by Quenda Behler
Here's the scenario: A contractor hires a new estimator and he
makes a bid on a remodeling job. Unfortunately, the bid is way
off the mark. By the time the contractor notices the mistake,
the customer has signed the contract and given him a check,
which he's deposited. So he goes to see the customer, tells him
the bid had been a mistake, and gives him back his money.
And that's the end of it. Right?
Wrong. Well, okay, not wrong if the customer doesn't make an
issue of it — but if he says "Hey, what about our
contract?" the contractor has a problem.
Not a Mutual Mistake
The big question, of course, is whether the contract is
binding, meaning the contractor could be sued if he doesn't
perform. And the answer is yes, it is. The contract became
binding the moment the customer accepted the offer.
But, you may protest, the contract isn't any good because it
was based on a mistake. Nice try, but the mistake on the
estimate does not mean the contract is not binding. A mistake
only voids a contract when it is mutual (see "How Bidding
Errors Affect The Contract," Legal, 12/04). In this
case, the mistake was not a mutual one — the contractor
made it. The customer didn't.
A mutual mistake can be a hard concept to get your mind
around. Think of it this way: If both parties have made a
mistake regarding the terms of a contract — for example,
both thought the zoning board had already approved a necessary
variance — there's no contract, because what both of them
were thinking about the nature of the contract was wrong.
However, if only the contractor was mistaken, that's not the
customer's problem. And if the contractor doesn't perform, the
customer can successfully sue him for breach of contract.
Does that mean that a contract with a one-sided mistake in it
will always be binding? No, not always. For instance, contracts
with mistakes in them that the customer should have realized
were mistakes won't be binding.
What if the customer had not paid the deposit money? Then
could the contractor safely cancel the contract?
No. Many people believe that a contract isn't binding until
money changes hands. They're wrong. The promise to pay money at
some future date is enough, except in unusual circumstances
that don't apply here.
How about the fact that it was the contractor's employee who
offered that contract, not the contractor? Does that make a
For the most part, no. Here's the black-letter law: If the
contractor made his employee appear to the rest of the world to
be his agent, that employee can bind the contractor to a
contract even without the contractor's permission.
In this case, for example, the estimator was out there making
an estimate on behalf of the contractor; he was using
contractor-supplied contract forms to offer the customer a
deal; he was driving a truck with the contractor's name on it;
and he was handing out business cards the contractor had given
him. He had what the law calls apparent authority — lots
When the issue of apparent authority comes up, it's usually
because the customer went to one of the tradespeople working
for the contractor and tried to get that person to change the
scope of work by doing something that wasn't in the contract.
It's reasonable for the client to assume that the estimator and
job-site supervisor can speak for the contractor, but probably
not the hired tradespeople who are out there doing the
I'm quite aware that people don't come to me to hear what they
did wrong, even though I'm always happy to tell them. What they
really want to know is: What to do now?
The first thing a contractor in this situation should do is
figure out which would hurt more: doing the work at a loss or
just paying off the customer. And if he decides to pay off the
customer, he needs to decide how much he should offer. In a
lawsuit, remember, the customer can't collect the entire
contract price (except in certain very limited circumstances
that this contractor needn't worry about). The customer can win
only what are called contract damages.
So relax: The customer can't sue for millions of dollars. He
can ask for millions, but he won't win them. The contractor
didn't cripple the guy for life or beat him up — he just
failed to carry out a contract. According to the law, a
customer with a breach-of-contract claim is entitled only to
the money he lost because of the contractor's failure to
perform. If the contract was for $10,000, and the customer has
to pay someone else $15,000 to do the work, the customer will
win what he has lost: $5,000.
Negotiating a Settlement
Actually, the contractor in this case would most likely be able
to persuade the customer to settle for less than $5,000.
Why would the customer accept less? First, because suing people
costs money and consumes lots of time, and frequently the
plaintiff doesn't get his legal expenses back — the net
effect being that he doesn't really win $5,000.
Second, sometimes the best lawsuit in the world loses. Why? I
don't know. I just know sometimes it happens that way.
Third, judges don't like plaintiffs who refuse reasonable
settlement offers. This is something you don't learn in law
school: Judges have ways of hurting plaintiffs they don't
Finally, don't forget that there are other ways of handling
these kinds of problems. I remember an incident very similar to
this one that happened a few years ago. In this instance, the
contractor immediately went to the customer with a box of
Godiva chocolates, a bottle of wine, and a $1,000 discount
coupon toward the cost of a new remodeling contract at the
correct price. The contractor kept the job — though
without quite as big a profit margin — and, as I recall,
the customer even shared the wine with him and his crew when
they finished the job.
Quenda Behler Storyhas practiced and
taught law for more than 25 years.