STIGALL v. CITY OF TAFT

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District Court of Appeal, Fifth District, California.

Owen STIGALL, Jr., Plaintiff and Appellant, v. CITY OF TAFT et al., Defendants and Respondents.*

Civ. 104.

Decided: May 22, 1962

Mack, Bianco, King & Eyherabide, H. C. Mack, Jr., Bakersfield, for appellant. Henry G. Baron, City Atty., Taft, Borton, Petrini, Conron, Brown & Condley and James Petrini, Bakersfield, for respondent City of Taft. J. Richard Thomas, Bakersfield, for respondent Taft Plumbing Co.

This is an appeal from a judgment of dismissal entered after demurrers to the complaint were sustained without leave to amend. Plaintiff, as a taxpayer of the city of Taft, contended that the subcontract of the Taft Plumbing Company, Inc., for the plumbing work in the proposed Taft Civic Center building was illegal because Glenn D. Black, who owned more than 3 per cent of the stock of the plumbing company, had been a member of the city council immediately prior to the time when the bid of the successful contractor, Bakersfield Construction Company, for the construction of the building was accepted.

The contention of the plaintiff is based solely on the ground of conflict of interest as defined by our statutory law. There is no claim that there was any ‘rigging’ of the plans and specifications, or that there was a conspiracy on the part of the defendants to do that which was forbidden by law, or that there was any actual fraud or injustice in the transaction; the sole ground of the plaintiff's contention is that because Mr. Black was an officer of the city during the negotiations and the preliminary steps leading to the making of the contract, the agreement, insofar as the subcontractor's rights are concerned, is absolutely void.

It is elementary that when considering a general demurrer to a complaint the court must assume, for the purpose of the ruling, that all of the facts alleged in proper form therein are true. (Colm v. Francis, 30 Cal.App. 742, 752, 159 P. 237; Cravens v. Coghlan, 154 Cal.App.2d 215, 217, 315 P.2d 910; Terry v. Bender, 143 Cal.App.2d 198, 201, 300 P.2d 119; Schaefer v. Berinstein, 140 Cal.App.2d 278, 288, 295 P.2d 113; Katenkamp v. Union Realty Co., 6 Cal.2d 765, 769, 59 P.2d 473.)

The complaint alleges that plaintiff is a resident and taxpayer of the city of Taft; that for several years before June 8, 1961, Glenn D. Black was a member of the Taft City Council, and that he was also the owner of Taft Plumbing Company; that on or about September 1960 the said company was incorporated under the laws of California, and ever since that time the said Black was and now is the president of the company and the holder of more than 3 per cent of the shares of stock of the corporation; that said Glenn D. Black, as a member of the City Council of Taft, was also in charge of said council's building committee, which supervised the drawing of the plans and specifications and the call for bids for the proposed Civic Center building; that immediately prior to January 1961 the city council advertised for bids for the construction of said building; that all bids were opened at a regular meeting of the council in January of 1961, at which time Taft Plumbing Company was low bidder for the plumbing work; that several citizens and taxpayers appeared at that meeting and objected to the bid by the Taft Plumbing Company on the ground that Glenn D. Black was a member of the council and of the building committee thereof; that the city council then rejected all bids and ordered readvertisement; that prior to June 5, 1961, the council again advertised for bids for the building, and at a regular meeting of the council on June 5, 1961, the bids were opened, and Taft Plumbing Company, Inc., was the low bidder on the plumbing work; that a special meeting was called for June 8, 1961, for the purpose of awarding the contract for the building.

The complaint then alleges that at the special meeting on June 8, 1961, when the city council prepared to vote on the award of the contract it was advised by the city clerk that she had just received a letter of resignation from Black; that the council accepted the resignation and soon thereafter voted to award the contract for the construction of the building to Bakersfield Construction Company; that the successful bid included the sub-bid of the Taft Plumbing Company, Inc., for the plumbing work.

The plaintiff avers that unless the defendants are restrained from paying to the defendant Taft Plumbing Company, Inc., any monies on account of plumbing work, the plaintiff and others similarly situated in the city of Taft will be irreparably damaged. The prayer asks that ‘* * * the contract of Taft Plumbing Company, Inc. * * * be declared void,’ and that the city officials be restrained ‘* * * from disbursing or paying over to defendant, Taft Plumbing Company, any funds of the City of Taft on account of plumbing work performed on said Civic Center building.’

All of the demurring defendants pleaded that the complaint failed to state facts sufficient to constitute a cause of action. The trial court sustained the demurrers, saying:

‘It appearing that the complaint cannot be amended to state a cause of action, the demurrers are sustained without leave to amend and the action ordered dismissed.’

From the complaint, it is clear that throughout the planning stages for the Civic Center building the defendant Black was acting in the dual capacity of a member of the council and an interested potential bidder on the contract. He took an active part on behalf of the city in the supervision of the plans and specifications and the call for bids. His plumbing company submitted a bid in January 1961, and objections to his participation were voiced at the meeting at which these bids were opened. In spite of this, he again submitted a bid on the second occasion and was then found to be the low sub-bidder at the meeting of June 5. When the letter of resignation was received at the special meeting of June 8, the council had already convened and was prepared to act upon the award of the contract. At this time the only act remaining to be done was the awarding of the contract to the low bidder. And it was generally known that Taft Plumbing Company, Inc., was the low bidder.

The council elected to accept the resignation prior to voting on the award of the contract. Immediately thereafter, the council voted to award the contract on the bid of Bakersfield Construction Company, which incorporated the Taft Plumbing Company's sub-bid for the plumbing work.

Do these facts render illegal the subcontract of Taft Plumbing Company? Turning to the statutory law, we find that the applicable sections of the Government Code read as follows (with emphasis added):

‘Members of the Legislature, state, county, special district, judicial district, and city officers shall not be interested in any contract made by them in their official capacity, or by any body or board of which they are members. Nor shall state, county, special district, judicial district, and city officers be purchasers at any sale or vendors at any purchase made by them in their official capacity.’ (Gov.Code, § 1090.)

‘Every contract made in violation of any of the provisions of Section 1090 may be avoided at the instance of any party except the officer interested therein. No such contract may be avoided because of the interest of an officer therein unless such contract is made in the official capacity of such officer, or by a board or body of which he is a member.’ (Gov.Code, § 1092.)

‘City officers shall not be interested in any contract made by them in their official capacity, or by any body or board of which they are members. Nor shall city officers be purchasers at any sale, or vendors at any purchase, made by them in their official capacity.’ (Gov.Code, § 36525.)

‘Any contract made in violation of Section 36525 may be avoided at the instance of any party except the officer interested in the contract. No such contract may be avoided because of the interest of an officer therein unless such contract is made in the official capacity of such officer, or by a board or body of which he is a member.’ (Gov.Code, § 36527.)

The Legislature has pre-empted the subject matter of conflict of interest and has enacted specific legislation governing it. It is obvious, therefore, that these code sections, given their full and just meaning, must control. As is said in Crawford v. Payne, 12 Cal.App.2d 485, 488, 55 P.2d 1240, 1241:

‘Effect must be given to a legislative act if by a reasonable interpretation the legislative intent can be ascertained. Thomas v. Joplin, 14 Cal.App. 662, 112 P. 729. The statute must be construed with reference to the purpose intended by the lawmaking body. When the true intention of the Legislature is ascertained it must be given effect, * * *.’

It seems to us that the legislative intent is unmistakably expressed. The code sections forbid any of the enumerated public officials from being interested ‘in any contract made by them in their official capacity, or by any body or board of which they are members.’ The prohibition is based upon the concept of the making of a contract, and sections 1092 and 36527 of the Government Code specifically provide by amendment enacted in the year 1953:

‘No such contract may be avoided because of the interest of an officer therein unless such contract is made in the official capacity of such officer, or by a board or body of which he is a member.’

When is a contract made? California Jurisprudence 2d, vol. 12, Contracts, section 18, page 208, answers the question:

‘Since no contract is complete without the mutual assent of the parties, it is elementary that an acceptance is as much a part of a contract as the proposal, and that an offer imposes no obligations until it is accepted according to its terms. So long as it is neither accepted nor revoked the negotiations remain open and no obligation rests on either party.

‘Ordinarily an acceptance once made cannot be revoked. Each party has a right to rely on the acceptance as constituting a contract.’

In section 74 of the Restatement of Contracts it is said:

‘A contract is made at the time when the last act necessary for its formation is done, and at the place where that final act is done.’

Mr. Black had resigned his municipal office before the making of the contract. Section 1750 of the Government Code says with respect to resignation:

‘Resignations shall be in writing, and made as follows:

‘(e) By officers of a municipal corporation, to the clerk of the legislative body of their corporation.’

So even the formal acceptance of the resignation by the council was not essential. The contract was not made until after his resignation; Mr. Black was not a member of the council when it was made. Therefore, the contract was not illegal under the provisions of the California law relative to conflicts of interest.

Plaintiff does not claim that the contract was unfair or unjust or that it was obtained by actual fraud, collusion or dishonesty, or that it was not beneficial to the city. The contention that it is void depends solely on the fact that Mr. Black was a member of the city council prior to the making of the contract. If a situation should arise in which there is autual fraud, collusion, dishonesty or conspiracy to procure an illegal result, such facts can be alleged to constitute a cause of action for which relief can be given; but this case concededly is entirely clear of any actual fraud, dishonesty or illegal advantage; the bare fact of the holding of a city office by a successful bidder during a period of time prior to the making of a municipal contract is all that is alleged or claimed. And, as we have seen, the Legislature has enacted statutory provisions exactly specifying the time when the holding of an office per se will invalidate such a contract. The facts alleged in the complaint do not justify the institution of the action, and the court was correct in sustaining the demurrers without leave to amend.

This question of conflict of interest has been variously dealt with by other legislative bodies. For example, the federal government has enacted legislation making it a crime for a resigned employee of the national government to accept a position with private interests which would conflict with the duty previously owed by him to the government within a period of two years after resignation. (18 U.S.C.A. §§ 281, 284, 431.) A more stringent act than we presently have can be passed by the Legislature if it sees fit to do so.

As the demurrers were properly sustained without leave to amend, it will be unnecessary to examine additional grounds of demurrer urged by some of the defendants.

The judgment is affirmed.

I dissent. Respondent concedes he has an interest in the contract within the meaning of the statute, so that we are faced squarely with the question of whether his participation in negotiations leading up to the execution of the contract renders it invalied. I fully appreciate the problem of fixing the point where conflict of interest begins that bothers my colleagues. It seems to me they have been influenced unduly by the argument that the Legislature must have considered this same problem and as a practical solution settled upon the date of execution of the contract. The statute uses the language ‘unless such contract is made,’ and in this sense ‘made’ encompasses a series of negotiations: preliminary discussion, offer and counteroffer, added subject matter and compromises, all of which are the very essence of ‘making’ a contract. Execution occurs after the negotiations are over and performance is to begin. Having in mind the abuse which the statute was intended to guard against, I do not believe the Legislature intended to use the word ‘made’ in the limited technical sense of executed.

Should the rule insisted upon obtain, a council member could participate in all negotiations giving a contract its substance, resign just prior to its execution, and sign as the other party. This leaves the way open for perpetration of the very evil the statute is designed to prevent. Under the doctrine established by the majority opinion, a council member could very well maneuver to establish specifications for construction projects. Still more is this true of periodic contracts for the purchase of supplies. What is to prevent a council member from persuading his brothers to tailor specifications for supplies to fit the characteristics of products he handles, then minutes before execution of the contract of purchase, resign and sign the contract? Such a course of conduct would be cloaked with complete immunity under the theory of the majority opinion.

That no fraud, undue influence or unfair advantage is alleged in the case before us is not determinative of the question. It is clear enough that the purpose of the statute is to eliminate the possibility of unfair advantage. Thus the crucial issue is not whether there was an element of fraud or undue influence in this case, but whether a strict construction of the words ‘make a contract’ opens the way for unfair advantage. Does it lend legal sanction to a contract between a person and a governmental body whose interests he has been under a duty to protect? In short, the basic question is: How can a man deal at arm's length with himself?

Adverting now to the troublesome question which has been raised: When does a conflict of interest arise if it is not the date the contract is signed? I find no difficulty in holding that it arises when discussion in relation to any substantial provision of the contract commences. The contract is then in the making. Participation in such discussion of a proposed contract should bar a council or board member from securing a personal interest in the contract.

CONLEY, Presiding Justice.

BROWN, J., concurs.