Neptune Gunite Co. v. Monroe Enterprises, Inc.

• Decision Date: 31 August 1964
• Citation: 40 Cal.Rptr. 367,229 Cal.App.2d 439
• Court: California Court of Appeals Court of Appeals
• Parties: NEPTUNE GUNITE COMPANY, a corporation, Plaintiff and Respondent, v. MONROE ENTERPRISES, INC., a corporation, Griswold & Sons Construction Co., Inc., Defendants and Appellants. Civ. 27912.

Page 367

40 Cal.Rptr. 367

229 Cal.App.2d 439

NEPTUNE GUNITE COMPANY, a corporation, Plaintiff and Respondent, v. MONROE ENTERPRISES, INC., a corporation, Griswold & Sons Construction Co., Inc., Defendants and Appellants.

Civ. 27912.

District Court of Appeal, Second District, Division 2, California.

Aug. 31, 1964.

Rehearing Denied Sept. 16, 1964.

Hearing Denied Oct. 28, 1964.

Pregerson & Costley, William M. Costley, Van Nuys, for respondent.

Frank De Marco, Jr., Los Angeles, for appellants.

ASHBURN, Justice. ^*

Defendants Monroe Enterprises, Inc. and Griswold & Sons Construction Co., Inc., appeal from judgment establishing and foreclosing a mechanic's lien upon certain real property in La Puente, Los Angeles County, which judgment runs against them as owners and in favor of a sub-subcontractor, Neptune Gunite Company. Griswold & Sons Construction Co., Inc., (hereinafter referred to as Griswold) was general contractor for developing as a subdivision property standing in the name of Monroe Enterprises, Inc., (hereinafter referred to as Monroe). Keith M. Thompson (doing business as K.M.T. Construction Co. and referred to as Thompson) made a subcontract with Griswold requiring Thompson to construct a drainage channel on the property. Thompson, in turn, employed plaintiff Neptune Gunite Company (Neptune) as his subcontractor to do the 'guniting' of the slopes of the channel. Thompson is not and has not been a party to this action. The court found correctly that: 'Neither of the defendants had any direct contractual relations with the plaintiff, nor was a request made by either of the defendants to the plaintiff, to perform the work.'

This case turns upon the applicability of the doctrine of promissory estoppel to the situation presented by the lien claim of a sub-subcontractor against the property owner with whom he had had no relations. As applied to this field that doctrine is stated in Drennan v. Star Paving Co., 51 Cal.2d 409, 333 P.2d 757, a case arising between a general contractor and his own subcontractor. Plaintiff Drennan, the general contractor, had based his own successful bid on that of defendant subcontractor. On the next day after defendant's bid was accepted and after plaintiff had been awarded the general contract, defendant claimed a mistake in his bid and refused to perform. Plaintiff had no knowledge or reason to know of this mistake at the time he made his own bid and was awarded the general contract. Plaintiff recovered the difference between defendant's bid and the actual cost to plaintiff of doing the subcontractor's work. At page 413 of 51 Cal.2d, at page 759 of 333 P.2d the Supreme Court said: 'Thus the question is squarely presented: Did plaintiff's reliance make defendant's offer irrevocable?

'Section 90 of the Restatement of Contracts states: 'A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.' This rule applies in this state. [Citations.]

'Defendant's offer constituted a promise to perform on such conditions as were stated expressly or by implication therein or annexed thereto by operation of law. [Citation.] Defendant had reason to expect that if its bid proved the lowest it would be used by plaintiff. It induced 'action * * * of a definite and substantial character on the part of the promisee.''

At page 415, of 51 Cal.2d, at page 760 of 333 P.2d: 'When plaintiff used defendant's offer in computing his own bid, he bound himself to perform in reliance on defendant's terms. Though defendant did not bargain for this use of its bid neither did defendant make it idly, indifferent to whether it would be used or not. On the contrary it is reasonable to suppose that defendant submitted its bid to obtain the subcontract. It was bound to realize the substantial possibility that its bid would be the lowest, and that it would be included by plaintiff in his bid. It was to its own interest that the contractor be awarded the general contract; the lower the subcontract bid, the lower the general contractor's bid was likely to be and the greater its chance of acceptance and hence the greater defendant's change of getting the paving subcontract. Defendant had reason not only to expect plaintiff to rely on its bid but to want him to. Clearly defendant had a stake in plaintiff's reliance on its bid. Given this interest and the fact that plaintiff is bound by his own bid, it is only fair that plaintiff should have at least an opportunity to accept defendant's bid after the general contract has been awarded to him. * * *

'Defendant contends, however, that its bid was the result of mistake and that it was therefore entitled to revoke it. It relies on the rescission cases of M. F. Kemper Const. Co. v. City of Los Angeles, 37 Cal.2d 696, 235 P.2d 7, and Brunzell Const. Co. v. G. J. Weisbrod, Inc., 134 Cal.App.2d 278, 285 P.2d 989. See also, Lemoge Electric v. San Mateo County, 46 Cal.2d 659, 662, 297 P.2d 638. In those cases, however, the bidder's mistake was known or should have been known to the offeree, and the offeree could be placed in status quo. Of course, if plaintiff had reason to believe that defendant's bid was in error, he could not justifiably rely on it, and section 90 would afford no basis for enforcing it. Robert Gordon, Inc., v. Ingersoll-Rand Inc., 7 Cir., 117 F.2d 654, 660. Plaintiff, however, had no reason to know that defendant had made a mistake in submitting its bid, since there was usually a variance of 160 per cent between the highest and lowest bids for paving in the desert around Lancaster. He committed himself to performing the main contract in reliance on defendant's figures. Under these circumstances defendant's mistake, far from relieving it of its obligation, constitutes an additional reason for enforcing it, for it misled plaintiff as to the cost of doing the paving. Even had it been clearly understood that defendant's offer was revocable until accepted, it would not necessarily follow that defendant had no duty to exercise reasonable care in preparing its bid. It presented its bid with knowledge of the substantial possibility that it would be used by plaintiff; it could foresee the harm that would ensue from an erroneous understimate of the cost. Moreover, it was motivated by its own business interest. Whether or not these considerations alone would justify recovery for negligence had the case been tried on that theory (see Biakanja v. Irving, 49 Cal.2d 647, 650, 320 P.2d 16, ), they are persuasive that defendant's mistake should not defeat recovery under the rule of section 90 of the Restatement of Contracts. As between the subcontractor who made the bid and the general contractor who reasonably relied on it, the loss resulting from the mistake should fall on the party who caused it.' ¹

Of the cases cited in the foregoing quotation that of M. F. Kemper Const. Co. and that of Brunzell present instances in which the bidder was relieved from an honest clerical mistake which was known to the offeree at the time the bid was accepted and it was held that the accepting party could not take advantage of the known mistake of the other party. In the Kemper case the court observed at page 704 of 37 cal.2d 696 at page 12 of 235 P.2d: '* * * the cases recognize no distinction between sublic and private contracts with regard to the right of equitable relief.'

Other cases dealing with this subject of bidder's mistake are: Lemoge Electric v. County of San Mateo, 46 Cal.2d 659, 297 P.2d 638; Elsinore Union etc. Sch. Dist. v. Kastorff, 54 Cal.2d 380, 6 Cal.Rptr. 1, 353 P.2d 713; Norcross v. Winters, 209 Cal.App.2d 207, 25 Cal.Rptr. 821; MacIsaac & Menke Co. v. Freeman, 194 Cal.App.2d 327, 15 Cal.Rptr. 48. The result in each case was dictated primarily by the presence or absence of knowledge of the mistake of the offeror, knowledge acquired before the offeree had changed his position in reliance upon the face of the bid. See also 13 Am.Jur.2d, § 107, pages 101-2; annotation in 52 A.L.R.2d 792, 794-5.

Neptune's men worked on this job on September 27 and 28, 1961. On the 28th its general manager, Mr. Stanley G. Zynda, discovered that Neptune's employee Schwartz had made an error in computing its bid in that he used $1.37 per lincal foot as the basis which, as found by the court, was 'a result of an inadvertent error of substantial magnitude.' A previous and recent contract between the same parties had specified $1.37 per square foot. This latter basis would bring $39.86 per cubic yard while the $1.37 per lineal foot would amount to $6.53 per cubic yard. Mr. Zynda testified that he promptly contacted Thompson and pointed out that there was a radical error in the contract and also the basis of computation for same; that Schwartz had used the figure of 37 cubic yards rather than 370 cubic yards and Neptune would have to have some adjustment in price. Also that the contract was on a cubic yard basis at $32.00 a cubic yard, and the witness asked if Thompson would proceed upon that basis; he said he would and asked Zynda to put two rigs on the job on the next day. Neptune did this on the 29th. On that same day Zynda met Thompson to sign a new contract at the rate of $32.00 a cubic yard but Thompson said he would not sign it. Mr. Zynda also testified that this would make the contract $12,000 instead of the specified $2,721; that the error amounted to 600 per cent. Neptune stopped work immediately and gave notice of rescission on October 4, 1961; this was followed later by the insant foreclosure action.

The doctrine of the Drennan and similar cases has been misapplied in the case at bar. Examination of the California cases above cited will reveal that relief from mistake in a bid was approved only in cases where the party litigants were in contractual...