by Quenda Behler
I just had to explain the doctrine of "mutual mistake" to a
small bidder on a local construction project. It was painful
for both of us: painful for me because I didn't like telling
him he was stuck between a rock and a hard place, and painful
for him because he was stuck. The contractor missed some items
that should have been in his bid, so it was almost guaranteed
he would lose money on the job. The reason he missed the items
was because he failed to read the specifications carefully
Is this fair? That's not the question. The question is whether
the property owners can enforce the contract even though the
bidder made a mistake. The answer? It depends. Most of the time
the property owners can enforce the contract, but there are
circumstances where mistakes make contracts
There is a legal doctrine called mutual mistake. The idea is
that if both parties to the agreement are mistaken about the
same thing, then there can't be an enforceable contract. This
springs from the most basic rule of contract law, that there
can be no valid contract unless there is a meeting of the minds
between both parties. When the contractor and the property
owner (or contractor and sub) both share the same mistaken
belief, they can't have a meeting of the minds because neither
one of them knows what he is talking about.
Here's an example. Let's suppose that an invitation to bid
goes out for a building that has a basement. Neither the
contractor nor the customer thinks the basement will be a
problem, but it turns out the plans were based on an outdated
flood-plain map. The site is actually on the flood plain, which
means the building can't be insured unless it is redesigned or
unless the basement is eliminated.
In this case, no one — not the customer, not the
contractor, not even the person who bid on the foundation
— would be held to the contract, because all of them
were mistaken about what it would take to put in the basement.
It was a mutual mistake.
Unfortunately, this does not describe the situation in which
my client found himself. There was a mistake, but it wasn't
mutual. The property owner did not make any mistake in his
invitation to bid. My client simply hadn't read the
specifications carefully enough. So, the contract was valid,
because the mistake was all his.
Too Good To Be True
There is another important exception: If the bid was so low as
to make it obvious that the bidder was mistaken about
something, there are many courts that will say it's not fair to
enforce the contract against the bidder. The legal theory that
explains this is called "unreasonable reliance."
The idea is that it isn't reasonable to assume a bid is valid
if it is too far off the mark. For example, suppose a homeowner
solicits bids for a new slate roof. Two roofers offer to do it
for $50,000, but a third one says he can do it for $15,000.
It's obvious that the third bidder made a mistake. Maybe he
made a math error or thought he was bidding composition
Either way, it will be difficult for the owner to force the
low bidder to honor his price. That's because if there is a
mistake in a bid that the customer could see just by looking at
it, then his reliance on the bid is not reasonable. The law
intends for contracts to be fair, not a game of gotcha.
But what if the bidder made his mistake because he had been
misled about the requirements of the job? That one is easy.
There is another legal doctrine that sometimes applies to bid
mistakes. It's called "fraudulent inducement." It means the
mistake is not genuine; it's a mistake that happened because
the bidder was misled about the nature of the project.
If the customer solicits a bid, but fails to include an
important piece of information, then the bid won't be
enforceable. Trying to enforce a contract induced by mistake or
deceit is fraud. For instance, suppose a homeowner wants the
vinyl siding stripped off his house and new siding installed.
The homeowner gets a bid from a contractor who has worked on
the house before. The contractor knows there is asbestos siding
under the vinyl and prices the job accordingly. The homeowner
decides the price is too high, so he gets a lump-sum bid from a
second contractor without telling him about the asbestos. If
the customer actually knows about the asbestos, he is engaging
in fraud and the contract would not be enforceable.
Differing Site Conditions
Here's a word of caution. Many bid mistakes are caused by bad
information about the actual site conditions. Sure, the
contract will not be enforceable if everyone makes the same
mistake, but sometimes it's not all that clear just who is
responsible for the error.
For example, it's probably a mutual mistake not to know that
there was a giant granite ledge where the basement was supposed
to go — but maybe it isn't. Maybe you should have
asked the client to pay for test bores, or perhaps you should
have put something in your contract that says there will be an
upcharge if you encounter hidden problems. What you should not
do is rely on a judge to bail you out, because that might not
happen. There are legal opinions that will say it's your
mistake, not the client's, because you're the contractor and
you know how to find out.
When you write your contract, always put in a clause about
what will happen in the event of differing site conditions.
Then you don't have to worry about being tied up in litigation
over what kind of mistake it is, because you will already have
your solution in place.
Quenda Behler Storyhas practiced
and taught law for more than 25 years and is the author of The
Contractor's Plain-English Legal Guide (www.crafts