E. C. Nolan Co. v. State

T. M. Burns, J.

We are here presented with an appeal from the Court of Claims which denied plaintiff’s claim in the amount of $125,244.76 for additional expenses beyond the bid price of $1,005,740.43 under a road-construction contract with the state.

On March 20, 1968, the State Highway Department (hereinafter the department) received bids on Project No. U 82143-021, the purpose of which was to lengthen a bridge carrying tracks of the Grand Trunk Railroad (hereinafter the railroad) across Eight Mile Road in the cities of Detroit and Fern-dale. Bids were solicited on the basis of a proposal prepared by the department and plaintiff submitted the low bid and was awarded the contract. Thereafter, pursuant to authorization of the department, plaintiff on March 28, 1968, committed $480,000 to have the necessary structural steel fabricated.

It is undisputed that before plaintiff could commence performance, certain railroad tracks on the bridge had to be relocated. The department had accordingly contracted with the railroad on October 8, 1967, to have this work done. When it became apparent that the railroad would require the use of three rather than two tracks during the period of construction, that agreement was modified by mutual consent in December and finally reduced to writing on March 11, 1968. The department in the meantime notified the railroad to proceed on January 4, 1968, and also advised the railroad that the general contract (plaintiff’s contract) would be let in March of that year. The trial court found as a fact that the railroad expected to begin relocation in April or May of 1968, and that it was anticipated that once started, the work would be completed within five to seven weeks.

On April 8, 1968, at a pre-construction meeting, the department brought the plaintiff and the railroad together to work up a firm progress schedule for the project. The railroad then for the first time indicated it would be unable to proceed with the preliminary work as scheduled in the proposal and stated that it would not begin to perform said work until September. Despite having knowledge of this announced delay, plaintiff, due in large part to the fact that it had already expended large sums of money in ordering the necessary structural steel and in obtaining the requisite bonding, continued to anticipate performance of its contract with the department and subsequently signed the contract here in question some 10 days later.

As it turned out, the railroad did not commence work until October 12, 1968, and did not complete its performance until April 1, 1969, a delay found by the trial court to be of 9-1/2 months duration. As a result, plaintiff was unable to fulfill its contract and finish the project until October 23,1970.

Plaintiff claimed $125,244.76 additional expenses as a result of having to work in the winter rather than the summer and fall. After the Central Office Adjustment Board denied the claim on September 9, 1970, plaintiff filed this suit in the Court of Claims. In its suit, plaintiff alleged both changed conditions on the project site and misrepresentation as to the starting dates by the department. On September 1, 1971, the trial court granted summary judgment in favor of the department on the changed-conditions count, finding that the terms of the contract specifically denied plaintiff the right to recover damages due to a delay caused by another party. After the taking of proofs, the court, on March 7, 1973, issued an opinion in which it found that there was no misrepresentation by the department. Plaintiffs motion for new trial was denied on June 13, 1973, and on July 16, 1973, the court entered judgment on the verdict. Plaintiff now appeals as of right.

Plaintiff first contends that it is entitled to recover the additional expenses incurred by it because of misrepresentations as to the time when the railroad would finish its work, said representations being contained in the department’s bid proposals. Plaintiff argues that since it relied on specifications which were a part of the contract and since it suffered damages as a result of such reliance, it is entitled to recover when it is later determined that such specifications were inaccurate.

In order to recover for fraud or misrepresentation, a plaintiff must establish that the elements of fraud exist. In Farida v Zahar, 50 Mich App 137, 142; 212 NW2d 739 (1973), the Court reviewed these elements when it stated:

"The elements of actionable fraud were set forth in Papin v Demski, 17 Mich App 151, 154; 169 NW2d 351, 353 (1969):

" 'Initially, the burden of proof in this case, as always, was on the plaintiffs. It was essential to their cause of action based on fraud that certain facts be established. Our Supreme Court in A & A Asphalt Paving Co v Pontiac Speedway Inc, 363 Mich 634, 639; 110 NW2d 601, 604 (1961), quoted with approval the following statement relative to the essential facts:

"' "The general rule is that to constitute actionable fraud, it must appear: (1) that defendant made a material representation; (2) that it was false; (3) that when he made it he knew that it was false, or made it recklessly, without any knowledge of its truth and as a positive assertion; (4) that he made it with the intention that it should be acted upon by plaintiff; (5) that plaintiff acted in reliance upon it; and (6) that he thereby suffered injury. Each of these facts must be proved with a reasonable degree of certainty, and all of them must be found to exist; the absence of any one of them is fatal to a recovery.” ’ (Aff’d, 383 Mich 561; 177 NW2d 166 [1970]).”

The trial court determined that there was no material misrepresentation of fact by the department. We disagree. It was not controverted at trial that the department made representations of a material nature as to the work-progress schedule in the project proposal. That this work-progress schedule, if inaccurate, amounted to a material misrepresentation is also not questioned. Nor is there any question that plaintiff relied on the representations and expended large sums of money beyond those anticipated. Indeed the only disputed point is whether or not the department knew of the falsity of the work-progress schedule or was without any knowledge upon which to make its representation that the project site would be available in May of 1968.

The department had been carrying on negotiations with the railroad concerning this bridge-lengthening project since 1962. Moreover, at no time did the department ever receive from the railroad a specific date on which the work would be commenced, nor had it ever been assured by the railroad that the work would be completed on a certain date. The department also knew that the railroad had a relatively small work force that was already engaged in a project relating to the Chrysler-Davidson Interchange in Detroit. These facts lead us to conclude that the department knew or should have known that the date given to it by the railroad concerning completion of the preliminary work was tentative at best. Yet, for some unexplained reason, the department chose not to reveal these facts to the bidders, including plaintiff, when it requested bids on the project in question. We are convinced that had plaintiff been informed by the department that the commencement dates of the progress schedule were merely projections and not a certainty, the plaintiff would have evaluated the cost of a possible delay and prepared its bid accordingly to protect itself against any increased costs caused by such delay. However, since plaintiff did not have this information, it was only natural for it to compute its bid on the basis of the facts submitted to it.

The department prepared detailed specifications for bids and solicited bids on the basis of the proposal that it had prepared. Plaintiff, in computing its bid, had a right to rely on the specifications as true rather than simply thought by the department to be true because there were no other schedules to which plaintiff could have turned in an effort to determine if everything was proper. It necessarily follows that, since this work-progress schedule was at variance with the facts, it was a material misrepresentation. As a result of this misrepresentation, not only was plaintiff misled as to the date it would commence working, but its bid was lower than it would otherwise have been if it had had full knowledge of all the facts. It follows, therefore, that plaintiff is entitled to recover the additional expenses incurred by it because of these misrepresentations.

The next question we must decide is whether the supplemental specifications and coordinating clause in this construction contract insulate the department from liability for delays in completing construction that are traceable to third parties. The plaintiff asserts that the department is only excused from liability when the delays are reasonable, and that since the delay in this case was unreasonable, the department should not be relieved from liability. On the other hand, the department contends that it is insulated from liability for all delays by third parties, whether reasonable or unreasonable.

The 1967 Standard Specifications for Highway and Bridge Construction, which both parties admit to be part of the contract, state at § 1.05.06 in pertinent part:

" * * * n0 additional compensation will be paid to the contractor for any reasonable delay or inconvenience due to material shortages or reasonable delays due to the operations of such other parties doing the work indicated or shown on the plans or in the proposal.” (Emphasis added.)

The "coordinating clause” at page 18 of the contract reads in relevant part:

"No claims for extra compensation or adjustments in contract unit prices will be made on account of delay or failure of others to complete work units as scheduled. ” (Emphasis added.)

It is important to note that this provision lacks any reference to a standard of reasonableness and appears to be contrary to the language quoted above from the Standard Specifications. Plaintiff claims that the supplemental specification creates an ambiguity in the contract which makes it subject to different interpretations. The department counters by arguing that there is no such ambiguity and that any apparent contradiction is resolved by § 1.05.05 of the Standard Specifications which states:

"In case of discrepancy, figured dimensions shall govern over scaled dimensions, plans shall govern over Standard Specifications, supplemental specifications shall govern over Standard Specifications and plans, and special provisions shall govern over supplemental specifications, Standard Specifications and plans.”

We are persuaded by plaintiffs argument that the supplemental specification created an ambiguity in the contract making it susceptible of different meanings. It is our opinion that the department was only relieved from liability for reasonable delays caused by third parties. To hold otherwise would be to say that regardless of how long a third party delayed, plaintiff would be required to perform its part of the contract without any hope of reimbursement for any increased costs caused by the delay. We do not believe the department intended the coordinating clause to so read, for if the effect of that clause were such as the department contends, no responsible contractor would have entered into a contract on this project for the simple reason that the contractor would have no way of knowing how much it could cost it to perform or when it could expect to be finished with the project. A contractor can take a reasonably short delay into consideration when computing its bid on a project, but how could a contractor be expected to submit a competitive bid if it had to include in that bid expenses for a delay that could be of indefinite duration? We submit that a contractor could only compute a competitive bid if it were of the opinion that it would be reimbursed for additional expenses caused by unreasonable delays. It is our conclusion that this is precisely what occurred here. Plaintiff submitted its bid with the understanding that it would be compensated by the department for any additional expenses caused by unreasonable delays attributable to third parties. If the department had actually intended to negate all liability for delay, it would have been a simple matter for it to insert in the coordinating clause the words "whether reasonable or unreasonable” as a modification of "delay”, and thus render the provision completely unambiguous. The department did not do so, and we are convinced that the reason it failed to do so was because it did not intend the coordinating clause to so read.

The trial court found that the 9-1/2 month delay was not unreasonable. We disagree. The total contract construction period was only 24 months. A delay of 9-1/2 months, or almost one-half of the total time allowed for the complete project, is in our view clearly unreasonable and excessive. Since we find the delay to be of unreasonable duration, it follows that the department was not insulated from liability.

Having resolved the first two issues in favor of the plaintiff, we find it unnecessary to consider plaintiff’s final issue relating to the doctrine of active interference.

Reversed and remanded.

Danhof, J., concurred.