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John Burns Constr. Co. v. Interlake

OPINION FILED MARCH 23, 1982.

JOHN BURNS CONSTRUCTION COMPANY, PLAINTIFF-APPELLEE,

v.

INTERLAKE, INC., DEFENDANT-APPELLANT.



APPEAL from the Circuit Court of Cook County; the Hon. JOHN F. HECHINGER, Judge, presiding.

JUSTICE PERLIN DELIVERED THE OPINION OF THE COURT:

John Burns Construction Company (Burns) sued Interlake, Inc. (Interlake), to obtain further payment for a sewer project. Although Interlake had paid Burns the stated contract price of $68,117, Burns' three-count complaint sought an additional $149,000 for excavating problems encountered on the job. Count I alleged fraud, that Interlake had misled Burns as to the nature of the subsoil; count II alleged mutual mistake, that the parties were mistaken about the condition of the subsoil, and sought rescission of the contract and quantum meruit recovery; count III alleged contract extras, i.e., that Interlake had separately agreed to pay for Burns' extra effort because it was outside the scope of the contract. In a bench trial the court rescinded the contract and entered judgment against Interlake in the amount of $130,406.25 on count II, mutual mistake, and in favor of Interlake on counts I and III. Interlake appeals from the judgment entered on count II, contending (1) that the trial court erred in rescinding the contract on the ground of mutual mistake, and (2) that assuming the contract was properly rescinded, the court improperly applied a quantum meruit measure of damages. For the reasons which follow we affirm the trial court's judgment rescinding the contract, vacate the order awarding damages and remand the cause for a hearing to determine damages in accordance with the views expressed herein.

Interlake operates a pig iron plant on the south side of Chicago, adjacent to the Valley Mould and Iron Company. Servicing the site is an underground sewer network which collects waste water from a variety of points and discharges it into the Chicago sewer system. Due to increased usage in the early 1970's, the final branch became a critical bottleneck and, because of potentially dangerous backups, Interlake needed to supplement the flow capacity with a new pipeline parallel to the existing branch.

Prior to soliciting bids Interlake knew that the subsoil in the area to be excavated might contain cinders, large chunks of iron and coal called "skulls" or "buttons," buried railroad ties, abandoned concrete foundations and concrete-like slag. None of the bidders was apprised of these conditions. This was attributable to Interlake's consistent policy of inviting contractors to bid for excavation on the basis of "virgin soil," i.e., the natural condition of the subsoil assuming there had been no human tampering. Interlake explained that it adopted this policy, which it had followed in 50 to 75 instances prior to mid-1972, to insure comparable bids, given the uncertainty as to the exact subsoil conditions along the proposed route. Interlake specifically advised Burns to calculate its bid on the assumption that the work was to be done in virgin soil. Interlake did not inform Burns that there was a break in the existing sewer line between manhole No. 2 and manhole No. 1 or that periodically waste water would fill up and back out of manhole No. 2 at a rate in excess of 1500 gallons per minute.

On July 11, 1972, Burns submitted a bid of $108,000 for the sewer project together with other unrelated work which was not performed because of Burns' later disputes with Interlake. At Interlake's direction, the bid was expressly based on the assumption that "all ground shall be virgin." The bid also stated that "[i]t is understood that this proposal, upon acceptance thereof, will become a contract, * * *." In late August or early September 1972 Interlake accepted Burns' low bid. The written document evidencing this offer and acceptance was dated September 6, 1972, but was not signed by both parties until November 25, 1972, 19 days after work had commenced.

On September 4, 1972, Burns sent to Interlake a schedule of "price lists for labor, equipment and unit work that will be a supplement to our quotation of July 11, 1972 [which was based on the assumption of virgin soil], for any additional work that may occur." This schedule was eventually made part of the contract itself, and paragraphs "THIRD" and "FOURTH" of the contract provide an arrangement for time and material charges for work not covered by the scope of the original contract.

Burns obtained construction permits from the Metropolitan Sanitary District, the Environmental Protection Agency and the City of Chicago, and began moving materials and equipment onto the job site on November 6, 1972.

Prior to the actual commencement of work, the parties met at the job site and discussed the possibility of nonvirgin subsoil conditions. They agreed to tabulate all nonvirgin work on Burns' own time and material sheets, all of which were put in evidence. Richard Thompson, Burns' executive vice-president and secretary, testified that he was advised by James Bitner, Interlake's plant engineer, that Burns might encounter slag underneath the ground. Thompson agreed that any extra work required because of the presence of that slag and "all non-virgin problems of whatever nature" would be covered by the written time and material sheets. Interlake signed all time and material sheets Burns submitted. Their total value was $41,299.91. At the same meeting Interlake's project engineer, Richard Draus, advised Burns that Bitner would be Interlake's representative at the job site. Draus said that Bitner had authority to approve any additional payments for Burns.

Before the contract was signed on November 25, 1972, Burns had dug test pits to locate existing underground utilities and had begun to install well points to dewater the subsurface along the path of the new sewer. Burns found congealed slag which had to be broken up by "hard digging," i.e., digging using backhoes, pneumatic air tools, jackhammers and other equipment. Interlake agreed to pay for this extra work and gave Burns approximately $6,000 for it.

On November 25, 1972, Burns signed the written contract. Although Burns had estimated the cost of the sewer work in question at $77,800 (at Interlake's request, Burns submitted a total bid which did not isolate Burns' costs for the sewer project alone), Interlake's contract assigned a figure of $68,117 to that work for internal budgeting reasons. Burns had no objection to this allocation so long as it was understood that when all the work contemplated was completed, Burns would receive the total contract price, including the $77,800 Burns estimated for the sewer project.

Near both ends of the new sewer route were railroad tracks which could not be interrupted because they were vital to Interlake's operations. Thus, while the middle portion of this 465-foot run could be dug by open trenching, the end portions required underground tunneling using an auger to bore a hole, followed simultaneously by a steel casing to serve as a permanent shell. Burns subcontracted the tunneling operation to Armco Steel Company.

In the course of boring westward on the second tunnel run, Armco's auger chopped through an intersecting eight-inch sewer line from Valley Mould and Iron which Burns was supposed to have sealed as part of its contract with Interlake. This occurred on December 29, 1972. The water from that break flowed first into the 42-inch casing and then into the "push pit" where the boring equipment and hydraulic rams operated. The water was pumped out of the push pit and off the premises. Witnesses for both Burns and Interlake testified that this break was sealed within a day and a half, after which Armco immediately resumed boring.

After January 1, 1973, Armco continued to push its 42-inch casing west some distance beyond the Valley Mould and Iron sewer line without difficulty. Thereafter, due to loose cinders in the soil, the casing began to rise off the grade as the soil collapsed around it. To overcome this new and unknown soil condition Armco was required to "swallow" the newly installed 42-inch casing with a 48-inch casing, withdraw and scrap the original 42-inch casing and replace it with a new 42-inch casing realigned at the proper elevation. Bitner observed this work, which took approximately a week to complete, on a daily basis but did not instruct Burns or Armco to stop working. Burns did not submit any time and material sheets for this corrective work. Drilling was resumed and continued without incident for approximately 100 feet.

On January 19, 1973, the work again came to a halt because excessive water was running into the Armco casing causing it to seize. Henry Fisher of Armco testified that there was a stream of warm running water six inches wide and one-half to three-quarters of an inch deep. The water and cinders were voiding the soil above the casing so that Fisher could see the top of the casing 10 to 12 feet below the surface. The parties explored for its source and patched manhole No. 2 but observed no change in the amount of excess water. Because of this problem, another meeting was held at the job site on ...


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