*56Thе "Payments Clause" of an agreement between Russell City Energy Company, LLC (Russell) and the City of Hayward (City)
*57prohibited the City from imposing any taxes on the "development, construction, ownership and operation" of Russell's power plant except taxes tethered to ownership of real property. The question in this case is whether Russell's interpretation of the Payments Clause violates article XIII, section 31 of the California Constitution (Section 31) which provides "[t]he power to tax may not be surrendered or suspended by grant or contract."
*167The answer is yes. We conclude Russell's interpretation of the Payments Clause-that the City contractually promised not to impose any taxes other than real property related taxes-violates Section 31 because it surrenders and suspends the City's power to tax the power plant. Thus, the trial court properly determined the Payments Clause was unenforсeable and sustained the City's demurrer to Russell's complaint alleging claims premised on a breach of the agreement.
We also conclude, however, that Russell must be permitted an opportunity to amend its complaint to allege a quasi-contractual restitution claim.
FACTUAL AND PROCEDURAL BACKGROUND
On appeal from an order sustaining a demurrer, we "accept as true the properly pleaded material factual allegations of the complaint, together with facts that may properly be judicially noticed." ( Crowley v. Katleman (1994)
The Agreement and the Utility Tax
In October 2005, Russell and the City entered into a Cooperation and Option Agreement (agreement). The purpose of the agreement was to facilitate Russell's construction and operation of the Energy Center, a natural gas-fired, combined cycle electric generating facility in Hayward. In the agreement, the City granted Russell an option to purchase 12.5 acres of City-owned lаnd as the site for the Energy Center. The City also promised to help Russell obtain permits, regulatory approval, and water treatment services for the power plant. Pursuant to the agreement, Russell conveyed a 3.5-acre parcel to the City.
Section 6 of the agreement-the Payments Clause-required Russell to "pay to the City $10,000,000 ... for the City's design and construction of a new library."
When Russell entered into the agreement, it relied on the authority of the City and its representatives to enter into the Payments Clause.
Russell began building the Energy Center in October 2010. In April 2011, the City informed Russell it must pay the utility tax. Russell claimed the Payments Clause prohibited the City from imposing the tax, but it made payments to cover the utility tax assessments. In October 2011, Russell paid the City $10 million as required by the agreement. The Energy Center is complete and operational.
The Lawsuit
In 2014, Russell filed a verified complaint against the City alleging claims for: (1) breach of contract; (2) promissory estoppel; (3) anticipatory repudiation; (4) violation of the Contracts clauses of the federal and state constitutions;
*59and (5) declaratory relief.
The promissory estoppel cause of action alleged the City promised not to impose levies, fees, taxes, or charges "other than expressly allowed in the Agreement" and "warranted its authority to make such promises." Russell relied on those promises by acquiring "real property, entitlements, permits and other assets necessary for development ... of the Energy Center," beginning construction on the Energy Center, incurring "tens of millions of dollars in construction-related costs," and paying the City $10 million pursuant to the agreement.
In its Contracts clause claim, Russell alleged the imposition of the utility tax in contravention of the agreement violated Russell's contract rights under the United States and California constitutions. According to the complaint, the imposition of the utility tax "effectively nullifies the City's obligations under the [a]greement by imposing ... unexpected and new liabilities and limitations on the exercise of [Russell's] contractual rights under the [a]greement, which related obligations and covenants [Russell] has already substantially performed." Russell's final claim, for declaratory relief, alleged the parties disagreed *169regarding the interpretation of the agreement and "whether the City's wrongful retention of fees and monies already paid to the City by [Russell] under the [a]greement, including the $10,000,000 payment made by [Russell], ... would unjustly enrich the City." Russell sought a judicial declaration the City breached the agreement, and "damages in an amount according to proof." *60The City's Demurrer
The City demurred, arguing the complaint was based on "an erroneous and unconstitutional interpretation of the Payments Clause" and, as a result, failed to state a viable claim. It claimed Russell had no enforceable contractual right to avoid paying the utility tax, explaining: (1) the Payments Clause authorized imposition of taxes " 'gеnerally applicable to similarly situated owners of real property located in the City' "; and (2) the utility tax was " 'generally applicable to similarly situated owners of real property in the City.' " In other words, applying the utility tax to the power plant's operations did not breach the agreement because the Payments Clause did not preclude the City from imposing "generally applicable taxes, [which] are simply the cost of doing business in Hayward." The City also argued a contractual provision exempting Russell from future taxes would unconstitutionally surrender or suspend the City's power to tax in violation of Section 31, which provides, "[t]he power to tax may not be surrendered or suspended by grant or contract." Finally, the City contended Russell's promissory estoppel claim failed because Russell could not "use promissory estoppel to procure 'the indirect enforcement of an illegal contract.' "
In opposition, Russell claimed the utility tax "turn[ed] on the usage of services" not property ownership. Russell also argued the court must accept its interpretation of the Payments Clause at the pleading stage, as long as the interpretation " 'does not place a clearly erroneous construction ' " on the provisions of the contract. Next, Russell claimed the Payments Clause did not violate Section 31 because it represented an exercise-not a surrender-of the City's taxing power. According to Russell, the Payments Clause was an upfront payment in lieu of future taxes, also known as a PILOT agreement.
Hearing and Order Sustaining Demurrer
At a hearing, counsel for Russell characterized the Payments Clause as a PILOT agreement and urged the court to uphold it. Russell's attorney also *61emphasized the unfairness of declining to enforce the agreement, noting the City would be unjustly enriched if permitted to accept the $10 million payment and impose the utility tax. Counsel requested leave to amend the complaint to allege the Payments Clause is a PILOT agreement. In response, the City's attorney argued Russell's interpretation *170of the Payments Clause rendered the City unable to impose taxes-a clear "surrender of the power to tax"-which violated Section 31.
The court questioned whether the Payments Clause represented an "illusory promise" and asked counsel for the City: "[Y]ou have their $10 million. And to just let you walk away from it now after you've gotten the money ... is that fair?" Ultimately, however, the court sustained the City's demurrer without leave to amend and dismissed the complaint. In a thorough written order, the court determined as a thrеshold issue it was "not clearly erroneous" for Russell to interpret the Payments Clause as preventing the City from imposing the utility tax because the tax "is assessed based on utility usage, not property ownership." But the court also concluded Russell's interpretation of the Payments Clause violated the California Constitution. As the court explained, "none of the cases cited by [Russell] show how the City's purported agreement not to impose any taxes (other than real property-related taxes) can be reconciled with ... section 31 of California's Constitution." The court rejected Russell's reliance on municipalities' tax settlement agreements, concluding "[i]n the Payments Clause, the City did not exercise its discretion to receive payments in lieu of taxes. The Court finds that the Payments Clause would be unconstitutional if interpreted to mean that the City contractually surrendered or suspended its power to tax in violation of ... section 31."
For these reasons, the court concluded the complaint did not state a claim against the City and sustained the demurrer without leave to amend. The court declined to permit Russell to amend the complaint, noting Russell's interpretation of the Payments Clause "renders it unconstitutional. The court fails to see how this defect can be cured by amendment and [Russell] does not suggest any reasonable possibility that it can be."
DISCUSSION
I.
General Principles
As stated above, "[i]n reviewing a judgment sustaining a demurrer without leave to amend, we give the complaint a reasonable interpretation and treat the demurrer as admitting all material facts properly pleaded." ( *62Coker v. JPMorgan Chase Bank, N.A. (2016)
Russell's claims are based on contract. "When reviewing whether a plaintiff has properly stated a cause of action for breach of contract, we must determine whether the alleged agreement is 'reasonably susceptible' to the meaning ascribed to it in the complaint. [Citation.] ' "So long as the pleading does not place a clearly erroneous construction upon the provisions of the contract, in passing upon the sufficiency of the complaint, we must accept as correct plaintiff's allegations as to the meaning of the agreement." ' " ( Klein v. Chevron U.S.A., Inc. (2012)
II.
The Payments Clause Violates Section 31 of the California Constitution
The complaint alleges the Payments Clause prohibits the City from imposing the utility tax. The Payments Clause provides in relevant part: (1) Russell's $10 million payment "comprise[s] all payments to be made to the City" by Russell in connection with the "development, construction, ownership and operation" of the Energy Center; and (2) "the City shall not impose any other ... taxes, ... on [Russell], ... other than such ... taxes ... generally applicable to similarly situated owners of real property located in the City."
A. Russell's Interpretation of the Payments Clause is Not Clearly Erroneous
The tax applies to persons using gas and electricity in the City, and the tax is based on a percentage of electricity and gas charges. A property owner who does not use utilities does not pay the tax. Accordingly, the Payments Clause *63is "reasonably susceptible of the meaning" alleged in the complaint-that the Payments Clause precludes the City from imposing the utility tax because it is based on utility usage, not property ownership. ( Rutherford Holdings, LLC v. Plaza Del Rey (2014)
As it did in the court below, the City contends the Payments Clause authorizes imposition of the utility tax because it is generally applicable to similarly situated real property owners. We reject this argument. The City's "competing" interpretation of the Payments Clause does not demonstrate Russell's interpretation is clearly erroneous. ( Rutherford, supra,
B. The Payments Clause Cannot Be Reconciled with Section 31, Which Prohibits Local Governments from Surrendering or Suspending the Power to Tax
Next, we consider whether the Payments Clause conflicts with Section 31. Article VIII, section 6 of the 1879 California Constitution provided, "The power of taxation shall never be surrendered or suspended by any grant or contract to which the State shall be a party." In 1974, section 6 was replaced with Section 31, which provides "[t]he power to tax may not be surrendered or suspended by grant or contract." (Cal. Const., art. VIII, § 31, added by Prop. 8 (Nov. 5, 1974).) Section 31 applies to local governments. It expresses the principle that "governments cannot divest themselves by contract of the right to exert their governmental authority 'in matters which from their very nature so concern that authority that to restrain its exercise by contract would be a renunciation of power to legislate for the preservation of society or to secure the performance of essential governmental duties.' " ( *172City of Glendale v. Superior Court (1993)
A contract that surrenders or impairs a governmental power "is invalid ... if the contract amounts to a municipality's 'surrender' or 'abnegation' of its control of a municipal function. ... 'the controlling consideration in this area appears to be whether a disputed contract amounts to a local entity's "surrender," "abnegation," "divestment," "abridging," or "bargaining away" of its control of a [taxing] power or municipal function.' [Citations.] The inquiry thus turns on whether 'this crucial control element has been lost.' " ( 108 Holdings, Ltd. v. City of Rohnert Park (2006)
Russell's attempts to avoid the purview of Section 31 are unavailing. For example, it claims Section 31 prohibits only "perpetual or irrevocable tax immunity." Russell reasons that the Payments Clause does not violate Section 31 because the City's contractual promise not to impose taxes is "project-specific" (it applies only to the power plant) and is "time-limited" (it applies only to the finite lifespan of the power plant). Russell also contends Section 31 was intended to apply оnly to "tax immunity in corporate charters, not contract provisions" such as the Payments Clause. These arguments conflict with the plain language of Section 31, which broadly states "[t]he power to tax may not be surrendered or suspended by grant or contract." Nothing in Section 31 authorizes surrenders or suspensions of the power to tax in "project-specific" or "time-limited" situations.
Russell's reliance on Valencia Energy v. Arizona Dept. of Rev. (Ariz. 1998)
*66In response, the department argued Arizona's version of Section 31 "absolutely bars estopping the government from collecting taxes owed." ( Id. at p. 1260.)
*174The Valencia court disagreed, concluding the constitutional provision "restrains all branches of government, but only as to relinquishment of the Legislature's fundamental power to tax. An estoppel from collecting revenue from a single taxpayer for a single event is not the kind of permanent capitulation with which the framers were concerned. We therefore hold that article IX, section 1 is not an absolute ban to estopping the Department." ( Valenc i a, supra,
Nor does Section 31 limit its application to corporate charters, to prohibit "perpetual tax exemptions for all of a corporation's activities" as embodied in a corporation's charter. What Russell characterizes as a "modest textual change" embodied in the 1974 amendment defeats this argument. The 1974 amendment deleted from former section 6 the words "to which the State shall be a party," thereby expanding Section 31's reach to local governmental entities. The regulation of corporate formation and the filing of articles of incorporation are a function of the State through the Secretary of State, not of local municipalities. (See generally Corp. Code, §§ 200 - 213.) The trial court did not, as Russell suggests, improperly broaden the narrow construction of Section 31 envisioned by the 1878 framers.
We are mindful that the " ' "taxing power of the state is never presumed to have been relinquished unless the language in which the surrender is made is clear and unmistakable." ' " ( Coso Energy Developers v. County of Inyo (2004)
For the reasons discussed above, we conclude Russell's interpretation of the Payments Clause violates Section 31.
*67C. Characterizing the Payments Clause as a PILOT Agreement Does Not Render It Constitutional
Russell contends the Payments Clause represents an exercise of the City's taxing power, in the form of a PILOT agreement. According to Russell, interpreting the Payments Clause as providing for "upfront payments in lieu of later taxes-i.e., as a PILOT provision" is the "only sensible reading" of the agreement. We reject this argument for two reasons.
First-and as counsel for Russell conceded at oral argument-the complaint does not allege the Payments Clause is a PILOT agreement. The complaint does not contain the acronym PILOT or the words "in lieu of taxes." Nor is the interpretation of the Payments Clause as a PILOT agreement "apparent from the complaint." ( Rutherford, supra,
Second, Russell's argument fails even if we assume for the sake of argument the complaint alleged the Payments Clause is a PILOT agreement.
A division of this court rejected this argument, concluding a municipality may agree to "pay a sum equal to the amount of taxes levied upon the private party's property." ( Cane, supra,
Nor are we persuaded by Russell's reliance on AB Cellular . There, the issue was whether a municipality's enactment of a cell phone tax required voter approval pursuant to Proposition 218. ( AB Cellular, supra, 150 Cal.App.4th at pp. 757, 758,
*176Proposition 218 allows it. The evil to be counteracted is the increase of local taxes beyond what was formerly approved." ( Id. at pp. 763-764,
According to Russell, AB Cellular authorizes the use of " 'taxpayer specific' " agreements such as the Payments Clause. We disagree. The AB Cellular court did not consider whether an agreement not to impose certain taxes violates the California Constitution. Rather the court interpreted Proposition 218 and Proposition 218's Omnibus Implementation Act, and "the rights of citizens to circumvent lawmakers and pass initiatives." ( AB Cellular, supra,
Russell claims the Payments Clause was a legitimate way for the City to "provide tax relief" by contract, and that municipalities commonly enter such *69contractual agreements to its corporate citizens. Russell also claims a municipality may "bargain for up front tax payments based on its best estimate of the other party's future [tax] liabilities." Again, Russell urges "muniсipalities are exercising- not giving up-the power to tax." But that is not what happened here.
People v. Board of Supervisors (1932)
Russell's reliance on two documents judicially noticed by the trial court is unhelpful. In one document-a tax settlement agreement with the City of Richmond-Chevron agreed to make lump sum payments in exchange for Richmond's withdrawal of a proposed ballot measure amending a utility users tax. Under the agreement, if Richmond imposes new taxes on Chevron's refinery during a specified time period, Chevron will receive a credit for the qualifying portion of the settlement payment. The second document is an agreement between the City of Oakland and Alameda County regarding distribution of parking taxes collected at the Oakland Coliseum. These documents do not assist Russell because they do not involve municipality's prоmise not to impose taxes.
Russell's interpretation of the Payments Clause violates Section 31 and, as a result, Russell cannot state a claim for contractual relief. The court properly sustained the City's demurrer to the complaint.
III.
Russell Must Be Permitted Leave to Amend the Complaint to Allege a Quasi-Contractual Restitution Claim
Russell claims the court erred by denying leave to amend, reasoning it *177may allege a quasi-contractual claim even if the Payments Clause is unconstitutional. While the decision to sustain a demurrer " 'is a legal ruling subject to *70de novo review on appeal, the granting of leave to amend involves an exercise of the trial court's discretion. [Citations.] When the trial court sustains a demurrer without leave to amend, we must also consider whether the complaint might state a cause of action if a defect could reasonably be cured by amendment. If the defect can be cured, then the judgment of dismissal must be reversed to allow the plaintiff an opportunity to do so. The plaintiff bears the burden of demonstrating a reasonable possibility to cure any defect by amendment.' " ( Bock v. Hansen (2014)
Russell contends it can state a claim for "money paid under the [a]greement."
We disagree with the City's contention that the Payments Clause is "malum in se, such that restitution is prohibited."
Malum prohibitum means "prohibited by statute"-malum prohibitum contracts are illegal as contrary to a statute. (See Witkin, supra, § 431, p. 473 ; Mills , supra,
In one sentence on the last page of its brief, the City argues Russell should not be granted leave to amend because a private party may not sue a public entity on a quasi-contract theory. To support this argument, the City relies on a single case: Janis v. California State Lottery Com. (1998)
*72The trial court sustained CSL's demurrer without leave to amend and the appellate court affirmed. ( Janis, supra, 68 Cal.App.4th at pp. 828, 834,
Katsura v. City of San Buenaventura (2007)
Katsura determined the engineer could not orally modify the contract, explaining: "There is no provision in the City charter for execution of oral contracts by employees of the City who do not have requisite authority. The alleged oral statements by the associate city engineer and project manager are insufficient to bind the City. ' "No government, whether state or local, is bound to any extent by an officer's acts in excess of his ... authority." ' " ( Katsura, supra,
As summarized by a division of this court, the rule from Katsura is "all implied contracts against public entities are barred because, by definition, they have not formally been approved by the entity." ( Green Valley Landowners Assn. v. City of Vallejo (2015)
*180Orthopedic Specialists of Southern California v. Public Employees' Retirement System (2014)
This situation is unlike Janis , where there was no contract. Here, Russell can point to a "contractual promise"-albeit one we have held violates Section 31 of the California Constitution. (Janis, supra,
*74DISPOSITION
The order sustaining the City's demurrer without leave to amend and dismissing the complaint is reversed to the extent it denies Russell leave to amend. The matter is remanded with directions to grant Russell leave to amend the complaint consistent with the views expressed in this opinion. In all other respects, the order is affirmed. Russell is entitled to costs on appeal. ( Cal. Rules of Court, rule 8.278.)
We concur:
Simons, J.
Bruiniers, J.
Notes
The original contracting party assigned its rights to Russell. The agreement was amended in 2006. The amended agreement did not modify the Payments Clause.
In Section 14 of the agreement, the City "represent[ed] and warrant[ed] to [Russell] that the person who has executed this Agreement on behalf of the City has been duly authorized to execute this Agreement on behalf of the City." The City Manager and City Attorney signed the agreement, and the City Council approved it.
After exhausting administrative remedies, Russell sued the City in federal court. That lawsuit was dismissed for lack of subject matter jurisdiction. (Russell City Energy Co., LLC v. City of Hayward, (N.D.Cal., Feb. 17, 2015, No. C-14-03102)
A payment in lieu of taxes-sometimes abbreviated "PILOT"-is "made to compensate a local government for ... tax revenue that it loses because of the nature of the ownership or use of a particular piece of real property." (14 McQuillin, The Law of Municipal Corporations (3d ed. 2008) § 38:5, pp. 57-58.) At Russell's request, the court judicially noticed several documents, including a tax settlement agreement between the City of Richmond and Chevron USA, Inc. (Chevron), and a settlement agreement between the County of Alameda and the City of Oakland.
" 'The principles of constitutional interpretation are similar to those governing statutory construction. In interpreting a constitution's provision, our paramount task is to ascertain the intent of those who enacted it. [Citation.] To determine that intent, we "look first to the language of the constitutional text, giving the words their ordinary meaning." [Citation.] If the language is clear, there is no need for construction. [Citation.] If the language is ambiguous, however, we consider extrinsic evidence of the enacting body's intent.' " (Professional Engineers in California Government v. Kempton (2007)
Two decisions involving the surrender or suspension of police power are instructive. In Alameda County Land Use Assn. v. City of Hayward (1995)
Russell characterizes the Payments Clause as requiring "up front" payments "in lieu of" all future taxes, i.e., that in making the $10 million payment, Russell obtained a broad exemption from all future local taxes. The Payments Clause uses neither "up front" or "in lieu of" to describe Russell's payment. The Payments Clause does not indicate the payment will be credited toward future tax liability, nor that the payment will offset other tax liability owed by Russell. Instead, the Payments Clause exempts Russell from all taxes except those tethered to real property. We assume without deciding the Payments Clause is a PILOT agreement, and we express no opinion on whether PILOT agreements are generally permissible.
Russell variously refers to this quasi-contractual claim as for "money paid under the [a]greement" and for restitution based on an unjust enrichment theory. "The right to restitution or quasi-contractual recovery is based upon unjust enrichment." (1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 1013, p. 1102 (Witkin).) A "party to an express contract can assert a claim for restitution based on unjust enrichment by 'alleg[ing in that cause of action] that the express contract is void or was rescinded.' [Citation.] A claim for restitution is permitted even if the party inconsistently pleads a breach of contract claim that alleges the existence of an enforceable agreement." (Rutherford, supra,
" 'The illegality of contracts constitutes a vast, confusing and rather mysterious area of the law.' " (McIntosh v. Mills (2004)
We disapprove of the cursory manner in which the City raised this contention, without any discussion or analysis. We exercise our discretion to address it, notwithstanding "the lack of any cogent argument." (Imagistics Internat., Inc. v. Department of General Services (2007)
The Janis court's statement that a private party may not sue a public entity on an implied in law or quasi-contract theory is arguably dicta. At the very least, the principle is more broadly stated than necessary to cover the facts in Janis.