Tuesday, September 29, 2009

A rule is a rule is a rule, except when it isn't. Promissory estoppel and reliance by a general contractor on subcontractor's bids.

Our casebook gives the impression that whenever a general contractor formulates its bid in reliance on a subcontractor's bid and subsequently wins the job, the subcontractor's bid is enforceable under the doctrine of promissory estoppel. The editors write, for example, that "most commentators have viewed the James Baird and Drennan decisions as being squarely in conflict. If so, Drennan has clearly prevailed. . . . . [T]he Drennan line of cases appears to have matured to the point where establishment of the basic facts will entitle the plaintiff general contractor to judgment more or less automatically, unless the defendant subcontractor can take the case of of the ordinary run by demonstrating some additional factors in its favor." Casebook at 117, n. 2.

That "unless the subcontractor can take the case out of the ordinary run" is a gap wide enough to drive several trucks through, making the proposition that "reliance on a subcontractors bid establishes the right to enforce the bid under the doctrine of promissory estoppel" a rule as empty of meaning as is the proposition that "an advertisement is usually not an offer." We will read later in the year about a subcontractor being excused from enforcement of its bid based on its ability to show that the bid was based on a mistake. We have seen that advertisements can be offers. We know that even if you aren't required to affirmatively express your assent to an online agreement you may or may not be bound, and that even if you ordinarily would be bound the terms might be so unfair they won't be enforced.

A more accurate and comprehensive statement of the applicable rules is set forth by Philip L. Bruner and Patrick J. O'Connor, Jr. in 1 Bruner & O'Connor Construction Law § 2:107 (footnotes containing citations omitted):
The doctrine of promissory estoppel has been invoked repeatedly to protect prime contractors against withdrawal, prior to the expiration of the firm bid period, of sub-bids relied upon in preparation of their prime bids. Until the advent of the fax machine, subcontractor and supplier bids traditionally were conveyed orally by telephone to bidders within hours or minutes before they completed their bids. Oral bids are enforceable under the doctrine of promissory estoppel.This is true even if the oral bid otherwise fell within the applicable provisions of the statute of frauds.Fundamental to the invocation of promissory estoppel is proof of the bidder's detrimental reliance upon the sub-bid it seeks to enforce.The bidder must shoulder the burden of proving that it relied upon the sub-bid in preparing its prime bid to its prejudice. Reliance is proven by showing that the sub-bid price was included directly in the prime bid price. This critical element of the prime's reliance is frequently challenged by subcontractors. Crucial to the application of the doctrine of promissory estoppel is that the sub-quote:
1. Be unequivocable;
2. Be unambiguous;
3. Be relied upon by the bidder in submitting its bid;
4. Not be impliedly rejected by subsequent post-bid negotiations or "bid-shopping";
5. Not be infected with a material mistake; and
6. Be timely accepted.
Thus, for example, in Bunkoff General Contractors, Inc. v. Dunham Elec., Inc., 300 A.D.2d 976, 753 N.Y.S.2d 156 (N.Y.App. Div. 3d Dept. 2002), the court affirmed the trial court's denial of a contractor's motion for summary judgment, holding that there were disputed questions of material fact raised by the contractor's promissory estoppel cause of action against the defendant subcontractor:
[O]ur review of the documentary and testimonial evidence in the record, we find that questions of fact exist concerning whether defendant indeed made a clear and unambiguous promise to plaintiff when it submitted its quote and amended quote and also whether plaintiff reasonably relied upon defendant in submitting its own bid to the project owner.
Id., 753 N.Y.S.2d at 158 (citation omitted).