Opinion ID: 895305
Heading Depth: 2
Heading Rank: 4

Heading: Certain City Ordinances as Contract for Purposes of Local Government Code Section 271.152’s Waiver of Governmental Immunity

Text: The Firefighters assert that, when read together, certain sections of Chapter 34 of the Houston Code of Ordinances constitute a unilateral employment contract between the City and the Firefighters. 7 The City disagrees, arguing that the Legislature did not intend for section 271.152’s waiver of immunity for certain breach of contract claims to apply to municipal ordinances. Our inquiry thus centers on whether these Ordinances, in aggregate, constitute a unilateral employment contract between the City and the Firefighters so as to waive the City’s immunity from suit under Local Government Code section 271.152. To resolve this dispute, we first examine the law of unilateral contracts before applying the requirements of section 271.151(2) to the Ordinances.
Unlike a bilateral contract, in which both parties make mutual promises, Hutchings v. Slemons , 174 S.W.2d 487, 489 (Tex. 1943), a unilateral contract is created when a promisor promises a benefit if a promisee performs, Vanegas v. Am. Energy Servs. , 302 S.W.3d 299, 303 (Tex. 2009). The requirement of mutuality is not met by an exchange of promises; rather, the valuable consideration contemplated in “exchange for the promise is something other than a promise,” i.e., performance. Restatement of Contracts § 12 cmt. a (1932). A unilateral contract becomes enforceable when the promisee performs. Vanegas , 302 S.W.3d at 303. We have explained that “‘[a] unilateral contract occurs when there is only one promisor and the other accepts . . . by actual performance,’” rather than by the usual mutual promises. Id. at 302 (quoting 1 Richard A. Lord, Williston on Contracts § 1.17 (4th ed. 2007)). Although the concept of a unilateral contract has been questioned by some authorities, see, e.g. , Restatement (Second) of Contracts § 1, rptrs. note on cmt. f (1981), the concept enjoys continued recognition among many scholars of contract law, see, e.g. , 1 Williston on Contracts § 1.17, and has recently been reaffirmed as part of the common law of Texas by this Court, see Vanegas , 302 S.W.3d at 302. In Vanegas , we held that when an employer offered to share five percent of the proceeds of a sale or merger of the company with certain employees if they remained employed until the sale or merger, a unilateral contract was formed when the employees remained employed for the requested time. Id. at 303. We noted that “‘unilateral contract analysis is applicable to the employer’s promise to pay a bonus or pension to an employee in case the latter continues to serve for a stated period.’” Id. (quoting 2 Joseph M. Perillo & Helen Hadjiyannakis Bender, Corbin on Contracts § 6.2 (1995)). Thus, a unilateral employment contract is created when an employer promises an employee certain benefits in exchange for the employee’s performance, and the employee performs.
Relying on Overton v. City of Houston , the City contends that general standing ordinances, however detailed, can never constitute a unilateral employment contract. 8 See 564 S.W.2d at 403–04. In Overton , employees relied on city ordinances in asserting a right to termination pay. Id. at 402. The First Court of Appeals declined to treat the ordinances as a contract for purposes of determinating the appropriate statute of limitations governing the case, stating: “The ordinances alone . . . cannot form a contract with the plaintiffs in this case.” Id. at 403–04 (emphasis added). To the extent the reasoning in Overton suggests an ordinance alone can never establish a unilateral contract, we disapprove it, and conclude that, in some circumstances, an ordinance or group of ordinances can constitute a unilateral contract. A municipality utilizes ordinances as a means to conduct its business. Cf. Cent. Power & Light Co. v. City of San Juan , 962 S.W.2d 602, 613 (Tex. App.—Corpus Christi 1998, pet. dism’d w.o.j.). It is therefore unsurprising that this Court has implicitly recognized that municipalities sometimes contract with third parties by way of ordinance. See City of San Antonio v. Frizzell , 91 S.W.2d 1056, 1056–57 (Tex. 1936) (noting that an ordinance evidenced the entire contract between a city and a third party). When an ordinance evidences a contract, and is sought to be enforced as one, we have construed it as any other contract. See id. (construing the ordinance as a contract, and ruling accordingly). We have further concluded that a statute (and ordinances passed pursuant to it) authorizing a pension plan for policemen and firefighters was “necessarily a part of the contract of employment.” Byrd v. City of Dallas , 6 S.W.2d 738, 740 (Tex. 1928). In Byrd , by virtue of their employment with the city and acceptance of the pension scheme, the policemen and firemen’s participation in the pension plan became “as much a part of the agreed compensation as is the monthly stipend.” Id. at 741. Although the pension scheme at the time of the decision was derived from a statute, it was also realized through ordinances. See id. at 739. Similarly, a franchise agreement between a municipality and a gas company was “embodied” in a city ordinance, apparently standing alone. See S. Union Co. v. City of Edinburg , 129 S.W.3d 74, 76 (Tex. 2003). In reviewing the City of Edinburg’s contract claims against a natural gas utility, we construed the city’s ordinance as a contract, discerning from it the parties’ intent and the scope of their respective obligations. See id. at 84–85. We have also read two ordinances and related documents together as a single agreement, and noted that “a court may determine, as a matter of law, that multiple documents comprise a written contract.” Fort Worth Indep. Sch. Dist. v. City of Fort Worth , 22 S.W.3d 831, 840–41 (Tex. 2000). It is “well-established law that instruments pertaining to the same transaction may be read together to ascertain the parties’ intent.” 9 Id. at 840. In addition, the multiple documents need not contain all of the terms; instead, only the essential terms are required. Osborne v. Moore , 247 S.W. 498, 499 (Tex. 1923). Therefore, different ordinance sections can potentially be read together in a single contract. See City of Fort Worth , 22 S.W.3d at 840–41. Further, no particular words are required to create a contract; therefore the fact that an ordinance does not contain the word “contract” in its text does not preclude it from having contractual effect. See 14 Tex. Jur. 3d Contracts § 46 (2006); Farmers’ State Bank & Trust Co. v. Gorman Home Refiner y, 3 S.W.2d 65, 66 (Tex. Comm’n App. 1928, judgm’t adopted); Coffman v. Woods , 696 S.W.2d 386, 387–88 (Tex. App.—Houston [14th Dist.] 1985, writ ref’d n.r.e.).
Guided by these principles, we turn to the particular Ordinances at issue to determine if they constitute a unilateral employment contract between the City and the Firefighters within section 271.152’s waiver of immunity. As discussed above, in order to determine if the Ordinances can collectively constitute a contract to which section 271.152 applies, we must determine whether five elements are met: (1) the contract must be in writing, (2) state the essential terms of the agreement, (3) provide for goods or services, (4) to the local governmental entity, and (5) be properly executed on behalf of the local governmental entity. Tex. Loc. Gov’t Code § 271.151(2). Because the Ordinances at issue here meet each of these five elements, we conclude the Ordinances collectively constitute a unilateral employment contract between the City and the Firefighters, thereby meeting the third requirement of section 271.152’s waiver of immunity. First, the Ordinances comprise a contract, and that contract is in writing. “A promise, acceptance of which will form a contract, ‘is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made.’” Montgomery Cnty. Hosp. Dist. v. Brown , 965 S.W.2d 501, 502 (Tex. 1998) (quoting Restatement (Second) of Contracts § 2(1)). The City manifested its intention to act in a specific way in the Ordinances by its extensive use of the word “shall” 1 0 and similar provisions that make the benefits offered to the Firefighters mandatory upon performance. The Ordinances are authored by the City, and are addressed to a discrete group of offerees: those persons qualifying as “eligible employees,” who are defined as “all classified members of the fire department.” Houston, Tex., Code of Ordinances ch. 34, art. III, § 34-59(a)(2). As such, the Ordinances constitute an offer that was communicated to the Firefighters, see Restatement of Contracts § 22, which the Firefighters accepted by performing, see Vanegas , 302 S.W.3d at 303. The City’s Ordinances further promised the Firefighters specific compensation in the form of overtime pay and termination pay. That promise required acceptance by performance, making the promise a unilateral contract that became binding when the Firefighters performed. See id. The performance the City requested is detailed in parts of Chapter 34, Article III, 1 1 of the Houston Code of Ordinances. See Houston, Tex., Code of Ordinances ch. 34, art. III, §§ 34-46, 34-48, 34-50. Those sections describe the duties of the Firefighters generally, id. § 34-46, and of the three particular divisions of the fire department: fire prevention, id. §§ 34-48, 34-50(d), fire suppression, id. § 34-50(b), and fire alarm, id. § 34-50(c). These duties include valuable services such as “extinguishing fires and conflagrations and preventing loss of human life and property,” id. § 34-50(b), “operating the fire alarm system,” id. § 34-50(c), and “conducting inspections, reviewing plans for construction and conducting public information campaigns to reduce the loss of life and property by fire,” id. § 34-50(d). The Firefighters each performed such services for various periods of time, rendering the City’s promises binding as to each of them individually. Those promises included overtime compensation, id. § 34-59(a)(3), (b), (d), holidays, and compensation for holidays not taken, id. § 34-59(e)(1), (e)(2), (e)(6), sick leave, id. § 34-59(i), vacation leave, id. § 34-59(j), and compensation for accrued sick and vacation leave upon termination of employment, id. § 34-3(b). The contract is also in writing. See generally Houston, Tex., Code of Ordinances , ch. 34. As explained earlier, “written” contracts may be “embodied in more than one document,” Restatement (Second) of Contracts § 95 cmt. b, including, as here, multiple ordinances, see City of Fort Worth , 22 S.W.3d at 840–41. Second, the Ordinances state the essential terms of the agreement between the Firefighters and the City. Section 271.151(2) does not define “essential terms,” but we have characterized “essential terms” as, among other things, “‘the time of performance, the price to be paid, . . . [and] the service to be rendered.’” Kirby Lake Dev. Ltd. v. Clear Lake City Water Auth. , 320 S.W.3d 829, 838 (Tex. 2010) (quoting Liberto v. D.F. Stauffer Biscuit Co. , 441 F.3d 318, 324 (5th Cir. 2006)). In the context of employment agreements, typical essential terms include, among others, “compensation, duties or responsibilities.” Martin v. Credit Prot. Ass’n, Inc. , 793 S.W.2d 667, 669 (Tex. 1990). Here, the Ordinances plainly reflect such terms. The time of performance is specified in the definitions of “workweek,” Houston, Tex., Code of Ordinances ch. 34, art. III § 34-59(a)(5), “time actually worked or actual work,” id. § 34-59(a)(6), and “overtime,” id. § 34-59(a)(3); and in the various holiday, vacation, and leave provisions, id. § 34-59(e), (i), (j). The price to be paid or compensation is located in the definitions of “overtime,” id. § 34-59(a)(3), and “regular rate of pay,” id. § 34-59(a)(4); and in the various termination pay, overtime, holiday, vacation, and leave provisions, id. §§ 34-3, 34-59(d), (e), (i), (j). The services to be rendered (duties or responsibilities) are likewise described in the Ordinances, as discussed above. See id. §§ 34-46, 34-48, 34-50 (describing the duties of the Firefighters). Third, the Ordinances provide for goods or services. We have previously held that “services” under section 271.151(2) encompass a wide array of activities, generally including any act performed for the benefit of another. Kirby Lake , 320 S.W.3d at 839. The Firefighters benefitted the City by providing fire protection services as defined in the Ordinances themselves. Houston, Tex., Code of Ordinances ch. 34, art. III, §§ 34-46, 34-48, 34-50. Fourth, the services were provided to a local governmental entity. The services were rendered to the City, and the Firefighters’ performance of those services was tracked by the fire chief. See id. § 34-59(c); see also Byrd , 6 S.W.2d at 740–41 (noting that a pension plan was given to retired firefighters as compensation for services rendered to the City of Dallas). Finally, the Ordinances were executed by the City. The City does not deny that the Ordinances were duly enacted, but does challenge whether they were “executed.” Section 271.151(2) does not define “executed.” We have noted that to “execute” means to “finish” or to “complete,” and that it is not necessary to sign an instrument in order to execute it, unless the parties agree that a signature is required. Mid-Continent Cas. Co. v. Global Enercom Mgmt., Inc. , 323 S.W.3d 151, 157 (Tex. 2010) (per curiam). No agreement between the City and the Firefighters establishing that a signature was required is before us. Therefore, the Ordinances, when duly enacted by the City with the intent to be bound, were “executed” under section 271.151(2). See id. In summary, the Ordinances meet each of the five elements required by section 271.151(2), and thus comprise a unilateral employment contract within the scope of section 271.152’s waiver of immunity.
In an effort to negate contractual intent behind the Ordinances, the City argues that it could not have intended to be contractually bound by the Ordinances, because doing so would create a debt in violation of Article XI, Section 5, of the Texas Constitution. Our Constitution ordains that “no debt shall ever be created by any city, unless at the same time provision be made to assess and collect annually a sufficient sum to pay the interest thereon and create a sinking fund of at least two per cent. thereon.” Tex. Const . art. XI, § 5. But we long ago noted that this prohibition does not extend to “that class of pecuniary obligations in good faith intended to be, and lawfully, payable out of either the current revenues for the year of the contract or any other fund within the immediate control” of the municipality. McNeill v. City of Waco , 33 S.W. 322, 323–24 (Tex. 1895). In practice, municipal contract expenses can be covered with current revenues. Cf. Mun. Admin. Servs. Inc. v. City of Beaumont , 969 S.W.2d 31, 39 (Tex. App.—Texarkana 1998, no pet.). Therefore, Article XI, Section 5 does not necessarily preclude an ordinance-based contract.
In a further effort to negate contractual intent, the City asserts that Houston Ordinance No. 96-1088 disclaims any contractual effect in the Ordinances at issue in this case. Houston Ordinance No. 96-1088 provides: That the provisions of article III of chapter 14 of the Code of Ordinances, Houston, Texas, as amended in section 2 of this ordinance, are subject to amendment or repeal at any time and payment of benefits thereunder is subject to the appropriation or allocation of funds for that purpose by the city council. No provision of this ordinance shall be construed to create a vested right of compensation for sick leave benefits or, where applicable, for termination payments. Houston, Tex., Ordinance 96-1088 § 7 (Oct. 23, 1996). The City points us to several cases in which documents that might otherwise have constituted contracts included statements that effectively disclaimed contractual intent, particularly County of Dallas v. Wiland , 216 S.W.3d 344 (Tex. 2007). In Wiland , the disclaimer stated: “Nothing in this [manual] is to be construed as a contract of employment or a provision guaranteeing the specific term or tenure of employment.” Id. at 349. We recognized that this statement precluded giving the manual in question any contractual effect. Id. at 352, 354. The City contends the instant ordinance likewise disclaims contractual intent. We disagree. Disclaiming a vested right to compensation is not equivalent to a disclaimer of contractual intent—to the contrary, an employee may have a valid employment contract, promising that benefits will accrue upon performance, but those benefits will not vest until the employee actually performs. See Vanegas , 302 S.W.3d at 303 (“But whether the promise was illusory at the time it was made is irrelevant; what matters is whether the promise became enforceable by the time of the breach.”). The disclaimer amounts to a warning to City employees that the City can change the benefits over time—in other words, the offer that the City is making, as regards to sick leave benefits, is subject to change. 1 2 At most, the disclaimer indicates that the promises contained in the Ordinances remained illusory until the Firefighters performed. See id. (“Almost all unilateral contracts begin as illusory promises.”). Further, the scope of the disclaimer in Ordinance 96-1088 is limited by its express language. It refers only to Article III of Chapter 14 of the Houston Code of Ordinances. That Article is concerned only with sick leave for City civil service employees generally, see Houston, Tex., Code of Ordinances ch. 14, art. III, while the Ordinances the Firefighters point to as evidencing contractual intent are located in the Fire Department provisions of Chapter 34, not Chapter 14. The disclaimer is likewise limited to “sick leave benefits or, where applicable, for termination payments.” The plain meaning of the clause “where applicable, for termination payments” is to include accrued sick leave benefits that would give rise to a termination payment. Thus, even if we accept the City’s construction of the disclaimer—that it is a contractual disclaimer—its scope would only cover the Firefighters’ right to that portion of their claims based on sick leave. But, in fact, the Firefighters’ claims are based on several other components of compensation, such as premium pay, vacation leave, holiday leave, and overtime pay, see City of Houston , 183 S.W.3d at 419, 424, all of which fall outside the scope of any disclaimer achieved by Ordinance 96-1088.
The City next claims that the Firefighters seek to avoid, rather than enforce, their ordinance-based contract, and their suit is therefore not a suit for breach of a contract within the limited scope of section 271.152’s waiver. See Tex. Loc. Gov’t Code § 271.152 (waiving immunity “for the purpose of adjudicating a claim for breach of the contract”). The pleadings provide some indication that the Firefighters’ ultimate recovery could depend on a showing that certain parts of the City of Houston Code of Ordinances violated state law, specifically the civil service provisions of Chapters 142 and 143 of the Local Government Code. See City of Houston , 183 S.W.3d at 424–25. That indeed was the basis for much of the court of appeals’ original opinion in favor of the Firefighters. See generally id. at 419–26. We decline to decide whether any of the Ordinances violate these specific statutory provisions, leaving this merits determination to the trial court, see Bland Indep. Sch. Dist. v. Blue , 34 S.W.3d 547, 554 (Tex. 2000), but conclude the City’s argument fails because the Firefighters’ claim is, overall, one for breach of contract. In determining whether jurisdiction is proper, we look to the pleadings, “construing them liberally in favor of the plaintiffs and looking to the pleader’s intent.” City of Waco v. Kirwan , 298 S.W.3d 618, 621 (Tex. 2009). Viewing the Firefighters’ pleadings as a whole, the Firefighters currently plead a cause of action for breach of contract. Further, it is “settled that the laws which subsist at the time and place of the making of a contract . . . form a part of it, as if they were expressly referred to or incorporated in its terms.” Von Hoffman v. City of Quincy , 71 U.S. 535, 550 (1867). Relevant statutes can form a part of an employment contract. Byrd , 6 S.W.2d at 740 (holding that a state law governing civil service pensions was “part of the contract of employment and is read into the contract as fully as though it had been actually incorporated therein”); see also Wilson v. Andrews , 10 S.W.3d 663, 667–68 (Tex. 1999) (holding that the Civil Service Act, as amended, becomes part of the employment contract between a city and its firefighters when the city adopts it). The trial court may determine that at least some portions of the relevant statutes form a part of the unilateral contract between the City and Firefighters. Therefore, the Firefighters’ suit is properly characterized as one for breach of contract.
The City asserts the Legislature did not intend for section 271.152 to waive immunity in this type of suit, as evidenced by its subsequent enactment of Local Government Code section 180.006. The City argues that the Legislature’s enactment of section 180.006—which prospectively waives governmental immunity from back-pay claims by police and firefighters 1 3 —would be a meaningless act if the same waiver already existed under section 271.152. The City contends the Firefighters’ claims would clearly fall within the scope of section 180.006, but for the fact that section 180.006 is not retrospective. See Act of May 25, 2007, 80th Leg., R.S., ch. 1200, § 3, 2007 Tex. Gen. Laws 4071, 4072. Accordingly, the City claims that if the Legislature had intended to waive immunity for a suit of this type, it would have made the waiver in section 180.006 retrospective. The City invokes the rule of statutory construction that “the legislature is never presumed to do a useless act.” Hunter v. Fort Worth Capital Corp. , 620 S.W.2d 547, 551 (Tex. 1981). We disagree that applying section 271.152 here would in any way render section 180.006 “useless” given the distinctions between the two statutes. Sections 180.006 and 271.152 differ significantly in scope and effect. Section 271.152 is a retroactive waiver of immunity, while section 180.006 is prospective only. Compare Act of May 23, 2005, 79th Leg., R.S., ch. 604, § 2, 2005 Tex. Gen. Laws 1548, 1549, with Act of May 25, 2007, 80th Leg., R.S., ch. 1200, § 4, 2007 Tex. Gen. Laws 4071, 4072. Section 271.152 applies to breaches of contract generally, while section 180.006 is limited to back-pay claims and related penalties only. Compare Tex. Loc. Gov’t Code § 271.152, with id. § 180.006(b)–(c). Moreover, section 180.006 does not require a contract in writing, while section 271.152 does. Compare id. § 180.006(b), with id. § 271.151(2). Finally, section 180.006 is limited to a specific class of persons—civil service firefighters or police officers—while section 271.152 has no such limitation. Compare id. § 180.006(a), with id. § 271.152. Although the Firefighters’ suit might fall within the scope of both waivers if it accrued and were filed today, that does not render section 180.006 “useless.” Because section 180.006 does not require a written contract, it also applies to those qualifying civil service firefighters and police officers who, unlike the Firefighters in this case, cannot point to a written contract, and for whom there was previously no waiver of immunity until its enactment. See id. § 180.006(a). Accordingly, the “no useless act” rule of construction does not preclude applying section 271.152 to the Firefighters’ claims. 1 4 Moreover, section 271.152 is otherwise clear and unambiguous, and so there is no reason to speculate further as to legislative intent. See Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson , 209 S.W.3d 644, 651–52 (Tex. 2006). We have determined that a written contract exists here, as embodied in the Ordinances, and the contract meets the elements the Legislature set forth in section 271.151(2). Therefore, by its plain language, section 271.152’s waiver applies to this suit.
Finally, the City and amici raise concerns about the impact of our holding, claiming it will transmute vast numbers of ordinances into contracts. But this fear overlooks the basic requirements of contract law—just as with any writing alleged to be a contract, an ordinance can only be enforced as a contract in a court of law if it satisfies the requirements of a contract. Moreover, most municipal ordinances will not function as contracts within the meaning of section 271.151(2), because most will not contain the detailed request for performance and promised compensation found in Chapter 34 of the Houston Code of Ordinances, nor will they be cognizable as an offer to identifiable offerees as these Ordinances are. In addition, as discussed above, ordinances have long functioned at times as contractual instruments in this state, without any apparent adverse effect. See, e.g. , City of San Antonio , 91 S.W.2d at 1056–57. In conclusion, because the Ordinances at issue are addressed to the Firefighters, promising in detail specific compensation in return for specified services, and meet each element in the definition of a contract under Local Government Code section 271.151(2), we hold the relevant provisions of Chapter 34 of the City of Houston Code of Ordinances constitute a unilateral contract that became effective and enforceable as to these retired Firefighters who have completed the requested performance, and the City’s immunity is thereby waived pursuant to section 271.152. 1 5