White v. Berenda Mesa Water Dist.

Brief Fact Summary.

A contractor made a mistake in calculating a bid for a construction project.  The contractor informed the project owner that they made a mistake, were withdrawing their bid and wanted their bond back, all prior to the project owner accepting their bid.  The project owner refused to allow the contractor to withdraw their bid.

Synopsis of Rule of Law.

Forbidding a contractor from recovering their bond or not discharging their bid just because somebody made a mistake of judgment instead of a mistake of fact "draws too fine a line" and "produc[es] a result which finds no support in equity."

Facts.

The Defendant, Berenda Mesa Water Dist. (the "Defendant"), sought bids for a four entity construction project.  Plaintiff 1, White ("Plaintiff 1"), was the low bidder on one segment of the project, a regulating reservoir.  Plaintiff 1 filed a surety bond by Plaintiff 2, Aetna ("Plaintiff 2"), for $42,789.  Plaintiff 1's bid was $427,890, much lower then the nearest bid of $494,320.  Plaintiff 1 determined there was "an error of computation" in their bid, and requested in a writing to the Defendant, prior to the acceptance of its bid, that its bid be withdrawn and its deposit returned.  After meeting with its attorney, the Defendant's board voted to accept Plaintiff 1's bid, despite the fact that Plaintiff 1 attempted to withdraw it.  Plaintiff 1 then advised the board in writing that it rescinded its bid.  The Defendant then accepted the next lowest bid, and kept Plaintiff 1's surety bond.  Plaintiff 1 and Plaintiff 2 brought suit for rescission of the contract and return of the bid bond.  The lower court found that Plaintiff 1 miscalculated the amount of hard rock that needed to be excavated.  This was a material mistake and a mistake of judgment. 

Issue.

Is a contractor bound by their bid on a construction project if they make a "mistake of judgment" instead of a "mistake of fact"?

Held.

The court begins by quoting [M.F. Kemper Const. Co. v. City of L.A.], which observed "[r]escission may be had for mistake of fact if the mistake is material to the contract and is not the result of neglect of a legal duty, if enforcement of the contract as made would be unconscionable, if the other party can be placed in status quo, if the party seeking relief gives prompt notice of his election to rescind, and if he restores or offers to restore to the other party everything of value which he has received under the contract…." 
•    The court concluded that Plaintiff 1's mistake was one not solely of judgment, but also one of fact.  Section 1577 of California's Civil Code states "Mistake of fact is a mistake, not caused by the neglect of a legal duty on the part of the person making the mistake, and consisting in: …"  The same section states "It has been recognized numerous times that not all carelessness constitutes a 'neglect of legal duty' within the meaning of the section."  The court concluded that based on Plaintiff 1's mistake concerning the amount of hard rock, Plaintiff 1's "negligence was ordinary and not gross; that his error 'is one which will sometimes occur in the conduct of reasonable and cautious businessmen,' and did not constitute neglect of a legal duty."
•    The court then analyzed the differences between a mistake of fact and a mistake of judgment.  The court concluded that the facts in the case before it were virtually identical to [Kemper].  The court in [Kemper] cancelled the contractors bid and discharged the bond.  The only difference between this case and [Kemper] was that in [Kemper] there was an error transposing numbers, or in other words, a mistake of fact was made, and here Plaintiff 1 was negligent in miscalculating the amount of rock.  Based on the similarities between the two cases, the court concluded "the [trial court's] judgment below draws too fine a line between so-called mistakes of fact and mistakes of judgment, producing a result which finds no support in equity." The court found that just because "White said he made a mistake of judgment and that the court 'took him at his word,' should not change the result. It is the facts surrounding the mistake, not the label, i.e., 'mistake of fact' or 'mistake of judgment,' which should control."

Discussion.

This case offers a pragmatic look at how courts attempt to resolve disputes according to real world common sense principles, if black letter principles produce inequitable results.