Case Name: Norman B. Abrams, Appellant, v. The City of Seattle et al., Respondents
Court: Washington Supreme Court
Jurisdiction: Washington
Decision Date: 1933-07-13
Citations: 173 Wash. 495
Docket Number: No. 24116
Parties: Norman B. Abrams, Appellant, v. The City of Seattle et al., Respondents.
Judges: 
Reporter: Washington Reports
Volume: 173
Pages: 495–511

Head Matter:
[No. 24116.
En Banc.
July 13, 1933.]
Norman B. Abrams, Appellant, v. The City of Seattle et al., Respondents.
Stephen V. Carey, for appellant.
A. C. Van Soelen and J. Ambler Newton, for respondents.
Harold Preston and O. B. Thorgrimson, amici curiae.
Réported in 23 P. (2d) 869.

Opinion:
Blake, J.
This action was brought to enjoin the defendants from issuing warrants on the light department construction fund, in the amount of $189,000, in favor of certain persons who advanced money, performed labor and furnished material in connection with the construction of a substation on property owned by the city, and located on Third avenue, between Madison and Spring streets. After issue joined, and trial had, the court entered judgment dismissing the action. From this judgment, plaintiff appeals.
On and prior to January 21, 1930, the city was the owner of the entire half block fronting on Third av- eime between Madison and Spring streets. It had begun the acquisition of this tract in 1925, with the purpose of erecting a substation thereon in connection with the extension and improvement of its light and power system. The original plan contemplated the erection by the city of a building of two or three stories and basement, in which could be housed machinery and equipment of a substation, and in which could be consolidated the various offices of the light and power department — the latter being scattered among three different buildings. For reasons which seemed expedient to the city council, this plan was not carried out. A plan was evolved to erect upon the property a twenty-four story building. It is the attempt to carry this plan into effect that gives rise to this litigation.
The method used to carry out the plan was quite complicated. We do not think, however, it is necessary to pursue it step by step. For the purpose of disposing of the questions here raised, it will suffice to give a general outline of the plan.
On January 21, 1930, the city council, by ordinance, authorized a lease of the property, under terms therein specifically set out, to be entered into with one L. A. DeCou for a term of fifty years. There was no rent reserved in the lease. The consideration to the city was the erection by DeCou of a twenty-four story building on the property, the basement and subbasement of which was to belong to the city. From the Third avenue level up, the building was to belong to DeCou for the term of his lease, at the expiration of which that portion of the building would also become the property of the city. Under the terms of the lease, DeCou acquired no rights in the ground. It was provided that no liens should attach to the ground or to the basement or subbasement.
In other words, the city Was to get its substation erected without cost to it, in consideration to DeCou of the right to erect over it a superstructure twenty-four stories in height. In addition, the city reserved the right to occupy certain portions of the superstructure at specified rentals. The lease fixed the time limit for the erection of the entire building at eighteen months from the date of execution of the lease, and provided for forfeiture in case it was not so completed. The expiration of the time for the completion of the building would have occurred October 28,1931.
DeCou was without sufficient means to carry out the enterprise, so a group of persons who were interested in seeing it consummated, organized a corporation known as the City Light Building Company. This corporation was also without means, but it took an assignment of the lease, having in mind the construction of the building by financing arrangements much in vogue at, and prior to, that time.
Arrangements were made with a St. Louis house to loan $1,250,000 on a structure to cost approximately $1,750,000. This arrangement was conditioned, however, upon the building company first arranging for the balance of the financing. In other words, before the St. Louis people would be obligated to advance any money, the building company must have an investment of $500,000 to $600,000 in the building. This secondary financing was arranged for with a savings and loan association of Portland. This contemplated the issuance of preferred stock by the building company, of the par value of one hundred dollars, which would be sold at eighty dollars per share to the savings and loan association, and passed on by it to Seattle investors at one hundred dollars per share.
These arrangements made, contracts were let for the construction of the building, and work was com menced on October 24, 1930. All went well until the spring of 1931, when the savings and loan association failed to advance money on the preferred stock. In the meantime, however, preferred stock had been sold by it to investors in the amount of $105,000. The building company had received from the savings and loan association an amount in excess of that, all of which went into the structure which now stands on the property.
Construction work ceased on or about April 26,1931. At that time, the basement and subbasement were practically completed. According to the testimony, it would require an expenditure of less than $8,000 to make it ready for occupancy as a substation — the purpose, it is to be remembered, for which the property was originally acquired.
Subsequent to April 24, the building company endeavored to make other arrangements for financing, but was unable to do so in time to complete the building by October 28, 1931, the time limited by the lease. The building company wanted an extension of time for the completion of the building; and its officers assert,, with some show of probability, that new arrangements for financing could have been made, had such extension been given by the city and approved by the court. The city, however, preferred to abandon the entire enterprise, but it was willing to pay the building company the reasonable value of the structure the latter had placed upon the property. The building company claimed the improvement was worth $235,000. The city appraised it at $189,000, and there is no evidence that it is not worth at least that much.
So we have this situation: The building company has erected on the city's property a building worth $189,000, which has cost the city not a cent, but for which it is willing to pay, and for which it, in good conscience, ought to pay. To that end, the building company made a written proposal to the city to assign to the latter its lease for $189,000, and furnish certificate showing good title in the city, free of all liens and encumbrances whatsoever. (In passing, it should be noted that liens in excess of $130,000 had been filed against the property.) The city accepted the proposal, and undertook to carry it out by the passage of ordinance No. 61,679. By this ordinance, it appropriated from the city light construction fund $189,000 for that purpose; and authorized the issuance of warrants aggregating that amount to various lien claimants and bona fide purchasers of the preferred stock of the City Light Building Company.
The appellant contends that the city has no power to issue warrants for such purpose or to such persons. Counsel's argument in support of the contention may be divided under two heads: (1) That the lease to DeCou was ultra vires — that the city had no power to erect an office building; and (2) that, conceding, for argument's sake, the lease was valid, it had been abandoned by the lessee and was subject to forfeiture at the time the attempted settlement was made, and consequently there were no legal claims which could be the basis of a compromise.
Conceding that the lease was void, still the municipality may not escape payment of the reasonable value of what it actually received as a result of the enterprise of the lessee. It did have the power to erect a substation on the property. It could have let a contract for that purpose which would have been valid and binding. Had it done so, even though such contract had been void for want of regularity in any particular (such as failing to advertise for bids), still the city would have been required to pay the reasonable value of the building, although no recovery could have heen had on the contract. Green v. Okanogan County, 60 Wash. 309, 111 Pac. 226, 114 Pac. 457; Mallory v. Olympia, 83 Wash. 499, 145 Pac. 627. In the latter case, the court says:
"In this case, applying the same test, the terms and conditions, the time and manner of payment, and all details of the contract are immaterial. When plaintiffs show that they have furnished materials and labor which the city has put to its uses and has not paid its reasonable value, they have made out a prima facie case. Neither does the defense rest in contract, but would go only to the value of the labor and material less the damages and expenditures the city had been put to in adapting that labor and. material to its final use.
"This court has endeavored to hold municipalities to the same standard of right and wrong that the law imposes upon individuals. Franklin County v. Carstens, 68 Wash. 176, 122 Pac. 999; Coliseum Inv. Co. v. King County, 72 Wash. 687, 131 Pac. 245; State ex rel. Maddaugh v. Ritter, 74 Wash. 649, 134 Pac. 492; Ettor v. Tacoma, 77 Wash. 267, 137 Pac. 820. In Green v. Okanogan County, 60 Wash. 309, 111 Pac. 226, it was sought to enjoin the execution of a contract on the ground that it had not been let in accordance with the requirements of the statute. The court found that the controlling statutes were in fact violated and that the contract was void. Certainly a contract substantially performed, although held to be abandoned, stands upon no lower plane than a void contract. Yet, notwithstanding, we said:
" 'This court has adopted the more equitable doctrine of allowing the parties, where the contract if entered into in conformity with the statutes would not have been unlawful, to retain from the moneys received by them a sum equivalent to the reasonable value of the property the county acquires and retains in virtue of the execution of the void contract. . . . So in this case, since the county has accepted and made use of the bridge, it is liable to the builders for its reasonable value.' "
Since the city is attempting to pay only for what it had the power to obligate itself to pay, we think the rule of the above cases applicable here. Other cases applying the rule are: Besoloff v. Whatcom County, 133 Wash. 109, 233 Pac. 284; Strong & MacDonald v. King County, 147 Wash. 678, 267 Pac. 436; O'Connor v. Murray, 152 Wash. 519, 278 Pac. 176.
What has been said applies with equal force to the second ground of appellant's attack on the ordinance. It is conceded, however, that a municipality has the power to compromise claims. Franklin County v. Carstens, 68 Wash. 176, 122 Pac. 999. The power to settle does not depend on the possible ultimate decision for or against the validity of the asserted claim. 44 C. J. 1449. We do not share appellant's view that the lessee was practically in default at the time the settlement was made. It is true the building could not have been completed within the original time limit, but we think a court of equity would have lent a willing ear to the lessee, under the particular facts of this case, had it resisted a forfeiture, in view of the showing here made: (a) that the lessee had expended in excess of $200,000 on the lessor's property, and (b) that it had reasonable ground to believe that new arrangements could be made for financing if an extension were granted.
Nor do we share appellant's optimism with respect to the invalidity of the lien claims. The fact that the city, under the lease, required the erection of a building on the property, and the further fact that it failed to take a bond, as required by Rem. Rev. Stat., § 1159, give rise to some interesting speculation, to say the least.
There was another element which may have influenced the city officials in making the settlement, and which may have prompted them in their refusal to consider an extension of time for the construction of the building. The city had obligated itself to pay in excess of $90,000 a year rental for a term of twenty years for' space in the upper floors of the building. Taking all of these facts into consideration, the situation was such as to reasonably induce the city officials to believe that long, arduous and expensive litigation was ahead. That such litigation might have been successfully defended, is beside the question. We are convinced that the building company had such a claim as was the subject of compromise and settlement by the city.
It is finally objected that, since the ordinance directs that a certain amount of the warrants be issued to purchasers of the building company preferred stock, the transaction is, in that respect, a purchase of the stock. We think this is an objection to form, not substance. Franklin County v. Carstens, 68 Wash. 176, 122 Pac. 999. The claim was made by the building company on the basis of the value of the improvements it had placed on the city's property. The city might have paid the whole amount to the building company and this objection could not have been made. It was perfectly proper, however, for the city, in accepting the settlement offered, to stipulate the warrants should be issued directly to those who were entitled to be recompensed under the terms of the settlement.
The judgment is affirmed.
Main, Millaed, Mitchell, Tolman, and Holcomb, JJ., concur.