John J. Calnan Co. v. Talsma Builders, Inc.

• Decision Date: 27 June 1977
• Docket Number: No. 48732,48732
• Citation: 10 Ill.Dec. 242,67 Ill.2d 213,367 N.E.2d 695
• Parties: , 10 Ill.Dec. 242 JOHN J. CALNAN CO., Appellee, v. TALSMA BUILDERS, INC., Appellant.
• Court: Illinois Supreme Court

Page 695

367 N.E.2d 695

67 Ill.2d 213, 10 Ill.Dec. 242

JOHN J. CALNAN CO., Appellee, v. TALSMA BUILDERS, INC., Appellant.

No. 48732.

Supreme Court of Illinois.

June 27, 1977.

Rehearing Denied Oct. 3, 1977.

Thomas, Wallace, Feehan & Baron, Ltd., Joliet (James T. Bradley, Joliet, of counsel), for appellant.

Fein & Hanfling and Benjamin I. Coven, Chicago, for appellee.

CLARK, Justice.

John J. Calnan Co. (hereafter Calnan), a plumbing contractor, sued for a declaratory judgment against the general contractor, Talsma Builders, Inc. (hereafter Talsma), seeking rescission of the plumbing subcontract, in the circuit court of Cook County. Talsma counterclaimed for a declaration that the subcontract could not be rescinded and for damages. The circuit court found for Calnan by rescinding the subcontract and against Talsma on its counterclaim. The appellate court affirmed. 40 Ill.App.3d 62, 351 N.E.2d 334.

On May 8, 1974, the president of Talsma, by telephone, requested the vice-president of Calnan to submit a "rush bid" as soon as possible. Talsma had just signed a contract to construct a nursing home in Robbins, Illinois, but its previously intended plumbing subcontractor was unable to get a surety bond. Calnan delivered a bid of $237,000 on May 14. On the following day, Calnan informed Talsma it had failed to include bathtubs in its plumbing subcontract bid. An agreement, which included $40,000 for the bathtubs, was prepared and delivered to Calnan on June 13. The amount agreed upon was $277,000 to be paid by Talsma to Calnan in monthly payments of 90% For "work done in any preceding month, in accordance with estimates prepared by the subcontractor and accompanied by waivers of lien, covering all labor and materials incorporated in the work to date * * * such payments to be made as payments are received by the contractor from the owner (Allen L. Wright Development Corp.) * * *." Under the contract Calnan was to provide performance and surety bonds. Also, paragraph K of the agreement provided:

"This contract is predicated upon the ability of the Allen L. Wright Development Corporation to procure the finalization of mortgage financing through their mortgage lendors and the backing of said mortgage by the F.H.A. (Federal Housing Administration)."

The FHA issued, on June 14, a "Commitment for Insurance of Advances," that is, a commitment to insure the mortgage on the construction. The "Commitment" was extended by letters three times, the last until December 13, 1974. The FHA officially authorized the construction to begin on August 26. (On December 5, 1974, the FHA mortgage insurance was signed.) Calnan claims that, at the time the agreement was reached, Talsma had assured it there was adequate financing and that work was to begin immediately.

Talsma claims that, during the period from June 13 to July 10, it moved workers onto the construction site to begin initial excavations and operations; it advanced money from its own funds to pay other subcontractors; and the subcontract remained "unexecuted" in Calnan's offices until July 10. Calnan returned the signed contract on or about July 10.

Talsma requested the performance bond, as required by paragraph Q of the contract, from Calnan on August 15. Talsma did not receive it.

Calnan began its work August 18 and asserts it requested a payment from Talsma at the end of August, Talsma, on September 6, requested Calnan to submit a "Contractor's Affidavit" for the purpose of supporting Calnan's first-month requisition.

In the middle of September, Calnan discovered it had omitted from its bid the estimated cost of the entire water supply system. On September 16, it informed Talsma of this omission and asked for an increase of approximately $31,000 in the subcontract amount. Calnan also informed Talsma it could not go ahead with the contract as it was and it would be unable to post a surety bond. Negotiations ensued, but the owner declined to increase the amount, so Talsma refused Calnan's request.

At the end of September, Calnan submitted its first requisition, which included a claim for $27,900, or 100% Of the payment for the previous month's work, and a claim for approximately $31,000 (the omitted water supply system). Talsma rejected the requisition. Talsma claims that, from September 17 to October 11, Calnan performed no work, but Calnan denies this. On October 9, Calnan wrote to Talsma that it could no longer honor the contract because it had received no payment and because paragraph K, a claimed condition precedent, had not been fulfilled. On October 23, Calnan personnel left the job site for the last time, having completed the outside plumbing work, except for the water supply system, necessary for the excavation and construction of the main building. In a letter dated October 23, Talsma rejected Calnan's requisition, demanded Calnan complete the contract, and requested Calnan to submit a proper requisition along with the contractually required surety bond. Calnan submitted a second requisition, which, Talsma says, again sought 100% Payment instead of 90% For work done. Talsma again rejected.

Calnan filed suit on November 8 for a declaratory judgment to rescind the contract, and Talsma countersued. The issues on appeal are: whether the evidence is sufficient to sustain (1) rescission of the contract by reason of mistake, and (2) the finding on Talsma's counterclaim that Calnan was not in breach of the contract. Additionally, Calnan contends that Talsma breached the contract by failing to make payments to Calnan and that paragraph K of the subcontract, concerning the finalization of mortgage financing for the owner, was not fulfilled.

The circuit court concluded that, technically, paragraph K was not complied with; indeed, the trial court said that the whole contract was "followed" only "very loosely." It is also clear that the trial court was concerned with the burden Calnan's mistake placed on the plumbing subcontractor at a time of rising costs and a depressed industry. The appellate court shared this concern, affirmed the circuit court and held that Calnan's mistake justified rescission.

A reviewing court must not set aside findings of fact unless contrary to the manifest weight of the evidence. (Kenny Construction Co. v. Metropolitan Sanitary District (1971), 52 Ill.2d 187, 288 N.E.2d 1.) We believe the finding of the trial court that rescission of the contract was justified was against the manifest weight of the evidence.

There are three conditions necessary before a contract will be rescinded for a mistake by one of the parties. First, the mistake must relate to a material feature of the contract; second, it must have occurred despite the exercise of reasonable care; and third, the other party must be placed in statu quo. Steinmeyer v. Schroeppel (1907), 226 Ill. 9, 13, 80 N.E. 564; Winkelman v. Erwin (1929), 333 Ill. 636, 639, 165 N.E. 205; Smuk v. Hryniewiecki (1938), 369 Ill. 546, 555, 17 N.E.2d 223.

There is little doubt that the approximately $31,000 error by Calnan was a material feature of the contract. Both parties concede this. The pivotal points for our consideration are the last two conditions: Calnan's exercise of reasonable care and placement of Talsma in statu quo.

In Steinmeyer v. Schroeppel (1907), 226 Ill. 6, 80 N.E. 564, a lumber company had been asked for a bid on lumber by a contractor. Due to a clerical miscalculation in addition, the lumber company submitted a bid $221 below the bid of $1,867 that it had intended and...