City of Florence v. Powder Horn Constructors Inc.

• Decision Date: 17 October 1985
• Docket Number: No. 83CA0690,83CA0690
• Citation: 716 P.2d 143
• Parties: CITY OF FLORENCE, a Colorado municipal corporation, Plaintiff-Appellee, v. POWDER HORN CONSTRUCTORS, INC., a Colorado corporation, and St. Paul Fire and Marine Insurance Company, a Minnesota corporation, Defendants-Appellants. . I
• Court: Colorado Court of Appeals

Page 143

716 P.2d 143

CITY OF FLORENCE, a Colorado municipal corporation, Plaintiff-Appellee, v. POWDER HORN CONSTRUCTORS, INC., a Colorado corporation, and St. Paul Fire and Marine Insurance Company, a Minnesota corporation, Defendants-Appellants.

No. 83CA0690.

Colorado Court of Appeals Div. I.

Oct. 17, 1985.

Rehearing Denied Nov. 21, 1985.

Certiorari Granted (Powder Horn) March 17, 1986.

Law Office of Robert F.T. Krassa, P.C., Robert F.T. Krassa, Pueblo, for plaintiff-appellee.

Conover, McClearn & Heppenstall, P.C., Hugh J. McClearn, Catherine A. Lemon, Denver, for defendants-appellants.

Gorsuch, Kirgis, Campbell, Walker & Grover, Charles E. Grover, Dan S. Cross, Denver, for amicus curiae Colorado Contractors Ass'n, Inc.

BABCOCK, Judge.

On this issue of first impression in Colorado, we must decide whether a contractor may be relieved of its bid on a public construction project where the bid is the product of a clerical error and the public authority is notified of the error prior to the award of the contract. We hold that relief from a bid is possible, but that the contractor bears the burden of proving by a preponderance of the evidence that: (1) the mistake relates to a material feature of the contract; (2) it occurred despite the exercise of reasonable care; and (3) the public authority can be placed in status quo.

The material facts are not in dispute. Powder Horn Constructors, Inc., responded to an invitation by the City of Florence with a sealed bid for construction of a portion of a water treatment facility. When the bids were publicly opened it was discovered that Powder Horn was the low bidder. On the next day, Powder Horn realized that it had made a clerical error amounting to $73,326 on its bid of $699,500, and promptly notified Florence of that fact. Florence, however, refused to allow Powder Horn to withdraw its bid and, twelve days later, awarded the contract to Powder Horn. When Powder Horn advised Florence that it did not intend to proceed with the contract, Florence awarded the contract to the second lowest bidder in the amount of $754,330.

Florence brought suit against Powder Horn and its bonding company, St. Paul Fire and Marine Insurance Company, seeking forfeiture of the 5% bid bond as damages for Powder Horn's breach of the bid contract. Trial was to the court which found that Powder Horn's clerical error was "more than ordinary neglect." Judgment was for Florence and Powder Horn appeals. We affirm.

A clear majority of the jurisdictions that have faced this issue have held that relief from a bid to a public authority for a unilateral clerical error is possible under certain circumstances. See Moffett, Hodgkins & Clarke Co. v. Rochester, 178 U.S. 373, 20 S.Ct. 957, 44 L.Ed. 1108 (1900); Marana Unified School District No. 6 v. Aetna Casualty & Surety Co., 144 Ariz. 159, 696 P.2d 711 (1984); Elsinore Union Elementary School District v. Kastorff, 54 Cal.2d 380, 6 Cal.Rptr. 1, 353 P.2d 713 (1960); John J. Calnan Co. v. Talsma Builders, Inc., 67 Ill.2d 213, 10 Ill.Dec. 242, 367 N.E.2d 695 (1977); Community Consolidated School District No. 169 v. Meneley Construction Co., 86 Ill.App.3d 1101, 42 Ill.Dec. 571, 409 N.E.2d 66 (1980); Baltimore County v. John K. Ruff, Inc., 281 Md. 62, 375 A.2d 237 (1977); Cataldo Construction Co. v. County of Essex, 110 N.J.Super. 414, 265 A.2d 842 (1970); Arcon Construction Co. v. State, 314 N.W.2d 303 (S.D.1982). A small minority of jurisdictions have denied relief in all cases. See Triple A Contractors, Inc. v. Rural Water District No. 4, 226 Kan. 626, 603 P.2d 184 (1979); Board of Education v. Sever-Williams Co., 22 Ohio St.2d 107, 258 N.E.2d 605 (1970); A.J. Colella, Inc. v. County of Allegheny, 391 Pa. 103, 137 A.2d 265 (1958).

The principal reasons relied on by the minority jurisdictions in their support of a policy denying relief in all cases are that, to allow relief, would seriously undermine the system of sealed bids, could open the door to fraud and collusion between contractors or between contractors and the public authority, and would reward careless bid preparation. See Jones, The Law of Mistaken Bids, 48 U.Cin.L.Rev. 43 (1979); A.J. Colella, Inc. v. County of Allegheny, supra. We believe that such a policy is unduly restrictive in that it denies the application of equitable principles in meritorious cases, including the principle against unjust enrichment. See Jones, supra; Wil-Fred's, Inc. v. Metropolitan Sanitary District 57 Ill.App.3d 16, 14 Ill.Dec. 667, 372 N.E.2d 946 (1978); cf. Page v. Clark, 197 Colo. 306, 592 P.2d 792 (1979).

By placing the burden on the contractor to prove each element necessary for rescission by a preponderance of the evidence, see § 13-25-127(1), C.R.S., a court of equity can allow rescission in meritorious cases without jeopardizing the integrity of the bidding process or undermining the policies against fraud, collusion, and careless bid preparation. Therefore, we do not adopt the minority rule.

Although different formulations of the majority rule have been developed in the various jurisdictions, all such jurisdictions at least agree that, in order to rescind the bid contract, the unilateral mistake of the contractor must be related to a material feature of the contract, and the public authority must be placed back into status quo. Colorado cases involving non-bid actions for rescission are in accord with these principles. See Dlug v. Wooldridge, 189 Colo. 164, 538 P.2d 883 (1975); Hampton v. Tri-State Finance Corp., 30 Colo.App. 420, 495 P.2d 566 (1972).

With respect to the status quo requirement, the mere fact that the public entity may have lost the benefit of its bargain with the mistaken bidder does not prevent it from achieving status quo when it accepts the second lowest bid so long as there has been no change in position in reliance on the...