Court Opinion

ID: 9550044
Source: CourtListenerOpinion
Date Created: 2023-08-07 18:28:21.872075+00
Date Added: 2024-06-11T15:21:14.445794
License: Public Domain

BOOCHEVER, Justice,
with whom ERWIN, Justice (joins dissenting).
Were this case confined to the initial bidding procedures, I would be inclined to agree with the majority for the reason that Morrison-Knudsen could have made the same investigation as other bidders in *845ascertaining the impossibility or undesirability of hydraulic dredging. A different situation arose, however, after all bids were found to be too high and the contract was negotiated with M-K.
At that time the state had information from both S. S. Mullen, Inc. and Mar-quand S. Gorton that hydraulic dredging was not feasible. Moreover, Albert W. Wilson, the resident engineer at the project who took part in the negotiations with M-K on behalf of the state, had previously participated in an investigation of the proposed dredging areas with S. S. Mullen, Inc. That investigation had revealed that hydraulic dredging could not be accomplished.
While armed with this information, the state officials were advised by Mr. Erickson that M-K intended to perform the contract by means of hydraulic dredging. In fact, he presented M-K’s dredging subcontract to the State Engineer.
The court below found that M-K could have discovered the adverse information by conducting a proper inspection of the site; and, based on the evidence, I agree that such finding is not erroneous.
Admitting that fact, we are thus presented with the question of whether the state, having specific information that hydraulic dredging was not feasible, and having been informed that M-K intended to perform the contract by utilizing that method of obtaining fill, could conduct negotiations leading to execution of a contract without informing M-K of the adverse circumstances. I doubt that my colleagues would have difficulty resolving the question if the same issue was presented in the context of a non-public contract. To illustrate, we can place M-K in a different role, having advance information that hydraulic dredging was impossible, and then entering into a subcontract (containing all provisions here relevant) with a dredging corporation to furnish M-K fill material. If the dredging corporation had advised M-K that it intended to use hydraulic dredging, I do not think we would permit M-K to have the advantage of its bargain even though the dredging company could reasonably have discovered the adverse information by making an adequate investigation. Candor and fair dealing would require revelation of the adverse facts, and certainly the state in negotiating an agreement vis-á-vis a contractor should be held to no lesser standard.
The principal is set forth in the Restatement of the Law, Contracts § 471, pages 891-92, as being the equivalent of fraud, as follows:
“Fraud” in the Restatement of this Subject unless accompanied by qualifying words, means .
(C) non-disclosure where it is not privileged, by any person intending or expecting thereby to cause a mistake by another to exist or to continue, in order to induce the latter to enter into or refrain from entering into a transaction; except as this definition is qualified by the rules stated in § 474 (emphasis added).
While I do not imply that there was an actual intent to defraud, the state had every reason to expect that M-K’s mistake as to the feasibility of hydraulic dredging would continue, and that M-K could be induced to enter into the contract on the negotiated terms by reason of that mistake.
The majority cites no case to support its position but relies on attempts to distinguish three cases which are decided in favor of the contractors.1 It is argued *846that M-K could have discovered the adverse information, and therefore that the state did not know more than “the bidders did or could.”
But as indicated above, the holding in each of the cases was against the government. The case closest to the factual situation confronting us illustrates the fallacy in analysis. In Aerodex, Inc. v. United States,2 the government sought bids to provide probe thermistor mounts. Thermistor resistors were the principal component, and drawings accompanying the invitation to bid indicated that the resistors were to be Western Electric Company’s (“WE”) part no. GA51387 “or approved substantial equal”. The resistors were the only components of 35 elements the material contents of which were not described in the contract documents.
Aerodex expected to be able to secure the specifications from the government and to manufacture them. But it neither made inquiry of the government as to the availability of the material specifications nor sought price information from W-E regarding the units. When W-E refused to release the specifications to which they claimed a proprietary right and sought to charge an exorbitantly high price for the resistors, Aerodex sought relief. Eventually, agreement was reached with the government for use of resistors manufactured by another firm but at a substantially higher price than Aerodex had anticipated as the cost of manufacturing the units.
Despite the admitted fact that Aerodex could have made inquiry, and ascertained the price that W-E would charge and the unavailability of material specifications for manufacture of the parts by Aerodex, it was held entitled to recover. The court balanced the fault of the government in not furnishing the information with that of Aerodex in not making adequate inquiry, stating:
Under these circumstances, in order to avoid an erroneous impression to bidders, it was a more grievous fault for the Government not to warn bidders of the potential problem of obtaining or manufacturing resistors, ■ than it was for the plaintiff to fail to make advance inquiry.
The sorting out of duties arising from the conflict between the plaintiff’s assumption of risk in bidding on a contract without thorough inquiry, and the obligation of the Government to disclose factors of substantial influence on contract performance depend on the three general situations producing the problem : The Government may know but conceal, or not know and not be charged with knowing, or not know yet be legally charged with the knowledge because of its superior opportunity (or other factors warranting a bidder’s reasonable expectations). The earned consequences in the first and second instances are predictable, but in the third the responsibility should be determined on the basis of the balance of fault and reasonable expectations, with the outcome dependent on the particular circumstances of the individual case (footnote omitted).3
The case before us comes under the category where the government knows of misinformation on the part of the contractor and conceals what it knows despite specific information that the contractor was intending to proceed on the basis of that misinformation.4 I agree with the Court of Claims that the earned consequences of such conduct should be predictable. But if a weighing process is required, “the balance of fault and reason*847able expectations” obviously tips the scales in favor of affording relief to the contractor.5
Accordingly, I would reverse the judgment as to liability and would remand for further proceedings to ascertain damages.6

. Helene Curtis Industries, Inc. v. United States, 312 F.2d 774, 160 Ct.Cl. 437 (1963); Aerodex, Inc. v. United States, 417 F.2d 1361, 189 Ct.Cl. 344 (1969); Hardeman-Monier-Huteherson v. United States, 458 F.2d 1364, 198 Ct.Cl. 472 (1972).

. 417 F.2d 1361, 189 Ct.Cl. 344.

. 417 F.2d 1367-1368.

. There is no dispute over the fact that when renegotiating the contract the state’s agents knew that M-K intended to proceed by means of hydraulic dredging and that such a method was not feasible. The failure to reveal that information to M-K constituted concealment. We agree with M-K that the trial court erred by finding no inference of concealment.

. Similarly in City of Salinas v. Souza & McCue Construction Co., 66 Cal.2d 217, 57 Cal.Rptr. 337, 424 P.2d 921 (1967), reh. denied (1967), the alleged failure of the contractor to examine the site carefully was held not to bar recovery for extra costs incurred as a result of the city’s concealment of adverse conditions known by its chief engineer.

. Since the trial court found that the dredge-able areas depicted on the contract documents were in fact dredgeable by means of clam shell dredging, the measure of damages would be the difference between the costs of hydraulically dredging and the lesser of either the costs actually incurred by M-K or which would have been incurred by clam shell dredging.