Court Opinion

ID: 9786757
Source: CourtListenerOpinion
Date Created: 2023-08-31 00:02:16.095008+00
Date Added: 2024-06-11T07:36:48.394475
License: Public Domain

WERDEGAR, J., Dissenting.
It has long been the rule in this state,1 in other states,2 and in federal court,3 that when an owner enters into a construction contract with a builder or contractor, and the owner thereafter *249“imposes upon the contractor an excessive number of changes such that it can fairly be said that the scope of the work under the original contract has been altered” (Peterson, supra, 172 Cal.App.3d at p. 640), the law provides the contractor a remedy. When such a situation arises in this state, the original contract is considered mutually abandoned and replaced with a new contract that allows the contractor to recoup its actual costs. (Id. at p. 645.) Whether labeled an “abandonment” of the contract or a “cardinal change,”4 the doctrine is limited to the construction context. Albeit rarely invoked,5 the doctrine operates as a safety valve for contractors to recover their actual costs for construction projects that, through no fault of their own, go out of control, far beyond the intention of the contracting parties.
Until today, no court, state or federal, has limited this doctrine only to contractors and builders that contract with a private owner. Nor, indeed, is this defendant City of Thousand Oaks’ (the City) main argument, as the City primarily urges us to abolish the doctrine in its entirety.6 Because the majority refuses to abolish the doctrine, yet fails adequately to explain why such a limit is justified by previous authority or supported by present policy concerns, I respectfully dissent.
I begin by setting forth the general rules applicable to public contracts. Public Contract Code section 20162, which is applicable to cities such as the City, provides that “[w]hen the expenditure required for a public project exceeds five thousand dollars ($5,000), it shall be contracted for and let to the lowest responsible bidder after notice.” It is undisputed that plaintiff Amelco Electric (Amelco) participated in the bidding and was the lowest responsible bidder for the project at issue in this case.
Civil Code section 1635 is also relevant. It provides: “All contracts, whether public or private, are to be interpreted by the same rules, except as *250otherwise provided by this Code.” This directive is consistent with prior case law, which holds that once the public bidding is over and the contract awarded, the “contract between a governmental body and a private party is to be construed by the same rules which apply to the construction of contracts between private persons [citation], and the public entity is bound in the same manner as an individual.” (Tonkin Construction Co. v. County of Humboldt (1987) 188 Cal.App.3d 828, 831-832 [233 Cal.Rptr. 587]; see also Souza & McCue Constr. Co. v. Superior Court (1962) 57 Cal.2d 508, 510 [20 Cal.Rptr. 634, 370 P.2d 338] [holding the state “is liable for a breach of its agreement in like manner as an individual” and rejecting application of the doctrine of governmental immunity].)
The general rule applicable to construction contracts with public entities thus requires that we treat a public entity such as the City the same as any other contracting party once the public bidding process has terminated and a valid contract has been awarded. The majority’s reliance on Miller v. McKinnon (1942) 20 Cal.2d 83 [124 P.2d 34, 140 A.L.R. 570] (maj. opn., ante, at p. 234) is thus inapposite, for in that case, the parties entered into the contract in question without competitive bidding, resulting in a contract that was void at its inception. By contrast, Amelco was the lowest responsible bidder, and that it had a valid contract with the City is undisputed.
As the majority recognizes, the general rule in California is that “[i]n the specific context of construction contracts, . . . when an owner imposes upon the contractor an excessive number of changes such that it can fairly be said that the scope of the work under the original contract has been altered, an abandonment of contract properly may be found. [Citations.] In these cases, the contractor, with the full approval and expectation of the owner, may complete the project. [Citation.] Although the contract may be abandoned, the work is not.” (Peterson, supra, 172 Cal.App.3d at p. 640, citing Daugherty, supra, 14 Cal.App.3d 151, and Opdyke, supra, 111 Cal.App.2d 912.) Under these circumstances, an “[abandonment of a contract may be implied from the acts of the parties” (Daugherty, supra, at p. 156), and a contractor is not precluded from recovering the costs expended if it continues to perform the work (id. at pp. 156-157).7
*251The legal basis for this rule is the recognition in law, that when a contractee’s changes to a construction contract are so numerous and substantial that the contractor is no longer building the project the parties originally intended be built, fairness requires that the contractor be afforded a remedy. The basis of this remedy is not dependent on the private or public character of the contractee. Indeed, the majority cites no authority in this state or any other jurisdiction in this country that recognizes the public/private distinction in this context. In fact, the rule usually applied in this country leans in a direction contrary to the majority’s rule here, for building contractors that enter into construction contracts with the federal government are afforded a remedy under the analogous cardinal change doctrine when the government “effects an alteration in the work so drastic that it effectively requires the contractor to perform duties materially different from those originally bargained for.” (Allied Materials & Eq. Co. v. United States (Ct.Cl. 1978) 569 F.2d 562, 563-564.) Of course, all federal cases applying the federal cardinal change doctrine involve a public entity as the contractee, namely, the federal government.
Setting aside the majority opinion’s complete absence of supporting legal precedent, I am also unpersuaded by the majority’s sole supporting rationale that permitting Amelco to recover against a public entity will render competitive bidding laws “meaningless.” (Maj. opn., ante, at p. 239.) Although circumvention of competitive bidding laws is a concern, no facts in this case suggest Amelco somehow evaded the applicable competitive bidding laws. Instead, viewing the facts in a light favorable to Amelco, the prevailing party below (Bickel v. City of Piedmont (1997) 16 Cal.4th 1040, 1053 [68 Cal.Rptr.2d 758, 946 P.2d 427]), it appears the City let the project out for bid before its plans were sufficiently complete to permit knowledgeable and informed bidding by building contractors, placed itself under an unreasonable time pressure by booking entertainment into the new facility without allowing a reasonable amount of time to complete the project, and then *252imposed numerous and substantial changes to the project while giving Amelco no extra time to complete the additional work. As the Court of Appeal noted, “there was substantial evidence that City abandoned the contract by changing every aspect of the electrical work. City issued 1,018 detail sketches changing, clarifying or correcting the original contract drawings. Two hundred and thirteen of these were electrical sketches and at least 248 directly impacted Amelco’s work. None of the witnesses, including two of City’s expert witnesses, had ever been involved in a project with as many sketches as this one.” “By the time construction was completed, City had changed every part of the electrical work at least once,” in one room alone making more than 40 changes. The concern that allowing recovery under the abandonment doctrine might improperly reward a contractor that circumvented bidding procedures designed to protect the public from fraud is not implicated by the facts of this case.
Moreover, the majority’s argument that applying the abandonment doctrine against a public entity like the City “would encourage contractors to bid unrealistically low, with the hope of prevailing on an abandonment claim,” (maj. opn., ante, at p. 240) is fallacious. To believe a contractor would deliberately submit an abnormally low bid in hopes of obtaining a job and, once obtaining it, would expend the time and expense of completing'it, with the intention of thereafter incurring the high cost—in dollars, delay and inconvenience—of modem litigation to recoup several years later its additional expenses, defies common sense. Such a hypothetical contractor, moreover, would also have to hope the public entity would make so many substantial changes to the original project that a plausible claim of abandonment could be made. Were insufficient changes imposed, the contractor would simply be left to bear the losses of its below-market bid. The dearth of cases asserting abandonment (see fn. 5, ante) bespeaks the difficulty of establishing it. The majority’s argument ignores practicality.
Contrary to the majority’s view that recognition of the abandonment doctrine in the context of public contracts would compromise the public welfare, the doctrine may be seen actually to benefit the public. First, its recognition would deter public entities from prematurely putting a project out to bid, motivating them instead, as the Court of Appeal reasoned, first to determine what they want built, with adequate plans and specifications so that intelligent competitive bidding can take place. By this, the public as well as the contracting agency and contractors would benefit. Second, its availability would allow a contractor faced with a project whose very character has been altered by excessive changes to finish the project (clearly in the public interest) and recoup its actual cost, rather than the alternative, which would be to stop building, thereby requiring the public agency to draw *253up plans, allow for new bidding and award a new contract, with all the delays and increased costs attendant thereto.
The majority also purports to find “significant public policy concerns” (maj. opn., ante, at p. 240) in the fact that Amelco cannot pinpoint the exact time and date the contract was abandoned. This argument has two answers. First, the majority’s concern betrays a misunderstanding of the abandonment doctrine itself, for unlike the traditional doctrine of abandonment in which both sides to a contract expressly announce their intention to abandon it, releasing both sides from their respective duties under the contract (also called mutual rescission; see Pennel v. Pond Union School Dist. (1973) 29 Cal.App.3d 832, 837-838 [105 Cal.Rptr. 817]), abandonment in the construction context is different, both because the contractor is not released from the obligation to complete the project, and because an abandonment in the construction context results from the aggregation of numerous changes to the contract over time, and not at an identifiable moment in time.
The difference was explained in Peterson, supra, 172 Cal.App.3d at page 640: “[Traditional] abandonment [of a contract] may start with an intent to abandon by one or both of the contracting parties and conclude with an agreement by each that the contract is terminated and of no further force and effect. Using this analytical approach, completion of the contract would be inconsistent with a holding that a contract was abandoned. [¶] In the specific context of construction contracts, however, it has been held that when an owner imposes upon the contractor an excessive number of changes such that it can fairly be said that the scope of the work under the original contract has been altered, an abandonment of contract properly may be found. [Citations.] In these cases, the contractor, with the full approval and expectation of the owner, may complete the project. [Citation.] Although the contract may be abandoned, the work is not.”
Second, the majority’s concern over the absence of a specific time and date of abandonment goes to the viability of the doctrine itself, and not just to its application to public entities. Thus, it is not only public entities that “would not receive timely notice of claims that would allow them to make project management, budget, or procedural adjustments during the course of construction.” (Maj. opn., ante, at p. 240.) Private parties also would lack such notice. The majority’s concern in this regard thus does not advance its proposition that the abandonment doctrine should be limited to private contractees.
The only plausible support for the majority’s conclusion is Public Contract Code section 7105, subdivision (d) (hereafter section 7105(d)). That *254statute provides: “(d) (1) Where authority to contract is vested in any public agency, excluding the state, the authority shall include the power, by mutual consent of the contracting parties, to terminate, amend, or modify any contract within the scope of such authority. [¶] (2) Paragraph (1) shall not apply to contracts entered into pursuant to any statute expressly requiring that contracts be let or awarded on the basis of competitive bids. Contracts of public agencies, excluding the state, required to be let or awarded on the basis of competitive bids pursuant to any statute may be terminated, amended, or modified only if the termination, amendment, or modification is so provided in the contract or is authorized under provision of law other than this subdivision. The compensation payable, if any, for amendments and modifications shall be determined as provided in the contract. The compensation payable, if any, in the event the contract is so terminated shall be determined as provided in the contract or applicable statutory provision providing for the termination.” (Italics added.)
The provision in section 7105(d) limiting “terminations” of public contracts that are subject to competitive bidding laws would apply here if, by “termination,” the statute means to include “abandonment.” But that the Legislature meant to include abandonment of a construction contract is not evident. Certainly the plain meaning of the word “terminations,” as used in section 7105(d), does not clearly embrace “abandonment,” which is more akin to a mutual rescission. All three California cases relying on the abandonment doctrine in the construction context (Peterson, supra, 172 Cal.App.3d 628; Daugherty, supra, 14 Cal.App.3d 151; Opdyke, supra, 111 Cal.App.2d 912) preceded the earliest version of section 7105(d) by several years (see Stats. 1990, ch. 694, § 6, pp. 3261-3263 [adding Pub. Contract Code, former § 7104, subd. (d)]), a sequence suggesting the Legislature did not intend “termination” and “abandonment” to be synonymous. Had the Legislature desired to affect the abandonment of a public construction contract, knowing as it must have that applicable appellate opinions dealing with construction contracts spoke in terms of an “abandonment,” in distinction from a “termination,” it could readily have used the word “abandonment.” (See People v. Superior Court (Lavi) (1993) 4 Cal.4th 1164, 1178-1179, fn. 9 [17 Cal.Rptr.2d 815, 847 P.2d 1031] [Legislature presumed to be aware of existing case law].) As the Court of Appeal correctly observed, there is a presumption that statutes do not, by implication, repeal established common law rules; thus, a statute generally will be construed to avoid conflict with the common law. (California Assn, of Health Facilities v. Department of Health Services (1997) 16 Cal.4th 284, 297 [65 Cal.Rptr.2d 872, 940 P.2d 323].) Because Public Contract Code section 7105 does not expressly repeal the established common law rule that the contractual liability of a public agency is the same as that of a private individual, we should *255not presume it was intended to do so. Accordingly, I conclude that section 7105(d) does not require reversal in this case.
There being no authority or persuasive reason to prohibit application of the abandonment doctrine to construction contracts with public entities, I dissent.
Kennard, J., concurred.
Respondent’s petition for a rehearing was denied March 13, 2002. Kennard, J., and Werdegar, J., were of the opinion that the petition should be granted.

C. Norman Peterson Co. v. Container Corp. of America (1985) 172 Cal.App.3d 628, 640 [218 Cal.Rptr. 592] (Peterson); Daugherty Co. v. Kimberly-Clark Corp. (1971) 14 Cal.App.3d 151 [92 Cal.Rptr. 120] (Daugherty); Opdyke & Butler v. Silver (1952) 111 Cal.App.2d 912 [245 P.2d 306] (Opdyke).

See, e.g., Greenlee County v. Webster (1923) 25 Ariz. 183, 199 [215 P. 161, 166]; H. T. C. Corporation v. Olds (Colo.Ct.App. 1971) 486 P.2d 463, 466-467; Baerveldt & Honig Const. Co. v. Dye Candy Co. (1948) 357 Mo. 1072 [212 S.W.2d 65]; Douglas Const. Inc. v. Marcais *249(1997) 239 A.D.2d 803 [657 N.Y.S.2d 835]; Hayden v. Astoria (1915) 74 Or. 525, 533 [145 P. 1072]; Rhodes v. Clute (1898) 17 Utah 137 [53 P. 990].

See, e.g., Edward R. Marden Corporation v. United States (Ct.Cl. 1971) 442 F.2d 364, 369-370; Air-A-Plane Corporation v. United States (Ct.Cl. 1969) 408 F.2d 1030; see also Wunderlich Contracting Company v. United States (Ct.Cl. 1965) 351 F.2d 956, 965-966 (finding no cardinal change).

See generally 11 part 1 California Jurisprudence Third (1996) Building and Construction Contracts, section 21, pages 30-31 (abandonment); 13 American Jurisprudence Second (2000) Building and Construction Contracts, section 102, page 87 (same); Stein, Cohstruction Law (1992) Modification of Construction Contracts, paragraph 4.02[3], page 4-7 (cardinal change); Keyes, Government Contracts Under the Federal Acquisition Regulation (2d ed. 1996) Contract Modifications, section 43.15, page 925 (cardinal change).

Only three reported cases in California deal with the doctrine.

The City in its briefing adopts a fallback position, arguing in the alternative that limiting the abandonment doctrine to private entities would also be satisfactory.

The majority misreads applicable precedent when it opines that “the Courts of Appeal have concluded that private parties may impliedly abandon a contract when they fail to follow change order procedures and when the final product differs substantially from the original.” (Maj. opn., ante, at p. 235, italics added.) Although the failure to follow prescribed change order procedure is mentioned in the three California cases addressing the abandonment doctrine (Peterson, supra, 172 Cal.App.3d at p. 637; Daugherty, supra, 14 Cal.App.3d at p. 156; Opdyke, supra, 111 Cal.App.2d at p. 918), none of these cases describe such failure as a prerequisite to a finding the parties intended to abandon their construction contract. I thus *251agree with the Court of Appeal below when it stated: “[In prior cases,] the parties also ignored contractual change order procedures and were unable to keep accurate cost records. These facts, however, are not essential elements of an abandonment claim. Instead, they are evidence that the number of changes made to a project was excessive and beyond the original intent of the parties. These facts support a finding of abandonment; they are not essential to it.”
In any event, whether or not Amelco reserved the right to seek additional compensation despite partial attempts to utilize the contractual change order procedure, and whether or not the City acceded to those attempts, was a hotly contested issue at trial. Viewing the facts in a light favorable to the prevailing party below, as we must, the evidence showed, as the Court of Appeal stated, that the parties deviated from the contract’s change order procedure by performing many changes on a “price and proceed” basis, with Amelco reserving the right to seek additional compensation later, rather than following the procedure described in the contract.