NAT. FIRE INS. v. Brown & Martin Co., Inc.

• Citation: 726 F. Supp. 1036
• Decision Date: 06 December 1989
• Docket Number: No. 89-348.,89-348.
• Court: U.S. District Court — District of South Carolina
• Parties: NATIONAL FIRE INSURANCE COMPANY OF HARTFORD, Plaintiff, v. BROWN & MARTIN COMPANY, INC., and City of Columbia, South Carolina, Defendants.

726 F. Supp. 1036

NATIONAL FIRE INSURANCE COMPANY OF HARTFORD, Plaintiff, v. BROWN & MARTIN COMPANY, INC., and City of Columbia, South Carolina, Defendants.

No. 89-348.

United States District Court, D. South Carolina, Columbia Division.

November 3, 1989.

On Motion to Alter or Amend December 6, 1989.

Robert Francis McMahan, Jr., Glenn, Irvin, Murray, Gray & Stepp, Columbia, S.C., for plaintiff.

Kenneth E. Gaines, Columbia, S.C., for City of Columbia.

Henry Wall, Columbia, S.C., for Brown & Martin Co.

ORDER

HENDERSON, District Judge.

This matter is before the Court on cross-motions by all parties for summary judgment.¹ For the reasons set forth below, the Court grants the motion of defendant Brown & Martin Co., Inc. ("Brown & Martin") and plaintiff National Fire Insurance Company of Hartford ("National") and denies the motion of defendant City of Columbia, South Carolina ("City of Columbia"). Accordingly, the Court directs that judgment be entered in favor of plaintiff National and defendant Brown & Martin.

The material facts are undisputed.² In October and November 1988 defendant City of Columbia solicited sealed bids for construction of a city project known as "Saint Mark Woods Subdivision," which required installation of a sewer line. The bidding instructions for the project provided that all bids be submitted no later than 10:00 a.m. on November 15, 1988, and that each be accompanied by a bid bond or certified check in an amount equal to five percent of the bid. Memorandum of the City of Columbia in Support of its Motion for Summary Judgment ("City of Columbia's Memorandum"), Exh. E ¶¶ 1.1, 2.6, 11.1. The instructions further stated: "The successful bidder, upon his failure or refusal to execute and deliver the contract and bonds required within ten (10) days after he has received notice of the acceptance of his bid, shall forfeit to the Owner, as liquidated damages, for such failure or refusal the security deposited with his bid." City of Columbia's Memorandum, Exh. E ¶ 12.0.

Brown & Martin's president, Mr. Pringle Boyle ("Boyle"), prepared and submitted a bid on the project for $588,912. City of Columbia's Memorandum, Exh. E at P-1 to P-5. He also submitted a bid bond in the amount of $29,445.60, issued by plaintiff National. City of Columbia's Memorandum, Exh. G. When the bids were opened on November 15, 1988, it was revealed that Brown and Martin's bid was the lowest by approximately $100,000.³ City of Columbia's Memorandum, Exh. G at 3. At that time Boyle became suspicious of Brown & Martin's low bid and decided to review his computations. Boyle discovered he had mistakenly computed the line item price for line 22, the removal of asphalt and its replacement with concrete, based on a linear foot rather than a square yard price. City of Columbia's Memorandum, Exh. I. The price submitted for line 22, based on the linear foot measurement, was $10.00 per unit or a total of $68,900.⁴ See City of Columbia's Memorandum, Exh. E at P-3. In addition, Boyle discovered that a paving subcontractor had mistakenly submitted a bid to Boyle & Martin for line 22 of $2.70 per square yard for concrete patchwork instead of $27.00 per square yard.⁵ On November 16, 1988, the Columbia City Council voted to accept Brown & Martin's bid and to award it the contract. See City of Columbia's Memorandum, Exh. H at 2. Later that day, the City of Columbia received a hand-delivered letter from Boyle seeking to withdraw or correct the bid. See City of Columbia's Memorandum, Exhs. I, D, at 43-44. Nevertheless by letter dated November 16, 1988, the City of Columbia notified Brown & Martin that it had been awarded the contract. City of Columbia's Memorandum, Exh. J.

On November 23, 1988, a preconstruction conference was held, attended by representatives of Brown & Martin and the City of Columbia. At that meeting, John Ricketts, the City of Columbia's Director of Utilities & Engineering, characterized Boyle's error as "an honest mistake" and informed Brown & Martin that, because it had promptly notified the City of the error, he would recommend that Brown and Martin be permitted to increase its bid by $68,900. City of Columbia's Memorandum, Exh. L at 6, 11-13; Ricketts Deposition at 43-44. In a memorandum, dated December 1, 1988, Ricketts recommended to the city manager that the bid be increased to $657,812. Subsequently, however, Ricketts changed his recommendation⁶ and the city manager then recommended to the city council that Brown & Martin's request to change its bid be denied, that the second lowest bid be accepted and that Brown & Martin's bid bond be forfeited. Excerpts of Depositions Cited by Brown & Martin, Exh. C at 4. At a meeting on December 14, 1988, the city council adopted this recommendation and decided that, if Brown & Martin did not execute the contract within forty-eight hours, the project would be awarded to the next lowest bidder and Brown & Martin's bid bond would be forfeited. City of Columbia's Memorandum, Exh. P at 7. Brown & Martin refused to sign the contract and the bid was awarded to the second lowest bidder. City of Columbia's Reply Memorandum to Brown & Martin Company, Inc.'s Memorandum in Support of its Motion for Summary Judgment, Exh. C at 2.

On February 15, 1989, National brought this action seeking a declaration that the City of Columbia is not entitled to recover any part of the bid bond amount or, alternatively, indemnification from Brown & Martin for any payment required to be made under the bond. Defendant Brown & Martin's answer asserts it is entitled to rescission and also seeks a declaration that the City of Columbia may not recover on the bond. Defendant City of Columbia's answer seeks judgment in the amount of the bond.

Both defendants have now moved for summary judgment and plaintiff National has joined in Brown & Martin's motion.⁷ For the reasons set forth below, the Court concludes that National and Brown & Martin are entitled to summary judgment and that the City of Columbia is not entitled to recover under the bond.

The question which the Court must decide is whether under South Carolina law a contractor, such as Brown & Martin, who submits a mistaken bid is entitled to rescission of a construction contract and return of its bid bond. The South Carolina courts have not considered this precise issue, but the majority of courts which have addressed the question hold that under the proper circumstances a contractor should be permitted to withdraw a bid or rescind a contract when its bid is based on a mistake of fact. See Annotation, Right of Bidder for State of Municipal Contract to Rescind Bid on Ground That Bid Was Based upon His Own Mistake or That of His Employer, 2 A.L.R.4th 991, 1003-1021, 1029-1038 (1980) (citing cases). Although courts have not been unanimous in articulating the particular conditions which entitle a contractor to withdraw a bid or rescind a contract, they have generally granted relief to a bidder if (1) the error is so substantial that enforcement would be unconscionable and (2) if notice is given before the nonmistaken party has substantially changed its position so that it cannot be returned to the status quo ante.⁸ Corbin on Contracts § 609, at 682-84; cf. Annotation, supra, at 998. The Court concludes that the South Carolina courts would adopt the majority view which is consistent with existing South Carolina authority on rescission for unilateral mistake.

Under South Carolina law, a contract may be rescinded for unilateral mistake not induced by the other party when the mistake is accompanied by circumstances which would make it a great wrong to enforce the agreement and the nonmistaken party may be returned to the status quo ante. Scott v. Mid-Carolina Homes, 293 S.C. 191, 199, 359 S.E.2d 291, 296 (1987); King v. Oxford, 282 S.C. 307, 313, 318 S.E.2d 125, 128-29 (1984); see also Jumper v. Queen Mab Lumber Co., 115 S.C. 452, 458-59, 106 S.E. 473, 475 (1921). This general rule is consistent with the prevalent modern view and the practice of many courts in other jurisdictions. See Restatement (Second) of Contracts § 153 & comment a (1981); 3 Corbin on Contracts § 608 (1960). It is also consistent with the majority position concerning rescission of bid contracts and some courts have relied on the general rule to permit rescission by bidders. See, e.g., First Baptist Church of Moultrie v. Barber Contracting Co., 189 Ga.App. 804, 377 S.E.2d 717, 719-20 (1989); State v. Ottinger, 232 Ark. 35, 334 S.W.2d 694, 696 (1960). The Court believes that the South Carolina courts would likewise apply the general rule of unilateral rescission to bidding contracts and adopt the majority rule on rescission of such contracts, particularly in light of the long-standing policy of the State courts against forfeitures. See Elliott v. Snyder, 246 S.C. 186, 143 S.E.2d 374, 375 (1965) ("Forfeitures are not favored in law and Courts will seize upon even slight evidence to prevent one."); see also South Carolina Tax Comm'n v. Metropolitan Life Ins. Co., 266 S.C. 34, 39, 221 S.E.2d 522, 523 (1975); Cope v. Jefferson Standard Life Ins. Co., 134 S.C. 532, 534, 133 S.E. 440, 441 (1909).

Having concluded that the South Carolina courts would adopt the majority position that a contractor is entitled to rescission where (1) the error is so substantial that enforcement would work a great wrong, and (2) notice is given before the nonmistaken party has substantially changed its position so that it cannot be returned to the status quo ante, the Court must determine whether rescission is warranted under the facts here. The Court concludes that it is.

Boyle's error decreased the amount of Brown & Martin's bid by $68,900, or approximately 11.7% of the total, and enforcement of the liquidated damages provision would result in a forfeiture of $29,445.50. From these facts, it is clear that the mistake was substantial and that enforcement of the contract would work a great wrong on Brown &...