractor has made a losing contract, or that he has encountered difficulties and costs that were reasonably to be foreseen, is generally held not to be a sufficient reason for his asking for more pay or for enforcing a promise of more pay by the other party. These are risks that either were, or ought reasonably to have been, within the contemplation of the parties when making the contract.

In Western Lithograph Co. v. Vanomar Producers, supra, 185 Cal. 366, 197 P. 103, a written contract was entered into whereby plaintiff agreed to furnish defendant all the labels the latter should need for a five-year period at specified prices. Due to a great increase in cost of labor and materials plaintiff requested that defendant agree to a flat price increase of 35 cents per thousand over the contract prices. Defendant agreed but later refused to pay the increased rate. The court held the subsequest agreement was a mere naked promise unsupported by consideration and unenforceable. The court acknowledged the existence of the ‘unforeseen difficulties' exception, citing King v. Duluth etc., Co., supra, 61 Minn. 482, 63 N.W. 1105, but held it inapplicable to this case (Western Lithograph, etc.). The court said at page 370, 197 P. at page 105, ‘* * * unforeseen difficulties * * * are difficulties existing by reason of facts unknown to the parties when they enter into the contract, so that it was entered into under a mistake. * * * [This] rule * * * has no application to a case where the increased costs of the contractor are due merely to fluctuations in the market price of labor and materials. The risk of such fluctuations is a burden which he necessarily contemplates and assumes when he makes the contract.’

In the instant case we hold that encountering the hardpan was a substantial difficulty which was unforeseen and not within the contemplation of the parties when the contract was made. The difficulties were sufficient and of such character as to render Brewster's demand for additional compensation manifestly fair and free from the charge that he was attempting to exact economic ‘blackmail’ from Healy. When the unforeseen difficulty arose it disclosed a mutual mistke of the parties as to what would be required under the contract. As such, it was a ground for rescission. Having the power to avoid the contract entirely, the parties could modify it to fit the newly discovered material change of facts. Such modification is, under the authorities cited above, supported by sufficient consideration.

Finally, appellants contend that even if arguendo some damages were justified the actual amount of the judgment is excessive by the trial court's own admission; that the trial court erroneously declared itself powerless to grant relief. They base this assertion upon certain statements the trial judge had made to the effect that if he had been trying the case as the fact finder he would have limited the recovery to the out-of-pocket expense of Brewster which was encountered from and after the time of the making of a specific promise by Healy's representative at the time that Brewster resumed work and went into the second borrow pit.

During argument on motion for a new rial the court indicated that that had been his opinion but pointed out that there was substantial evidence concerning the earlier promises made by Healy's representatives which the jury could well have believed, and that it was the court's function to determine whether the verdict is supported by the evidence. The court indicated it had arrived at a figure substantially under the amount of the jury verdict, which figure the court believed would be the maximum that a jury could render without its being clearly against the weight of the evidence. The court indicated that this figure is not the one which the court itself would have given in its own judgment. The court thereupon ordered a remission of a portion of the jury's verdict, thereby effectively reducing it from in excess of $94,000 to the ultimate figure of $61,108.05. We find nothing in the colloquy between counsel and the court on the motion for new trial which would justify any further reduction in the amount of the verdict.

The amount of attorneys' fees fixed by the court was not excessive under Government by the court was not excessive under Government a reasonable sum for attorneys' fees to be recovered as an item of cost in actions upon a bond. That section clearly authorizes the court upon the trial of the action to award to the prevailing party reasonable attorneys' fees to be taxed as costs and to be included in the judgment therein rendered. There can be no question that a subcontractor has a statutory and a contractual right to recovery reasonable attorneys' fees as costs. (Hollywood Wholesale Electric Co. v. Jack Baskin, Inc., 146 Cal.App.2d 399, 403, 303 P.2d 1049; Lewis & Queen v. S. Edmondson & Sons, 113 Cal.App.2d 705, 708, 248 P.2d 973.)

There was no miscarriage of justice in this case, and under the provisions of article VI, section 4 1/2, of the State Constitution, no reversal is justified as it is not reasonably probable that a result more favorable to the appealing party would have resulted had the court not requested and permitted the amendment of the cross complaint to conform to proof.

Judgment affirmed.

BURKE, Presiding Justice.

JEFFERSON and BALTHIS, JJ., concur.