Lemoge Elec. v. San Mateo County

Decision Date06 June 1956
Citation297 P.2d 638,46 Cal.2d 659
CourtCalifornia Supreme Court
PartiesLEMOGE ELECTRIC, a corporation, Plaintiff and Appellant, v. COUNTY OF SAN MATEO, State of California, Defendant and Respondent. S. F. 19116.

John F. O'Dea, San Francisco, for appellant.

Keith C. Sorenson and Howard E. Gawthrop, Redwood City, for respondent.

GIBSON, Chief Justice.

Plaintiff corporation, a licensed electrical contracter, brought this action for reformation of a contract with defendant county, and it appeals from a judgment for defendant after the sustaining of a general demurrer without leave to amend.

The allegations of the complaint may be summarized as follows: Plaintiff submitted a bid for $172,421 for electrical work to be done at the county hospital. This bid was found to be the lowest, and, when defendant announced that the bids of other contractors ranged from $197,500 to $222,700, plaintiff realized that some material mistake had been made in the preparation of its bid. The contract was not awarded at that time, defendant having reserved a 30-day period in which to act. Prompt investigation by plaintiff revealed that in its work sheets the cost of certain materials amounting to $10,452 had inadvertently been listed by a clerk as $104.52. This mistake, considered with the applicable sales tax and 'mark-up' for overhead and profit, resulted in an understatement of bid in the amount of $11,744.39. When the mistake was discovered plaintiff immediately notified defendant and furnished it with work sheets and adding machine tapes showing the error. With knowledge of the mistake and what caused it, defendant accepted the erroneous bid and attempted to bind plaintiff to the consequences of the error. Plaintiff requested that the bid be adjusted to compensate for the error, but defendant refused to allow the correction. It is further alleged that the mistake was of such a material and fundamental character that there has been no meeting of the minds of plaintiff and defendant.

Two questions are presented on this appeal. Does the complaint allege sufficient facts to entitle plaintiff to reformation? Did the court err in sustaining the demurrer without leave to amend?

Once open and declared, plaintiff's bid was in the nature of an irrevocable option, a contract right of which defendant could not be deprived without its consent unless the requirements for rescission were satisfied. M. F. Kemper Const. Co. v. City of Los Angeles, 37 Cal.2d 696, 700, 235 P.2d 7. Plaintiff then had the right to rescind, and it could have done so without incurring any liability on its bond. M. F. Kemper Const. Co. v. City of Los Angeles, 37 Cal.2d 696, 702-705, 235 P.2d 7. But plaintiff did not rescind. Instead, according to statements made by plaintiff in its briefs and at oral argument, it entered into a formal contract with defendant on the terms specified in the bid and proceeded to perform the required work. It is not claimed that defendant at any time agreed to pay plaintiff an amount greater than the sum designated in the bid. There was no element of fraud or failure to disclose; neither party knew of the error until after the bids were opened, and both parties knew of it before the bid was accepted or the formal contract was executed. The facts alleged do not entitle plaintiff to reformation, and, in view of other facts admitted by plaintiff, there is no reasonable possibility that the complaint can be amended to state a cause of action on any theory.

The purpose of reformation is to correct a written instrument in order to effectuate a common intention of both parties which was incorrectly reduced to writing. Bailard v. Marden, 36 Cal.2d 703, 708, 227 P.2d 10. In order for plaintiff to obtain this relief there must have been an understanding between the parties on all essential terms, otherwise there would be no standard to which the writing could be reformed. Bailard v. Marden, 36 Cal.2d 703, 708, 227 P.2d 10; McConnell v. Pickering Lumber Corp., 9 Cir., 217 F.2d 44, 48-49; see 5 Williston on Contracts (Rev.Ed., 1937), § 1548, p. 4339; Rest., Contracts, § 504, comment b; 45 Am.Jur. 586-587, 609-610. Section 3399 of the Civil Code 1 incorporates this principle by providing that, under specified conditions, a written contract which does not truly express 'the intention of the parties' may be revised so as to set forth 'that intention.' As pointed out in Bailard v. Marden, supra, this language refers to a single intention which is entertained by both parties. 36 Cal.2d at page 708, 227 P.2d 10.

Reformation may be had for a mutual mistake or for the mistake of one party which the other knew or suspected, but in either situation the purpose of the remedy is to make the written contract truly express the intention of the parties. Where the failure of the written contract to express the intention of the parties is due to the inadvertence of both of them, the mistake is mutual and the contract may be revised on the application of the party aggrieved. See e. g. Mills v. Schulba, 95 Cal.App.2d 559, 213 P.2d 408. When only one party to the contract is mistaken as to its provisions and his mistake is known or suspected by the other, the contract may be reformed to express a single intention entertained by both parties. Stevens v. Holman, 112 Cal. 345, 44 P. 670; Higgins v. Parsons, 65 Cal. 280, 3 P. 881; Eagle Indemnity Co. v. Industrial Accident Commission, 92 Cal.App.2d 222, 206 P.2d 877; see Hanlon v. Western Loan & Building Co., 46 Cal.App.2d 580, 116 P.2d 465. Although a court of equity may revise a written instrument to make it conform to the real agreement, it has no power to make a new contract for the parties, whether the mistake be mutual or unilateral. Bailard v. Marden, 36 Cal.2d 703, 708, 227 P.2d 10; Burt v. Los Angeles Olive Growers Ass'n, 175 Cal. 668, 674-675, 166 P. 993; 5 Williston on Contracts (Rev.Ed., 1937), § 1549, pp. 4344-4345; Rest., Contracts, § 504, comment c; 45 Am.Jur. 587-588. As we have seen it is not alleged that defendant ever agreed to pay plaintiff an amount greater than the sum designated in the bid, and the complaint therefore does not state facts entitling plaintiff to reformation.

In the furtherance of justice great liberality should be exercised in permitting a plaintiff to amend his complaint, and it ordinarily constitutes an abuse of discretion to sustain a demurrer without leave to amend if there is a reasonable possibility that the defect can be cured by amendment. Wennerholm v. Stanford University School of Medicine, 20 Cal.2d 713, 717 et seq., 128 P.2d 522, 141 A.L.R. 1358; Guilliams v. Hollywood Hospital, 18 Cal.2d 97, 104, 114 P.2d 1; see Code Civ.Proc. § 472c; MacIsaac v. Pozzo, 26 Cal.2d 809, 815-816, 161 P.2d 449; Klopstock v. Superior Court, 17 Cal.2d 13, 19-20, 108 P.2d 906, 135 A.L.R. 318. But it is clear, in view of what has been said, that plaintiff cannot amend its complaint so as to state a cause of action for reformation or rescission. Nor has plaintiff shown how the complaint can be amended to state a cause of action in quasi contract. In the circumstances existing here recovery on this theory would necessarily have to be based on the assumption that no contract ever existed. As we have seen when the bids were opened defendant had an irrevocable option to bind plaintiff to perform the work at the specified figure, and defendant could not be deprived of this right without its consent unless the requirements for recission were satisfied. M. F. Kemper Const. Co. v. City of Los Angeles, 37 Cal.2d 696, 700, 235 P.2d 7. Plaintiff failed to assert its right to rescind, defendant accepted the bid, and plaintiff entered into a formal contract which incorporated the terms of the bid. Neither party was under any misapprehension as to what the provisions of the formal contract were, and since there was an express contract for a sum certain, plaintiff cannot recover on the theory of an implied contract for the reasonable value of services performed. We need not, therefore, consider the applicability of the general rule that, where a statute requires that a contract must be let by competitive bidding, a person cannot recover in quasi contract for labor or materials furnished. See Miller v. McKinnon, 20 Cal.2d 83, 88, 124 P.2d 34, 140 A.L.R. 570; Reams v. Cooley, 171 Cal. 150, 151 et seq., 152 P. 293; Gamewell Fire Alarm Tel. Co. v. City of Los Angeles, 45 Cal.App. 149, 154, 187 P. 163.

Plaintiff had a remedy, which it chose not to exercise, that would have relieved it of any hardship that could result from its error. However, instead of rescinding, plaintiff, with full knowledge of its mistake, proceeded to perform the contract, and it cannot now compel defendant to pay the amount which it claims it intended to bid or obtain recovery on a quasi contractual basis as if no contract existed. Such a result would not only be contrary to settled legal principles, but it would also create uncertainty and confusion in the field of competitive bidding.

The judgment is affirmed.

CARTER, TRAYNOR, SPENCE, and McCOMB, JJ., concur.

SCHAUER, Justice (dissenting).

This case is before us on appeal from a judgment of dismissal after the sustaining of a general demurrer without leave to amend. As stated in the majority opinion, 'In the furtherance of justice great liberality should be exercised in permitting a plaintiff to amend his complaint, and it ordinarily constitutes an abuse of discretion to sustain a demurrer without leave to amend if there is a reasonable possibility that the defect can be cured by amendment. (Citations.)' Nevertheless, the majority opinion, with unjust strictness rather than with liberality, refuses to permit plaintiff the opportunity to amend and forecloses plaintiff from any remedy for a mistake of which (it must be conceded for the purpose of this appeal) defendant sought to take advantage although, as alleged by plai...

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