Appendix — Chemical Bank v. Public Utility District No. 1
Supreme Court brief1985
Ask Donna
What actually matters in this document.
Text
~ Office - Supreme Court, U.S.
FILED
84. 1258" FEB 4 1985
oO.
ALEXANDER STEN AS
ChE.
a ee
IN THE
Supreme Court of The United States
OCTOBER TERM 1984
CHEMICAL BANK AND
WASHINGTON PUBLIC POWER SUPPLY SYSTEM,
Petitioners,
Vv.
PUBLIC UTILITY DISTRICT NO. | OF BENTON
COUNTY, WASHINGTON, et al,
Respondents.
ON PETITION FOR A WRIT OF CERTIORARI
TO THE SUPREME COURT OF THE STATE OF WASHINGTON
APPENDIX TO THE PETITION FOR CERTIORARI
JOHN H. PICKERING RALPH L. MCA °®E
DAvID R. JOHNSON RICHARD S. SIMMONS
WILMER, CUTLER & PICKERING ROBERT F. MULLEN*
1666 K Street, N.W. CRAVATH, SWAINE & MOORE
Washington, D.C. 20006 One Chase Manhattan Plaza
(202) 872-6000 New York, N.Y. 10005
(212) 422-3000
Counsel for Petitioner
Chemical Bank
*Counsel of Record
February 4, 1985
{ Additional Counsel Listed on Inside Cover ]
ql.
MICHAEL MINES
Betts, PATTERSON & MINES
7th Floor, 1215 Fourth Avenue
Seattle, WA 98161
(206) 292-9988
Counsel for Petitioner
Chemical Bank
RICHARD C. YARMUTH*
ROBERT O. MARRITZ
MICHELE COAD
EARLE J. HEREFORD, Jr.
CuLp, Dwyer, GUTERSON
& GRADER
27th Fioor, One Union
Square
Seattle, WA 98101
(206) 624-7141
Counsel for Petitioner
Washington Public Power
Supply System
*Counsel of Record
Pie a em ~w-
i CC A ELL LEE LC ACL ee
TABLE OF CONTENTS TO APPENDICES
APPENDIX A
APPENDIX B
APPENDIX C
APPENDIX D
APPENDIX E
APPENDIX F
APPENDIX G
APPENDIX H
APPENDIX I
APPENDIX J
APPENDIX K
Chemical Bank v. Washington Public
Power Supply System, 102 Wash. 2d
SP WN ccc seiistehecensveattandenenceudonbabiense
Chemical Bank v. Washington Public
Power Supply System, 99 Wash. 2d 772,
I ae BE © BE sanvtiitnnensckcsicssenertinces
Order Denying Motion for Reconsidera-
tion of Order and Judgment, No. 82-2-
06840-3 (Wash. Super. Ct. Sept. 16,
PE iscciisdietsitihshcadecatieat apilabieiesdca cease Kaoeiaties
Order and Judgment No. 82-2-06840-3
( Wash. Super. Ct. Aug. 11, 1983) .........
Order on Motions for Summary Judg-
ment, No. 82-2-06840-3 ( Wash. Super.
es Se UNG EO eieidicictnaeeceininsthntennines
Mandate, No. 49868-7 (Wash. Dec. 17,
RIN inp scckuslis uaueabditiceaah hie iainisialamdeiatamananitinnts
DeFazio v. Washington Public Power
Supply System, 296 Or. 550, 679 P.2d
a I iia cst tnkdenmmbaibapladiindiia
Pacific Power & Light Co. v. Public Serv-
ice Commission of Wyoming, 677 P.2d
Pe BNE iicerscttccrniedices dpatarecroines
Asson v. City of Burley, 105 Idaho 432,
eg 5 LG |} Rene enn naeE
Constitutional Provisions
fh Ba eS Se a Benen eeronn
Rr i I I I air cacicciasicbinienionens
OFS. Cte, SHINE, FEE SF vcccssnciccccsicrnsess
Affiliates and Subsidiaries (Except
Wholly-Owned Subsidiaries ) of Chem-
MENU iiss ciscsdcencaccassticnccdtuitinharcenlaaeeensvan
PAGE
A-l
B-|
A-l
APPENDIX A
102 Wash. 2d 874
[ No. 49868-7. En Banc. November 6, 1984. ]
CHEMICAL BANK,
Appellant,
V.
WASHINGTON PUBLIC POWER SUPPLY SYSTEM,
Appellant,
PusBLic Utitity District No. |, ET AL.,
Respondents.
Utter and Dolliver, JI., and Alexander, J. Pro Tem., dissent by
separate opinion; Andersen, J., did not participate in the
disposition of this case.
NATURE OF ACTION: The trustee for the bondholders of
two terminated nuclear power plant construction projects
sought a declaratory judgment obligating participants in the
projects to make their share of the principal and interest
payments on the bonds to the Washington Public Power Supply
System. The Supreme Court at 99 Wn.2d 772 reversed a partial
summary judgment in favor of the trustee, holding that 28
Washington municipalities and public utility districts, represent-
ing 70 percent of the total contractual obligation, lacked
statutory authority to enter into the financing agreement.
SUPERIOR CourT: The Superior Court for King County,
No. 82-2-06840-3, H. Joseph Coleman, J., on August 11, 1983,
granted a summary judgment releasing all contract claims
against all 88 participants in the projects.
SUPREME Court: Holding that certain bondholders were
not entitled to intervene, that the 28 Washington municipalities
and public utility districts lacked authority to enter into the
financing agreement, that the Legislature had not ratified the
agreement, that the obligation of the 60 remaining participants
was unenforceable, that various equitable remedies were in-
A-2
applicable, and that no constitutional violations were proved,
the court denies intervention by the bondholders and affirms the
judgment.
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. Yarmuth,
Michele Coad, Robert 0. 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 respond-
ents 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. Pageier, 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 re-
spondent 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.
A-3
John R. Allison, Sharon S. Armstrong, and Alan P. Sher-
brooke 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.
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
1) 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 1 under the terms of Rules 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 1?
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?
A-4
3. Are any bondholders entitled to intervene in this action
at this stage in the proceeding?
Contractual Obligation
4. Do the Washington municipalities and PUDs 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 PUDs 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 municipal-
ities and PUDs, they were also unenforceable as to the remain-
ing defendants under any of these three theories: (a) indivis-
ibility of contract? (b) mutual mistake? (c) commercial frustra-
tion 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 obliga-
tion violate the bondholders’ constitutional rights?
Our resolution of this case is as follows:
Procedural Preliminaries
For the reasons discussed below, we believe reconsidera-
tion of our decision in Chemical Bank | is appropriate. We find
A-5
the summary judgment order did not exceed the scope of the
declaratory judgment action and conclude the bondholders’
motion to intervene should be denied.
Contractual Obligations
We herein affirm our decision in Chemical Bank 1 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.
ll
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 con-
stitutional 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 1 contains an extensive factual recitation. In addition, the
following information pertains to the present action.
WPPSS is a joint operating agency and municipal corpo-
ration composed of 19 Washington public utility districts
A-6
(PUDs) and four cities. It was formed in 1957 under the
provisions of RCW 43.52.360. That statute allows cities or
public utility 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 1970s, WPPSS started construction of three
nuclear power plants, WNP 1, WNP 2, and WNP 3. The
projects were developed in conjunction with the Borneville
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 & 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.2
As noted in Chemical Bank I, the PA provided that each
participant purchase a “share of the Project Capability” and “a
‘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.
2 All page references are to the bound volume submitted as
appendix to this appeal.
A-7
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 sus-
pended, 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 partici-
pant certain rights, both individually and through representa-
tives 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 any time,
however, if representatives with 20 percent of the participant
shares so requested. Casting individua: votes for each partici-
pant’s share they represented, committee members were re-
quired 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’ agree-
ment stated that the WPPSS was to provide the committee and
any participants who so requested with the following informa-
tion:
Determination of Minimum Capability.
Construction budgets and changes therein (Section
8({a)).
A-8
Award of any contract or approval of any change
order, in either case in excess of $2,000,000, or such other
contracts as determined by the Participants’ Committee.
Budgets of annual costs and revisions thereof (Section
8(b)).
Fuel Plan, changes therein, and determinations relat-
ing 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 mem-
bers 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
|
A-9
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 be-
cause 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 capabi-
lity, and the right to have the plants’ output adjusted to meet
their needs. PA § 9. If the projects were terminated, 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.
31f a matter went before a project consultant, his task was to
determine whether WPPSS’s actions conformed with prudent utility
practice. PA § 16.
A-10
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.
al
Procedural Preliminaries
A. Reconsideration of Chemical Bank I
The issue of statutory authority was addressed in Chemical
Bank 1. Nonetheless, appellants seek review of that decision
under the provisions of RAP 2.5(c)(2).
Appellants urge that reconsideration is appropriate be-
cause of the importance of the issues raised by the case, and
because reconsideration is authorized by the Rules of Appellate
Procedure (RAP).
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 reexam-
ination of the law at the time of the later review. The comment
siates prior law, referring to the predecessor rule as dis-
cretionary, 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 in-
volved. Moreover, we note consideration of issues raised for
the first time in this second appeal by necessity involve dis-
cussion of the issues decided in Chemical Bank |. We will
therefore first reevaluate our decision in Chemical Bank | and
then turn to those issues new to this appeal. Before doing so,
however, two other procedural matters must be addressed.
A-12
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 inter-
est is adequately represented by existing parties.
CR24(a), in pertinent part.
RCW 7.24.110 states the specific rule governing declara-
tory 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 intervenors
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
——-
A-13
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.4 Here, for instance, the bond-
holders’ 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
4To the extent that the language in Williams v. Poulsbo Rural
Tel. Ass’n, supra, suggests the opposite result, it is overruled.
A-14
intervenors/ plaintiffs exist, ihe 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 bond-
holders’, 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.5 Chemical Bank has
5 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 ali sums due x: 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
A-15
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 Partici-
pants were obligated to make payments to the Supply
System under the terms of the Participants’ Agreement.
Oral Decision, August 17, 1983.
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 holde: of the Bonds and of the coupons
appurtenant thereto (and the successive hoiders 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-16
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
arg aent 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 their original
summary judgment motion, Chemical Bank invited a determi-
nation of the parties’ entire legal obligations. Chemical Bank
cannot now complain that the determination against them was
improper.
li
Contractual Obligations
A. Statutory Authority
As noted above, appellants first substantive challenge is to
this court’s prior conclusion that the Washington municipalities
and PUDs 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
PUDs and 9 Washington cities of various classes. One category
of relevant statutes grants these 28 participants authority to
purchase electricity. PUDs are granted with authority under
the terms of RCW 54.16.040, which provides:
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 eiectric current, operated either by water power,
steam, or other methods, within or without its limits, for
A-17
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 fuil and exclusive authority to sell
and regulate and control the use, distribution, rates, ser-
vice, 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 con-
venient 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( 44); RCW 35.24.290(3); RCW 35.27.370( 4); RCW
35A.80.010.
The statutory provisions creating WPPSS grant an addi-
tional 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 pur-
poses. RCW 43.52.910.
A second category of statutes grants cities and PUDs
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
A-18
construction thereof and shall own and control a like per-
centage of the electrical output thereof.”” RCW 54.44.030 limits
a participant’s liability to its own acts and forbids the partici-
pant from assuming any of the other participants’ debt or
obligation.
Cities and PUDs 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. PUDs have similar authority to construct generating
facilities under RCW 54.16.040.
After reviewing the participants’ agreement in relation to
those statutes, we concluded in Chemical Bank I that
this agreement does not satisfy the statutory scheme gov-
erning 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 ful! hearing on the merits.
Appellants first argue that all participants had statutory
authority. As the critical issue to establish statutory authority is
te ile oe
A-19
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 |. Also, additional evidence of the limited
control exercised by respondents can be gleaned from com-
paring the more complete indicia of ownership and, therefore,
control present in the agreement between Pacific Power & 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 grant-
ed 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, oper-
ation or maintenance of the Project.”’ Pacific Power & WPPSS
Ownership Agreement § 3(a).
Moreover, where the participants’ agreement gave re-
spondents rights to affect proposed WPPSS actions, any propo-
sal submitted by WPPSS to Pacific Power had to include
itemized cost estimates and all supporting reports and analyses.
§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. §3(d). These included
changes in any of the following: site, type of steam supply
system, architect-engineer or construction manager. § 3(e).
Disputes between WPPSS and Pacific Power were to be
resolved in the same manner as those between WPPSS and the
participants. § 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 re-
A-20
quired on any contract in excess of $500,000. § 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 con-
trol 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 agree-
ment 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 amend-
ments 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 recog-
nition 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 constructing
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 legisla-
tive history cited by appellants or the statutes themselves
specifically authorizes these contracts. At most, the amend-
a om
A-21
ments represent a legislative attempt to provide orderly repay-
ment 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 1 and will not be repeated here. Similarly, arguments
pertaining to legislative interpretation and implied powers were
raised previously. Appellants offer no compelling recsons 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 decisior.
Those participants are public utility districts and consequently
do not come within the terms of Const. art. 11, § Ll. 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 1, those statutes contained safeguards to
protect ratepayers which were ignored. Those safeguards
cannot now be subverted by misplaced reliance on general
constitutional provisions.
oS
In summary, we find that appellants’ “new” arguments for
statutory authority are unpersuasive. Our prior decision is
therefore affirmed. .
A-22
B. Ratification
Appellants’ argument that the Legislature subsequently
ratified these agreements is equally without merit. As a genera!
rule, ratification requires that the act to be ratified be specific-
ally acknowledged by the ratifying legislation. See generally 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 |.
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 PUDs
had on the obligation of the remaining utilities. On respond-
ents’ motion for summary judgment, the judge ruled that the
doctrines of failure of condition, precedent, commercial frustra-
tion or impessibility and mutual mistake all applied. These
doctrines, the judge concluded, released the remaining partici-
pants’ 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.
PONE ED Mh arr
A-23
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. § 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 os 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,
A-24
should result in the contractual release of the remaining partici-
pants 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 inde-
pendent 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
promissor who is without fault in causing the frustra-
tion, 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);6A.
Corbin, Contracts §§ 1355, 1356 (1962).
To finance, build or terminate these plants, the municipal-
ity and PUD participants were vital. Their share of the projects
represents approximately 70 percent of the total obligation.
Our decision in Chemical Bank | 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
eas Pasa chines
ee ee
Fe ae I Lihaios ob po ban aneedt Viena
A-25
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 mate-
rial 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
PUDs 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 154,6 the bondholders did so. They were in a
6**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).
A-26
position to obtain judicial determination of the authority ques-
tion, and did not seek such resolution. We conciude 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 1 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
NS NT ean! See RR: olin
Sta
A-27
(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 lega! 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, estoppel
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 estoppe! 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 estoppel
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 promissor should reasonably
expect to induce action or forebearance on the part of the
A-28
promisee or a third person and which does induce such
action or forebearance 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
7 Appellants, who rely on this theory, view equitable estoppel as
containing three elements: (1) an admission, statement or act incon-
sistent 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-29
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, condi-
tions, 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 quali-
fications, proof that any or all of these recitals were
8 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.
A-36
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. Sturtevant, 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 con-
clusive. 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, 4S. 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 (1968) and cases cited
therein.) The multiplicity of these terms has obscured rather
aiid ete eeetiane
SERN en SL Wie at Ota tee tA,
Nin aC Paitin TION APY! ital pnaptante toast lessee na ahade nas east
es
So
A-31
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), Sim-
onson 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 / v. Cooper, 69 Wn.2d 909, 918, 421 P.2d
1062 (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 ]
v. Cooper, supra. We believe that plaintiffs have not met this
burden.
A-32
We find the doctrine is inapplicable because the repre-
sentations 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
wil not be applied where both parties have the same opportu-
nity 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 decigrations 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 de 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 statu-
tory 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 munici-
pality 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
Mi tals ei
A-33
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 1. 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 e: sentially
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
A-34
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 con-
stitutional provisicns 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 allege, 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.
a OH
ee es
A-35
Respondents’ next argument for evading the terms of
RCW 62A.8-202(2)(b) is that no securities have been chal-
lenged, 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 tailor-
ed the issues on review in Chemical Bank |. Thus, it would be
unjust to preclude the argument on procedural grounds. Re-
spondents’ 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 re-
quires
(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
(iti) is either one of a class or series or by its terms is
divisible into a class ©” >> es of instruments; and
(iv) evidences a share, participation or other interest
in property or in an enterprise or evidences an ubliga-
tion of the issuer.
(Italics ours. )
A-36
The participants’ agreements are not issued to a bearer,
they are not registered or commonly dealt in as a medium fer
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’ aqreement 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. i, 1983) contains a slightly
different formulation of this genera! principle. It states:
A person who receives a benefit by reason of an
infringement of another person’s interest, or of loss suf-
fered 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 5 to the Restatement of Restitution § 1 (1937),
[a] person coafers 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
9 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.
te 58
A-37
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 uitra vires by our
decision in Chemical Bank I.
Respondents, citing 10 E. McQuillin, Municipal Corpo-
rations § 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 recently 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 govern-
mental 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
10As 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.
A-38
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 | already decides the issue of
whether the contracts were procedurally or substantively ultra
vires.
We believe the instance 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 weve not. The doctrine of substanti-
vely ultra vires activity thus precludes recovery.
As noted above, a 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 respondents
and, thus, justice does not require restitution. Moreover,
restitution against those respondents released by our decision in
Chemical Bank 1 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
ap
oa aa :
—
Bidiibideliiite ned oS
A-39
provision of the constitutions but instead extract general prin-
ciples 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 effectively vitiate a
court’s ability to invalidate contracts. This we decline to do.
We find that the bondholders’ interests have been adequat-
ely represented in this case. Their motion to intervene is
denied. We reject appellants’ attacks on our decision in
Chemical Bank 1 and their equitable arguments. The trial
judge’s decision is affirmed.
WILLIAMS, C.J. and BRACHTENBACH, Dore, DIMMICK and
PEARSON, J.J., concur.
A-40
Utter, J. (dissenting)—-I dissent from the majority’s
conclusion that this court should not review its holding reached
in Chemical Bank v. WPPSS 99 Wn.2d 772, 663 P.2d 329
(1983). The provisions of RAP 2.5(c)(2) clearly authorize
reconsideration.
The appeliate 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.
The history of this rule indicates it was adopted by this court for
precisely the situation we now face, a situation where adherence
to the earlier ruling as the rule of the case would be both unwise
and a perpetuation of earlier error. As of the date of this
opinion, at least four scholarly publications have reviewed the
court’s initial opinion and all four are critical of its conclusion
and the reasoning used to justify it. Comment, Chemical Bank
v. WPPSS: A Case of Judicial Meltdown, 5 J. Energy L. & Poll
273 (1984); Comment, Chemical Bank v. Washington Public
Power Supply System: An Aberration in Washington’s Appli-
cation of the Ultra Vires Doctrine, 8 U. Puget Sound L. Rev. 59
(1984); Note, A Cry for Reform in Construing Washington
Municipal Corporation Statutes, 59 Wash. L. Rev. 653 (1984);
Note, Chemical Bank v. Washington Public Power Supply
System: The Questionable Use of the Ultra Vires Doctrine to
Invalidate Governmental Take-or-Pay Obligations, 69 Cornell L.
Rev. 1094 (1984). Events occurring since publication of our
first opinion make clear it will in no way spare the people of this
state continuing costs of litigation and exposure to liability. On
October 15, 1984, investors who bought bonds for WNP 4 and
WNP 5 filed a claim for $7.25 billion against the State of
Washington. The entire population of the state is now poten-
tially liable, including those areas that specifically rejected
participation.
The majority fails to convincingly deal with the question of
how this court can make a finding of fact on disputed evidence
contrary to all our previous case law. The appellants will
undoubtedly ask for federal review on this ground. In the event
Ra ih AB Neste
A-41
they do, the United States Supreme Court should exercise its
discretion and accept this case for review. Our court’s action is
similar to that taken by many state courts in the Reconstruction
era which were reversed on constitutional grounds by the
United States Supreme Court.
In Gelpcke v. Dubuque, 68 U.S. (1 Wali.) 175, 17 L. Ed.
520 (1863), the Supreme Court rejected the Iowa Supreme
Court’s refusal to enforce railroad bonds.
[I]f the contract, when made, was valid by the laws of the
State as then expounded by all departments of the govern-
ment, and administered in its courts of justice, its validity
and obligation cannot be impaired by any subsequent
action of legislation, or decision of its courts altering the
construction of the law.
Gelpcke, at 206. Many subsequent decisions during the
Reconstruction era went even farther. See generally C. Fair-
man, History of the Supreme Court of the United States, 918-
1116 (1971).
The Supreme Court continues to invoke the takings clause
and the contracts clause to protect citizens from the transfer of
private property to public purposes by governmental action.
Webb’s Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155, 66
L. Ed. 2d 358, 101 S. Ct. 446 (1980); Energy Reserves Group,
Inc. v. Kansas Power & Light Co., 459 U.S. 400, 74 L. Ed. 2d
569, 103 S. Ct. 697 (1983). In this century, most takings and
contracts clause cases respond to legislative, not judicial action.
Nonetheless the United States Supreme Court continues to
recognize that state courts may not “redefine” as private what
had been vested public rights. Webb’s Fabulous Pharmacies,
Inc. v. Beckwith, 449 U.S. at 164 (restraining Florida Supreme
Court from “transform[ing] private property into public prop-
erty without compensation”’).
I
I disagree with the majority on a number of grounds in its
ruling that the Washington public utility districts (PUD’s) and
Washington municipal participants lacked authority to enter
into their respective agreements. Although it is difficult for this
A-42
court to admit it was in error in the largest case to come before
this court in its history, we should do so now. By so doing we
would let the normal legal processes resolve this dispute on the
facts aid the law which should be applied.
A
The majority opinion throws into confusion a body of
municipal law carefully developed over many years prior to this
case which granted to municipalities broad authority in the
exercise of their police powers. This power to manage their
own affairs, subject to broad legislative guidance, h°s been
carefully built into our constitution, statutes and case law. Our
own recent cases, not mentioned by either majority opinion,
confirm this. Jssaguah v. Teleprompter Corp., 93 Wn.2d 567,
611 P.2d 741 (1980) and United States v. North Bonneville, 94
Wn.2d 827, 621 P.2d 127 (1980).
Prior to Chemical Bank I, this court liberally construed
powers given to first class and code cities. Winkenwerder v.
Yakima, 52 Wn.2d 617, 622, 328 P.2d 873, 878 (1958). RCW
35.20.90. In determining whether municipalities were given
certain powers to act, we have liberally applied the “reasonable
necessity test” where police power actions are involved. Scott
Paper Co. v. Anacortes, 90 Wn.2d 19, 29, 578 P.2d 1292, 1298
(1978); Hunter v. North Mason High Sch., 85 Wn.2d 810, 817,
539 P.2d 845, 849 (1975).
By finding no express authority to enter into the partici-
pants’ agreement in Chemical Bank I, this court did not
comment on several earlier accepted rulings. In the majority
opinion, first class and code cities were given the same restric-
tive interpretation of their statutory authority as were other
cities. This is contrary to our own consistent line of earlier
authority. Winkenwerder v. Yakima, supra.
The majority inadequately deals with our previous hold-
ings which have placed actions involving public works within
the liberally interpreted police powers of cities, counties and
aininennal aombaheins Niet
A-43
towns. Housing Auth. v. Seattle, 56 Wn.2d 10, 15, 351 P.2d
117, 120 (1960); Kaul v. Chehalis, 45 Wn.2d 616, 625, 277
P.2d 352, 357 (1954); and Morse v. Wise, 37 Wn.2d 806, 810-
11, 226 P.2d 214, 216 (1951).
The court in its majority opinion also erroneously inter-
prets the legislative intent expressed in our statutes that author-
ize certain municipal corporations to construct, acquire and
operate electric generating facilities. RCW 35.92.050 and
54.16.040. These statutes focus on control over the electricity
produced, rather than on control over the facilities, as empha-
sized by the majority.
The legislative declaration requiring broad construction of
joint operating agency statutes is ignored by the majority. See
RCW 43.52.910. Instead, its opinion strictly construes RCW
43.52 to achieve what I believe is a nonexistent distinction
between powers of a joint operatir, agency and powers of its
participants. RCW 43.52.910.
I also disagree with that portion of the majority opinion
dealing with implied statutory authority. Contrary to our
general liberal interpretation of police power statutes, the court
relied on taxation, not police power decisions, to hold that the
test for implied powers is legal necessity instead of the fairly
implied or reasonable necessity test. See, e.g., Scott Paper Co.
v. Anacortes, 90 Wn.2d 19, 29, 578 P.2d 1292, 1298 (1978).
Taxation cases are totally inapplicable inasmuch as they rely on
different constitutional provisions than the police power cases.
Const. art. 7, §§ 5, 9; art. 11, § 12. In Hillis Homes, Inc. v.
Snohomish Cy., 97 Wn.2d 804, 809, 650 P.2d 193, 195 (1982),
the court required express statutory authority under the word-
ing of article 11, section 12, a taxation provision. On the other
hand, Const. art. 11, § 11 provides:
Any county, city, town or township may make and
enforce within its limits all such local police, sanitary and
other regulations as are not in conflict with general laws.
This section is effective without legislative enactment and is a
more direct grant of authority than that found in the taxation
A-44
sections. Patton v. Bellingham, 179 Wash. 566, 570, 38 P.2d
364, 365 (1934). This court’s earlier attempt to distinguish
Municipality of Metro Seattle v. Seattle, 57 Wn.2d 446, 460, 357
P.2d 863, 872 (1960) fails, due to its basic error which confuses
tax cases with police power cases.
Serious questions remain regarding the impact of our
decision, if unchanged, on future Washington law. Note, A Cry
for Reform in Construing Washington Municipal Corporation
Statutes, supra at 667-69. Any action not backed by the
clearest express authority may well be found to be ultra vires.
Legal opinions regarding municipal authority will be difficult to
give and municipal projects, without legislative or judicial
approval of municipal authority, difficult to market. Municipal
corporations are deprived of the opportunity for innovative
solutions to their problems in the absence of a clear expression
of legislative or judicial approval. The decision provides a
fertile ground for judicial challenge to major municipal under-
takings and limits the ability of municipal corporations to work
between themselves to solve their common problems. Declara-
tory judgment proceedings will increase, of necessity, adding to
overcrowded court dockets, diversion of scarce judicial re-
sources and increased cost to taxpayers of time and money.
Most seriously, municipal corporations will be required to
increasingly ask for legislative clarification of their authority.
Given the Legislature’s limited schedule, significant time lags
between identification of problems and legislatively authorized
solutions will be commonplace.
There are some 28 Washington municipalities and PUD’s
as participants involved in Washington Public Power Supply
System (WPPSS). The question of whether they had statutory
authority to enter into their respective agreements was the
subject of Chemical Bank I. Of these participants, 19 are
PUD’s and 9 are Washington cities of various classes. PUD’s
are granted authority to purchase electricity under the terms of
seu meg a bh AW enact Ms San il
A-45
RCW 54.16.040.1 Each class of municipal participant had
similar grants of authority to purchase electricity. See, e.g.,
RCW 35.23.440( 44); RCW 35.24.290(3); RCW 35.27.370( 4);
and RCW 35A.80.010.
In addition to the previously cited authority, the statutes
creating WPPSS add an additional layer of statutory authority
to purchase electricity. Creation of a joint operating agency is
authorized which “shall have authority” (1) to generate,
produce, transmit, deliver, exchange, purchase or sell electric
energy and to enter into contracts for any and all such purposes,
RCW 43.52.300(1); (2) to construct, condemn, purchase,
1RCW 54.16.040 provides:
“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, main-
tain, 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, dis-
tribution, 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: Provided, That the commission shall not supply water to a
privately owned utility for the production of electric energy, but may
supply, directly or indirectly, to an instrumentality of the United
States government or any publicly or privately owned public utilities
which sell electric energy or water to the public, any amount of
electric energy or water under its control, and contracts therefor shall
extend over such period of years and contain such terms and
conditions for the sale thereof as the commission of the district shall
elect; such contract shall only be made pursuant to a resolution of the
commission authorizing such contract, which resolution shall be
introduced at a meeting of the commission at least ten days prior to
the date of the adoption of the resolution; Provided further, That it
shall first make adequate provision for the needs of the district, both
actual and prospective.”
A-46
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); (4) to act as agent for the
purchase and sale at wholesale of electricity for any city or
district whenever requested to do so, RCW 43.52.300(7). The
Legislature mandated that these statutes be liberally construed
to effectuate their purposes. RCW 43.52.910.
A third category of statutes grants cities and PUD’s the
authority to enter into joint operating agencies for the purpose
of developing nuclear power. RCW 54.44.020 requires 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.
That chapter also limits the participant’s liability to its own acts
and forbids the participant from assuming any of the other
participants’ debt or obligation. RCW 54.44.030.
A fourth category grants cities and PUD’s authority to
construct energy facilities on their own. They are authorized by
RCW 35.92.050 to construct, condemn, purchase and acquire
facilities for the purpose of furnishing the city or town or its
inhabitants with electricity.
The court’s opinion in Chemical Bank | reasoned that the
participants’ agreement with WPPSS failed to satisfy the statu-
tory scheme governing public participants for a number of
reasons. The majority held: (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 retain no
ownership interest, except in any excess assets upon termina-
tion, and a very limited role in management of the project. (3)
It is not an exercise of an implied power to pay for municipal
eros ot,
A-47
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.
I have previously stated why, as a matter of law, I believe
the majority was incorrect. The majority in Chemical Bank | is
also in error when it assumes, as a matter of fact, that
ownership, or its equivalent in terms of control, did not exist
under the facts of this case. At Chemical Bank I, pages 787-88,
the majority, in referring to the complexity of budgets and
construction decisions, states that it was “unlikely that a part-
time committee . . . could provide significant input” and asserts
that the participants’ committee “apparently served as a rubber
stamp”.
For the majority to resolve these issues as factual con-
clusions violates Washington Constitution article 4, section 6
which gives to the trial courts the sole authority to decide
factuai issues.
Factual disputes are to be resolved by the trial court... .
The power of this court is appellate only, which does not
include a retrial here but is limited to ascertaining whether
the findings are supported by substantial evidence or not.
If we were so disposed, but we are not, we are not
authorized to subs.‘tute our judgment for that of the trial
court.
Stringfellow v. Stringfellow, 56 Wn.2d 957, 959, 350 P.2d 1003
(1960).
The majority in Chemical Bank I, and today, incorrectly
relies on Kelly v. Aetna Cas. & Sur. Co., 100 Wn.2d 401, 670
P.2d 267 (1983) to justify this court’s authority to resolve issues
of ownership control by characterizing them as questions of law
rather than fact. The interpretation of the participants’ agree-
ment, the majority asserts, is solely a matter of law. Its
statement of the law contained in Kelly is incomplete, however,
for the interpretation or legal effect of a contract is a matter of
A-48
law for the court on/p in the absence of disputed facts. Yeats v.
Estate of Yeats, 90 Wn.2d 201, 580 P.2d 617 (1978); Epperly v.
Seattle, 65 Wn.2d 777, 399 P.2d 591 (1965). See generally 4S.
Williston, Contracts § 616 (3d ed. 1961); 3 A. Corbin, Con-
tracts § 554, 595 (1960 & Supp. 1984).
In Kelly, an insurance law case, the Washington Supreme
Court found summ ry judgment appropriate where a complete
factual record had veen developed and no dispute other than
the legal meaning of a term contained in an insurance policy
existed. The court found the interpretation of the term “ewer”
to be a question of law. The decision in Kelly is consistent ¥ ‘th
the established legal principle that the interpretation of legal
meanings of specific terms within insurance contracts is general-
ly a question of law. See Pacific Indem. Co. v. Bloedel
Timberlands Dev., Inc., 28 Wn. App. 466, 624 P.2d 734 (1981);
see generally E. Farnsworth, Contracts 515-517 (1982). In
Kelly, we engaged in no weighing of evidence or trying of facts.
Unlike Kelly, the present case presents numerous factual
disputes which go weil beyond the mere legal definition of
terms. Since numerous factual questions relating to the actual
operation of the participants’ agreement exist, consistency with
both Washington contract and constitutional law requires that a
full factual record be developed and that all factual disputes be
resolved at the trial level.
Even if the majority correctly resolved the issues of own-
ership and control, however, it did not by so doing answer all of
the necessary issues that remained before the court for decision.
As a matter of statutory interpretation, not all the statutes
pertaining to the PUD’s and municipalities require ownership.
Some, such as RCW 35.92.050, on their face authorize schemes
similar to the participants’ agreement. While the first portion of
RCW 35.92.050 speaks to ownership interests, the statute also
States that a city or town may
authorize the construction of such plant or plants by others
for the same purpose, and purchase gas, electricity or
power from either within or without the city or town for its
ee
A-49
own use and for the purpose of selling to its inhabitants
and to other persons doing business within the city or town
and regulate and control the use and price thereof.
This provision was an integral part of Judge Coleman’s decision
at the trial level, is not adequately dealt with by the majority,
and provides authority for the participants to act.
As another alternative, were this court to find the major-
ity’s conclusions in Chemical Bank | correct, appellants argue
that, on the record, 20 of the participants had control by virtue
of their membership in WPPSS. Those 20 participants repre-
sent 68 percent of the project’s shares and held 88 percent of
the voting power on WPPSS. As to these participants, the
statutes governing WPPSS grant them both ownership and
management control over the projects. See RCW 43.52.370
and 43.52.374 (management and control of joint operating
agency vested in a board composed of member utilities and
outside directors ); RCW 43.52.360 (after dissolution, members
hold assets as tenants in common). The majority in Chemical
Bank | also failed to address itself to this argument. Given this
degree of control over the projects by the large majority of the
participants, this court was in error in concluding as a matter of
law, without further factual inquiry, that these participants
lacked sufficient control over the projects to protect their
ratepayers.
Even if the majority’s conclusion that the participants did
not have an ownership interest in WNP 4 and WNP 5 was
correct, the participants’ committee provided the participants
with a vehicle to exert their management control. Although I
cannot disagree with the majority’s determination that “the
participants’ committee apparently served as a rubber stamp
for WPPSS’ decisions,” Chemical Bank I, at 788, courts have
consistently recognized in securities litigation that investors who
fail to exercise opportunities for control available to them
cannot later claim they lacked control. See, e.g., Mr. Steak, Inc.
v. River City Steak, Inc., 460 F.2d 666 (10th Cir. 1972), affg
324 F. Supp. 460 (D. Colo. 1970). Absent documentation that
their attempts to control debt exposure through the WPPSS
Participants committee were frustrated, this court and the
A-50
federal courts should not permit the participants to argue they
had no management control.
For all the above stated reasons, I would affirm the
summary judgment granted by the trial court in all respects.
Our failure to find authority exists for the participants to enter
into the agreements raises serious questicns as to the basis upon
which Washington nuclear power plants 1, 2 and 3 were built.
These plants were built with the same basic agreements as those
entered into by the participants WNP 4 and WNP 5, with the
added benefit of net billing. If the participants did not have
authority to enter into the agreements for plants 4 and 5, they
could not now assert the right to participants’ shares in a
working plant. Such a conclusion could well force the Bonne- .
ville Power Authority to seize the participants’ interests in
plants 1, 2 and 3.
C
By ruling only on the authority issue, the court in Chemical
Bank I did not address the other issues before the court in that
case. The lower court’s ruling should be discussed on these
matters inasmuch as it was correct in every respect and the
factual issues remaining to be resolved should proceed to trial.
The trial court did not abuse its discretion in deciding to
strike the jury demand. Its reliance on Brown v. Safeway
Stores, Inc., 94 Wn.2d 359, 617 P.2d 704 (1980), was proper.
There we noted, “[i]n determining whether a case is primarily
equitable in nature or is an action at law, the trial court is
accorded wide discretion, the exercise of which will not be
disturbed except for clear abuse.” Brown, at 368. The trial
judge explicitly applied in his analysis the factors required in
the Brown case. He first considered that the issues raised were
an affirmative defense, but looked beyond the pleadings to the
true nature of the allegations and concluded that this was, in
fact, an action for rescission.
The court acted within its authority and no showing has
been made that there was a reversible abuse of discretion. The
record supports its conclusion that the participants’ equitable
A-51
affirmative defense was to seek rescission of the contract and
that this is not a case of a defendant attempting to destroy the
right to a jury by asserting equitable defenses; that participants
seek both equitable relief and a jury; that the main issues are
equitable; that the equitable issues are complex; that only the
equitable issues remain to be tried if the other aspects of its
ruling are upheld; that the overall nature of the action is not
doubtful; and lastly, that the real issues in dispute are equitable.
The trial court also properly determined that the liabilities
incurred by the participants did not exceed statutory or con-
stitutional debt limitations. The determinative issue is whether
the participants’ liabilities are a debt for constitutional debt
limitation purposes. This court has defined “debt” in the
context of article 8 to mean “borrowed money; it denotes an
obligation created by the loan of money, usually evidenced by
bonds but possibly created by the issuance of paper bearing a
different label.” State ex rei. Wittler v. Yelle, 65 Wn.2d 660,
668-69, 399 P.2d 319 (1965). We have in the past consistently
held that the provisions of article 8, section 6 of the Washington
Constitution do not apply under revenue financing conducted
through the bases of the “special fund” doctr xe. The rationale
behind this exemption is that obligations payable not from
general tax revenues but from a special fund are not debts of
the municipality in a constitutional or statutory sense. State ex
rel. State Fin. Comm. v. Martin, 62 Wn.2d 645, 661, 384 P.2d
833 (1963). The parties designed this revenue bond program
to conform to the requirements of the special fund doctrine.
The source of the payments on the bond are either (1) revenues
generated from the projects, or (2) revenues pledged by
participating public utilities. As such, according to our previous
rulings, the participants’ obligations do not fall within the
constitutional or statutory debt limitations.
Finally, the trial court properly held that the contracts
obligate the participants to pay costs of decommissioning in
debt service. Decommissioning costs refer to payments to
contractors for work done on the projects as well as payments
to settle contracts interrupted when the projects were termi-
nated. ( Participants’ Agreement (PA) § 13(a)(ii), at 36-37).
A-52
Debt service refers to the principal and interest payments to the
bondholders.
To resolve whether the trial court correctly interpreted the
obligation of the participants to pay the costs of decommissio-
ning in debt service requires an examination of the participants’
agreement and bond resolution. Interpretation of the agree-
ment is governed by the fact that the projects were terminated
pursuant to section 13 of the participants’ agreement but that
termination occurred prior to the completion of the projects.
Project financing was structured so that payment sources de-
pended upon whether the project was under construction,
operating or terminated. There are three key definitions
involved: “‘contract year”; “billing statement” and “annual
budget”’.
“Contract year” as defined in the participants’ agreement
starts on the earliest of three dates: “‘(i) the earlier of the Dates
of Continuous Operation of any of the Plants or (11) on July 1,
1988, or (iii) the date one year after the date of termination of
the Project as provided in Section 13”. PA § 1(g), at 7. These
trigger dates represent the possible commencement of partici-
pant payments. After the contract year begins, the monthly
billing statement determines the amount to be paid the supply
system by the participant. PA § 1(b), at 4-5. That amount is
calculated by multiplying the participant’s share by the amount
of the annual budget less payments from other sources, and
adding the cost of fuel. Finally, annual budget is defined as:
“Annual Budget” means the budget adopted by
Supply System pursuant to Section 8(b) with respect to the
Projects and which itemizes the estimated costs of each
Project, commencing with (i) the Date of Continuance
Operation of the Plant related to such Project, or (ii) July
1, 1988, or (iii) the date one year after the date of
termination of a Project as provided in Section 13, which-
ever is earliest, exclusive of costs of construction as defined
in the Bond Resolution, and costs of fuel, applicable to the
respective Contract Year... The Annual Budget, as
amended from time to time, shall make provision for all
such Supply System’s costs, including accruals and amorti-
ee ee ree
A-53
zations, resulting from the ownership, operation and
maintenance of the Projects, repairs, renewals, replace-
ments, and additions thereto and costs of termination
thereof as provided in Section 13, together with the
amounts over or under billed in accordance with subsec-
tion (b) below. The Annual Budget shall include, but not
be limited to, (i) the amounts which Supply System is
required under the Bond Resolution to pay in each Con-
tract Year into the various funds provided for in the Bond
Resolution from the Revenue Fund, as therein defined, for
debt service and all other purposes...
PA § l(a), at 3-4.
Prior to the three possible trigger dates, which were (1) 1
year after the termination of the project; or (2) July 1, 1988, or
(3) the date of continuous operation of a plant, payment of the
project’s costs were noi made by participants. Instead, bond
proceeds were used. However, after the so-called trigger dates,
participant payments are required to begin through the annual
budget.
The érial court correctly determined that under the appli-
cable provisions of the participants’ agreement, decommissio-
ning costs are unequivocably included in the annual budget.
The projects were correctly terminated pursuant to section 13 of
the participants’ agreement which requires WPPSS to begin
decommissioning the projects and make monthly accounting
statemenis to the participants. The annual budget definition
expressly includes “‘costs of termination thereof as provided in
Section 13”. PA § 1(a), at 4. The final accounting section 13
requires is a final report to the participants as to any remaining
decommissioning costs.
The agreements established successive sources of payments
to the bondholders for the costs of debt service. First, when
bonds are being sold to finance the projects, Bond Resolution
(BR) § 6.8A2, at 42-43, requires WPPSS to pay from bond
proceeds into the bond fund amounts necessary to provide for
payment of interest on the bonds. These payments are defined
as a “cost of construction.” BR § 6.9F, at 46. It is apparent
A-54
these provisions were drafted to anticipate ongoing construction
and bond sales. Inasmuch as these two activities are not
indefinite, the parties provide for three “trigger” dates at which
time alternative means of funding would be used. Under
section 6.2 of the bond resolution, that date is the earliest of:
(1) one month from the date of continuous operation (at which
time operating revenues, at least in part, would begin to pay for
the debt); or (2) July 25, i988 (the presumed latest date for
construction to be completed ); or (3) one year after the date of
termination. BR § 6.2A(1)-(3), at 29-31. As structured, there
were “successive” sources of payment depending upon whether
the projects were under construction, operating or terminated.
Because the plants were terminated in January of 1982, the
third alternative source would apply.
Under this latter provision, WPPSS must pay from the
revenue fund to the bond fund “cost[s] of termination”, i.e.,
amounts necessary to satisfy the debt payments. BR § 6.2A(3),
at 31. The definition of annual budget in the participants’
agreement expressly includes “debt service”, PA § I(a), at 4,
which means the participants must pay these amounts.
Respondents make several arguments. Their argument
that the documents do not provided for “dry hole” risks is
erroneous. The bond resolution provides for payment from
“money pledged hereunder” which includes, by necessity,
participants’ revenues and does not depend on revenues gener-
ated by the project or general obligation bonds. Appellants
argue that the costs of construction are explicitly exempted from
the annual budget, PA § l(a), at 3, which means that debt
service is payable only from amounts properly payable into the
revenue fund. The trial court correctly found that BR
§ 6.2A(3) resolves this problem. Finally, respondents argue
they are not obligated to pay for any debt service because the
annual budget definition limits debt service to payments from
the “revenue fund”. PA § l(a), at 4. Respondents correctly
point out that section 6.1 only defines what goes into the
revenue fund, but that under section 6.2, WPPSS is required to
pay for all unfunded debt service. Participants’ pledge reve-
nues must be used to pay those obligations.
A-55
For the foregoing reasons, I would affirm the initial ruling
of the trial court which leaves for trial the equitable defenses
asserted by the respondents. I would also deny bondholders’
motion to intervene.
While I agree with a major part of the discussion by the
majority regarding the history of the development of equitable
remedies, it is important to first note that the history of our legal
system suggests several general principles which shape the
application of equitable relief. First, although lawyers general-
ly speak of law and equity as separate concepts, history belies
this characterization. Law and equity had common origins and
goals. See generally W. de Funiak, Modern Equity 6 (2d ed.
1956); F. Maitland, Equity 15 (1949). They were brought to
England via the Normans, diverged as the need arose to
preserve individual jurisdiction and merged again as that need
abated. F. Maitland, supra. Second, each legal system
attempted to do justice within the confines of its procedural
limitations and each, at some point, was more rigid in its rules
than the other. G. Keeton & L. Sheridan, Equity 3 (1969).
Third, both legal systems seem to have borrowed from each
other during the period in which they had separate identities.
Since that time, both systems have adopted concepts wholesale.
One rule, common to both, is the proposition that the law will
enforce promises.
Washington has consistently recognized equitable prin-
ciples and enforced promises in specific circumstances. Our
courts have stated: Equity will not suffer a wrong to be without
a remedy, Rummens v. Guaranty Trust Co., 199 Wash. 337,
346-47, 92 P.2d 228 (1939); equity treats that as done which by
agreement is to be done, Fleishbein v. Thorne, 193 Wash. 65,
72, 74 P.2d 880 (1937); and he who comes into equity must
come with clean hands, Langley v. Devlin, 95 Wash. 171, 187,
163 P. 395 (1917). To enforce these maxims, our legal system
developed specific rules recognized in Washington law and
elsewhere and described in part in the discussion in the
majority.
A-56
There are two equitable theories which I believe warrant
recovery by the appellants. Although the majority correctly
concludes that RCW 62A.8-201 is inapplicable, RCW 62A.8
and our history of common law estoppel point to another theory
of recovery raised by implication in the briefs of appellants.
That theory, recognized !ong ago in English courts of equity,
and now embodied in Restatement (Second) of Contracts § 90
(1981), states that a promise which the promissor should
reasonably expect to induce action on the part of the promissee
is binding if injustice can be avoided only by enforcement. Like
equitable estoppel, our courts have acknowledged that under
the right facts, the doctrine may be applied against a municipal-
ity. See State v. Northwest Magnesite Co., 28 Wn.2d 1, 26, 182
P.2d 643 (1947). See also Annot., Promissory Estoppel, 48
A.L.R.2d 1069, 1086 (1956).
Promissory estoppel has four elements: a promise, fore-
seeability of reliance on that promise, actual reliance, and a
finding that the reliance was justified. Comment, Promissory
Estoppel in Washington, 55 Wash. L. Rev. 795 (1980). We
find each element present here.
Appellants have repeatedly alleged, and respondents can-
not deny, that they made unequivocal promises to pay these
debts. Section 6 of the participants’ agreement states in clear,
definite language that the participants would make payments
under the agreement whether or not any of the projects were
comp'eted. Reliance on that promise was not only foreseeable,
it was intended. In the bond resolution (approved by the
participants), potential bondholders were told that the plants
were being developed for the participants, and that the partici-
pants pledged their revenues as security for the bonds. Each
bond resolution was approved by the participants through their
committee. See Bond Resolution, at 9. That there was actuai
reliance on the participants’ promises cannot be doubted. The
bondholders’ collective purchase of $2.25 billion worth of
bonds amply demonstrates that fact.
The final promissory estoppel prerequisite, that the re-
liance be justifiable, must, when viewed against the parties’
A-57
course of conduct for the 5 years prior to termination, be
answered in the affirmative. Until the plants were terminated,
all concerned assumed that the parties had the requisite statu-
tory authority. The bonds were freely traded and interest
payments timely made. Only when the plants were actually
terminated did the participants attempt to avoid their promise
to the bondholders. And, only with this court’s opinion in
Chemical Bank I, was the issue of statutory authority resolved.
Under these circumstances, I believe the participants’
promise must be enforced to the extent that justice requires.
My conclusion rests not only on the Restatement § 90 provision
but also upon the public policy embodied in RCW 62A.8-201.
While I reject the notion that the participants’ agreement
constitutes a security, I recognize that RCW 62A.8-202 reflects
a clear legislative intent that municipalities as well as individ-
uals be held responsible for their promises and actions.
I believe the same general limitations contained in RCW
62A.8 and cases concerning equitable estoppel should be
adopted in applying the doctrine of promissory estoppel. Thus,
the promise must be within the promisor’s general power. See
RCW 62A.8-201(2). Such is the case here. In this court’s
original majority opinion, we acknowledged the participants’
general authority to enter into contracts to build nuclear power
plants and to take the actions necessary to fund those plants but
held that the participants had acted improperly in entering the
dry hole contract. Chemical Bank I, at 784. Also, we recognize
that the statutes contemplate general authority to act in this
area. See RCW 35.92.050, RCW 43.52.300( 1).
The majority concludes that the doctrine of unjust enrich-
ment does not apply because the acts of the appellants were
substantively ultra vires. The majority concludes that Chemical
Bank | has already decided the issue of whether the contracts
were proceduraily or substantively ultra vires. I cannot agree.
When the term “substantive authority” was used in Chem-
ical Bank I, it was not used in the sense of deciding whether it
was procedurally or substantively ultra vires because that issue
was not before us. In the past, this court has differentiated
A-58
between substantive and procedural ultra vires through use of
the adjectives primary and secondary. The first classification
(substantive or primary) refers to acts a municipality has no
authority whatsoever to perform. In the second classification
fall those acts which are within the lawful powers of the
municipal corporation, but which are void because of an
irregularity in the procedure leading up to the act. Jones v.
Centralia, 157 Wash. 194, 218, 289 P. 3, 11 (1930). Whether
these acts were primary or secondary ultra vires should not be
decided summarily and requires further discussion.
The classic application of the primary ultra vires doctrine
involves the invalidation of actions that directly contravene
express constitutional or statutory provisions. The doctrine’s
harsh results make sense upon examination of the common law
basis for the doctrine. Premised on the fundamental difference
between the private and public sectors, application of the
doctrine exhorts a private contractor to ascertain the authority
and limitations of a municipal corporation. See, Comment, An
Aberration in Washington’s Application of the Ultra Vires
Doctrine, supra, at 60-76.
One of the earliest cases concerning ultra vires is Osborne,
Tremper & Co. v. King Cy., 76 Wash. 277, 136 P. 138 (1913).
In Osborne, the plaintiff sued King County for services per-
formed under a contract with the river and harbor commission.
A number of King County residents, operating upon the belief
that the United States intended to construct the Lake Washing-
ton Ship Canal, petitioned the county commissioners for
appointment of the river and harbor commission and it was
thereafter appointed. The river and harbor commission then
contracted with the plaintiff for preparation of an assessment
roll. Payment for these services was to come from the property
assessments. A few months later, the county commissioners
rescinded the authority of the river and harbor commission. In
the plaintiffs action to collect for services, the court denied
recovery, noting the general rule
that where there is a want of power to make a contract or a
want of power on the part of the body of officers making
the contract to bind the municipality, there can be no
Joan vendita A avons Uap tatty
A-59
estoppel against the municipality to defeat payment by
reason of accepting the benefit conferred by the contract.
Osborne, at 285-86. The court reasoned that the county
commissioners did not have authority to create the assessment
district, and therefore did not have authority to incur risks
incident to the district’s creation.
In Edwards v. Renton, 67 Wn.2d 598, 409 P.2d 153
(1965), the court confronted mixed substantive and procedural
statutory violations, but approved recovery against the City of
Renton. Renton had contracted with plaintiff for the in-
stallation of a traffic control signal, but failed to follow bidding
procedures. The City neglected to properly budget funds for
the installation. The court found that this contract represented
a borrowing of funds which the City of Renton had no power to
do. The court then went on to discuss the policy reasons for
statutory municipal budget requirements and concluded that
the contract ran afoul of these policies. Nonetheless, the court
allowed a limited recovery where the contract was for a “public
improvement furnished to and retained by the municipality
[and where it was] within the scope of its authority to
provide”. Edwards, at 604. Edwards therefore moved the
secondary ultra vires doctrine toward fulfilling the reasonable
expectations of private parties contracting with public entities,
consistent with the decline of the sovereign immunity doctrine.
See RCW 4.92.090, 4.96.010.
The Edwards rule was further explained in Finch vy.
Matthews, 74 Wn.2d 161, 443 P.2d 833 (1968). Finch involved
the power of King County to acquire and dispose of property in
order to build roads. Although the facts are complicated, it
appears that the county exchanged some worthless property for
a road right of way. The City of Seattle then sought to annex
the property, arguing that the County had no power to dispose
of it because the property exchanged was dedicated “‘’to the use
of the public forever”. Finch, at 163. The City urged a narrow
interpretation of equitable estoppel against a municipality,
arguing in essence that the doctrine could be valid “only when
the governmental act is strictly within the recognized and
A-60
established powers of government.” Finch, at 169. The court
rejected this view of equitable estoppel, holding instead that the
distinction was between acts done “wholly without legal author-
ization” or in “direct violation of existing statutes” and “‘those
acts which are within the scope of the broad governmental powers
conferred, granted or delegated”. (Italics mine.) Finch, at 172.
In Noel v. Cole, 98 Wn.2d 375, 655 P.2d 245 (1982), the
court most recently affirmed the Edwards analysis. In Noel, the
court concluded that the Department of Natural Resources had
authority to sell timber, but not without preparing an
environmental impact statement. However, regulations in
effect required no EIS be prepared. Finding the sale a
procedural violation and because both the DNR and the
purchaser had acted in good faith, the court held that recovery
for the purchaser was necessary to prevent unjust enrichment.
Noel, at 381.
I believe the instant case falls within the Edwards-Noel
rule. The majority 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. To that end, and to fulfill their statutory duty to develop
sufficient energy sources, the participants entered into the
agreements and subsequently pledged their revenues. Those
acts are within their general powers as contemplated by Noel,
Finch, Edwards and Osborne. Thus, as the action of the state or
municipalities in entering into the agreements was only
procedurally ultra vires, restitution may be obtained if a benefit
was in fact given.
As to the remaining arguments of respondents, the com-
mon law doctrines which released their contractual obligations
contemplate restitution if one party receives a benefit. For
example, Restatement (Second) of Contracts § 272 (1981)
states the remedy to be given if frustration occurs:
(1) In any case governed by the rules stated in this
Chapter, either party may have a claim for relief including
restitution under the rules stated in §§ 240 and 377.
A-61
(2) In auy case governed by the rules stated in this
Chapter, if those rules together with the rules stated in
Chapter 16 will not avoid injustice, the court may grant
relief on such terms as justice requires including protection
of the parties’ reliance interests.
Similarly, as noted in Simonson v. Fendell, 101 Wn.2d 88,
93,675 P.2d 1218 (1984), mutual mistake entitles the parties to
rescission and return to their original position. As a
general principle . . . rescission contemplates restoration of
the parties to as near their former position as possible or
practical. J.J. Case Credit Corp. v. Stark, 64 Wn.2d 470,
392 P.2d 215 (1964); Yount v. Indianola Beach Estates,
Inc., 63 Wn.2d 519, 387 P.2d 975 (1964).
Here, however, it would be impossible to return the parties to
their positions prior to the contract given the lack of statutory
authority of those participants released by Chemical Bank I.
Those participants represent approximately 70 percent of the
total monetary obligation. Justice requires some sort of restitu-
tion to the bondholders. Because the public utilities and
municipalities also have equitable obligations, the remaining
discussion concerning remedy, benefit and equitable dis-
tribution of loss will apply equally to those released by our
original decision, and those released on common law con-
tractual grounds.
As noted above, the Restatement’s definition of benefit is
quite broad. Thus, the task here is to determine whether any
asserted benefits fall within this definition. I conclude they do.
WPPSS asked for and received $2.25 billion in bond
revenues on the request of the participants. The participants
received exactly what they bargained for through their repre-
sentatives on WPPSS. As noted in comment a to Restatement
(Second) of Contracts § 370 (1981), receipt by a party of
performance bargained for is regarded as a benefit. I believe
the facts of this case amply demonstrate that proposition.
Further, this arrangement by which participants purchased
shares of the plants’ electrical output in return for their pledge
of revenues satisfied the utilities’ duty to develop sufficient
A-62
energy resources for their ratepayers. The pertinent statutes
contemplate that electrical needs of a city or public utility
district will be filled. To do this, the participants must spend
significant sums of money to develop alternative resources to
meet future demands. The City of Seattie, as amicus, observes
that it has spent $37 million for various small projects, and will
spend $21 million annually for settlement of the High Ross
Agreements. The total cost of projects now in progress is $164
million. Several of these projects have been terminated and, as
a result, the City of Seattle has abserbed the entire loss. Brief of
amicus curiae City of Seattle, at 19. Clearly, most of the
participants involved in WNP 4 and WNP 5 could not absorb
similar development costs. To the extent that the nuclear plant
projects relieved the participants of their immediate costs, while
allowing them to fulfill their statutory duty, they received
benefits from the bondholders.
Finaliy, it was for the participants’ benefit that the plants
were being built in the first place. By entering into these
agreements, pledging their revenues as security and inducing
the bondholders to lend money to WPPSS, the participants
anticipated that they would be able to guarantee their con-
sumers electricity at the low rates projected for nuclear power.
Without such an arrangement, each utility would have had to
either develop other sources of electricity or purchase electricity
at whatever would be the then current market price. The bond
revenues allowed them to avoid consideration of both of these
alternatives.
Moreover, I am not persuaded by respondents theory that
the benefits of the bond revenues flowed to WPPSS and no
further. As discussed in detail above, WPPSS existed as a joint
venture of the member utilities and the participants. Despite
the majority’s conclusion that the participants lacked the statu-
torily required ownership interest, I believe that the real
interested parties to this transaction were the participants. To
them, the benefits flowed and, from them, restitution is there-
fore proper. These factors lead me to the conclusion that justice
requires some relief to the bondholders.
A-63
Remedy
The appellants have established two theories of recov-
ery—promissory estoppel and unjust enrichment. Restatement
(Second ) of Contracts § 90 (1981) states that the remedy for a
breach of promissory estoppel may be limited as justice re-
quires. Similarly, the Restatement of Restitution § 1 (Tent.
Draft No. 1 1983) provides:
A person who receives a benefit by reason of an
infringement of another person’s interest, or of loss suf-
fered by the other, owes restitution to him in the manner
and amount necessary to prevent unjust enrichment.
Appellants contend that principles of restitution entitle the
bondholders to the entire $2.25 billion plus interest. I disagree.
This figure would grant the bondholders their expectancy
interest on the contracts. The majority has held that those
contracts are void, however. Moreover, appellants’ suggested
remedy ignores the realities of the bond market. Much of the
loss suffered by the bondholders is the result of panic-trading,
speculation, and other forces that cannot be attributed solely to
the participants’ breach of promise. For instance, even before
the participants disputed their legal obligation, prices quoted in
the Wall Street Journal indicated the bonds were trading at
levels substantially below par.
Also, appellants’ argument for full restitution confuses the
amount loaned WPPSS with the amount of benefit received by
the participants. Just as the bondholders’ investment was
diluted by market forces, the participants benefit was diluted by
rising interest rates and market forces which made completion
of the plants impossible.
Finally, amongst the people who now hold these bonds are
numerous individuals who purchased their bonds after this
court clearly stated that no statutory authority existed to enter
the contracts. Those individuals do not come to equity with
“clean hands” and I believe no equitable considerations weigh
in favor of granting these individuals a windfall.
A-64
Given the complexity of this case and the posture in which
it is now before this court, I am unable to discern the proper
amount of recovery to the bondholders. I believe that equitable
principles, however, require that we recognize the complex
forces that led to the bondholders’ present loss. Those prin-
ciples convince me that the proper measure of restitution in this
case may not exceed the value of the bonds on the day prior to
our decision in Chemical Bank |. After that date, investors were
clearly on notice that no authority existed. Prior to that date,
much of the bondholders’ investment was dissipated by forces
unrelated to the participants’ promises. Moreover, I also
believe that individuals purchasing their bonds after that date
should be entitled to the purchase price of those bonds and no
more. It would be inequitable to allow these individuals to
profit from the losses of bona fide bondholders and the
participants’ ratepayers. Finalfy, I believe that the participants
are entitled either to an offset of any value contained in the
plants or to the plants themselves.
This award sets only the maximum amount of recovery I
would allow under the legal theories herein discussed. The trial
judge could reduce this amount by other equitable consid-
erations and may make such provisions for payment of the
judgment as are just and equitable, considering the relative
positions of the bondholders and ratepayers.
For the foregoing reasons, I dissent.
DOLLIver, J. and ALEXANDER, J. Pro Tem., concur with
Utter, J.
i. iti inte Jin atts mn
oe ae)
en eee
eI lie 8 Nalin ah aes -
B-1
APPENDIX B
99 Wash. 2d 772, 666 P.2d. 329
CHEMICAL BANK, a New York
corporation, Respondent,
v.
WASHINGTON PUBLIC POWER SUPPLY SYSTEM,
a Washington municipal corporation
and joint operating agency, Respondent,
and
Columbia Rural Electric Association, Inc.,
an Oregon corporation, et al., Petitioners.
No. 49186-1.
Supreme Court of Washington,
En Banc.
June 15, 1983.
Reversed.
Dore, J., concurred in result and filed opinion. Utter, J.,
dissented and filed opionion in which Dolliver, J., concurred.
Helsell, Fetterman, Martin, Todd & Hokanson by Richard
S. White, David F. Jurca, and Linda J. Cochran, Seattle,
Wash., for petitioner Columbia Rural Elec. Assn.
Stimson Bullitt, Gordon W. Wilcox, and John D. Lowery
of Riddell, Williams, Bullitt & Walkinshaw, Seattle, Wash., for
21 petitioners.
Gordon, Thomas, Honeywell, Malanca, Peterson &
O’Herr by Albert R. Malanca, Kenneth G. Kieffer, Donald S.
Cohen, and John C. Guadnola, Tacoma, Wash., for petitioners
Washington Public Utilities Group.
Milne, Lemargie & Fitterer by Robert Milne, Ephrata,
Wash., Davis, Arneil, Dorsey, Kight & Parlette by David J.
Dorsey, Wenatchee, Wash., and Williams, Novack & Hansen
by Jeffrey E. Pratt, Everett, Wash., for petitioners PUD’s Nos. 1
and 2.
B-2
George, Hull & Porter, P.'S. by John D. Reagh and
Richard A. Pitt, Seattle, Wash., for petitioners Cities of Canby,
Cascade Locks, and Drain.
Jones, Grey & Bayley, P.S. by Hugo E. Oswald, Jr.,
Margaret E. Pageler, and Charles H. Thulin, Seattle Wash., for
petitioner City of Ellensburg.
Detels, Draper, Madden & McGee by Martin P. Detels
and Bonita L. Olson, Seattle, Wash., Rankin, McMurry, Vav-
Rosky & Doherty by Garry P. McMurry, Portland, Or., and
Haugeberg & Rueter by David Haugeberg, McMinnville, Or.,
for petitioners Cities of McMinnville and Springfield.
Smith & Rosellini by Jacob L. Smith, Lynden, Wash., for
petitioner City of Sumas.
Lane, Powell, Moss & Miller, John R. Tomlinson, Larry S.
Gangnes, and H. Peter Sorg, Jr., Seattle, Wash. (Schwabe,
Williamson, Wyatt, Moore & Roberts, Rockne Gill, J. Laurence
Cable, Donald A. Haagensen, and Bernard Ryan, Portland,
Or., Heisler & Heisler and Stanley D. Heisler, The Dalles, Or.,
and George P. Winslow, Jr., Tillamook, Or., of counsel), for
petitioners Oregon PUD’s.
Frome & Goulding and Ted C. Frome, Afton, Wyo., for
petitioner Lower Valley Power and Light, Inc.
Velikanje, Moore & Shore, Inc., P.S. by Scott L. Schmidt-
man, Yakima, Wash., for petitioners Borgens, ef al.
William H. Rodgers, Jr., Peter J. Eglick, and Michael W.
Gendler, Seattle, Wash., for petitioners Clark County PUD
Owners’ Ass’n, ef al.
Betts, Patterson & Mines, P.S. by Michael Mines, Seattle,
Wash. (Cravath, Swaine & Moore, New York City, of coun-
sel), for respondent Chemical Bank.
Culp, Dwyer, Guterson & Grader, Richard C. Yarmuth,
Michele Coad, Earle J. Hereford, Jr., Edwards & Barbieri, and
Malcolm L. Edwards, Seattle, Wash., for respondent Washing-
ton Public Power Supply System.
De Om ee
B-3
Roberts & Shefelman, George M. Mack, and Joni H.
Ostergaard, Seattle, Wash. (James M. Taylor, City Atty.,
Seattle, Wash., of counsel), for respondent City of Richland.
Forrest W. Walls, Douglas H. Rosenberg, and William M.
Doyle, Seattle, Wash., on behalf of Washington Public Ports
Association, amici curiae for respondents.
BRACHTENBACH, Justice.
The Washington Public Power Supply System (WPPSS )
issued revenue bonds to obtain funds to construct two nuclear
generating plants known as WNP-4 and WNP-S. Bonds in the
face amount of approximately $2.25 billion have been issued;
repayment with interest will cost approximately $7.2 billion.
Chemical Bank is the trustee for the bondholders.
Construction of the two plants was undertaken. On
January 22, 1982 WPPSS terminated construction of both
plants. At that time WNP-4 was approximately 24 percent
completed and WNP-5 approximately 16 percent completed.
Costs to date had almost reached the original estimated total
cost for complete construction of both plants. WPPSS alleges
that termination was necessary due to its inability to obtain
adequate financing to complete the projects.
Chemical Bank brought a declaratory judgment action
against WPPSS and the participants (defined hereafter) seek-
ing a determination that the participants owe to WPPSS
sufficient funds to pay the bonds, with interest. In general
WPPSS has responded to the suit by substantially agreeing with
Chemical Bank as to the rights and obligations of the various
parties. Most of the participants, however, have interposed
numerous defenses to any payment obligation.
The pleadings framed numerous issues, some of which
have been determined by the trial court on 1aotions for partial
summary judgment. We granted discretionary review on
limited issues on which the tria! court granted summary judg-
ment in favor of the bond trustee and stayed further trial on
other issues until this appeal was decided. On some of those
issues we reverse.
B-4
To understand the complex issues, a recital of facts is
necessary. WPPSS is a “joint operating agency” established in
1957 under RCW 43.52. It is a municipal corporation. RCW
43.52.2250. Its members are 19 public utility districts and four
cities, Ellensburg, Richland, Seattle and Tacoma. It has
authority to acquire, build, operate and own power plants and
systems for the generation and transmission of electricity.
RCW 43.52.300. WPPSS also has authority to issue revenue
bonds payable from the revenues of the utility properties
operated by it. RCW 43.52.3411. It may not levy taxes or issue
general obligation bonds. RCW 43.52.891.
In the early 1970’s WPPSS started construction of three
nuclear generating projects, WNP-1l, WNP-2 and WNP-3.
Those projects were developed in conjunction with a number of
participating public utilities from several northwestern states,
including Washington. In 1974 WPPSS decided to construct
two additional plants, WNP-4 and WNP-S, financing of which
is the subject of this litigation. WNP-4 is owned entirely by
WPPSS; WNP-S5 is owned 90 percent by WPPSS and 10
percent by Public Power & Light Company, a privately owned
utility.
Besides WPPSS and Pacific Power & Light Company,
there are 88 “‘Participants” in these two projects: 9 Washington
cities, 19 Washington public utility districts, | Washington
irrigation district, 7 Oregon cities, 4 Oregon peoples utility
districts, 5 Idaho cities, and 43 rural electric cooperatives, of
which 13 are in Washington. The remainder of the REC’s are
in Idaho, Montana, Nevada, Oregon and Wyoming. Each of
the participants in WNP-4 and WNP-5 signed an identical
63-page ‘Participants’ Agreement”’, dated July 14, 1976.
A 117-page “Bond Resolution” was adopted by WPPSS
on February 23, 1977 providing a plan for the construction of
both plants and providing for the issuance of revenue bonds.
Each Participants’ Agreement provided that “[s]upply
System hereby sells, and the Participant hereby purchases, its
Participant’s Share of Project Capability.”
oye |
B-5
’
“Project Capability’
agreement as:
is defined in section I(v) of the
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 sus-
pended, interrupted, interfered with, reduced or curtailed,
in each case in whole or in part for any reason what-
soever ), less Project station use and losses.
The Participants’ Agreement requires each participant to
pay monthly its proportionate share of a “Billing Statement”
issued annually by WPPSS and based upon an “Annual
Budget.” The “Annual Budget” is to be adopted by WPPSS
commencing with the “Date of Continuous Operation” (de-
fined in effect as when the plant is ready to be operated and the
output scheduled on a commercial basis) OR the date | year
after the termination of a project. The Bond Resolution in turn
similarly requires WPPSS to collect and set aside funds
sufficient to make payments on the bonds. Termination thus
established a trigger date for various payments, and gave rise to
this lawsuit.
The Participants’ Agreement purports to require payment
to WPPSS whether or not the projects are ever completed,
operable or operating. Specifically, section 6(d) provides:
The Participant shall make the payments to be made
to Supply System under this Agreement whether or not “ny
of the Projects are completed, operable or operating and
notwithstanding the suspension, interruption, interference,
reduction or curtailment of the output of either Project for
any reason whatsoever in whole or in part. Such payments
shall not be subject to any reduction, whether by offset or
otherwise, and shall not be conditioned upon the perform-
ance or nonperformance by Supply System or any other
Participant or entity under this or any other agreement or
instrument, the remedy for any nonperformance being
limited to mandamus, specific performance or other legal
or equitable remedy.
B-6
The Bond Resolution requires WPPSS to collect charges for
electricity and capability, which are adequate to provide for
payment of the revenue bonds “whether or not the generation
or transmission of power . . . is suspended, interrupted or
reduced by any reason whatever...”
Thus, if the agreements are valid, and subject to inter-
preting the contract, the participants collectively could pay
approximately $7 billion for nuclear plants which will never
generate any electricity. Ultimately the ratepaying consumers
of the participants would pay for the nonexistent electricity.
The method of financing WNP-1, 2 and 2? differs from the
involved in WNP-4 and 5. The Bonneville Power Adminis-
tration, a federal agency, facilitated financing of the first three
plants through complex “‘net-billing” agreements that allocated
the risk of noncompletion to the federal agency. Springfield v.
Washington Pub. Power Supply Sys., 564 F. Supp. 90 at 95 (D.
Or. 1983). Since Judge Redden concluded that net billing only
requires the participants to pay for power as it is provided,
Springfield, at 12, those projects apparently may be character-
ized as contracts for the purpose of power. We need not
analyze this device, but note that it resulted in an indirect
guaranty by Bonneville Power Administration, combined the
costs of nuclear power plant construction with less costly
hydropower and resulted in lower interest rates on the bonds.
The rates charged by WPPSS or public utility districts are
not subject to the ratemaking supervision of the State Utilities
and Transportation Commission. RCW 43.52.4500; RCW
54.16.040.
As noted above, various participants interposed numerous
defenses to the Chemical Bank action and cross claims against
WPPSS. Among those defenses were (1) allegations that at
least some participants did not have authority to enter into the
agreement; and (2) that proper interpretation of the agreement
did not require payment as sought by WPPSS and the bond
trustee. Demand for a jury was made.
After hearing extensive oral argument and considering
voluminous briefs and affidavits (the record is nearly 7,000
B-7
pages) the trial court entered an order on summary judgment
motions on November 16, 1982 which provided inter alia:
i. As a matter of law, the language of the Partici-
pants’ Agreement provides that the participants are obli-
gated to pay WPPSS their respective shares of the debt
service which WPPSS is obligated to pay on the bonds
issued pursuant to WPPSS Board of Directors Resolution
No. 890 (the ‘Bond Resolution’) and the resolution
supplemental thereto. Such debt service on the bonds
includes all principal and interest when due, whether or
not any of the projects (WPPSS Nuclear Plants Nos. 4 and
5) has been or ever will be completed or placed into
operation.
2. As a matter of law, the language of the Partici-
pants’ Agreement provides that the participants are obli-
gated to pay WPPSS their respective shares of
decommissioning costs incurred by WPPSS, whether or not
any of the projects has been or ever will be completed or
placed into operation. Under the terms of the Participants’
Agreement, such decommissioning costs (a) are not limit-
ed to costs incurred after termination of the projects and
(b) are to be included in the Annual Budgets to be paid by
the Participants pursuant to the annual or amended Billing
Statements.
3. As a matter of law, WPPSS had statutory authority
to enter into the Participants’ Agreement and Bond Reso-
lution and to issue the bonds pursuant thereto.
4. As a matter of law, the Washington participants
(other than Vera) had statutory authority to enter into the
Participants’ Agreement. All Oregon authority issues have
been stayed pursuant to an earlier order of this court. and
this order has no bearing on the authority of Oregon
participants to enter into the Participants’ Agreement. The
court reserves decision as to whether Vera and the other
participants had authority to enter into the Participants’
Agreement and will give further consideration to that issue
at a later date.
B-8
5. As a matter of law, any obligations of the
Washington participants under the Participants’ Agree-
ment do not violate Washington constitutional or statutory
limitations on the incurring of debt. Such obligations do
not constitute debt within the meaning of such limitations,
and even if such limitations were otherwise applicable they
would be rendered inapplicable by reason of the special
fund doctrine under Washington law.
6. As a matter of law, any obligations of the
Washington participants under the Participants’ Agree-
ment do not violate Washington constituticnal or statutory
limitations on the lending of credit.
7. As a matter of law, the Participants’ Agreement
does not constitute or provide for any unlawful delegations
of power or authority by Washington participants.
8. The Interstate Compact Clause of the United States
Constitution is not applicable to the Participants’ Agree-
ment.
10. The aforesaid crossmotion for summary judgment
Or partial summary judgment filed by Ellensburg.
Springfield and McMinnville, the ‘Columbia defendants’
and the ‘22 defendants’ are denied.
Clerk’s Papers, at 120-22.
Later the court struck the jury demand. We granted
review of the authority and interpretation issues as well as the
striking of the jury.’
We are asked to decide whether the Participants’ Agree-
ment and the Bond Resolution, hereinafter referred to as the
agreement, were contracts within the statutory authority of the
1This opinion is limited to the statutory authority questions and
we do not address the other issues presented by the parties: the right
to a jury; WPPSS’ authority; municipal debt limitations; or contract
interpretation.
B-9
Washington participants.2. While the participants are not direct
parties to the Bond Resolution, the Participants’ Agreement,
§ 25, provides that WPPSS must comply with the Bond Resolu-
tion and the Participants’ Agreement is subject to the terms of
the Bond Resolution.
Initially, some principles of statutory construction are
relevant to the court’s analysis. ‘Language within a statute
must be read in context with the entire statute and construed in
a manner consistent with the generai purpose of the statute.”
Nationwide Papers, Inc. v. Northwest Egg Sales, Inc., 69
Wash.2d 72, 76, 416 P.2d 687 (1966). Similarly, “[s]tatutes
pertaining to the same subject matter must be harmonized, if
possible.” Snohomish Cy. PUD 1 v. Broadview Television Co.,
91 Wash.2d 3, 8, 586 P.2d 851 (1978). The resolution of the
authority issue requires an examinauon of the entire statutory
scheme governing each category of participant to determine
whether they had the express power to enter into this agree-
ment. Absent express statutory authorization, we must also
consider whether participation in the agreement may be based
upon necessary or implied powers. Aided by applicable rules of
statutory construction and prior cases construing the various
statutory powers, we ultimately must decide whether the
present agreement conforms to the statutes. Our conclusion in
this case is therefore based upon an examination of all
Washington statutes authorizing the purchase of electricity, the
2 This issue is limited to the authority of the Washington PUD’s
and municipalities, hereinafter referred to collectively as the partici-
pants. The authority of most of the rural electrical cooperatives
(including those in Washington) and the Vera Irrigation District were
the subject of separate trial court orders and are not before this court.
The authority of the Idaho, Oregon, Wyoming and Nevada partici-
pants is currently being litigated in their respective states.
An Oregon triai court has heid that Oregon cities and PUD’s
lacked authority and the agreement was contrary to public policy.
Defazio v. Springfield Utility Board, cause 16-81-11344 ( Lane Coun-
ty Cir. Ct. Nov. 5, 1982). That case is on appeal. The Idaho Supreme
Court has entered an order prohibiting collection of funds until the
matter is decided on the merits. Asson v. City of Buriey, cause 82-174
(Sup. Ct. Nov. 3, 1982). The Wyoming Rate Commission has ruled
that rates may not be increased to pay the WPPSS debt.
B-10
acquisition or construction of generating facilities, joint oper-
ating agencies, and joint development of energy generating
projects.
Il. PURCHASE OF ELECTRICITY
The Washington participants have explicit statutory au-
thority to buy electricity on behalf of citizens. For example,
each of the 19 Washington Public Utility Districts (PUD’s)
involved in this litigation is authorized to: “purchase, within or
without its limits, electric current for sale and distribution
within or without its limits...” RCW 54.16.040.
Similarly, the nine Washington municipal participants
could purchase electricity, although the grants of authority
varied according to the class of city or town. The first class
cities of Tacoma and Richland were authorized to: “provide for
lighting the streets and all public places, and for furnishing the
inhabitants thereof with gas or other lights . . .” RCW
35.22.280( 15). Centralia, the only participant exercising sec-
ond class city powers,’ had the authority to: “provide for
lighting the streets and all public places of the city and for
furnishing the inhabitants of the city with gas, electric, or other
light...” RCW 35.23.440( 44). As third class cities, Blaine and
Ellensburg had the power to: “establish, lay out, alter, keep
open, open, widen, vacate, improve and repair streets, side-
walks, alleys, squares and other public highways and places
within the city, and to drain, sprinkle and light the same. . .”
RCW 35.24.290(3). In practically identical language, towns
such as McCleary and Steilacoom were authorized to secure
electricity. RCW 35.27.370(4). The final category of munici-
pal participants, code cities, includes Port Angeles and Sumas.
A code city may: “provide utility service within and without its
limits and exercise all powers to the extent authorized by
general law for any class of city or town.”” RCW 35A.80.010.
3 Although not of sufficient size to qualify as a second class city,
Centralia under the commission form of government exercised all the
powers of a second class city. RCW 35.17.030.
B-11
In addition to these categorical grants of enumerated
powers, the PUD’s and cities‘ were authorized, under the
statutory provisions that created WPPSS, to: “enter into con-
tracts Or compacts with any operating agency or a publicly or
privately owned public utility for the purchase and sale of
electric energy or falling waters.” RCW 43.52.410. Thus, the
various statutes clearly provide for Washington PUD’s, cities
and towns to purchase and sell electricity.
Initially, we must decide whether this agreement is author-
ized as a purchase of electricity by the participants. As
discussed in greater detail infra, the purchase of “project
capability” under this agreement ts essentially an unconditional
guaranty of payments on the revenue bonds, secured by a
pledge of the participants’ utility revenues, in exchange for a
share of any power generated by these projects. The agreement
expressly provides for the possibility that no electricity will be
generated and that participant payments will be due even if the
project is not completed. The unconditional obligation to pay
for no electricity is hardly the purchase of electricity. We hold
that an agreement to purchase project capability does not
qualify as a purchase of electricity.
Il. ACQUISITION OF ELECTRIC
GENERATING FACILITIES
_Another type of express authority granted to cities and
towns is the power to construct, acquire and operate electric
generating facilities. RCW 35.92.050. That statute provides:
A city or town may also construct, condemn and
purchase, purchase, acquire, add to, maintain and operate
works, plants, facilities for the purpose of furnishing the
city or town and its inhabitants, and any other persons,
with gas, electricity, and other means of power and
facilities for lighting, heating, fuel, and power purposes,
public and private, with full authority to regulate and
control the use, distribution, and price thereof, together
4 City is defined in RCW 43.52 as: “ ‘City means any city or town
in the state of Washington authorized to engage in the business of
generating and/or distributing electricity.” RCW 43.52.250.
B-12
with the right to handle and sell or lease, any meters,
lamps, motors, transformers, and equipment or accessories
of any kind, necessary and convenient for the use, dis-
tribution, and sale thereof; authorize the construction of
such plant or plants by others for the same purpose, and
purchase gas, electricity, or power from either within or
without the city or town for its own use and for the purpose
of selling to its inhabitants and to other persons doing
business within the city or town and regulate and control
the use and price thereof.
RCW 35.92.0500. Under this provision the municipalities
clearly had the authority to build or buy their own plants.
Jones v. Centralia, 157 Wash. 194, 289 P. 3 (1930). In almost
identical language, the PUD’s are granted the express authority
to construct, acquire and operate electric generating facilities.
RCW 54.16.040. The respective powers of the PUD’s and cities
are similar and therefore subject to a similar construction. State
ex rel. PUD 1 v. Wylie, 28 Wash.2d 113, 127-30, 182 P.2d 706
(1947). Under the provisions, the participants clearly could
construct, acquire and operate generating facilities.
In construing these provisions, however, this court has
never found authority for a project in which the participants did
not have an ownership interest. E.g., Roeh/ v. PUD 1, 43
Wash.2d 214, 261 P.2d 92 (1953); State ex rel. PUD / v.
Schwab, 40 Wash.2d 814, 246 P.2d 1081 (1952). Under this
agreement, Section |.1(o ) of the Bond Resolution expressly
provides that only WPPSS and Pacific Power & Light Supply
Company retain any ownership interest in the projects. In
comparison, the participants do not retain an ownership share
in this project but only contracted to buy from WPPSS a share
of project capability. Section I(v) of the Participants’ Agree-
ment defines “project capability” as:
“Project capability” means 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 suspendea, interrupted, inter-
B-13
fered with, reduced or curtailed, in each case in whole or in
part for any reason whatsoever), less Project station use
and losses.
The “electric power and energy, if any” language indicates that
the parties anticipated a possible share of no power. This
impression is reinforced by section 6(d) of the Participants’
Agreement which purportedly mandates payment by the
participants irrespective of project completion. This so-called
“dry hole” provision states:
The Participant shall make the payments to be made
to the Supply System under this Agreement whether or not
any of the Projects are completed, operable or operating
and notwithstanding the suspension, interruption, inter-
ference, reduction or curtailment of the output of either
Project for any reason whatsoever in whole or in part.
Such payments shall not be subject to any reduction,
whether by offset or otherwise, and shall not be condi-
tioned upon the performance or nonperformance by
Supply System or any other Participant or entity under this
or any other agreement or instrument, the remedy for any
nonperformance being limited to mandamus, specific per-
formance or other legal or equitable remedy.
In effect, the participants unconditionally guaranteed WPPSS
bonds with no guaranty of electricity in return.
Some states have provided statutory authority for such
unconditional guaranties and courts have recognized the vali-
dity of projects developed under those provisions. Johnson vy.
Piedmont Mun. Power Agency, 277 S.C. 345, 287 S.E.2d 476
(1982). That recognition, however, is based upon very explicit
statutory authority. Such Carolina’s “Joint Municipal Electric
Power and Energy Act” provides an example:
Any municipality which is a member of the joint
agency may contract to buy from the joint agency power
and energy required for its present or future requirements,
including the capacity and output of one or more specified
projects. As the creation of a joint agency is an alternative
method whereby a municipality may obtain the benefits
B-i4
and assume the responsibili
This text is long and has been trimmed here. Open the source document for the complete record.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.