Case Name: Chemical Bank, Appellant, v. Washington Public Power Supply System, Appellant, Public Utility District No. 1, et al, Respondents
Court: Washington Supreme Court
Jurisdiction: Washington
Decision Date: 1984-11-06
Citations: 102 Wash. 2d 874
Docket Number: No. 49868-7
Parties: Chemical Bank, Appellant, v. Washington Public Power Supply System, Appellant, Public Utility District No. 1, et al, Respondents.
Judges: 
Reporter: Washington Reports
Volume: 102
Pages: 874–938

Head Matter:
[No. 49868-7.
En Banc.
November 6, 1984.]
Chemical Bank, Appellant, v. Washington Public Power Supply System, Appellant, Public Utility District No. 1, et al, Respondents.
Betts, Patterson & Mines, P.S., by Michael Mines (Robert F. Mullen, Ralph L. McAfee, Richard S. Simmons, and Cravath, Swaine & Moore, of counsel), for appellant Chemical Bank.
Culp, Dwyer, Guterson & Grader, by Richard C. Yar-muth, Michele Coad, Robert O. Marritz, and Earle J. Hereford, Jr., for appellant Washington Public Power Supply System.
Gordon, Thomas, Honeywell, Malanca, Peterson & O'Hern, by Albert R. Malanca, Kenneth G. Kieffer, and Donald S. Cohen, for respondent Washington Public Utilities Group.
Helsell, Fetterman, Martin, Todd & Hokanson, by Richard S. White, David F. Jurca, and Linda J. Cochran, for respondents Columbia Rural Electric Association, Inc., et al.
Stimson Bullitt, John D. Lowery, and Thomas W. Burt (of Riddell, Williams, Bullitt & Walkinshaw), for 21 respondents.
Jones, Grey & Bayley, P.S., by Hugo E. Oswald, Jr., Margaret A. Pageler, Richard L. Goldfarb, and James A. Miller; George F. Hanigan; and James P. McNally and McNally & Stewart, for respondents City of Ellensburg, et al.
Lane, Powell, Moss & Miller, by John R. Tomlinson, H. Peter Sorg, Jr., and Timothy F. Brown, for respondents Oregon PUD's.
Hillis, Phillips, Cairncross, Clark & Martin, P.S., and Jerome L. Hillis, Michael F. Schumacher, and Gregory E. Keller, for 9 respondents.
Dwight A. Halstead and Halstead & Ingvalson, for respondent Benton Rural Electric Association.
Brown, Thayer & Drummond, by Robert M. Brown, for respondent Inland Power and Light Co.
Thoreson, Berry, Yost & Matthews and Ernest C. Matthews IV (Robert H. Jaffe and Jaffe & Schlesinger, of counsel), for intervenors.
John R. Allison, Sharon S. Armstrong, and Alan P. Sherbrooke on behalf of the City of Seattle, amici curiae.
Michael D. McKay and Charles Webb III on behalf of National WPPSS 4 and 5 Bondholders Committee, amici curiae.

Opinion:
Rosellini, J.
This case first came before our court in Chemical Bank v. WPPSS, 99 Wn.2d 772, 666 P.2d 329 (1983) (Chemical Bank I) for resolution of the issue of whether 28 municipalities and public utility districts (PUD's) had statutory authority to enter into agreements to build Washington nuclear plants (WNP) 4 and 5. We held that no statutory authority, express or implied, existed and remanded the case for action in accordance with the opinion.
The trial court entered summary judgment in favor of all 88 participants (respondents) in WNP 4 and WNP 5. On appeal, appellants Washington Public Power Supply System (WPPSS) and the bondholders' trustee, Chemical Bank, raise multiple challenges to the trial judge's order of summary judgment.
Appellants also seek review of our decision in Chemical Bank I under the terms of Rule of Appellate Procedure 2.5(c)(2).
This factual and legal background, discussed in Chemical Bank I, is exceedingly complex. The primary legal issues discussed at length in this opinion can be summarized as follows:
Procedural Questions
1. Should this court reconsider its decision in Chemical Bank I?
2. Did the trial judge's order granting summary judgment in favor of all defendants exceed the proper scope of the declaratory judgment action initiated by Chemical Bank?
3. Are any bondholders entitled to intervene in this action at this stage in the proceeding?
Contractual Obligation
4. Do the Washington municipalities and PUD's have statutory authority, either express or implied, to enter into contracts which impose the risk of dry holes on their ratepayers?
5. If the Washington municipalities and PUD's did not initially have statutory authority to enter into these contracts, did the Legislature subsequently ratify the agreements?
6. Did the trial judge err in holding that, because the contracts were unenforceable as to the Washington municipalities and PUD's, they were also unenforceable as to the remaining defendants under any of these three theories: (a) indivisibility of contract? (b) mutual mistake? (c) commercial frustration and impracticability?
Availability of Equitable Remedies
7. If the participants are not contractually obligated to the bondholders, are they nonetheless estopped from denying the obligation under either common law notions of estoppel or article 8 of the Uniform Commercial Code?
8. If the contracts are invalid, are the bondholders nonetheless entitled to restitution from the participants?
Constitutional Claims
9. Did the release of the participants' contractual obligation violate the bondholders' constitutional rights?
Our resolution of this case is as follows:
I
Procedural Preliminaries
For the reasons discussed below, we believe reconsideration of our decision in Chemical Bank I is appropriate. We find the summary judgment order did not exceed the scope of the declaratory judgment action and conclude the bondholders' motion to intervene should be denied.
II
Contractual Obligations
We herein affirm our decision in Chemical Bank I and reject appellants' arguments that the Legislature ratified the ultra vires contracts. We also affirm the trial judge's release of the 60 remaining participants' obligation on the grounds of commercial frustration and mutual mistake.
III
Equitable Obligations
Our review of the historical origins of equitable estoppel convinces us that the doctrine should not be applied to the facts of this case. We find that the statutory equivalent of equitable estoppel under the Uniform Commercial Code, RCW 62A.8-202, is inapplicable.
IV
Constitutional Claims
We find no violation of appellants' state or federal constitutional rights.
Statement of the Case
Procedurally, this case comes before the court following the trial judge's decision to grant summary judgment in favor of all defendants/participants in WNP 4 and WNP 5. Chemical Bank I contains an extensive factual recitation. In addition, the following information pertains to the present action.
WPPSS is a joint operating agency and municipal corporation composed of 19 Washington public utility districts and four cities. It was formed in 1957 under the provisions of RCW 43.52.360. That statute allows cities or public util ity districts and combinations thereof to form an operating agency "for the purpose of acquiring, constructing, operating and owning plants, systems and other facilities . . . for the generation, and/or transmission of electric energy and power." The statute further provides that after such an agency is formed, any other city or PUD may become a member upon application and affirmative vote of a majority of its members. A member may withdraw provided "[t]hat all contractual obligations incurred while a member shall remain in full force and effect." The agency may be dissolved upon the unanimous agreement of its members and "the members, after making provisions for the payment of all debts and obligations, shall thereupon hold the assets thereof as tenants in common."
In the early 1970's, WPPSS started construction of three nuclear power plants, WNP 1, WNP 2, and WNP 3. The projects were developed in conjunction with the Bonneville Power Administration. Although those plants also ran into financial trouble, it is the fate of two subsequent plants, WNP 4 and WNP 5, which concerns us here. Plans for these plants were developed when the 88 participants, respondents, joined with WPPSS and Pacific Power and Light Company (WNP 5 only) to obtain financing. Each participant signed an identical 63-page participants' agreement (PA) dated July 14, 1976.
WPPSS then adopted a bond resolution which provided for the construction of both plants and the issuance of revenue bonds. As many of the parties' claims stem from interpretation of the PA, a detailed analysis of this document is necessary.
As noted in Chemical Bank I, the PA provided that each participant purchase a "share of the Project Capability" and "a right to purchase a share of the capability of any other generating plants undertaken by [the] Supply System ." PA, at 2. Project capability was defined as
the amounts of electric power and energy, if any, which the Projects are capable of generating at any particular time (including times when either or both of the Plants are not operable or operating or the operation thereof is suspended, interrupted, interfered with, reduced or curtailed, in each case in whole or in part for any reason whatsoever), less Project station use and losses.
In addition, the participants' agreement gave each participant certain rights, both individually and through representatives on a participants' committee. As appellants claim the participants' committee granted significant control to the participants, a detailed analysis of its function is appropriate.
The committee was to be composed of not less than two nor more than seven members and participants were entitled to designate which representative would vote their shares. PA § 15(a). The participants' committee was required to meet at least quarterly during the construction of the projects. PA § 15(b). Committee meetings could be called anytime, however, if representatives with 20 percent of the participant shares so requested. Casting individual votes for each participant's share they represented, committee members were required to vote the shares in the manner requested by the participants they represented. PA § 15(b), at 40.
The participants' agreement also detailed procedures for the transfer of information from WPPSS to the committee members and interested participants. The participants' agreement stated that WPPSS was to provide the committee and any participants who so requested with the following information:
Determination of Minimum Capability.
Construction budgets and changes therein (Section 8(a)).
Award of any contract or approval of any change order, in either case in excess of $2,000,000, or such other con tracts as determined by the Participants' Committee.
Budgets of annual costs and revisions thereof (Section 8(b)).
Fuel Plan, changes therein, and determinations relating thereto (Section 9).
Operating schedules (Section 10).
Insurance coverage, including limits and choice of insurers (Section 11).
Estimates of costs of repair of damage to a Project if in excess of $5,000,000, recommendation whether to repair in whole or in part or to remove from service and construction budget for repair of Project.
Sales of salvage materials in excess of such minimum amount as is established by the Participants' Committee.
Change of an architect-engineer.
Proposed Bond Resolutions.
Any proposal made by Participants' Committee members representing Participants' Shares voting rights of 20% or more.
Construction or acquisition of Nuclear Project No. 5 pursuant to Section 22(b) of the Ownership Agreement.
Repair of Nuclear Project No. 5 pursuant to Section 16(b) of the Ownership Agreement.
Increase in the Supply System's ownership interest in Nuclear Project No. 5 pursuant to Section 20 of the Ownership Agreement.
PA § 15(c), at 41-42.
Members of the participants' committee, representing 20 percent or more of the shares, could disapprove of any action by WPPSS in the above areas and could force the matter to be reviewed by a project consultant. Using this power, the record indicates that the participants' committee disapproved the 1983 annual budget and disapproved of a contract settlement because the allocation of damages between WNP 3 and WNP 5 was "inequitable."
Finally, the participants were granted certain rights in the completed plants. They were given a share of project capability, and the right to have the plants' output adjusted to meet their needs. PA § 9. If the projects were termina ted, the projects' assets were credited to the participants' accounts. PA § 13. Pursuant to this agreement, WPPSS issued $2.25 billion worth of bonds in 14 series. When the projects ran into massive cost overruns, WPPSS decided to terminate the plants prior to completion. Many of the participants then repudiated their obligations.
Chemical Bank, the trustee for the bondholders, filed a declaratory judgment action in King County Superior Court in May 1982, seeking a legal determination that the participants were contractually bound to make payments to WPPSS pursuant to the participants' agreement payment schedule.
In late 1982, the trial judge granted Chemical Bank's motion for summary judgment. He held that the participants were required to fund their respective shares of the debt service on the bonds, even if the projects were never completed. He also ruled that the participants were required to fund the costs of decommissioning the terminated projects. He further found that the Supply System and the Washington participants had statutory authority to enter into the participants' agreements. The trial judge concluded that the municipal participants' obligations were not violative of Washington's constitutional limit on incurring debt, and were not an unlawful delegation of power or authority. This court granted discretionary review and rejected the trial judge's conclusion that the Washington municipalities had authority to enter into these contracts.
The case was returned to the trial court for action in accordance with the opinion. Several defendants moved for summary judgment based on this court's mandate. The judge ordered summary judgment in favor of all the defendants. The order provided, in part:
1. In compliance with the mandate of the Washington Supreme Court, the defendants which are Washington public utility districts or Washington municipalities lacked authority to enter into said Agreement and as to them the Agreement is ultra vires, void ab initio, invalid, ineffective and unenforceable;
2. Inasmuch as the Participants' Agreement is ultra vires, void ab initio, invalid, ineffective and unenforceable as to the defendants which are Washington public utility districts or Washington municipalities, and by reason thereof, the Participants' Agreement is also ineffective and unenforceable as to all other moving defendants and all participant defendants, on the grounds of (a) contract indivisibility and failure of the condition of substantially 100% participation, (b) mutual mistake as to the authority of Washington public utility districts and municipalities to enter into the Agreement, and (c) frustration of purpose and impracticability.
Order and Judgment, August 11, 1983, at 2-3.
The court then rejected all objections and contentions raised in opposition to this motion by Chemical Bank and WPPSS, concluding that
none of the moving defendants or any other participant defendant is obligated . to make any payment to WPPSS, or to any other defendant, or to Chemical or any purchaser or holder of bonds issued by WPPSS . . .
Order and Judgment, August 11, 1983, at 3.
This court granted review to resolve the issues set out above.
I
Procedural Preliminaries
A. Reconsideration of Chemical Bank I
The issue of statutory authority was addressed in Chemical Bank I. Nonetheless, appellants seek review of that decision under the provisions of RAP 2.5(c)(2).
Appellants urge that reconsideration is appropriate because of the importance of the issues raised by the case, and because reconsideration is authorized by the Rules of Appellate Procedure.
RAP 2.5(c)(2) states:
(2) Prior Appellate Court Decision. The appellate court may at the instance of a party review the propriety of an earlier decision of the appellate court in the same case and, where justice would best be served, decide the case on the basis of the appellate court's opinion of the law at the time of the later review.
A comment to this rule notes that application of this section is mandatory when justice would be best served by a reexamination of the law at the time of the later review. The comment states prior law, referring to the predecessor rule as discretionary, is superseded.
We conclude the complexity of the statutory authority issue and the importance of this litigation to thousands of individuals require a balance between principles of finality embodied in the Rules of Appellate Procedure and the interests of those involved. Moreover, we note consideration of issues raised for the first time in this second appeal by necessity involve discussion of the issues decided in Chemical Bank I. We will therefore first reevaluate our decision in Chemical Bank I and then turn to those issues new to this appeal. Before doing so, however, two other procedural matters must be addressed.
B. Intervention
The final issue arises from a motion by six bondholders to intervene in this action. Intervenors base their motion on the provisions of CR 24 and RCW 7.24.010.
By court rule, intervention should be permitted, upon timely application,
(1) when a statute confers an unconditional right to intervene; or (2) when the applicant claims an interest relating to the property or transaction which is the subject of the action and he is so situated that the disposition of the action may as a practical matter impair or impede his ability to protect that interest, unless the applicant's interest is adequately represented by existing parties.
CR 24(a), in pertinent part.
RCW 7.24.110 states the specific rule governing declaratory judgments. It provides:
When declaratory relief is sought, all persons shall be made parties who have or claim any interest which would be affected by the declaration, and no declaration shall prejudice the rights of persons not parties to the proceeding.
In Williams v. Poulsbo Rural Tel. Ass'n, 87 Wn.2d 636, 555 P.2d 1173 (1976), this statute was characterized as jurisdictional. The court held that failure to include an affected party, i.e., an essential party, required remand of the case. Williams, at 643. This is the relief sought by bondholders.
The motion requests "that this Court remand this action back to the trial court for further proceedings to give an opportunity for all holders and former holders of the Bonds to join this action as party plaintiffs." The proposed inter-venors suggest that in such further proceedings they will be in a position to litigate claims which Chemical Bank has made, but for various reasons may be precluded from pursuing, either in state court or in federal court, or both. The complaint in intervention would also add claims not previously made in this litigation, and would bring in new defendants. The complaint states, for example, negligence and malpractice claims against engineers and attorneys.
Relying on Martin v. Pickering, 85 Wn.2d 241, 533 P.2d 380 (1975), the various responses to the motion note that it is not timely.
We note, however, the declaratory judgment statute does not have a timely exception. Also, in Williams, this court's characterization of the failure to join interested parties in a declaratory judgment action as a jurisdictional defect suggests no timely element is necessary. On the other hand, CR 24 clearly requires timely application, even when a statute confers an unconditional right to intervene. This leaves an apparent conflict between the way the statute has been interpreted and the court rule.
When statutory provisions and rules of court adopted by the Supreme Court conflict, the court rule governs. Emwright v. King Cy., 96 Wn.2d 538, 543, 637 P.2d 656 (1981). Here, however, the conflict is not so much between the statute and the court rule as it is between our interpretation of the statute and our court rule. We believe this conflict must be resolved in favor of requiring timely application, even when intervention is a matter of right granted by statute.
First, efficient management of litigation can be achieved only by timely application. Here, for instance, the bondholders' motion to intervene would require reevaluation of matters already argued by the parties and determined by the trial court. This would in turn require duplication of work by attorneys and the judicial system at a staggering cost to all.
Second, principles of finality weigh in favor of requiring timely application. Where, as here, thousands of potential intervenors/plaintiffs exist, the defendants to the action cannot be expected to defend each action brought by bondholders dissatisfied with the initial result.
Our conclusion that timely application is required disposes of the bondholders' motion, which was not filed until this action reached the late stages of the appellate process.
We turn now to the subsidiary question of whether the bondholders are bound by the results of this litigation. The trial judge's order released all claims, including the bondholders', raised against the participants. The declaratory judgment statute, however, states that an interested party who is not joined cannot be prejudiced by the results of the declaration. Since the bondholders are certainly parties who have an interest in the litigation, we must decide whether this section of the statute will be interpreted literally. If so, that portion of the order pertaining to the bondholders must be struck.
We believe that this result would be improper, where, as here, the interested parties have a designated representative. The bond resolution stated that the bond trustee, i.e., Chemical Bank, was to represent all bondholders. Chemical Bank has served in this capacity for the entire history of this action, and vigorously pressed the bondholders' claims. Under these circumstances, the bondholders must abide by the results obtained by their designated representative. Finally, the claims intervenors raise pertain to the securities' action that is now being tried in federal court. For relief on those claims, the intervenors should seek relief in that forum. As to the contract actions, we hold that the designated representative has fulfilled the representative function contemplated by the intervenor statutes. The motion to intervene is therefore denied.
C. Scope of Judgment
Appellants contend the summary judgment order entered by the court in this case exceeded the scope of their declaratory judgment action. Chemical Bank's complaint sought
a determination that the Supply System was obligated to make payments to the bond holders and that the Participants were obligated to make payments to the Supply System under the terms of the Participants' Agreement.
Oral Decision, August 17, 1983.
Chemical Bank now asserts that its original pleadings sought only a judicial determination of the relationship between the parties, rather than an affirmative claim of relief. This argument is without merit. First, this theory ignores Chemical Bank's own expansion of the scope of the first action. In that action, Chemical Bank moved for summary judgment on a variety of issues. When summary judgment was granted in its favor on these issues, Chemical Bank did not allege that the order exceeded the proper scope of the pleadings.
Moreover, by expanding proceedings with its original summary judgment motion, Chemical Bank invited a determination of the parties' entire legal obligations. Chemical Bank cannot now complain that the determination against it was improper.
II
Contractual Obligations
A. Statutory Authority
As noted above, appellants' first substantive challenge is to this court's prior conclusion that the Washington municipalities and PUD's did not have statutory authority to enter into these agreements. Before addressing their specific arguments, a brief statutory review is in order.
This statutory authority issue involves 28 participants: 19 PUD's and 9 Washington cities of various classes. One category of relevant statutes grants these 28 participants authority to purchase electricity. PUD's are granted with authority under the terms of RCW 54.16.040, which pro vides:
A district may purchase, within or without its limits, electric current for sale and distribution within or without its limits, and construct, condemn and purchase, purchase, acquire, add to, maintain, conduct, and operate works, plants, transmission and distribution lines and facilities for generating electric current, operated either by water power, steam, or other methods, within or without its limits, for the purpose of furnishing the district, and the inhabitants thereof and any other persons, including public and private corporations, within or without its limits, with electric current for all uses, with full and exclusive authority to sell and regulate and control the use, distribution, rates, service, charges, and price thereof, free from the jurisdiction and control of the utilities and transportation commission, in all things, together with the right to purchase, handle, sell, or lease motors, lamps, transformers and all other kinds of equipment and accessories necessary and convenient for the use, distribution, and sale thereof: . . .
Each class of municipal participant has similar grants of authority to purchase electricity. See, e.g., RCW 35.23-.440(43); RCW 35.24.290(3); RCW 35.27.370(4); RCW 35A-.80.010.
The statutory provisions creating WPPSS grant an additional layer of statutory authority to purchase electricity. Those statutes allow creation of a joint operating agency which "shall have authority" (1) to generate, produce, transmit, deliver, exchange, purchase or sell electric energy and to enter into contracts for any or all such purposes (RCW 43.52.300(1)); (2) to construct, condemn, purchase, lease, acquire, operate, develop and regulate facilities for the generation of electric energy (RCW 43.52.300(2)); (3) to enter into contracts for sale, exchange, transmission or use of electric energy (RCW 43.52.300(3), (4)); and (4) to act as agent for the purchase and sale at wholesale of electricity for any city or district whenever requested to so do (RCW 43.52.300(7)). These statutes are to be liberally construed to effectuate their purposes. RCW 43.52.910.
A second category of statutes grants cities and PUD's authority to enter into joint operating agencies for the purpose of developing nuclear power. RCW 54.44. RCW 54.44-.020 states that the utility or city "shall own a percentage of any common facility equal to the percentage of the money furnished or the value of property supplied by it for the acquisition and construction thereof and shall own and control a like percentage of the electrical output thereof." RCW 54.44.030 limits a participant's liability to its own acts and forbids the participant from assuming any of the other participants' debt or obligation.
Cities and PUD's may also construct energy facilities on their own. RCW 35.92.050 authorizes a city or town to construct, condemn, purchase and acquire facilities for the purpose of furnishing the city or town or its inhabitants with electricity. PUD's have similar authority to construct generating facilities under RCW 54.16.040.
After reviewing the participants' agreement in relation to these statutes, we concluded in Chemical Bank I that
this agreement does not satisfy the statutory scheme governing the public participants. (1) The agreement is not a standard contract for the purchase of power because the payments are due irrespective of whether any electric current is delivered. (2) It is not the type of acquisition or construction of a generating project authorized by the statutes or previously recognized by this court, because the participants retained no ownership interest, except in any excess assets upon termination, and a very limited role in management of the project. (3) It is not an exercise of an implied power to pay for municipal services because there was no guaranty the services would be provided and we perceive no legal necessity for such powers. (4) Finally, it is not a joint operating agreement within the provisions of RCW 43.52 because those provisions limit the participants' ability to buy anything more than "electric energy."
Chemical Bank I, at 798-99.
Appellants attack this conclusion, arguing that the court did not address important facts which established control and, alternatively, that the issue of ownership control is a factual one which requires a full hearing on the merits.
Appellants first argue that all participants had statutory authority. As the critical issue to establish statutory authority is control over the project, appellants cite several of the provisions of the participants' agreement to support their theory that the participants exercised control sufficient to establish statutory authority over the projects. We recognize that the agreement did supply some control but still disagree with appellants' position that it was control sufficient to protect the interests of their ratepayers as contemplated by these statutes.
Our conclusion is based upon the reasons set out in Chemical Bank I. Also, additional evidence of the limited control exercised by respondents can be gleaned from comparing the more complete indicia of ownership and, therefore, control present in the agreement between Pacific Power and Light Company (Pacific Power) and WPPSS. Pacific Power, as a 10 percent owner of WNP 5, was, by virtue of its ownership agreement, given significant rights over and above those granted to the participants. For instance, while the participants usually had to request information, WPPSS was obligated to keep Pacific Power informed on all significant matters, to confer with it prior to developing proposals and to furnish "any and all other information relating to the planning, construction, operation or maintenance of the Project." Pacific Power and WPPSS Ownership Agreement § 3(a).
Moreover, where the participants' agreement gave respondents rights to proposed WPPSS actions, any proposal submitted by WPPSS to Pacific Power had to include itemized cost estimates and all supporting reports and analyses. Section 3(c). Rather than a 15-day take-it-or-leave-it provision applicable to the participants, Pacific Power was given 30 days to approve proposals, and certain matters could not proceed without Pacific Power's approval. Section 3(d). These included changes in any of the following: site, type of steam supply system, architect-engineer or construction manager. Section 3(e). Disputes between WPPSS and Pacific Power were to be resolved in the same manner as those between WPPSS and the participants. Section 4(e). The ownership contract, unlike the PA, also specifically required WPPSS to award contracts in a cost effective fashion. Finally, Pacific Power's approval was required on any contract in excess of $500,000. Section 7(e). The participants' approval, on the other hand, was required only on those contracts in excess of $2 million.
In summary, the Pacific Power and WPPSS ownership agreement gave greater control to Pacific Power than that granted to the participants. Our reevaluation of the statutory authority question thus leads us once again to the conclusion that the participants' agreement did not grant ownership control as contemplated by this statutory scheme. No statutory authority, therefore, existed.
Moreover, we reject appellants' assertion that the question of ownership control is essentially a factual inquiry. The participants' agreement and Pacific Power's ownership agreement create the contractual rights of the parties. Interpretation of those agreements is a question of law. Kelly v. Aetna Cas. & Sur. Co., 100 Wn.2d 401, 670 P.2d 267 (1983).
Appellants next contend that the agreements were a valid exercise of authority under the joint operating statutes. They offer three arguments. They assert, first, that recent amendments to the statutes demonstrate legislative recognition of the municipalities' authority, citing RCW 43.52.410, which states that no city or district may enter into a contract "to purchase or participate in a portion of an electrical generating project." Appellants conclude that this amendment is a legislative recognition and therefore ratification of these debts. Next, appellants cite an amendment to RCW 43.52.550 which now provides for a repayment provision for contracts such as these. Third, appellants urge that the narrow construction the court placed on the joint operating statutes defeats their purpose.
Respondents note that appellants' arguments ignore RCW 54.44 which provides specific mechanisms for con structing nuclear plants. As discussed in detail in Chemical Bank I, we agree. In addition, we find appellants' attempts to find authority in the above cited amendments to be, at best, a strained interpretation of those statutes. Nothing in the legislative history cited by appellants or the statutes themselves specifically authorizes these contracts. At most, the amendments represent a legislative attempt to provide orderly repayment if the utilities are found to be liable for the debts. That conclusion does not logically include the proposition that the debts themselves were valid.
Appellants next contend the court erred in concluding that these contracts were not contracts to purchase electricity. Citing cases from two other states, they urge that these statutes, providing for purchase of electricity, are to be construed broadly. This issue was adequately addressed in Chemical Bank I and will not be repeated here. Similarly, arguments pertaining to legislative interpretation and implied powers were raised previously. Appellants offer no compelling reasons to alter our decision on these points.
Finally, it has been argued that the court in Chemical Bank I ignored the broad general powers granted to cities under article 11, section 11 of our state constitution. This argument is not persuasive. First, the argument has no application to two-thirds of the participants governed by our original decision. Those participants are public utility districts and consequently do not come within the terms of Const. art. 11, § 11. Second, the argument improperly suggests that the general powers of a city may be exercised in derogation of specific statutory schemes.
Article 11, section 11 itself contemplates this limitation in that it allows cities to make only such regulations "as are not in conflict with general laws." Here, the Legislature developed extensive legislation governing the authority of cities and public utility districts to enter into contracts for the purchase of electricity and the ownership of generating plants. As discussed in Chemical Bank I, those statutes contained safeguards to protect ratepayers which were ignored. Those safeguards cannot now be subverted by misplaced reliance on general constitutional provisions.
In summary, we find that appellants' "new" arguments for statutory authority are unpersuasive. Our prior decision is therefore affirmed.
B. Ratification
Appellants' argument that the Legislature subsequently ratified these agreements is equally without merit. As a general rule, ratification requires that the act to be ratified be specifically acknowledged by the ratifying legislation. See generally 10 E. McQuillin, Municipal Corporations § 29.10 (3d ed. 1981).
The amendments cited by appellants contain no such acknowledgment. Moreover, we cannot adopt appellants' suggestion that the amendments infer ratification. Ratification by inference is an ambiguous rule and dangerous doctrine requiring that a court second guess the Legislature. This we decline to do.
C. Contractual Obligation of Remaining Respondents
Appellants' next challenge is to the trial judge's order granting summary judgment in favor of those utilities whose contractual obligations were not before the court in Chemical Bank I.
Out of the total of 88 participants, 28 are governed by the statutory scheme described above. Since we had concluded that these utilities were not acting within the scope of their authority, the trial judge on remand was faced with the question of what effect release of the municipalities and PUD's had on the obligation of the remaining utilities. On respondents' motion for summary judgment, the judge ruled that the doctrines of failure of condition precedent, commercial frustration or impossibility and mutual mistake all applied. These doctrines, the judge concluded, released the remaining participants' contractual obligations.
Appellants challenge this order, arguing that the trial judge's decision ignores the plain language of the contract and the applicable law. We agree that the trial judge incorrectly relied on the condition precedent analysis, but find that the doctrines of mutual mistake and commercial frustration both support his conclusion that the remaining participants were not obligated under the contract.
1. Failure of Condition. The Restatement (Second) of Contracts § 224 (1981) defines a condition as an event not certain to occur which must occur before performance under a contract becomes due. An event may become a condition by agreement or may be a term supplied by the court. Section 226. The trial judge ruled that section 3 of the participants' agreement created a condition precedent to the formation of the contract. That section states that
This Agreement shall be effective upon execution and delivery of Participants' Agreements by Supply System and Participants whose Participants' Preliminary Shares total 1.0 [100%] or more.
PA § 3. From this, the trial judge reasoned that the 100 percent (or substantially that) of the participants were required to have authority to enter into the contracts before a duty to perform could be imposed on any participant. We disagree. Section 3 does not establish authority to enter into the contract as a condition precedent to the obligation of all. Section 3 states simply that the contract takes effect when the participants' agreements are executed. Authority to enter into the contract is not mentioned in this section and was thus not made a condition precedent to the participants' obligation.
Furthermore, respondents' attempt to establish statutory authority as a condition of the contract conflicts with the accepted definition of the word "condition". The question of authority does not involve an event not certain to occur but rather a status of certain parties at the time they entered into the contract. For this reason, and that above, we conclude the trial judge erred in viewing section 3 of the participants' agreement as a condition.
2. Commercial Frustration — Impossibility. Respondents assert that section 3 of the participants' agreement contemplates 100 percent participation as a material part of the contract. They urge that this court's decision to excuse 28 participants, whose obligation was 70 percent of the total power shares, should result in the contractual release of the remaining participants under the doctrine of commercial frustration or impossibility. We agree.
Both the Restatement (Second) of Contracts and our case law recognize commercial frustration and impossibility as independent legal theories that may, on occasion, excuse a party's contractual obligations. Recently, this court recognized and applied commercial frustration. Weyerhaeuser Real Estate Co. v. Stoneway Concrete, Inc., 96 Wn.2d 558, 562, 637 P.2d 647 (1981).
The doctrine of commercial frustration may be summarized as follows:
Where the assumed possibility of a desired object or effect to be attained by either party to a contract forms the basis on which both parties enter into it, and this object or effect is or surely will be frustrated, a promi-sor who is without fault in causing the frustration, and who is harmed thereby, is discharged from the duty of performing his promise unless a contrary intention appears.
Restatement of Contracts § 288, at 426-27 (1932). See also 18 S. Williston, Contracts § 1954 (3d ed. 1978); 6 A. Corbin, Contracts § 1355, 1356 (1962).
To finance, build or terminate these plants, the municipality and PUD participants were vital. Their share of the projects represents approximately 70 percent of the total obligation. Our decision in Chemical Bank I excused these obligations. As the remaining participants did not in any way contribute to this frustration of purpose, we believe contractual release of their obligation is required.
3. Mutual Mistake. The trial judge also held that the participants could be excused because all parties were mistaken about the authority of the municipalities. This court applied the doctrine of mutual mistake in Simonson v. Fendell, 101 Wn.2d 88, 91, 675 P.2d 1218 (1984). The court described the doctrine's requirements:
A party seeking to rescind an agreement on the basis of mutual mistake must show by clear, cogent and con vincing evidence that the mistake was independently made by both parties. Beaver v. Estate of Harris, 67 Wn.2d 621, 409 P.2d 143 (1965); Carson v. Isabel Apartments, Inc., 20 Wn. App. 293, 296, 579 P.2d 1027 (1978). A mistake is a belief not in accord with the facts. Restatement (Second) of Contracts § 151 (1981).
Restatement (Second) of Contracts § 152 (1981) notes that a contract is voidable for mutual mistake when
(1) Where a mistake of both parties at the time a contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in § 154.
(2) In determining whether the mistake has a material effect on the agreed exchange of performances, account is taken of any relief by way of reformation, restitution, or otherwise.
We find that the assumption that the municipalities and PUD's had statutory authority was a mistaken assumption material to the contract. As discussed later in this opinion, all parties assumed that statutory authority existed. Moreover, the 60 respondents involved in this issue did not assume the risk that no authority existed. If anyone assumed the risk under the terms of section 154, the bondholders did so. They were in a position to obtain judicial determination of the authority question, and did not seek such resolution. We conclude release of the 60 respondents is therefore warranted.
Ill
Availability of Equitable Remedies
Before discussing the equitable obligations of the parties, however, we believe this remedy, as well as the other equitable claims against the Chemical Bank I respondents, must be placed in historical perspective.
A. Equity's History
Both sides to this dispute seek the equitable result, but what is equity? One commentator notes that the term is used in two distinct senses. In the first, the word implies right, justice or moral quality. D. Dobbs, Remedies § 2.1, at 24 (1973). In another related judicial sense, the word refers to "what was once an entirely separate body of judicial rules, procedures, remedies, and to the separate courts that administered this juridical mass." D. Dobbs, at 24.
B. Types of Equitable Remedies
1. Estoppel. Estoppel existed at common law as the principle that a person who asserted a state of affairs should not be allowed to deny the existence of that state thereafter. Equity extended this doctrine. J. Lewis, Outlines of Equity 100 (1968). The extension was adopted by the common law; and, by the 19th century both English law and equity held that there would be estoppel where:
(a) there had been a representation by words or conduct,
(b) of existing fact, as opposed to law, which was
(c) intended to be acted upon, and
(d) was acted upon to his detriment by the person to whom it was made.
J. Lewis, at 100.
English legal history recognized two distinct forms of estoppel: promissory estoppel and estoppel by acquiescence. Promissory estoppel in England has been described as follows:
Where by words or conduct a party to a transaction makes an assurance to the other which—
(a) is intended to affect the legal relationship existing between them; and
(b) is acted upon by the other party who thus alters his position to his detriment;
the first party will not be allowed to behave in a manner inconsistent with his assurance. Having given his promise he is estopped from denying its validity.
J. Lewis, at 101.
A second type of estoppel found in English cases, estop-pel by acquiescence, may arise "where a person incurs expenditure, or otherwise prejudices himself, in the belief, actively or passively encouraged by the other, that he had or would obtain a sufficient interest in the property to justify such expenditure." J. Lewis, at 102. This form of estoppel can be used not only as a defense but also as a right of action. J. Lewis, at 102.
Estoppel in American case law is well established but unevenly analyzed. It appears that several forms of estop-pel exist. Like its English counterpart, estoppel in American case law has been sometimes limited to defensive use and sometimes used affirmatively.
First, American courts, including Washington's, recognize promissory estoppel. It is defined in Restatement (Second) of Contracts § 90(1) (1981):
(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.
Unlike its British equivalent, however, the Restatement does not limit promissory estoppel to use as defense. Nor has Washington's case law done so. See Klinke v. Famous Recipe Fried Chicken, Inc., 94 Wn.2d 255, 616 P.2d 644 (1980).
Second, Washington courts discuss equitable estoppel. In Klinke, this court described both promissory estoppel and equitable estoppel:
Equitable estoppel is based upon a representation of existing or past facts, while promissory estoppel requires the existence of a promise. Equitable estoppel also is available only as a "shield" or defense, while promissory estoppel can be used as a "sword" in a cause of action for damages. Promissory estoppel based on Restatement of Contracts § 90 (1932) has long been recognized in this state and may serve as the basis for an action for damages.
(Footnotes and citations omitted.) Klinke, at 258-59. Professor Dobbs, in Remedies § 2.3 (1973), agrees equitable estoppel may be used only as a defense. He notes "estoppel is, according to the usual statement, a shield, not a sword. It does not furnish a basis for damages claims, but a defense against the claim of the stopped party." D. Dobbs, at 42.
Not all Washington cases have strictly adhered to this rule. For instance, in Beggs v. Pasco, 93 Wn.2d 682, 611 P.2d 1252 (1980), this court acknowledged that the doctrine of estoppel applied to municipalities and then applied it in what appears to be an affirmative manner. Moreover, many cases mingle promissory estoppel with equitable estoppel. See State v. Northwest Magnesite Co., 28 Wn.2d 1, 182 P.2d 643 (1947).
Third, a specialized form of estoppel arises in a series of bond cases decided by our court and the United States Supreme Court at the end of the last century. This form of estoppel, which for clarity's sake we will term estoppel by recital, prohibits a municipality from denying the validity of its bonds under specific circumstances. As these cases are factually similar to the one at hand, a closer look at this form of estoppel is warranted.
One of the early estoppel by recital cases is Coloma v. Eaves, 92 U.S. 484, 23 L. Ed. 579 (1875). In Eaves, the Court affirmed judgment for a plaintiff who purchased bonds from a municipal corporation. The bonds stated that they had been issued under and by virtue of the law of the state and in accordance with a vote of the electors of the township. In finding for the plaintiff, the Court noted that a bona fide purchaser was not obligated to look beyond such recitals. The Court quoted, with approval, the following rule from St. Joseph Township v. Rogers, 83 U.S. (16 Wall.) 644, 21 L. Ed. 328 (1872):
"Power to issue bonds to aid in the construction of a railroad is frequently conferred upon a municipality in a special manner, or subject to certain regulations, conditions, or qualifications; but if it appears by their recitals that the bonds were issued in conformity with these regulations, and pursuant to those conditions and qualifications, proof that any or all of these recitals were incorrect will not constitute a defence for the corporation in a suit on the bonds or coupons, if it appears that it was the sole province of the municipal officers who executed the bonds to decide whether or not there had been an antecedent compliance with the regulation, condition, or qualification, which it is alleged was not fulfilled."
(Italics ours.) Eaves, at 492. In subsequent cases, the Court reaffirmed this rule, applying it even when the bonds were issued in excess of a municipality's constitutional debt limit. See Gunnison Cy. Comm'rs v. Rollins, 173 U.S. 255, 43 L. Ed. 689, 19 S. Ct. 390 (1898). Accord, Cuddy v. Stur-tevant, 111 Wash. 304, 190 P. 909 (1920).
In explaining its rationale, the Court in Gunnison noted that the rule depended on who makes the recitals and whether their position justifies the public's reliance. The Court noted:
If the officers authorized to issue bonds, upon a condition, are not the appointed tribunals to decide the fact, which constitutes the condition, their recital will not be accepted as a substitute for proof. In other words, where the validity of the bonds depends upon an estoppel, claimed to arise upon the recitals of the instrument, the question being as to the existence of power to issue them, it is necessary to establish that the officers executing the bonds had lawful authority to make the recitals and to make them conclusive. The very ground of the estoppel is that the recitals are the official statements of those to whom the law refers the public for authentic and final information on the subject."
(Italics ours.) Gunnison, at 267 (quoting Dixon Cy. v. Field, 111 U.S. 83, 28 L. Ed. 360, 4 S. Ct. 315 (1884)).
In addition to promissory estoppel, equitable estoppel and estoppel by recital, our case law has applied the concept to foreclose denial of certain facts or representations. To prevent injustice then, the court has evoked estoppel in pais, estoppel by misrepresentation, and laches. (See generally Arnold v. Melani, 75 Wn.2d 143, 147, 437 P.2d 908, 449 P.2d 800, 450 P.2d 815 (1968) and cases cited therein.) The multiplicity of these terms has obscured rather than clarified the law, however, and is of dubious applicability to this case. We prefer, therefore, to confine our discussion to the three forms of estoppel clearly recognized by the courts and the Restatements as separate doctrines and to the theory of unjust enrichment discussed below.
2. Unjust Enrichment. Just as the term "estoppel" has been used widely to describe a variety of legal actions, the term "unjust enrichment" is equally amorphous.
John Dawson notes that, in the English common law, relief for unjust enrichment can be found under many different names, including remedies for disseisin of land, the quid pro quo requirement in an action for debt and remedies in equity for enforcing trust or canceling transfers for fraud and duress. J. Dawson, Unjust Enrichment 9 (1951). Relief for unjust enrichment is frequently called restitution. Restitution will be granted in a variety of circumstances, including those involving contractual relief for mutual mistake or commercial frustration. See Restatement (Second) of Contracts § 272 (1981); Simonson v. Fendell, 101 Wn.2d 88, 675 P.2d 1218 (1984).
We turn now to the application of general principles of equity to the specific facts of this case.
C. Application of Doctrines
1. Equitable Estoppel. As previously suggested, appellants contend that the general principle of equitable estoppel applies to their case because the participants made representations which were relied upon by the bondholders and resulted in injury. We need not decide whether equitable estoppel may properly be used in an affirmative manner, as we conclude the doctrine is inapplicable. First, although equitable estoppel is sometimes applied to municipal corporations, such application is not favored. PUD 1 v. Cooper, 69 Wn.2d 909, 918, 421 P.2d 1002 (1966). This disfavor has led courts to conclude that to establish equitable estoppel, every particular must be proven by the plaintiff with clear, cogent and convincing evidence. PUD 1 v. Cooper, supra. We believe that plaintiffs have not met this burden.
We find the doctrine is inapplicable because the representations relied upon by the bondholders were representations as to questions of law, not questions of fact. As such, the bondholders should have resorted to a declaratory judgment action to determine the issue of authority. Further, even if the representations are factual, the doctrine of equitable estoppel will not be applied where both parties have the same opportunity to determine the truth of those facts. Consequently, we have observed:
In order to create an estoppel it is necessary that:
"The party claiming to have been influenced by the conduct or declarations of another to his injury, was himself not only destitute of knowledge of the state of facts, but was also destitute of any convenient and available means of acquiring such knowledge; and that where the facts are known to both parties, or both have the same means of ascertaining the truth, there can be no estoppel." 11 Am. & Eng. Ency. Law (2d ed.), p. 434.
(Italics ours.) Leonard v. Washington Employers, Inc., 77 Wn.2d 271, 280, 461 P.2d 538 (1969) (quoting Wechner v. Dorchester, 83 Wash. 118, 145 P. 197 (1915)).
As suggested earlier in the opinion, the question of statutory authority could and should have been resolved in a declaratory judgment action. As this was not done, the parties cannot now complain of the consequences of their neglect in the matter. For the same reason, we find that the participants are not estopped by their recitals in the bonds.
2. Estoppel by Recital. Estoppel by recital (discussed above) leads us to the conclusion that the doctrine is a limited concept applied in very narrow circumstances. There are three requirements for the doctrine's application. First, the municipality must have authority to enter into the transaction. See South Ottawa v. Perkins, 94 U.S. 260, 24 L. Ed. 154 (1876). Second, if the plaintiff seeks to establish estoppel based on recitals in a bond, the individual or entity making such recitals must be both authorized to make those recitals, and one on whom the public should be entitled to rely for the truth of the representation. Gunnison Cy. Comm'rs v. Rollins, supra. Third, the recital, as in the equitable estoppel cases, must be one concerning facts rather than law. Appellants' case meets only one of these three requirements. Although the municipalities did have general authority to enter into the transactions, we find that the participants are not the final authority on the question of statutory interpretation created by these contracts, and that the representation was legal rather than factual. Those issues in this case are factual and are properly the jurisdiction of a court of law. We conclude that the doctrine of estoppel by recital, as developed in the last century, should not be applied here.
3. Statutory Estoppel — RCW 62A.8. Both appellants offer the provisions of article 8 of the Uniform Commercial Code in support of their theory that our statutes prohibit participants from denying payment on these obligations. The trial judge rejected this argument because he believed it was precluded by Chemical Bank I. This conclusion is not required by our decision. Thus, a detailed analysis of the issue is in order.
This argument arises from the court's repeated reference to the municipal participants as guarantors. In Chemical Bank I, the court repeatedly stated that the agreement was essentially an unconditional guaranty of payment. Chemical Bank I, at 784, 786, 798. RCW 62A.8-201(2) provides that a "guarantor is an issuer to the extent of his guaranty whether or not his obligation is noted on the security." The conclusion that a guarantor is an issuer is important because it triggers the provisions of RCW 62A.8-202. That section provides:
(1) Even against a purchaser for value and without notice, the terms of a security include those stated on the security and those made part of the security by reference to another instrument, indenture or document or to a constitution, statute, ordinance, rule, regulation, order or the like to the extent that the terms so referred to do not conflict with the stated terms. Such a reference does not of itself charge a purchaser for value with notice of a defect going to the validity of the security even though the security expressly states that a person accepting it admits such notice.
(2) (a) A security other than one issued by a government or governmental agency or unit even though issued with a defect going to its validity is valid in the hands of a purchaser for value and without notice of the particular defect unless the defect involves a violation of constitutional provisions in which case the security is valid in the hands of a subsequent purchaser for value and without notice of the defect.
(b) The rule of subparagraph (a) applies to an issuer which is a government or governmental agency or unit only if either there has been substantial compliance with the legal requirements governing the issue or the issuer has received a substantial consideration for the issue as a whole or for the particular security and a stated purpose of the issue is one for which the issuer has power to borrow money or issue the security.
RCW 62A.8-202(1), (2). Comment 6 to the rule states that the rule is based on the estoppel by recital cases discussed above. The Washington comment to this section states that the statute has substituted two criteria for the recital requirement. First, there must be substantial compliance with the statute's governing issue. Second, the municipality must have received substantial consideration and the stated purpose must be within the power of the issuer. See Comment, RCWA 62A.8-202.
Respondents assert that this statute is inapplicable. They first argue that the participants are not issuers. Several theories are offered to support this proposition, none of which we find persuasive. They alleged, for instance, that the participants are not guarantors because the only basis for finding a guarantor relationship is the participants' agreement which this court has already ruled invalid. Respondents' arguments are circular and not supported by authority.
Respondents' next argument for evading the terms of RCW 62A.8-202(2)(b) is that no securities have been challenged, because everyone admits the validity of the bonds. Respondents have repudiated only the participants' agreement, and this agreement has already been determined not to be a security by the trial judge. Because this conclusion was not challenged on appeal, respondents assert that it is now the law of the case. This argument is appealingly simple. It ignores, however, the history of this case which, originally, came to this court on discretionary review of an interlocutory order. As such, appellants were not obligated to appeal every adverse decision against them. Furthermore, this court narrowly tailored the issues on review in Chemical Bank I. Thus, it would be unjust to preclude the argument on procedural grounds. Respondents' argument is therefore rejected.
Nonetheless, we agree that the PA does not fall within the terms of RCW 62A.8-202. We conclude the PA does not meet the statute's definition of a security. RCW 62A.8-102 defines the word security very narrowly. It states:
(1) In this Article unless the context otherwise requires
(a) A "security" is an instrument which
(i) is issued in bearer or registered form; and
(ii) is of a type commonly dealt in upon securities exchanges or markets or commonly recognized in any area in which it is issued or dealt in as a medium for investment; and
(iii) is either one of a class or series or by its terms is divisible into a class or series of instruments; and
(iv) evidences a share, participation or other interest in property or in an enterprise or evidences an obligation of the issuer.
(Italics ours.)
The participants' agreements are not issued to a bearer, they are not registered or commonly dealt in as a medium for investment, and are not one of a class. In fact, of the above requirements, only (iv) applies to the participants' agreement. Appellants argue, nonetheless, that the participants' agreement was an integral component of the bonds and therefore should be considered as falling within the parameters of this statute. Appellants cite no case authority for this proposition and offer no compelling policy reasons for extending the definition of security to this agreement.
We conclude that the participants' agreement does not meet this definition. RCW 62A.8-202 is therefore inapplicable.
D. Unjust Enrichment
As noted above, a party must make restitution when he has been unjustly enriched at the expense of another. Restatement of Restitution § 1 (1937). The Restatement (Second) of Restitution § 1 (Tent. Draft No. 1, 1983) contains a slightly different formulation of this general principle. It states:
A person who receives a benefit by reason of an infringement of another person's interest, or of loss suffered by the other, owes restitution to him in the manner and amount necessary to prevent unjust enrichment.
Each of these statements, however, involves the transfer of benefit from one party to another. It does not require, as respondents infer, that the benefit still exist. As noted in comment b to the Restatement of Restitution § 1 (1937),
[a] person confers a benefit upon another if he gives to the other possession of or some other interest in money, land, chattels, or choses in action, performs services beneficial to or at the request of the other, satisfies a debt or a duty of the other, or in any way adds to the other's security or advantage. He confers a benefit not only where he adds to the property of another, but also where he saves the other from expense or loss. The word "benefit," therefore, denotes any form of advantage.
Restatement, at 12.
The definition of benefit is critical to appellants' argument because respondents allege that the bondholders did not confer a benefit on the participants. This argument and the related question of whether justice requires restitution in this case will be addressed later in the opinion. We turn first, however, to an argument which pertains only to those respondents whose contractual obligations were held to be ultra vires by our decision in Chemical Bank I.
Respondents, citing 10 E. McQuillin, Municipal Corporations § 29.04 (1981) and Finch v. Matthews, 74 Wn.2d 161, 443 P.2d 833 (1968), contend that the unjust enrichment theory cannot be applied against a municipality where the acts are substantively ultra vires. We agree and, for the reasons set out below, find the acts substantively ultra vires.
A substantive/procedural dichotomy appears in virtually every ultra vires case. The general rule, stated most re cently in Noel v. Cole, 98 Wn.2d 375, 655 P.2d 245 (1982), states that a private party, acting in good faith, may recover from a governmental agency if the agency "had the power it sought to exercise but merely . . . exercised it in an irregular manner or by unauthorized procedural means", and the action was not malum in se, malum prohibitum or manifestly against public policy. Noel, at 381. Not surprisingly, both sides assert that this rule supports their position. Appellants argue that the municipalities had broad general statutory authority to enter into contracts for purchase of electricity and generating plants. They conclude that the only error was a procedural one, that is, the contracts did not clearly set out a sufficient ownership interest to protect ratepayers. Respondents counter with the allegation that Chemical Bank I already decides the issue of whether the contracts were procedurally or substantively ultra vires.
We believe the instant case falls within this rule. As we concluded in Chemical Bank I, "the Washington statutes authorize the participants to purchase power or to own electric generating facilities." Chemical Bank I, at 799. If the contracts had been for these purposes, the participants would have had statutory authority. They were not. The doctrine of substantively ultra vires activity thus precludes recovery.
As noted above, the Restatement's definition of benefit is quite broad. Thus, our task here is to determine whether any asserted benefits fall within this definition. We conclude they do not.
We find persuasive respondents' theory that the benefits of the bond revenues flowed to WPPSS and no further. WPPSS contracted with the bondholders, received their money and appropriated it for its purposes. We can see no benefit to the participants in these circumstances.
In summary, we find no benefit passed to the respon dents and, thus, justice does not require restitution. Moreover, restitution against those respondents released by our decision in Chemical Bank I is precluded because their activities were substantively ultra vires.
IV
Constitutional Claims
Appellants assert that the United States Constitution and the Washington State Constitution would be violated if they are denied relief. Appellants do not rely directly on any one provision of the constitutions but instead extract general principles from cases under the contract clause, U.S. Const. art. 1, § 10, cl. 1; the takings clause, U.S. Const.. amend. 14, § 1; and the due process clause, U.S. Const. amend. 14, § 1. Appellants' arguments depend upon reading the various clauses together. No case has done so. Moreover, authority cited in appellants' briefs do not support their theory. For instance, Kaiser Aetna v. United States, 444 U.S. 164, 62 L. Ed. 2d 332, 100 S. Ct. 383 (1979) involved a simple application of the takings clause to action by the federal government. Petitioner, Kaiser Aetna, leased and improved a private tidal pond which had no access to the ocean. After petitioner dredged the pond, created ocean access and a marina, the federal government sought to enforce a public right of access to the pond. The Supreme Court held that this could not be done without compensation to petitioner. Kaiser thus supports only the proposition that the government may not take private property without compensation. Here, no taking occurred.
Likewise, the State has not impaired a contract obligation. When a city acts beyond its specific statutory authority, no contract obligation is created. The contract is void. Chemical Bank I.
Appellants' due process argument is equally unpersuasive. No cases have held that a court's ruling, as a matter of law, that a contract is unenforceable, violates due process. In summary, the rule suggested by appellants would effec tively vitiate a court's ability to invalidate contracts. This we decline to do.
We find that the bondholders' interests have been adequately represented in this case. Their motion to intervene is denied. We reject appellants' attacks on our decision in Chemical Bank I and their equitable arguments. The trial judge's decision is affirmed.
Williams, C.J., and Brachtenbach, Dore, Dimmick, and Pearson, JJ., concur.
Respondents include 9 Washington cities; 7 Oregon cities; 5 Idaho cities; 19 Washington PUD's; 1 Washington irrigation district; 43 rural electric cooperatives; and 4 Oregon PUD's.
A11 page references are to the bound volume submitted as appendix to the record on appeal.
If a matter went before a project consultant, his task was to determine whether WPPSS's actions conformed with prudent utility practice. PA § 16.
To the extent that the language in Williams v. Poulsbo Rural Tel. Ass'n, supra, suggests the opposite result, it is overruled.
The bond resolution provided, inter alia:
"Section 11.4. Suits by Bond Fund Trustee; Direction of Action by Bondholders; Possession of Projects; Receivership; Relinquishment of Control. If an Event of Default shall happen and shall not have been waived or remedied, then and in every such case the Bond Fund Trustee, either in its own name or as trustee of an express trust, or as attorney in fact for the holders of all the Bonds and the coupons appurtenant thereto, or in any one or more of such capacities, by its agents and attorneys, shall be entitled and empowered to proceed forthwith to institute such suits, actions and proceedings at law or in equity for the collection of all sums due in connection with the Bonds and to protect and enforce its rights and the rights of the holders of the Bonds under the Resolution for the specific performance of any covenant herein contained, or in aid of the execution of any power herein granted, or for an accounting against the System as trustee of an express trust, or in the enforcement of any other legal or equitable right as the Bond Fund Trustee, being advised by counsel, shall deem most effectual to enforce any of its rights or the rights of the holders of the Bonds, or to perform any of its duties under the Resolution. The Bond Fund Trustee shall be entitled and empowered, either in its own name or as a trustee of an express trust, or as an attorney in fact for the holders of the Bonds and the coupons appurtenant thereto, or in any one or more of such capacities, to file such proof of debt, amendment of proof of debt, claim, petition or other document as may be necessary or advisable in order to have the claims of the Bond Fund Trustee and of the holders of the Bonds and of the coupons appurtenant thereto allowed in any equity, receivership, insolvency, bankruptcy, liquidation, readjustment, reorganization or other similar proceedings relative to the System. For this purpose the Bond Fund Trustee is hereby irrevocably appointed the true and lawful attorney in fact of the respective holders of the Bonds and of the coupons appurtenant thereto (and the successive holders of the Bonds and of the coupons appurtenant thereto by taking and holding the same shall be conclusively deemed to have so appointed the Bond Fund Trustee) with authority to make and file in the respective names of the holders of the Bonds and of the coupons appurtenant thereto any such proof of debt, amendment of proof of debt, claim, petition or other document in any such proceedings, and to receive payment of any sums becoming distributable on account thereof, and to execute any such other papers and documents ."
"A party bears the risk of a mistake when
"(a) the risk is allocated to him by agreement of the parties, or
"(b) he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or
" (c) the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so." Restatement (Second) of Contracts § 154 (1981).
Appellants, who rely on this theory, view equitable estoppel as containing three elements: (1) an admission, statement or act inconsistent with the claim thereafter asserted; (2) action by the other party on the faith of such admission, statement or act; and (3) injury to such other party arising from admission. Beggs v. Pasco, 93 Wn.2d 682, 611 P.2d 1252 (1980). Brief of appellant WPPSS, at 57-58. As discussed above, however, we find the concept more complicated than as represented by appellants.
A close examination of Beggs v. Pasco, supra, however, reveals that the court's conclusion that the City was estopped from denying statutory retirement benefits to the plaintiffs came after the court concluded that the unchallenged findings of fact placed plaintiffs squarely within the terms of the statute. Beggs, at 688. Consequently, the affirmative relief provided by the court was based upon the statute, not the doctrine of estoppel.
Appellants cite RCW 62A.8-201(2) to support their allegation that the participants' agreement is part of the security. That section states:
(2) With respect to obligations on or defenses to a security a guarantor is an issuer to the extent of his guaranty whether or not his obligation is noted on the security.
This section does not address, however, a situation where, as here, the invalidity is in the separate agreement rather than the security. We decline, therefore, to read this section as suggested by appellants.
As noted throughout this opinion, courts often grant relief against a municipality under the various equitable theories discussed above. Each equitable doctrine seems to adopt this procedural versus substantive dichotomy, however. Thus, though the discussion of the distinction is contained in this section of the opinion, the conclusion that the acts were only procedurally ultra vires applies to the other theories herein discussed.