Mayor of Baltimore v. DeLuca-Davis Construction Co.

Hammond, J., delivered the opinion of the Court. The Bureau of Highways of the Mayor and City Council of Baltimore issued a notice of letting of a contract for the construction of the Jones Falls Expressway storm water conduits and, in response, DeLuca-Davis Construction Co., Inc., the appellee, submitted a bid that by reason of clerical error was at least $589,880.00 less than it 'intended it to be, and some $700,000.00 less than the engineer’s estimate and the ⁵²¹ next lowest bid. The sealed bids of all bidders, including that of the appellee, were opened at noon on January 25, 1956, by the Board of Estimates and referred to the Board of Public Works for tabulation and recommendation. As soon as the bids were announced, the appellee realized that it had made a mistake.

After several hours of checking, the precise form of the mistake was turned up and the Director of Public Works was notified immediately. Five days after the bids were opened, DeLuca-Davis wrote the Board of Estimates, explaining in detail how the mistake had occurred and that the actual bid should be $2,385,944.25 instead of $1,796,064.25, the bid submitted. The letter requested the Board either to correct the bid accordingly or to return the bid and the certified check for $50,000.00, which had accompanied it pursuant to the applicable charter provisions and the notice of letting. Being advised that the Board proposed to accept the original bid, the appellee filed a bill of complaint in the Circuit Court of Baltimore City, praying a mandatory injunction or decree commanding the Board of Estimates either to correct or reform its mistaken bid and to take no action thereon unless it had been corrected or, in the alternative, that the court permit the appellee to rescind the bid and have both the bid and the certified check returned.

A demurrer to the bill by the City was sustained as to the right to rescind and over-ruled as to the right to reform and, after testimony was taken, the chancellor decreed that the contractor be authorized and empowered to reform and correct the bid unit from $6.00 to $16.00 in both Items 2 and 11 of the bid, the bid total of Item 2 from $349,800 to $932,800 and the bid total of Item 11 from $4,128 to $11,008, and the total amount of the bid from $1,796,064.25 to $2,385,944.25. The decree further provided that the Board of Estimates be “directed to receive the complainant’s bid or proposal as so reformed and corrected in lieu of the mistaken bid.” The City appeals from the decree, urging error in it and in the overruling of the demurrer. The testimony shows that the estimator for DeLuca-Davis, a qualified engineer, prepared the figures for the bid. In calculating the cost of Item 2, the unclassified excavation other ⁵²² than for the post office wall, the estimated number of cubic yards was divided into the estimated dollar cost to obtain a unit cost of $13.34 per cubic yard.

The same unit cost was applied to Item 11- — unclassified excavation for post office wall. This unit cost was approved by the president and co-owner of DeLuca-Davis. On the afternoon before the bid was submitted, the estimator prepared a summary sheet showing all costs of the job, and the bid was written up from this summary sheet. In transferring the estimated unit cost for unclassified excavation of $13.34 per cubic yard from the detail work sheet to the summary sheet the estimator by mistake entered the figure of $3.34 for Item 2 and Item 11.

There seems little doubt that the mistake came about because the first figure in $13.34 —the figure “1”- — was on a vertical ruled line in the work sheet apparently accentuated by the paper having been folded. The unit cost price of $3.34 was not used in preparing the bid as the bid unit price to multiply the quantity of cubic yards figured on, but instead a figure of $6.00 was used. The difference between $3.34 and $6.00 represented the proportion of overhead and profit allocated to the unclassified excavation item. In its letter to the Board of Estimates and in its bill of complaint, the appellee contends that the bid unit price for Items 2 and 11 should be $16.00 instead of $6.00, which increases the bid total for Item 2 from $349,800 as filed to $932,800 and the bid total of Item 11 from $4,128 as filed to $11,008, or an increase in the total bid of $589,880.00.

The testimony of the president of DeLuca-Davis was that if it had been realized before the bid was sent in that the unit price for the unclassified excavation was $13.34 instead of $3.34, the bid unit price would not have been $16.00, as it was sought to be corrected to, but would have been some figure greater than that. He said that the figure of $2,385,944.25 was not the figure he would have estimated and bid if he had realized that $13.34 was the correct unit price. He added that when his counsel asked whether, if the City allowed correction, he wanted to add overhead and profit to the unclassified excavation unit price in an amount greater than was in the original bid, he had answered: “I told him no, I was not interested in that part of it, all I wanted him to do was to correct the mistake ⁵²³ of $10.00 that was made * * In response to a question from counsel for the next lowest bidder (who had been permitted to intervene in the case), he said: “* * * I had no way of knowing * * * whether my price would have been below yours or above yours * * *” if the bid had been prepared from the correct figures. It was shown further that the net worth of DeLuca-Davis was $82,000.00, that if it were compelled to perform the contract at the original bid, it would suffer a loss of over $400,000.00 and that it could not obtain a bond if the job were to be done at the original estimate.

There was testimony that there was a general perceptible reaction in the room when the appellee’s bid was opened and announced — a realization that something was wrong, that there was an error in the bid. It was shown that the mistake was a bona fide, clerical and mechanical error. The estimator demonstrated how the mistake had occurred and the two co-owners of DeLuca-Davis both testified that they neither knew of, nor suspected, the mistake until the bid was opened. They testified also that they had not known of the engineer’s estimate— which was $700,000 more than their bid — before preparing their own bid.

The chancellor made the following findings of fact, which the appellants do not seriously challenge and which are supported by the record: 1, there was an error in the bid of the appellee which was entirely clerical and mechanical; 2, the error was material and substantial; 3, the error was palpable and the City, as soon as the bids were opened, either knew or should have known that there was a substantial error in the bid; 4, the error was made in absolute good faith. The Baltimore City Charter, Flack (1949), Sec. 38, provides that the Board of Estimates shall award a contract required to be let by sealed competitive bids * * * “to the lowest responsible bidder * * * or shall reject all bids.” It provides further that “Bids when filed shall be irrevocable.” The successful bidder must execute a formal contract and a bond in the amount of the contract price. All bids must be accompanied by a certified check for an amount specified in each case and a bidder to whom the contract is awarded, who fails to execute the required contract and bond, forfeits the ⁵²⁴ deposit check as liquidated damages. The notice of letting incorporated all the requirements of the Charter.

The City contends that the Charter provisions are peremptory and leave no discretion to either party. It argues that the bidder knows exactly his liability and its extent if he receives the award and refuses to accept the contract. He has agreed that his bid once made is irrevocable and has further agreed that he has damaged the City to the extent of the amount of the certified 'check filed with the bid, and so, in legal contemplation, cannot ever be said to have made a mistake in the amount of the bid because he has guaranteed in advance that any error he makes shall be at his own expense and not at the cost of the City. The City goes on to urge that for these reasons there can be neither reformation of the bid nor cancellation of it and return of the deposit, and that its contentions were established by the decision of this Court in M. & C. C. of Baltimore v. Robinson Con.

Co., 123 Md. 660 . It is manifest to us that the City is correct in saying that there cannot be reformation, for at least two reasons. In the first place, to warrant the equitable remedy of reformation the mistake must have been mutual. Phelps, Juridical Equity, Sec. 227; Dulany v. Rogers, 50 Md. 524, 533; Stiles v. Willis, 66 Md. 552 ; Miller v. Stuart, 107 Md. 23 ; White v. Shaffer, 130 Md. 351, 360, 361 ; England v. Gardiner, 154 Md. 510, 514, 515 ; Brockmeyer v. Norris, 177 Md. 466 ; Hoffman v. Chapman, 182 Md. 208 .

See also Com. De Astral v. Boston Metals Co., 205 Md. 237, 271 . Here the mistake was entirely that of the contractor and not induced by any act or omission of the City, so that it is entirely unilateral even under the perhaps fictional theory that if the act of one party is induced by the other, the mistake is mutual. More important than the first reason why there cannot be reformation is the second, namely, that a court will never in the name of reformation rewrite a contract or make a contract for the parties or act unless there is clear, convincing and satisfying proof of a mutual understanding and bargain that has not been accurately expressed.

Phelps, Juridical Equity, Sec. 227; Second National Bank v. Wrightson, 63 Md. 81 ; Keedy v. Natty, 63 Md. 311 ; Milligan v. Pleasants, 74 Md. 8 ; Hesson ⁵²⁵ v. Hesson, 121 Md. 626 ; White v. Shaffer, 130 Md. 351 , supra; England v. Gardiner, 154 Md. 510 , supra; Hoffman v. Chapman, 182 Md. 208 , supra; Martz v. Jones, 189 Md. 416 ; Com. De Astral v. Boston Metals Co., 205 Md. 237, 271 , supra; Pomeroy, Equity Jurisprudence, 5th Ed., Sec. 870 a; 5 Williston, Contracts, Revised Edition, Sec. 1548, p. 4339; Restatement, Contracts, Sec. 504. DeLuca-Davis did not seek merely to make a mechanical correction, such as correctly multiplying the number of cubic yards by the real unit price but, in effect, made a new bid after the mistake was discovered. To determine the amount of this bid judgment had to be exercised.

Its president, in the exercise of this unilateral judgment, decided that it would not do what it would have done if the true facts had been known when the original bid was made, but rather, that the revised bid would be figured by the use of the original unit price without any increase attributable to overhead and profit— merely to add back the $10 omitted from the unit cost of excavation and not add overhead and profit as he would normally have done. To permit to be done what the appellee seeks to do, would not only run entirely counter to the underlying principle of reformation, which is merely to correct a mistake in the expression of what had been mutually agreed upon, but would also completely nullify the purpose and the safeguards of the competitive bidding system established by the City Charter. We have found no authority that has permitted reformation in a situation such as the one before us. Sometimes it has been suggested, as the appellee suggests in this case, that Moffett, Hodgkins & Clarke Co. v. Rochester, 178 U. S. 373 , 44 L. Ed. 1108 , stands for the proposition that an erroneous bid promptly repudiated may be reformed but a reading of the case shows that this is not so.

Lemoge Electric v. County of San Mateo (Calif. App.), 288 P. 2d 518 , denied reformation of a clerical mistake made by a contractor in a bid and suggested that rescission would be a proper remedy, and the Court, noting that the Moffett case was the only case that had been cited as authority for reformation in such a situation, said: “What was said of reformation in that case is the baldest dictum, since reformation had been ⁵²⁶ rendered impossible before that case reached the court. * * * It furnishes no such authority as we have pointed out.” We find the chancellor to have been wrong in permitting reformation in the case before us. Turning to the question of cancellation of the bid, it is plain to us that had the parties here been two individuals there is no doubt that a court of equity would have had the power, and on the facts of the case the duty, to decree rescission of the bid and the return of the deposit. Our concern has been whether the same standard applies where one of the parties is a public body controlled, as are the bidders who seek to do its building, by statutory provisions for the elimination, in the public interest, of unfairness or favoritism, or whether the relief in such cases has been foreclosed by M. & C. C. of Baltimore v. Robinson Con.

Co., supra. We have concluded that the sound weight of authority is that recission may be decreed as against a municipal or other public body by a court of equity, and that the Robinson case is distinguishable and not controlling. Although reformation requires that the mistake be mutual, rescission may be granted whether the mistake be that of one or of both of the parties. Phelps, Juridical Equity, Sec. 227.

Williston, leader of the objective theory of contracts, is critical of the rule that rescission may be had for a unilateral mistake, as was noted by Judge Henderson for the Court in Kappelman v. Bowie, 201 Md. 86, 90 . Nevertheless, Willis-ton recognizes that many courts have held that there may be such relief. 5 Williston on Contracts, Rev. Ed., Sec. 1578, p. 4409, says: “* * * some cases afford countenance for the doctrine that unilateral mistake, while the contract is still executory and the parties can be put in statu quo, may afford ground for rescission * * *. Rescission has been most frequently sought where a price was bid which because of erroneous arithmetical processes or by the omission of items was based on a mistake. Relief has been allowed in several cases of this and other kinds, though denied in others.

In some of them, at least, it would seem that the party not in error should have suspected the existence of a mistake, in ⁵²⁷ which case clearly rescission and restitution should be allowed.” The American Law Institute agrees with the sentiments expressed in the sentence last quoted. Restatement, Contracts, Sec. 505; Restatement, Restitution, Sec. 12. So does Black, Rescission and Cancellation, 2nd Ed., Sec. 130. He says of a unilateral mistake known to and sought to be taken advantage of by the other party: “* * * equity will sometimes relieve a person from the consequences of his unfortunate blunder, but will never enable another to take advantage of it * * * Where the party to whom an offer is made is fully aware that it has been made under a mistake, and would not have been made but for such mistake, he cannot, by accepting it with such knowledge, hold the other to a binding contract.” The general rule as to the conditions precedent to rescission for unilateral mistakes may be summarized thus: 1, the mistake must be of such grave consequences that to enforce the contract as made or offered would be unconscionable; 2, the mistake must relate to a material feature of the contract; 3, the mistake must not have come about because of the violation of a positive legal duty or from culpable negligence; 4, the other party must be put in statu quo to the extent that he suffers no serious prejudice except the loss of his bargain.

See the cases so holding collected in the annotation in 59 A. L. R. 809. The rule as stated was recognized in Gross v. Stone, 173 Md. 653, 665 ; and in Hoffman v. Chapman, 182 Md. 208 , supra. See, too, Kappelman v. Bowie, 201 Md. 86 , where specific performance was denied on the ground of unilateral mistake. It was argued by the losing side in that case that to justify relief the mistake would have had to be mutual unless induced by the opposite party.

The Court said: “The contention overlooks the true basis for the rule, which is rooted in the proposition that equity may refuse the extraordinary remedy of specific performance where to do so would enforce a hard bargain, at least where the mistaken party was not grossly negligent and the opposite party would not be prejudiced except to the extent of losing a windfall. It may be that this recognition of a unilateral mistake as a defense is inconsistent with the objective theory of contracts, to the extent that it permits the rescission of an ⁵²⁸ executory contract on equitable grounds. Cf. Williston, Contracts (Rev. Ed.) Sec. 1579.” (Emphasis supplied.) There are numerous cases in many states that have granted contractors cancellation of bids based on clerical, material, palpable, bona fide mistakes.

Where, as in the case at bar, the mistake has been brought to the attention of the contracting authority before the acceptance of the bid, the courts have been almost unanimous in granting relief. Some of the decisions are collected in the annotations in 80 A. L. R. 586, and 107 A. L. R. 1451. See, too, Corbin on Contracts, Vol. 3. Sec. 609; Lubell, Unilateral Palpable and Impalpable Mistake in Construction Contracts, 1931, 16 Minn.

L. Rev. 137 ; and 100 U. of Pa. L. R. 753. In the comparatively early case of Geremia v. Boyarsky (Conn.), 140 A. 749 , the bid was a third less than was. intended. The Court held that this was not a ground for reformation but was for cancellation, even though the other party did not induce the mistake, because he did seek to take an unconscionable advantage of it after he became aware of it.

It was decided that equity would grant relief in an executory situation where the parties could be put in statu quo. The error in that case was said not to amount to the violation of a positive legal duty or to constitute culpable negligence. See also Barlow v. Jones (N. J.), 87 A. 649 ; Board of School Com’rs v. Bender (Ind. App.), 72 N. E. 154 ; St. Nicholas Church v. Kropp (Minn.), 160 N. W. 500 ; Kutsche v. Ford (Mich.), 192 N. W. 714 .

Some courts have decided against the contractor on the facts, such as the lack of materiality of the mistake or the gross or culpable negligence of the bidder, but where the essential factual prerequisites have been found to be present, there is no substantial authority denying rescission for unilateral mistake except in Massachusetts. There, seemingly, the Court adheres strictly to the rule that equity will grant relief where there has been a mutual mistake of fact but that a mistake of but one of the parties is not grounds for relief either in law or in equity. John J. Bowes Co. v. Town of Milton (Mass.), 151