MJ McGough Company v. Jane Lamb Memorial Hospital

• Decision Date: 14 July 1969
• Docket Number: 3779D.,Civ. No. 3777D
• Citation: 302 F. Supp. 482
• Parties: M. J. McGOUGH COMPANY, Plaintiff, v. JANE LAMB MEMORIAL HOSPITAL, Defendant. JANE LAMB MEMORIAL HOSPITAL, Plaintiff, v. M. J. McGOUGH COMPANY and the Continental Insurance Company, Defendants.
• Court: U.S. District Court — Southern District of Iowa

302 F. Supp. 482

M. J. McGOUGH COMPANY, Plaintiff, v. JANE LAMB MEMORIAL HOSPITAL, Defendant.

JANE LAMB MEMORIAL HOSPITAL, Plaintiff, v. M. J. McGOUGH COMPANY and the Continental Insurance Company, Defendants.

Civ. Nos. 3777D, 3779D.

United States District Court S. D. Iowa, Davenport Division.

July 14, 1969.

Edward N. Wehr, Davenport, Iowa, for M. J. McGough Co. and Continental Ins. Co.

Richard M. McMahon, Thomas F. Daley, Jr., and Monty E. Stratton, Davenport, Iowa, Richard W. Farwell, Clinton, Iowa, for Jane Lamb Memorial Hospital.

MEMORANDUM OPINION

STEPHENSON, Chief Judge.

This action arises out of two separate cases filed on April 11, 1968, and consolidated for trial. The parties waived jury and the matter was tried by the Court on May 19, 1969. Only a limited amount of evidence was produced at trial due to the fact that the parties by their stipulations have shown that little dispute exists as to the facts. Jurisdiction exists by reason of diversity and requisite amount in controversy. 28 U.S.C.A. § 1332.

The controversy herein arises from the competitive bidding on a hospital improvement proposed by Jane Lamb Memorial Hospital, a nonprofit Iowa corporation. On or about January 2, 1968, the Hospital published an invitation for bids on this improvement. M. J. McGough Company, a Minnesota corporation, accepted said invitation and submitted a bid along with a bid bond from The Continental Insurance Company in the amount of $100,000. The bid of M. J. McGough was submitted shortly before the opening time of 2:00 p.m., on February 16, 1968. The bids were opened by the Chairman of the Board of Trustees of Jane Lamb Memorial Hospital, Mr. Clark Depue III, at 2:00 p.m., and recorded as follows:

                         M. J. McGough Co., St. Paul                      $1,957,000
                         Knutson Construction Co., Minneapolis             2,120,643
                         Steenberg Construction Co., St. Paul              2,185,000
                         Rinderknecht Construction So., Cedar Rapids       2,264,000
                         O. Jorgenson & Sons Construction Co., Clinton     2,322,064
                         Lovering Construction Co., St. Paul               2,326,380
                         Universal Construction Co., Kansas City, Mo.      2,500,000
                         Ringland-Johnson-Crowley Co., Inc., Clinton       2,557,837
                         Priester Construction Co., Davenport              2,611,000
                

These figures were relayed to Mr. J. H. McGough, President of M. J. McGough Company, by a representative present at the opening. Mr. McGough was immediately concerned over the ten percent (10%) difference between his low bid and the next lowest bid of Knutson Construction Company.¹ Feeling a serious mistake had been made in the compilation of his bid, therefore, Mr. McGough called his representative at the opening and instructed him to request that he be allowed to withdraw his bid. This request was transmitted to Mr. Depue at approximately 2:45 p.m. while the Board was still analyzing the bids received. Shortly thereafter Mr. McGough spoke with Mr. Depue by telephone and Mr. Depue requested a letter explaining the circumstances of the mistake and a written request to withdraw. Mr. McGough and his staff then began checking the papers relating to this bid and discovered an error in the amount of $199,800. The circumstances surrounding the error were set out in a letter dated February 16, 1968, directed to Milton Holmgrain, the hospital administrator. In the letter Mr. McGough offered to "submit to you immediately all of our records relating to this project for verification of this error." In spite of this the Board of Trustees, without further communication with M. J. McGough Company, at its meeting on February 22, 1968, passed a "Resolution of Intent" to the effect that the Board intended to accept the bid of M. J. McGough Company subject to obtaining the approval of the Division of Hospital Services of the Iowa State Department of Health and the U. S. Public Health Service.

Thereafter, the parties communicated a number of times by telephone, letter and in person on the matter. At all times M. J. McGough Company sought the withdrawal of its bid and offered to produce its papers to verify the error in its bid. Likewise, the representatives of Jane Lamb Memorial Hospital continuously sought to hold M. J. McGough Company to its original bid. Upon the refusal of M. J. McGough Company to execute the contract and other necessary documents, however, the contract was awarded to the next lowest bidder, Knutson Construction Company.

On April 11, 1968, M. J. McGough Company filed a complaint in this Court seeking to have its bid declared rescinded and the surety, The Continental Insurance Company, be released from liability on the bond. On that same date Jane Lamb Memorial Hospital filed a complaint in this court against M. J. McGough Company and The Continental Insurance Company seeking damages in the amount of $190,156.58.² These claims are consolidated for decision herein.

The circumstances surrounding the mistake in the bid of M. J. McGough Company are not seriously disputed. The majority of the subcontractor bids used in computing the bid of M. J. McGough Company were received on February 16, 1968, the day of the opening. It is the accepted practice and custom among subcontractors to refrain from submitting their final sub-bids until the day of the opening and, then, only within a matter of hours before the actual opening of bids.³ The final sub-bids were received by telephone in the offices of M. J. McGough Company in St. Paul, Minnesota, between 10:00 a.m. and 1:00 p.m. on February 16, 1968. The sub-bids were recorded as they were phoned in on a slip of paper. Mr. McGough received the sub-bid of Artcraft Interiors, Inc., during this period of frenzied activity, and although he correctly recorded it on the slip of paper as $222,000, he verbally called it to an employee who recorded it as $22,200. This erroneous figure was, subsequently, transposed by the employee on the recapitulation sheet and used in computing the final bid of M. J. McGough Company. It was not until after the opening of bids, when Mr. McGough sought to check their figures, that the mistake was discovered.

By the overwhelming weight of authority a contractor may be relieved from a unilateral mistake in his bid by rescission under the proper circumstances. See generally, Annot., 52 A.L.R.2d 792 (1957).⁴ The prerequisites for obtaining such relief are: (1) the mistake is of such consequence that enforcement would be unconscionable; (2) the mistake must relate to the substance of the consideration; (3) the mistake must have occurred regardless of the exercise of ordinary care; (4) it must be possible to place the other party in status quo. See e.g., Peerless Casualty Co. v. Housing Authority, 228 F.2d 376 (5th Cir. 1955); Mount St. Mary's College v. Aetna Casualty & Surety Co., 233 F. Supp. 787 (D.Md.1964), aff'd per curiam, 344 F.2d 331 (4th Cir. 1965); Smith & Lowe Const. Co. v. Herrera, 79 N.M. 239, 442 P.2d 197 (1968); Kenneth E. Curran, Inc. v. State, 106 N.H. 558, 215 A.2d 702 (1965); Bd. of Water & Sewer Commissioners of Mobile v. Spriggs, 274 Ala. 155, 146 So.2d 872 (1962); City of Baltimore v. DeLuca-Davis Const. Co., 210 Md. 518, 124 A.2d 557 (1956); State Highway Commission v. State Const. Co., 203 Or. 414, 280 P.2d 370, 52 A.L.R.2d 779 (1955); School Dist. of Scottsbluff v. Olson Const. Co., 153 Neb. 451, 45 N.W.2d 164 (1950); Kutsche v. Ford, 222 Mich. 442, 192 N.W. 714 (1923); St. Nicholas Church v. Kropp, 135 Minn. 115, 160 N.W. 500, L.R.A.1917D, 741 (1916). It is also generally required that the bidder give prompt notification of the mistake and his intention to withdraw. Bd. of Ed. of Chillicothe City School District v. Sever-Williams, 16 Ohio App.2d 7, 240 N.E.2d 880 (1968); Bd. of Ed. of Floyd County v. Hooper, 350 S.W.2d 629 (Ky.1961); Elsinore Union Elementary School Dist. etc. v. Kastorff, 54 Cal.2d 380, 6 Cal.Rptr. 1, 353 P.2d 713 (1960); James T. Taylor and Son, Inc., v. Arlington Ind. School Dist., 160 Tex. 617, 335 S.W.2d 371 (1960); Puget Sound Painters, Inc. v. State, 45 Wash. 2d 819, 278 P.2d 302 (1954); M. F. Kemper Const. Co. v. City of Los Angeles, 37 Cal.2d 696, 235 P.2d 7 (1951).

Although there is no decision on this point in Iowa it would appear by the language in Amodeo Co. v. Woodward, 192 Iowa 535, 185 N.W. 94 (1921), that the Iowa courts would follow the reasoning of the majority. In Amodeo, supra at 537, 185 N.W. at 94-95, the Iowa Supreme Court stated as follows:

"But the matter was discussed as to whether there was not a mistake, and as to whether plaintiff could go on under his bid. This was before it was accepted. After discovering the provision of the notice, and before it was accepted by the council, plaintiff made no effort to correct his bid, or to withdraw it, or to withdraw the check. He gave the council to understand that he would go on with it, and thereafter his bid was accepted. Had plaintiff withdrawn his bid, the council would, no doubt, have accepted the next lowest bid; at least, they could have done so."

Later in the opinion, supra at 541, 185 N. W. at 96, it was further pointed out that:

"As it is, the city has lost a considerable sum by reletting at a higher price because of plaintiff's failure to contract, and because of his failure to withdraw his bid and check after he discovered the alleged mistake, and before his bid was accepted. Had he done the latter, he would have protected himself and the city as well."

It might be noted further that the suit in Amodeo was an action at law, rather than in equity to rescind. Some cases make the distinction as to the rights of the contractor whether legal or equitable principles control in the particular action. See, e. g., Hotel China & Glassware Co. v. Bd. of Public Instruction, 130 So. 2d 78 (Fla.App.1961); Baltimore v. DeLuca-Davis Const. Co., supra. This, of course, is not a problem in Federal Courts where law and equity...