Court Opinion

ID: 9531174
Source: CourtListenerOpinion
Date Created: 2023-08-07 04:08:25.160655+00
Date Added: 2024-06-11T13:28:21.755175
License: Public Domain

CARTER, J.
I dissent.
The interpretation placed upon the transaction by the majority opinion is unsupportable. It is conceded that the city could lawfully have provided for a forfeiture or liability of the full amount of the bid bond, and there is no doubt about it—(Palo and Dodini v. City of Oakland, 79 Cal.App.2d 739 [180 P.2d 764]). The issue is wholly one of interpretation. Desiring to have constructed a sewer system, the city called for bids. In its invitation for bids it was stated that each bid must be accompanied by “either a cashier’s check or bid bond” for 10 per cent of the bid “made payable” to the city “as guarantee” that the bidder “will enter into a contract if his bid is accepted.” In addition, a form of bid was furnished *87and used by the bidder wherein it was stated: “A ®cashiers check properly made payable to the City of Arcadia® a Bid Bond in favor of the City of Arcadia for Thirty-seven Thousand Five Hundred Dollars ($37,500.00), which amount is not less than ... 10% of the . . . amount of this proposal, is attached hereto and given as a guarantee that the undersigned will execute the Agreement ... if awarded the contract and in case of failure to do so within the time provided® said check shall be forfeited to the City.* Surety’s liability to the City will be established. ’ ’ A footnote in explanation of the asterisk stated “Strike out inapplicable phrase.” Plaintiff drew a line through the phrases between the first two asterisks and those between the last two. It is also recited therein that defendant-city “will in no way be responsible for any errors or omissions made in the preparation of this bid.” The court found and it is not questioned that plaintiff-bidder committed a “wilful breach of duty in refusing to enter into” the construction contract.
The only reasonable interpretation of the invitation for bids and bid form is that the liability under the bond would be for the full amount. The words used cannot be differently construed. It is provided that if the bidder fails to execute the contract, his liability to the city will be established. “Established” means: “Made stable or firm; fixed or secured in some way.” (Webster’s New Int. Dict. [2nd ed.] p. 874.) “Establish” means: “To fix immovably or firmly.” (Id. p. 874.) “To establish is to make stable or firm; to fix in permanence and regularity; to settle or secure on a firm basis, to settle firmly or to fix unalterably.’’ (Wells Lamont Corp. v. Bowles, 149 F.2d 364, 366.) The “liability” would not be settled beyond dispute if there still remained to determine the amount of the liability, as is held by the majority. The liability was for the amount of the bid bond, otherwise the complete or exact liability would not be fixed. “The process of fixing implies primarily, a stabilization or definite determination.” (Pulcifer v. County of Alameda, 29 Cal.2d 258, 263 [175 P.2d 1].) (See, also, San Francisco P. W. Factory v. Brickwedel, 60 Cal. 166, 177.) The term “to establish” is the same as the phrase “ to fix. ” “ To fix ” is “ to make firm, stable, or fast; to fasten; to set or place definitely; to establish; station; settle; to assign precisely, to give a permanent form to; to make definite and settled.” (Webster’s Int. Dict. 2d ed.] p. 958.) “ ‘Fixed’ [liability] means certain and definite as to both obligation and amount ...” [Emphasis *88added.] (National Commercial Title & Mortgage Guaranty Co. v. Newark, 18 N.J.Misc. 186 [11 A.2d 759, 763].) (See, also, First Savings Bank & Trust Co. v. Stuppi, 2 F.2d 822, 825; Oklahoma Cotton Growers’ Assn. v. Groff, 135 Okla. 285 [275 P. 1032, 1036]; Commercial Casualty Ins. Co. v. State Board, 119 N.J.L. 94 [194 A. 390]; San Francisco Pioneer Woolen Factory v. Brickwedel, 60 Cal. 166.) The majority opinion completely ignores the plain meaning of the words used in the documents forming the basis of this transaction.
There is, however, another completely compelling factor. It is conceded that if a cashier’s check had been furnished, it would have been forfeited. There is utterly no basis for assuming that the parties intended a different result to flow if a bond instead of a check was given. The invitation for bids said that either a check or bond must accompany the bid, indicating that one was considered exactly equivalent to the other. True, the word " forfeiture" was not used in connection with the bond, but equally forceful and more appropriate words were used. More appropriate, for it would not be technically accurate to use the word “forfeiture” in referring to the bid bond, as distinguished from a cashier’s check, for a forfeiture usually refers to the loss of a fixed tangible asset or property right such as a cashier’s check would be, rather than a mere promise which is the basis of the liability created by a bid bond. It would be odd to refer to the forfeiture of the promise or the bond, inasmuch as, on the contrary, liability is to be based thereon. Thus the more appropriate words, that liability should be “established,” were used. But certainly they have the same meaning and effect as words providing for a forfeiture of a cashier’s check would have. That the cashier’s check or bid bond were to stand for the same nature and measure of liability is further evidenced by the invitation for bids which stated that such a check or bond must accompany the bid as a guarantee that the contract would be executed, the same “guarantee” for either kind of security. It is fallacious to speak of the bidder choosing the bid bond over the cashier’s check to escape a “forfeiture” or that kind of liability. Plainly the bid bond is used because it requires much less liquid capital to obtain it. It is not reasonable to suppose a different rule of liability would be imposed depending upon the security supplied. Common sense would seem to dictate that the city did not intend to give to the bidder the alternative to determine for himself whether he would suffer a forfeiture or not merely by choosing the form of *89security—check or bond. The rule of construction against forfeiture does not require a court to blind itself to all reason and common sense. The requirement of security for the execution of a contract by a bidder on government contracts is common, and it is generally held that the security is forfeited on failure to execute the contract. (See, Palo and Dodini v. City of Oakland, 79 Cal.App.2d 739 [180 P.2d 764]; McQuillan Mun. Corps. [2nd ed.] § 1323.) To say that a different result would follow as to liability when a cashier’s check or money is deposited, rather than a bond, is wholly artificial. Such a construction will thwart the manifest purpose of the security requirement contained in the bid. It is obvious that the construction placed upon the documents here involved will not only give the bidder the right of choice of security (cashier’s check or bid bond), but will also permit him to determine in advance whether he may run the risk of having his security forfeited, or merely subject the surety on his bid bond to an action for the actual damages suffered by the public corporation for his failure to execute the contract in case his bid is accepted. Of persuasive importance in construing the instruments is the public policy underlying the requirement that security be furnished by bidders.
There is a clear analogy between this case and Mill Valley v. Massachusetts Bonding & Ins. Co., 68 Cal.App. 372 [229 P. 891]. There the proceeding was conducted pursuant to the Improvement Act of 1911 (Stats. 1911, p. 730). That act provides: “All proposals or bids shall be accompanied by a check payable to the city, certified by a responsible bank, for an amount which shall not be less than ten per cent of the aggregate of the proposal, or by a bond for the said amount and so payable.” The language relating to the forfeiture is as follows: “But if any bidder fails, neglects or refuses to enter into the contract to perform said work or improvement, as hereinbefore provided, then the certified check accompanying his bid and the amount therein mentioned shall be declared to be forfeited to said city, and shall be collected by it and paid into the general fund, and any bond forfeited may be prosecuted and the amount due thereon collected and paid into said fund.”
It will be noted that the last quoted provision does not specifically provide that in the event a bid bond is given in lieu of a certified check, the bond may be forfeited if the bidder fails or refuses to enter into the contract to perform the work, while it does expressly provide that if the bidder *90furnishes a certified check and refuses to enter into the contract, the certified check accompanying the bid shall be declared forfeited to the city. With reference to the forfeiture of the bond, all that is said is: “ [A]ny bond forfeited may be prosecuted and the amount due thereon collected and paid into said fund.” This is far from a declaration that if the bidder furnishes a bid bond instead of a certified cheek, and refuses to enter into the contract, the hand shall he forfeited. Nevertheless, the District Court of Appeal, in construing this provision in Mill Valley v. Massachusetts Bonding & Ins. Co., supra, squarely held that the last quoted language was susceptible of no other construction than that the bond should be forfeited in like manner as the certified check. In this connection, the court states at page 377: “This language does not, as contended, fall short of prescribing a forfeiture; nor does it, as claimed, amount to a mere declaration of duty authorizing the trustees to declare a forfeiture, in which event the city might be limited to a recovery of actual loss sustained. The statute itself creates the forfeiture if language means anything, for the terms employed are plain and unambiguous. When the bid is accompanied by a cheek the provision recites that it shall be ‘declared to be forfeited,’ and immediately following in referring to a bond it recites that ‘any bond forfeited may be prosecuted and the amount due thereon collected.’ [Emphasis that of the author.] While the act does not provide an express declaration in the case of a bond as it does in referring to the check, the language of the section clearly contemplates that a statutory forfeiture occurs upon failure to enter into the contract in either event. When a bond is declared forfeited and payment of the amount is refused, of necessity a suit must follow to enable the trustees to avail themselves of the benefits of the forfeiture, namely, the amount due thereon. But that a forfeiture is prescribed and imposed expressly under the act itself upon failure to enter into the contract there can be no question. The same reason and intent apply in both cases.”
As I read the last quoted excerpt, it unequivocally declares that the same rule must be applied to a bid bond as to a certified check and that the only difference between the two is that “When a bond is declared forfeited and payment of the am mint, is refused, of necessity a suit must follow to enable the trustees to avail themselves of the benefits of the forfeiture, namely, the amount due thereon.” [Emphasis added.] The court then declares, with respect to whether the same rule *91should apply to a bid bond as to certified check, that “The same reason and intent apply in both cases.”
Applying the reasoning in the Mill Valley case to the case at bar, no other conclusion can be reached than that if the certified check may be forfeited for failure to enter into the contract, the bid bond may likewise be forfeited and the city entitled to recover the full amount of the bond without proving that it has suffered any amount of damages whatsoever by the failure of the bidder to enter into the contract.
In addition to the foregoing, however, the statutes now require that the bond as well as the check shall be forfeited. The act under which the bonds were voted to construct the sewer here involved provides that the contract for the work shall be let “as other contracts are let” by the city. (Stats. 1901, p. 27, § 9; Deering’s Gen. Laws (1943), Act No. 5178.) In 1949, provisions were added to the Government Code dealing with municipal corporations. Said code now provides that contracts of a city of the sixth class shall be let to the lowest bidder and that: “All bids shall be presented under sealed cover and accompanied by one of the following forms of bidder’s security, (a) Cash, (b) Cashier’s check made payable to the city, (e) A certified check made payable to the city, (d) A bidder’s bond executed by an admitted surety insurer, made payable to the city.” (Gov. Code, § 37931.) Then it is provided: “The security shall be in an amount equal to at least 10 per cent of the amount bid. A bid shall not be considered unless one of the forms of bidder’s security is enclosed with it.” (Gov. Code, § 37932.) “If a successful bidder fails to execute the contract, the amount of the bidder’s security shall be forfeited to the city except as hereinafter provided.” (Gov. Code, § 37933.) [Emphasis added.] When these sections were added to the code, the Legislature stated in the same act that: “It is not the intention of the Legislature in adopting this act to change the existing law, but rather it is the intention of the Legislature to declare by such adoption that under Chapter 6, Part 2, Division 3, Title 4 of the Government Code cities of the sixth class always have had power under said chapter to require a bid bond, cashier’s check or other security, and the power thereunder to declare the forfeiture thereof upon failure, neglect or refusal to enter into a contract awarded thereunder.” [Emphasis added.] (Stats. 1949, ch. 690, § 4.) While the specific provision for forfeiture above quoted was not made before 1949, yet the Legislature assumed provision *92therefor could be made by a city as was done here. Manifestly, in restating the la.w, it clearly calls for forfeiture whether cheek or bond is used. For this court to arrive at a different conclusion is to fly in the face of the legislative declaration and the plain common sense construction of the language here used.
Furthermore, it has been held consistently that a forfeiture occurs when security is given with a bid. In Turner v. City of Fremont, 170 F. 259 [95 C.C.A. 455], it was held valid as liquidated damages. To the same effect are Davin v. City of Syracuse, 69 Misc. 285 [126 N.Y.S. 1002]; Wheaton Building & Lumber Co., v. City of Boston, 204 Mass. 218 [90 N.E. 598]; and Daddario v. Town of Milford, 296 Mass. 92 [5 N.E.2d 23, 107 A.L.R. 1447]. Village of Morgan Park v. Gahan, 136 Ill. 515 [26 N.E. 1085], holds there is a forfeiture. To the same effect are Elliott Bldg. Co. v. City of Greensboro, 190 N.C. 501 [130 S.E. 200]; Mayor etc. of Baltimore v. Robinson Const. Co., 123 Md. 660 [91 A. 682, Ann.Cas. 1916C 425, L.R.A. 1915A 225]; City of Weston v. Bank of Green County (Mo.App.), 192 S.W. 126, and there is a strong policy favoring that result, as stated in Palo and Dodini v. City of Oakland, 79 Cal.App.2d 739, 750 [180 P.2d 764]: “Provisions requiring a deposit accompanying a bid for city contracts, or for forfeiture thereof, are necessary as a matter of public policy to protect the public interests. If, as here, a bidder were allowed without loss to himself to withdraw his bid after the bids have been publicly opened, fraudulent practices would develop. The body awarding contracts could agree to release a favored contractor if it turned out that Ms proposal was low as compared to other bids. Moreover, any bidder who found that in comparison with the other bidders, his bid was quite low, could withdraw his bid, and the city would thereby lose the value of competitive bidding and be forced to pay the prices of higher bidders with no compensation to itself for the loss sustained.” (Emphasis ours.) To further that policy requires at least a reasonable construction of the instruments and forbids the unnatural and strained interpretation given by the majority. The majority holding will make it possible for the well financed contractor to monopolize the field and eliminate the small contractor. Naturally cities will, after this opinion becomes the law, always require a cashier’s check for it can be forfeited. As a result, unless a contractor has the actual cash on hand, he cannot put up the check. In large contracts that is a very important factor.
*93Furthermore, it is obvious that the inevitable result of the rule announced by the majority will be that the city will have to bring suit on every bid bond in order to recover any damage suffered by it as the result of the failure of the bidder to execute a contract awarded to him. While it is impossible to visualize all of the difficulty a city might have to prove the amount of damages suffered, it is obvious that it will place an undue burden upon the city to protect its interests in such a case. Of course, the careful city attorney, after reading an opinion of the Supreme Court holding that no forfeiture may be required in such a case, will advise the city council to require a cashier’s cheek with every bid, and, as stated above, this will mean that the contractor without a large cash reserve will not be able to bid on large jobs because he will be unable to deposit a cashier’s check with his bid.
It seems to me that if the majority is right in holding that a forfeiture cannot be had in this ease, it should go the whole way and hold that the same rule would apply to a certified check because of the provisions of sections 1670 and 1671 of the Civil Code, on which the majority also relies as a basis for its decision. In this connection, it should be noted that the case of Mill Valley v. Massachusetts Bonding & Ins. Co., supra, holds squarely that sections 1670 and 1671 of the Civil Code have no application to a ease of this character. At page 376 the court said (68 Cal.App. 376): “The still further claim is made that a statutory forfeiture is inapplicable to the case for the reason that appellant surety company by the express terms of its bond excluded any liability for a statutory forfeiture or penalty. It is accordingly claimed that sections 1670 and 1671 of the Civil Code and the equity rules against forfeitures control the case, and that therefore plaintiff should have pleaded and proved its damage.” And again on page 378:,“A court of equity has no power to disregard or set aside the express terms of statutory legislation, however much it may interfere with the operation of common-law rules. Hence any pleading or proof of actual damage has no place in a case where equity does not apply. This being so, the sections invoked by appellant can avail it nothing. This brings us to the final contention of appellant upon- the subject, namely, that a statutory forfeiture is inapplicable to the case for the reason that appellant surety company by the express terms of its bond excluded any liability for such forfeiture or penalty." Further, on page 379: “The insertion in the bonds of the phrases ‘liquidated damages’ does not in anywise change their *94character or limit the liability thereon so as to require pleading and proof incident to such damages. The amount thereof was the same as required by the statute. There was therefore no attempt by the parties to limit liability under the bonds in this particular. Under these circumstances, whether the amount be considered as a penalty or as liquidated damages is of no moment, for in either event the instruments are absolute undertakings to pay the amount named therein, and are not conditioned against loss or damage requiring pleading and proof. ’ ’ While it is true, as heretofore stated, the proceedings involved in the Mill Valley case were pursuant to the provisions of the “Improvement Act of 1911” (Stats. 1911, p. 730) and “Improvement Bond Act of 1915” (Stats. 1915, p. 1441), the court there pointed out that the same reasoning applied whether the security declared to be forfeited was a certified check or a bid bond, and, as heretofore further pointed out, the 1949 session of the Legislature declared that “cities of the sixth class always have had power” under the statutes of this state “to require a bid bond, cashier’s check or other security, and the power thereunder to declare the forfeiture thereof upon failure, neglect or refusal to enter into a contract awarded thereunder.” (Stats. 1949, ch. 690, §4.)
To my mind this is a case in which this court should do a clean cut job of simplifying the law so that both public corporations and contractors will know just what their respective rights are, and not try to arrive at a result in this case which will relieve a contractor and a bonding company of liability by making bad law which not only reflects unfavorably upon this court, but will continue to plague those who may be subjected to it as long as the majority of this court will permit it to stand.
I would, therefore, reverse the judgment.