CACI No. 4501. Owner’s Liability for Failing to Disclose Important Information Regarding a Construction Project - Essential Factual Elements

Judicial Council of California Civil Jury Instructions (2020 edition)

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4501.Owner’s Liability for Failing to Disclose Important
Information Regarding a Construction Project - Essential Factual
Elements
[Name of plaintiff] claims that [he/she/nonbinary pronoun/it]was harmed
because [name of defendant] failed to disclose important information
regarding [specify information that defendant failed to disclose or concealed,
e.g., tidal conditions at the project site]. To establish this claim, [name of
plaintiff] must prove all of the following:
1. That [name of plaintiff] submitted [his/her/nonbinary pronoun/its]
bid or agreed to perform without information regarding [e.g.,
tidal conditions] that materially affected performance costs;
2. That [name of defendant] had this information, and was aware
that [name of plaintiff] did not know it and had no reason to
obtain it;
3. That [name of defendant] failed to provide this information;
4. That the contract plans and specifications or other information
furnished by [name of defendant] to [name of plaintiff] misled
[name of plaintiff] or did not put [him/her/nonbinary pronoun/it] on
notice to investigate further;
5. That [name of plaintiff] was harmed because of [name of
defendant]’s failure to disclose the information.
[Name of plaintiff] does not have to prove that [name of defendant]
intended to conceal the information.
New December 2010; Revised June 2011
Directions for Use
Give this instruction if a contractor claims that the owner had important information
regarding the project that it failed to disclose, and as a result, the contractor incurred
greater costs than anticipated. Also give CACI No. 303, Breach of
Contract - Essential Factual Elements, for other contested elements of a breach-of-
contract claim.
With regard to undisclosed information, there is liability only if the failure to
disclose materially affected the cost of performance and actually and justifiably
misled the contractor in bidding on the contract. It is not necessary to show a
fraudulent intent to conceal. (See Los Angeles Unified School Dist. v. Great
American Ins. Co. (2010) 49 Cal.4th 739, 745 [112 Cal.Rptr.3d 230, 234 P.3d 490].)
This instruction applies principally to public owners awarding fixed price
construction contracts to contractors required to submit bids based on information
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provided by the public owner. Government Code section 818.8 relieves public
owners from tort liability for concealment and similar tortious conduct. However,
public owners remain liable in contract. (See Warner Constr. Corp. v. L.A. (1970) 2
Cal.3d 285, 294 [85 Cal.Rptr. 444, 466 P.2d 996].) Private owners remain liable in
tort for concealment of important facts. (See CACI No. 1901, Concealment.)
Sources and Authority
• “[A] contractor need not prove an affirmative fraudulent intent to conceal. Rather
. . . a public entity may be required to provide extra compensation if it knew,
but failed to disclose, material facts that would affect the contractor’s bid or
performance. Because public entities do not insure contractors against their own
negligence, relief for nondisclosure is appropriate only when (1) the contractor
submitted its bid or undertook to perform without material information that
affected performance costs; (2) the public entity was in possession of the
information and was aware the contractor had no knowledge of, nor any reason
to obtain, such information; (3) any contract specifications or other information
furnished by the public entity to the contractor misled the contractor or did not
put it on notice to inquire; and (4) the public entity failed to provide the relevant
information.” (Los Angeles Unified School Dist.,supra, 49 Cal.4th at p. 745.)
• “The circumstances affecting recovery may include, but are not limited to,
positive warranties or disclaimers made by either party, the information provided
by the plans and specifications and related documents, the difficulty of detecting
the condition in question, any time constraints the public entity imposed on
proposed bidders, and any unwarranted assumptions made by the contractor. The
public entity may not be held liable for failing to disclose information a
reasonable contractor in like circumstances would or should have discovered on
its own, but may be found liable when the totality of the circumstances is such
that the public entity knows, or has reason to know, a responsible contractor
acting diligently would be unlikely to discover the condition that materially
increased the cost of performance.” (Los Angeles Unified School Dist.,supra, 49
Cal.4th at p. 754.)
• “[E]stablished law provides public entities substantial protection against careless
bidding practices by contractors and forecloses the possibility that a public entity
will be held liable when a contractor’s own lack of diligence prevented it from
fully appreciating the costs of performance. This being so, protection against
careless bidding practices does not require that we allow contractors damaged by
a public entity’s misleading nondisclosure to recover only on a showing the
public entity harbored a fraudulent intent.” (Los Angeles Unified School Dist.,
supra, 49 Cal.4th at p. 752.)
• “Nondisclosure is actionable . . . only if the information at issue materially
affects the cost of performance . . . .” (Los Angeles Unified School Dist.,supra,
49 Cal.4th at p. 753.)
• “In transactions which do not involve fiduciary or confidential relations, a cause
of action for non-disclosure of material facts may arise in at least three
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instances: (1) the defendant makes representations but does not disclose facts
which materially qualify the facts disclosed, or which render his disclosure likely
to mislead; (2) the facts are known or accessible only to defendant, and
defendant knows they are not known to or reasonably discoverable by the
plaintiff; (3) the defendant actively conceals discovery from the plaintiff.”
(Warner Constr. Corp.,supra, 2 Cal.3d at p. 294, footnotes omitted.)
• “But this does not mean . . . that City could be liable simply by failing to
supply complete plans and specifications. It does mean that careless failure to
disclose information may form the basis for an implied warranty claim if the
defendant possesses superior knowledge inaccessible to the contractor or where
that which was disclosed is likely to mislead in the absence of the undisclosed
information . . . . Thus, . . . the general rule [is] that silence alone is not
actionable.” (Thompson Pacific Construction, Inc. v. City of Sunnyvale (2007)
155 Cal.App.4th 525, 552 [66 Cal.Rptr.3d 175], internal citations omitted.)
• “It would be inequitable to permit defendant to enforce the literal terms of the
contract which called for the excavation of ‘all materials’ necessary to complete
the job when plaintiffs were induced by defendant’s misrepresentation to submit
a bid which was much lower than was warranted by the true facts. If instead of
stating in the specifications that [contractor] would excavate to rough grade,
defendant had stated the true facts of which it had knowledge - that [contractor]
was obligated by contract to excavate no lower than five feet above grade - the
present situation would not have arisen. Having failed to impart this knowledge
to plaintiffs and having willfully or carelessly misrepresented the true situation,
defendant is obligated to plaintiffs for the additional work occasioned.” (Gogo v.
Los Angeles County Flood Control Dist. (1941) 45 Cal.App.2d 334, 341-342
[114 P.2d 65].)
• “It is the general rule that by failing to impart its knowledge of difficulties to be
encountered in a project, the owner will be liable for misrepresentation if the
contractor is unable to perform according to the contract provisions. [¶] In a
factually similar case, the contractor encountered ‘unusual quantities of
quicksand and extensive subsoil water conditions which had not been shown on
the plans or specifications . . . information as to which, although known to it,
had been withheld by the city.’ An award of damages was affirmed because . . .
‘[t]he withholding by the city of its knowledge . . . resulting in excessive cost
of construction, forms actionable basis for plaintiff’s claim for damages.’ ”
(Salinas v. Souza & McCue Constr. Co. (1967) 66 Cal.2d 217, 222-223 [57
Cal.Rptr. 337, 424 P.2d 921], internal citations omitted.)
• “Here, the city argues that provisions in the contract specifications requiring that
the bidders ‘examine carefully the site of the work,’ and stating that it is
‘mutually agreed that the submission of a proposal shall be considered prima
facie evidence that the bidder has made such examination,’ prevents a holding
that the city is liable for the consequences of its fraudulent representation.
However, even if the language had specifically directed the bidders to examine
subsoil conditions, which it did not, it is clear that such general provisions
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cannot excuse a governmental agency for its active concealment of conditions.”
(Salinas,supra, 66 Cal.2d at p. 223, internal citations omitted.)
• “A fraudulent concealment often composes the basis for an action in tort, but tort
actions for misrepresentation against public agencies are barred by Government
Code section 818.8. Plaintiff retains, however, a cause of action in contract. ‘It is
the general rule that by failing to impart its knowledge of difficulties to be
encountered in a project, the owner will be liable for misrepresentation if the
contractor is unable to perform according to the contract provisions.’ As
explained in Souza & McCue Construction Co. v. Superior Court, . . . : ‘This
rule is mainly based on the theory that the furnishing of misleading plans and
specifications by the public body constitutes a breach of an implied warranty of
their correctness. The fact that a breach is fraudulent does not make the rule
inapplicable.’ ” (Warner Constr. Corp.,supra, 2 Cal.3d at pp. 293-294, internal
citations omitted.)
• “Under general principles of contract and tort law, a party who conceals or fails
to disclose material information to another is liable for fraud. In the public
construction contract context, however, the conduct of a public agency which
would otherwise amount to a tortuous [sic] misrepresentation is treated as a
breach of contract. The underlying theory is that providing misleading plans and
specifications constitutes a breach of the implied warranty of correctness.
(Howard Contracting, Inc. v. G. A. MacDonald Construction Co. (1998) 71
Cal.App.4th 38, 55 [83 Cal.Rptr.2d 590].)
• “When there is no misrepresentation of factual matters within the state’s
knowledge or withholding of material information, and when both parties have
equal access to information as to the nature of the tests which resulted in the
state’s findings, the contractor may not claim in the face of a pertinent disclaimer
that the presentation of the information, or a reasonable summary thereof,
amounts to a warranty of the conditions that will actually be found.”
(Wunderlich v. State (1967) 65 Cal.2d 777, 786-787 [56 Cal.Rptr. 473, 423 P.2d
545].)
• “Thus, [contractor]’s entitlement to recover for extra work performed in
connection with the fire alarm contract does not turn upon the issuance of
written change orders. Because the extra work on the fire alarm contract was
necessitated by incorrect plans and specifications furnished by the District, under
settled law [contractor] was entitled to recover for said work.” (G. Voskanian
Construction, Inc. v. Alhambra Unified School Dist. (2012) 204 Cal.App.4th 981,
992 [139 Cal.Rptr.3d 286].)
Secondary Sources
1 Witkin, Summary of California Law (10th ed. 2005) Contracts, § 998
1 California Construction Contracts, Defects, and Litigation (Cont.Ed.Bar) Ch. 6,
Public Contracts: Disputes and Remedies, §§ 6.73-6.76
5 Stein, Construction Law, Ch. 18, Warranties, ¶ 18.02 (Matthew Bender)
12 California Real Estate Law and Practice, Ch. 440, Construction Contract
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Remedies, § 440.15 (Matthew Bender)
10 California Forms of Pleading and Practice, Ch. 104, Building Contracts, § 104.24
(Matthew Bender)
42 California Forms of Pleading and Practice, Ch. 481, Public Works, § 481.311
(Matthew Bender)
10 Miller & Starr, California Real Estate (3d ed. 2008) Ch. 27, Construction Law
and Contracting, §§ 27:63-27:64 (Thomson Reuters)
Acret, California Construction Law Manual (6th ed. 2005) Ch. 7, Public Contracts,
§ 7:12 (Thomson Reuters)
3 Bruner & O’Connor on Construction Law, Ch. 9, Warranties, § 9:92 (Thomson
Reuters)
Gibbs & Hunt, California Construction Law (Aspen Pub. 16th ed. 1999) Ch. 4,
Breach of Contract by Owner, § 4.06
Kamine, Public Works Construction Manual (BNI Publications, Inc. 1996) Ch. 13,
Everything You Ever Wanted to Know About Extra Work and the Changes Clause,
pp. 99-100
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