M. F. Kemper Const. Co. v. City of Los Angeles

Decision Date28 August 1951
Citation235 P.2d 7,37 Cal.2d 696
PartiesM. F. KEMPER CONST. CO. v. CITY OF LOS ANGELES et al. L. A. 21472.
CourtCalifornia Supreme Court

Ray L. Chesebro, City Atty., Bourke Jones, Asst. City Atty., and James A. Doherty, Deputy City Atty., Los Angeles, for appellants.

Stephen Monteleone, John M. Martin and Frank L. Martin, Jr., Los Angeles, fot respondents.

Gardiner Johnson and Thomas E. Stanton, Jr., San Francisco, as amici curiae on behalf of respondents. GIBSON, Chief Justice.

M. F. Kemper Construction Company brought this action against the City of Los Angeles to cancel a bid it had submitted on public construction work and to obtain discharge of its bid bond. The city cross-complained for forfeiture of the bond and for damages. The trial court cancelled the bid, discharged the bond, and allowed appellant city nothing on its cross-complaint. The sole issue is whether the company is entitled to relief on the ground of unilateral mistake.

On July 28, 1948, the city Board of Public Works published a notice inviting bids for the construction of the general piping system for the Hyperion sewer project. Pursuant to the city charter, the notice provided that each bid must be accompanied by a certified check or surety bond for an amount not less than 10% of the sum of the bid 'as a guarantee that the bidder will enter into the proposed contract if it is awarded to him,' and that the bond or check and the proceeds thereof 'will become the property of the city of Los Angeles, if the bidder fails or refuses to execute the required contract * * *.' 1 The charter provides: 'After bids have been opened and declared, except with the consent of the officer, board or City Council having jurisdiction over the bidding, no bid shall be withdrawn, but the same shall be subject to acceptance by the city for a period of three months * * *.' Sec. 386(d). The notice inviting bids reserved to the board the right to reject and and all bids, and both it and the official bid form stated that bidders 'will not be released on account of errors.'

Respondent company learned of the invitation for bids on August 17 and immediately began to prepare its proposal. Over a thousand different items were involved in the estimates. The actual computations were performed by three men, each of whom calculated the costs of different parts of the work, and in order to complete their estimates, they all worked until 2:00 o'clock on the morning of the day the bids were to be opened. Their final effort required the addition and transposition of the figures arrived at by each man for his portion of the work from his 'work sheet' to a 'final accumulation sheet' from which the total amount of the bid was taken. One item estimated on a work sheet in the amount of $301,769 was inadvertently omitted from the final accumulation sheet and was overlooked in computing the total amount of the bid. The error was caused by the fact that the men were exhausted after working long hours under pressure. When the bids were opened on August 25, it was found that respondent company's bid was.$780,305 and the bids of the other three contractors were $1,049,592, $1,183,000 and $1,278,895.

The company discovered its error several hours after the bids were opened and immediately notified a member of the board of its mistake in omitting one item while preparing the final accumulation of figures for its bid. On August 27 the company explained its mistake to the board and withdrew its bid. A few days later, at the board's invitation, it submitted evidence which showed the unintentional omission of the $301,769 item. The board, however, passed a resolution accepting the erroneous bid of.$780,305, and the company refused to enter into a written contract at that figure. On October 15, 1948, without readvertising, the board awarded the contract to the next lowest bidder. The city then demanded forfeiture of the Kemper Company's bond, and the company commenced the present action to cancel its bid and obtain discharge of the bond.

The trial court found that the bid had been submitted as the result of an excusable and honest mistake of a material and fundamental character, that the company had not been negligent in preparing the proposal, that it had acted promptly to notify the board of the mistake and to rescind the bid, and that the board had accepted the bid with knowledge of the error. The court further found and concluded that it would be unconscionable to require the company to perform for the amount of the bid, that no intervening rights had accrued, and that the city had suffered no damage or prejudice.

Once opened and declared, the company's bid was in the nature of an irrevocable option, a contract right of which the city could not be deprived without its consent unless the requirements for rescission were satisfied. See Conduit & Foundation Corporation v. Atlantic City, 2 N.J.Super. 433, 64 A.2d 382, 384-385; School District of Scottsbluff v. Olson Const. Co., 153 Neb. 451, 45 N.W.2d 164, 166-168; 5 Williston on Contracts (1937) §§ 1441, 1578. The company seeks to enforce rescission of its bid on the ground of mistake. See Civ.Code, § 1689. The city contends that a party is entitled to relief on that ground only where the mistake is mutual, and it points to the fact that the mistake in the bid submitted was wholly unilateral. See Rest., Contracts § 503; Rest., Restitution, § 12; 5 Williston on Contracts (1937) § 1579. However, the city had actual notice of the error in the estimates before it attempted to accept the bid, and knowledge by one party that the other is acting under mistake is treated as equivalent to mutual mistake for purposes of rescission. 5 Williston on Contracts (1937) § 1557, p. 4362; see also School District of Scottsbluff v. Olson Const. Co., 153 Neb. 451, 45 N.W.2d 164, 166; Rest., Contracts, § 503, Comment a, Illus. 5; Rest., Restitution, § 12, Comment c; 3 Pomeroy's Equity Jurisprudence (1941) § 870a, p. 389-390. Relief from mistaken bids is consistently allowed where one party knows or has reason to know of the other's error and the requirements for rescission are fulfilled. Moffett, Hodgkins & Clarke Co. v. City of Rochester, 178 U.S. 373, 385, 387, 20 S.Ct. 957, 961-962, 44 L.Ed. 1108; Conduit & Foundation Corporation v. Atlantic City, 2 N.J.Super. 433, 64 A.2d 382, 386; Geremia v. Boyarsky, 107 Conn. 387, 140 A. 749; R. O. Bromagin & Co. v. City of Bloomington, 234 Ill. 114, 84 N.E. 700; W. F. Martens & Co. v. City of Syracuse, 183 App.Div. 622, 171 N.Y.S. 87; note 59 A.L.R. 809, 815-817; 80 A.L.R. 586; see School District of Scottsbluff v. Olson Const. Co., supra, 153 Neb. 451, 45 N.W.2d 164, 166;, 5 Williston on Contracts (1937) § 1578, p. 4410-4412; Lubell, Unilateral Palpable and Impalpable Mistake in Construction Contracts (1931) 16 Minn.L.Rev. 137, 143-147.

Recission may be had for mistake of fact if the mistake is material to the contract and was not the result of neglect of a legal duty, if enforcement of the contract as made would be unconscionable, and if the other party can be placed in statu quo. See Civ.Code, §§ 1577, 3406, 3407, 1689, 1691; 3 Pomeroy's Equity Jurisprudence (1941) § 870a. In addition, the party seeking relief must give prompt notice of his election to rescind and must restore or offer to restore to the other party everything of value which he has received under the contract. Civ.Code, § 1691; see McCall v. Superior Court, 1 Cal.2d 527, 535-536, 36 P.2d 642, 95 A.L.R. 1019; Seeger v. Odell, 18 Cal.2d 409, 417-418, 115 P.2d 977, 136 A.L.R. 1291.

Omission of the $301,769 item from the company's bid was, of course, a material mistake. The city claims that the company is barred from relief because it was negligent in preparing the estimates, but even if we assume that the error was due to some carelessness, it does not follow that the company is without remedy. Civil Code section 1577, which defines mistake of fact for which relief may be allowed, describes it as one not caused by 'the neglect of a legal duty' on the part of the person making the mistake. It has been recognized numerous times that not all carelessness constitutes a 'neglect of a legal duty' within the meaning of the section. Los Angeles & R. R. Co. v. New Liverpool Salt Co., 150 Cal. 21, 28, 87 P. 1029; Mills v. Schulba, 95 Cal.App.2d 559, 565, 213 P.2d 408; see Burt v. Los Angeles Olive Growers Ass'n, 175 Cal. 668, 675-676, 166 P. 993; 3 Pomeroy's Equity Jurisprudence § 856b. On facts very similar to those in the present case, courts of other jurisdictions have stated that there was no culpable negligence and have granted relief from erroneous bids. See Conduit & Foundation Corporation v. Atlantic City, 2 N.J.Super. 433, 64 A.2d 382; School District of Scottsbluff v. Olson Const. Co., 153 Neb. 451, 45 N.W.2d 164; Board of Regents v. Cole, 209 Ky. 761, 273 S.W. 508; Geremia v. Boyarsky, 107 Conn. 387, 140 A. 749; Barlow v. Jones, N.J., 87 A. 649; W. F. Martens & Co. v. City of Syracuse, 183 App.Div. 622, 171 M.Y.S. 87; R. O. Bromagin & Co. v. City of Bloomington, 234 Ill. 114, 84 N.E. 700; Board of School Com'rs v. Bender, 36 Ind.App. 164, 72 N.E. 154; Moffett, Hodgkins & Clarke Co. v. City of Rochester, 178 U.S. 373, 20 S.Ct. 957, 44 L.Ed. 1108; see 59 A.L.R. at 818-824; cf. Steinmeyer v. Schroeppel, 226 Ill. 9, 80 N.E. 564, 10 L.R.A., N.S., 114. The type of error here involved is one which will sometimes occur in the conduct of reasonable and cautious businessmen, and, under all the circumstances, we cannot say as a matter of law that it constituted a neglect of legal duty such as would bar the right to equitable relief.

The evidence clearly supports the conclusion that it would be unconscionable to hold the company to its bid at the mistaken figure. The city had knowledge before the bid was accepted that the company had made a clerical error which resulted in the omission of an item...

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