Rushlight Automatic Sprinkler v. Portland

Oregon Supreme Court · Contracts

Contractsmistakebidsrescissionpublic contractsunilateral mistakepublic biddingmeeting of the minds

Facts

The plaintiff submitted the lowest bid for a City sewer project and deposited a certified check as required by the bidding instructions. Shortly after the bids were opened, and before any bid was accepted, the plaintiff discovered that it had inadvertently omitted the cost of reinforcing steel, amounting to $99,225.68, from all relevant units of its bid and promptly notified the City orally and in writing that it wished to withdraw. The plaintiff's total bid was dramatically below both the next lowest bid and the City's engineer's estimate, and city officials themselves regarded it as suspiciously low. Despite notice of the mistake and repeated withdrawal requests, the City later accepted the bid, declared the deposit forfeited when plaintiff refused to perform, and awarded the contract to the second-low bidder without readvertising.

Issue

Whether a bidder that made an honest, material unilateral mistake in compiling a public-works bid may obtain return of its bid deposit after notifying the City of the mistake and seeking withdrawal before acceptance, when the City knew or should have known from the disparity in the bids that a basic mistake had occurred. Also, whether the City could retain the deposit as liquidated damages after accepting the bid with such knowledge.

Rule

In Oregon, an offer and acceptance create a meeting of the minds even if the offeror made a material mistake in compiling the offer, so long as the offeree was not aware of the mistake and had no reason to suspect it. But if the offeree knew of the mistake, or the circumstances were such that a reasonable person should have inferred that a basic mistake had been made, no meeting of the minds occurs; equity may then relieve the mistaken bidder, especially where the mistake was honest and non-culpable, prompt notice was given, the other party has not changed position, and no damage resulted apart from losing the benefit of the mistaken bid.

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The City of Salem solicited sealed bids for a storm-drain project. Kellan Ortiz, bidding through Fir Basin Utilities, submitted the low bid at $1.2 million; the next three bids ranged from $1.8 million to $1.9 million, and the city engineer immediately remarked during the opening that the low number looked "far too low." The next morning, before any award, Ortiz notified the city in writing that his estimator had omitted all pump-equipment costs worth about $260,000 and asked to withdraw the bid.

If the city later purported to accept the low bid and keep Fir Basin Utilities' bid deposit after Ortiz refused to perform, which is the best result?

Explanation. The majority rule applied here is that a unilateral mistake does not bar contract formation if the offeree neither knew nor had reason to suspect the mistake. But where the offeree knew, or a reasonable person should have inferred, that a basic mistake had been made, no meeting of the minds occurs. A dramatic disparity in bids that immediately appears "too good to be true," coupled with prompt notice before acceptance, supports equitable relief and return of the deposit. The city need not know the precise omitted line item if the circumstances made the existence of a basic mistake apparent.