C. H. Leavell & Co. v. Grafe & Associates, Inc., No. 9602

• Court: Idaho Supreme Court
• Writing for the Court: SPEAR
• Citation: 90 Idaho 502,414 P.2d 873
• Parties: C. H. LEAVELL AND COMPANY, a corporation, and Morrison-Knudsen Company, Inc., a corporation, Plaintiffs-Appellants, v. GRAFE AND ASSOCIATES, INC., Defendant-Respondent.
• Decision Date: 12 May 1966
• Docket Number: No. 9602

Page 873

414 P.2d 873 90 Idaho 502 C. H. LEAVELL AND COMPANY, a corporation, and Morrison-Knudsen Company, Inc., a corporation, Plaintiffs-Appellants,
v.
GRAFE AND ASSOCIATES, INC., Defendant-Respondent. No. 9602. Supreme Court of Idaho. May 12, 1966.
Rehearing Denied June 15, 1966.

[90 Idaho 504]

Page 874

Langroise, Clark & Sullivan, Boise, for appellants.

[90 Idaho 505] Elam Burke, Jeppesen & Evans, Boise, for respondent.

mCQUADE, Justice.

In the spring of 1961 Hercules Powder Company invited general contractors to bid for the construction of an Air Force 'Minuteman' missile installation at Magna, [90 Idaho 508] Utah. C. H. Leavell & Company and Morrison-Knudsem Company, Inc., plaintiffs-Appellants herein, entered into a joint venture agreement for the purpose of obtaining the prime contract.

If appellants were awarded the prime contract, they intended to subcontract various sections of the plans and specifications to other contractors who specialized in particular phases of the construction industry. One of the major portions of the project to be subcontracted was the mechanical section, which accounted for about one-third of the amount of the contract.

The contractors, subcontractors, materialmen and suppliers who intended to bid on the project gathered at the Hotel Utah in Salt Lake City, Utah. The contractors' bids were to be opened at 2 p. m. on July 11, 1961. For a few days before and on the bidding day, all of these interested parties conducted continuous negotiations and discussions to formalize their bids at the lowest price. Defendant-respondent herein, Grafe and Associates, Inc. (then known as Grafe-Weeks), was desirous of obtaining the subcontract for the mechanical work on the project. A team of Grafe-Weeks estimators and engineers, under the direction and supervision of Robert Bergstrom, worked for several weeks prior to the bidding day to arrive at a proposed bid on the subcontract.

On the morning of July 11, Bergstrom, on behalf of Grafe-Weeks, submitted a written bid for the mechanical section to Mr. Leavell, who was appellants' representative at the bidding. The relevant part of the bid stated:

'We submit our subcontract quotation for * * * installation of all Mechanical Piping as included under Division

Page 875

II Mechanical Section with the following exclusions:

1. Section 5-E Elevated Tank

2. Section 20 Cafe & Kitchen Equipment

3. Section 15 Painting of Elev. Tank

4. Exclud. Barrciades, signs, flags, lights, power, water, heat-which is to be furnished by you.

Total amount of proposal $3,463,000.00.'

Later that morning, pursuant to several conversations between Leavell and Bergstrom, they modified the Grafe-Weeks bid by oral agreement. At Leavell's request, Bergstrom agreed to reduce the bid by $50,000 and in turn Leavell stated that Grafe-Weeks would be 'locked in;' i. e., if the joint venture was selected as the prime contractor for the project, it would award the mechanical subcontract to Grafe-Weeks. One of the major points of dispute between the parties concerns appellants' contention that Bergstrom also agreed that Grafe-Weeks would secure a performance bond and pay the premium thereon. Bergstrom's testimony is less [90 Idaho 509] positive than Leavell's. He testified that the subject of a performance bond arose in his conversations with Leavell, but what he told Leavell was that 'Mr. Grafe (respondent's president) put up performance bonds before, I see no reason why he can't put up performance bond on this.' Bergstrom acknowledged that he knew Grafe-Weeks could not secure a performance bond because of its precarious financial condition but that Paul Grafe, personally, could and had procured performance bonds previously. As to the payment of the premium on the bond, Bergstrom testified that because a bond was not required by the plans and specifications, its cost had not been included in the Grafe-Weeks bid but that he told Leavell 'the premium (about $12,000) for this size of a job was such a small amount it could be absorbed.' Leavell testified in this regard:

'Q. Did you require them (Grafe-Weeks) to have a bond? Was this one of the requirements?

'A. I asked them only if they could make a bond.

'Q. You never have asked them really to have to put up, is that correct?

'A. No.

'Q. So there was nothing definitely settled about the bond then?

'A. No, I was simply told that the bond could be made by the administrator or the executive (Bergstrom) I was taling to.'

Leavell later changed this testimony, however, wherein he stated that he had reached a complete agreement with Bergstrom regarding the bond whereby Grafe-Weeks would furnish and pay the cost of the bond.

Leavell also testified that had he known on July 11, 1961, that Grafe-Weeks could not furnish a performance bond, 'it would, indeed, have changed may thinking and attitude towards Grafe-Weeks' and on the agreement with them, indicating that the furnishing of a performance bond was considered by appellants to be a material aspect of any contract that might be reached between appellants and respondent.

At the bid opening on the afternoon of July 11, appellants' bid was low and they were subsequently awarded the prime contract. Pursuant to a request by Leavell that Grafe-Weeks confirm the $50,000 reduction in its bid, Bergstrom, on July 17, sent a telegram to each of the appellants, which stated, in relevant part:

'This will confirm our bid for the above as follows:

'We bid all mechanical work as listed. Under Division II of the specifications, with the following exceptions:

'(1) Section No. 20 Cafeteria & Kitchen equipment

[90 Idaho 510] '(2) Section No. 15, paragraph 15-07(a) Interior surfaces & b.i. exterior surfaces. Cleaning & painting of elevated steel tank.

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'(3) Section No. 5-E-Outside utilities-elevated steel tank.

'(4) We also exclude barricades, signs, flags, lights, power, water, heat and electrical.

'Our bid for above subject . . . $3,413,000.00'

No mention was made in the telegram of the performance bond.

On July 18, after receiving this telegram, a representative of appellants wrote a letter to respondent, which stated:

'Your proposal for mechanical work * * n the sum of $3,413.000.00 including a performance and payment bond, is hereby accepted.

'The amount shown in paragraph I excludes the following items specified under Division II, Mechanical, of the Contract Specifications:

'1. Section 20, Cafeteria and Kitchen Equipment (only the Cafeteria and Kitchen Equipment items specified to be furnished and installed by other are covered by this exclusion. All rough-in work required therefor is considered your responsibility.)

'2. Section 5E, Outside...