Ballard v. Chavez
117 N.M. 1, 868 P.2d 646 (1994)
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Rule of Law:
Contract reformation based on mutual mistake discovered after contract formation is a permissible equitable remedy and is not precluded by state procurement code provisions that govern the modification of bid prices before or at bid opening.
Facts:
- Ballard, a general contractor, submitted a bid to construct Phase I of Loving High School.
- Loving School District accepted Ballard’s bid.
- On December 26, 1988, Ballard signed a written contract with Loving School District to construct Phase I of Loving High School.
- Simultaneously with the contract signing, the parties executed a change order that modified the contract by deducting the cost of paving certain parking areas.
- When Ballard and Loving School District executed the contract and change order, they mutually and mistakenly believed the paving cost was being deducted for the first time, when it had already been deducted in the original contract price.
- This inadvertent double deduction of paving costs allegedly caused Ballard a loss of $98,840.
Procedural Posture:
- Ballard (Plaintiffs-Appellants) sued Loving Municipal School District (Defendants-Appellees) in the district court (trial court) to recover costs it claimed were mistakenly deducted twice from its contract price, seeking equitable relief through contract reformation.
- Loving School District filed a motion to dismiss Ballard’s complaint for failure to state a claim upon which relief can be granted, arguing that reformation would violate the New Mexico Procurement Code and that Ballard's claim was barred by its failure to review contract documents.
- The district court granted Loving School District’s motion, dismissing Ballard’s complaint.
- Ballard appealed the district court’s order of dismissal to the New Mexico Supreme Court.
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Issue:
Does a state procurement code provision prohibiting modification of bid prices after bid opening prevent contract reformation based on mutual mistake discovered after the contract is formed?
Opinions:
Majority - Frost, Justice
No, a state procurement code provision prohibiting modification of bid prices after bid opening does not prevent contract reformation based on mutual mistake discovered after the contract is formed. The court clarified that there is a clear theoretical and statutory distinction between 'bids' (offers to contract) and 'contracts' (agreements). While Section 13-1-106 of the New Mexico Procurement Code prohibits modification of bid prices after bid opening, it specifically relates to bids and does not address contracts or their modification or reformation. The Code defines 'responsive bid' and 'contract' separately, indicating legislative intent for different treatment. Mutual mistake is a recognized ground for contract reformation in New Mexico, as outlined in Restatement (Second) of Contracts, Section 155. Furthermore, a mistaken party's fault in failing to discover facts before making the contract does not bar reformation unless the fault amounts to bad faith or a failure to act in accordance with reasonable standards of fair dealing (Restatement (Second) of Contracts Section 157). The district court's reliance on Gardner-Zemke Co. v. State was misplaced, as that case did not involve mutual mistake but rather a contractor's failure to read contract documents regarding differing subsurface conditions, thus making it distinguishable.
Concurring - Ransom, C.J., and Montgomery, J.
Ransom, C.J., and Montgomery, J., concur in the majority opinion.
Analysis:
This case clarifies the scope and limitations of public procurement statutes, emphasizing that prohibitions on altering bids do not automatically extend to preventing equitable remedies for mistakes in fully executed contracts. It reinforces the availability of contract reformation due to mutual mistake as a distinct equitable principle in New Mexico, even if a party exhibits some degree of fault in not discovering the mistake earlier, provided there is no bad faith. The decision provides important guidance for contractors and governmental entities on distinguishing between pre-contractual bid integrity and post-contractual remedies for errors in the expression of an agreement.
