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Corbin on Contracts

Copyright 2007, Matthew Bender & Company, Inc., a member of the LexisNexis Group.

PART I FORMATION OF CONTRACTS

TOPIC A OFFER AND ACCEPTANCE

Supp. To CHAPTER 2 OFFERS: CREATION AND DURATION OF POWER OF ACCEPTANCE

1-2 Corbin on Contracts Supp. to § 2.31

Supp. to § 2.31 Effect of Action in Reliance That Is Not Part Performance

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(A) The following cases are noteworthy:

(1) Ritchie Paving, Inc. v. City of Deerfield, 61 P.3d 669 (Kan. 2003) . In its advertisement for bids for a street improvement project, the City of Deerfield promised that the contract would be awarded to ''the lowest, responsive, responsible bidder whose evaluation by owner indicates to owner that the award will be in the best interests of the project.'' Ritchie was the lowest bidder by $31,000, but its bid was rejected. The City stated reasons not mentioned in the bid advertisement for choosing a bidder other than Ritchie, particularly commencement and completion dates. Ritchie sought a recovery of its bid preparation costs on the basis of promissory estoppel. The trial court granted the City's motion to dismiss. The court of appeals recognized that the term ''lowest responsible bidder'' allows a party such as the City to consider intangible factors in a discretionary judgment of awarding a contract in the best interests of the project and the taxpayers it serves. The court, however, found that the elements of promissory estoppel were present to allow the recovery of the bid preparation expenses that Ritchie had expended in justifiable reliance on the advertised bid. While a bidder may not recover anticipated profits since such a recovery would be injurious to the public, the City had no reasonable justification for rejecting Ritchie's bid. Since the time for injunctive relief had passed and Ritchie did not seek anticipated profits, awarding Ritchie reliance damages to the extent of bid preparation expenses benefited the public by discouraging misconduct in the bidding process.

(2) Andersons, Inc. v. Consol, Inc., 348 F.3d 496 (6th Cir. 2003) . Where the plaintiff lessor of railroad cars repaired its cars and prepared a bid which the defendant used in creating its bid to obtain a coal supply contract with a utility, the defendant secured the contract with the utility and, discovering another supplier of cars at a lower rate, terminated negotiations for the lease contract with the plaintiff. The plaintiff sought to enforce, under the doctrine of promissory estoppel, an alleged promise by the defendant to lease cars. The trial court granted summary judgment for the defendant. On appeal, the instant court reviewed the elements of promissory estoppel, focusing on the initial requirement of a clear and unambiguous promise. The defendant's letter indicated an intent to lease 131 railroad cars from the plaintiff, conditioned on the ''successful negotiation'' of a ''definitive'' lease agreement. The evidence indicated that the plaintiff's decision to repair its cars to meet the minimal physical requirements of the defendant occurred absent any unconditional promise by the plaintiff to lease the cars. The plaintiff was not required to incur these expenses prior to the consummation of a lease acceptable to the defendant. The negotiations failed to produce such a lease. The court affirmed the judgment below on the ground that the plaintiff failed to show the necessary clear, unambiguous and unconditional promise required to enforce a promise based on expected and reasonable detrimental reliance. This case is also discussed under § 1.20 of the supplement.

(3) 2949 Inc. v. McCorkle, 2005 Wash. App. LEXIS 1167 (2005) . Among other efforts to convince the court that the defendants offer to lease a sign was irrevocable, the plaintiff relied on the Restatement (Second) of Contracts, § 87(2) that allows that is a paraphrase of the promissory estoppel Section 90 except for one distinguishing element that the court emphasized. Section 90 which allows expected and reasonable reliance to make a promise enforceable does not expressly require that the reliance be of a ''substantial character'' as does § 87(2). The court viewed the ''substantial character'' element as important since it is addressed to situations where the offeree undergoes substantial expense or commitments or foregoes substantial alternatives which the offeror should have reasonable expected. The plaintiff argued that the defendants should have expected the defendant to perform a credit check and reference check as a result of the offer. The court did not view such a detriment to be of a ''substantial character.'' Reversing a summary judgment for the plaintiff below, the court found the defendants offer to be revocable.

Supplement to Notes in Main Volume

7. Double AA Builders, Ltd. v. Grand State Constr., L.L.C., 114 P.3d 835 (2005) . In anticipation of submitting a bid for the construction of a new Home Depot store, the plaintiff solicited subcontractor bids for various aspects of the work. On December 18, 2001, the defendant faxed an unsigned bid for the exterior insulation system that included the phrase, ''Our price is good for 30 days.'' The plaintiff used the defendant's bid along with other subcontractor bids in arriving at the total bid submitted to the owner. On December 31, 2001, the owner awarded the contract to the plaintiff. On January 11, 2002, the plaintiff sent a contract to the defendant which the defendant refused to sign. Pursuant to court rules, an arbitrator heard the case and ruled in favor of the defendant. The trial court, however, held for the plaintiff and this appeal followed. The instant court relied upon the classic case of Drennan v. Star Paving, discussed in the main volume, citing numerous cases from other jurisdictions in accord in holding that the promise of a subcontractor upon which a general contractor relies in using the subcontractor's bid makes the subcontractor's promise enforceable under the doctrine of promissory estoppel (Restatement (Second) of Contracts, § 90). The court rejected the defendant's claim that its faxed bid was not a promise since the ''quote'' contained all of the material terms involved in the project and a definite price that was ''good for 30 days.'' Moreover, the defendant's general manager acknowledged that the defendant submitted the bid to obtain work if the plaintiff was the successful bidder as the general contractor. The court also rejected the defendant's claim that the bid was not accepted promptly since the bid stated that it was ''good for 30 days'' and the plaintiff's acceptance occurred within 30 days. The defendant claim that its unsigned bid was unenforceable under the statute of frauds is discussed § 21.1 of this supplement. The opinion's discussion of the nature of a promissory estoppel claim is explored in § 8.12 of this supplement.

8. Ohio- R.P. Carbone Constr. Co. v. North Coast Concrete, Inc., 88 Ohio App. 3d 505, 624 N.E.2d 326 (1993) (justice did not require enforcement of subcontractor's erroneous bid even though general contractor used the bid in its successful bid on the general contract because the general contractor never accepted the subcontractor's bid).

10. S.C.- Electro-Lab of Aiken, Inc. v. Sharp Constr. Co. of Sumter, Inc., 357 S.C. 363, 593 S.E.2d 170 (Ct. App. 2004) . The defendant mistakenly used the plaintiff's oral subcontract bid (having inadvertently overlooked a lower bid) on electrical work in its general contractor bid on a project and listed the plaintiff as the electrical subcontractor. As low bidder, the defendant was awarded the contract and telephoned the plaintiff to inquire as to the plaintiff's bond rate and to direct the plaintiff to send its written bid to the defendant. Shortly thereafter, the defendant discovered its mistake and asked the plaintiff if it could do the work at the price of the lower subcontract bid. The plaintiff responded that it would match the lower bid. The defendant submitted a fax to the plaintiff stating that it would be issuing a subcontract to the plaintiff and urged the plaintiff to pursue shop drawings and the issuance of payment and performance bonds. The message concluded, ''We look forward to working with you.'' When the plaintiff could not obtain the bonds, the defendant contracted with the previous low-bidding subcontractor. The plaintiff claimed that the parties had a contract, which the defendant had breached. The trial judge found that no contract existed and ruled in favor of the defendant. On appeal, the instant court agreed in holding that the mere use of a subcontractor's bid does not constitute acceptance of the subcontractor's offer. Nor did the court find an acceptance in the defendant's request that the plaintiff submit its bid in writing. Neither was the court persuaded that there was an acceptance of the plaintiff's offer by the defendant's fax to the plaintiff. Up to the point of the defendant's fax, the court's analysis is sound. The opinion, however, merely concludes that the defendant's fax was simply another preliminary negotiation. Having first elicited the plaintiff's agreement to the lower price followed by the fax stating that a subcontract was forthcoming, the defendant's urging of the plaintiff to begin shop drawings and stating that it looked forward to working with the plaintiff suggest much more than a mere preliminary negotiation. Indeed, the facts suggest manifested mutual assent with the promised subcontract operating as a mere memorial of the parties' contract. On these facts, the court's holding would appear to be more justified by the plaintiff's inability to meet the condition of providing the bonds under an existing contract.

12. Miss.- R.C. Constr. Co. v. National Office Systems, Inc., 622 So. 2d 1253 (Miss. 1993) (general contractor used subcontractor's bid in submitting its own successful bid but subsequently sought to extract a lower bid from the subcontractor without ever communicating acceptance to the subcontractor; failure of the general contractor to communicate its acceptance was ''fatal to [its] contention that a valid contract existed'').