AROK Const. Co. v. Indian Const. Services, 1

CourtCourt of Appeals of Arizona
Citation848 P.2d 870,174 Ariz. 291
Docket NumberNo. 1,CA-CV,1
PartiesAROK CONSTRUCTION COMPANY, a California Corporation, Plaintiff-Appellant, v. INDIAN CONSTRUCTION SERVICES, a joint venture between Evcor Builders, Inc., Jeremiah La Mesa and Jane Doe La Mesa, Defendants-Appellees. 90-231.
Decision Date11 February 1993


Plaintiff AROK Construction Company ("AROK") brings this appeal from the entry of summary judgment in favor of Defendants-Appellees Indian Construction Services ("ICS"), Evcor Builders, Inc., and Jeremiah La Mesa. AROK's appeal challenges the superior court's holding that, as a matter of law, no contract existed between the parties because essential terms were absent from the parties' agreement.

During our consideration of this matter, we asked the parties to submit supplemental briefs on the impact, if any, of the Arizona Supreme Court's decision in Schade v. Diethrich, 158 Ariz. 1, 760 P.2d 1050 (1988), on the application of Savoca Masonry v. Homes & Son Construction Co., 112 Ariz. 392, 542 P.2d 817 (1975) to the instant appeal. The parties filed supplemental briefs, which we have considered together with the parties' initial briefs.


On review of summary judgment, we view the facts and evidence in a light most favorable to the party against whom summary judgment was granted and draw all reasonable inferences in favor of that party. United Bank of Ariz. v. Allyn, 167 Ariz. 191, 193, 195, 805 P.2d 1012, 1014, 1016 (App.1990). Summary judgment was granted against AROK, and we must view the record accordingly. 1

In 1985, Window Rock Unified School District ("Owner") solicited bids for the services of a general contractor. The Owner is not a party to this lawsuit. ICS submitted a bid to act as the general contractor. ICS listed AROK on the bid as the subcontractor to perform drywall and stucco portions of the construction project. The bid was based in part on a telephonic bid by AROK of $1.549 million based on the plans and specifications.

Prior to bid closing, ICS asked AROK to reduce its bid from $1.549 million to $1.42 million. The president of AROK stated to the ICS project manager that AROK would reduce its bid even further to $1.4 million if, as a result, ICS would agree to contract with AROK if the Owner awarded the bid to ICS. The ICS project manager stated that in exchange for AROK's further reduction to $1.4 million, "If [ICS] get[s] a job, [AROK] get[s] a job." AROK sent a letter to ICS confirming the $1.4 million quote and enclosed a detailed bid confirmation.

In early 1986, the Owner declared ICS to be low bidder and awarded it the contract to act as general contractor. ICS then requested "value" adjustments to AROK's bid; AROK complied and worked approximately eight to ten hours further reducing the subcontract price.

ICS received a "notice to proceed" from the Owner. After receiving the notice to proceed, ICS disputed the subcontract price. ICS contended that AROK had agreed to perform the work for $1.3 million; AROK maintains that its original bid, as reduced to $1.4 million, is the correct price. Shortly thereafter, ICS entered into subcontracts with two other entities to perform the drywall and stucco work.

AROK and the principals of ICS 2 had entered into contracts on three prior occasions. On each occasion, the parties used identical standard form contracts. 3 Added to these forms were four identical typed provisions. On one contract, a non-material provision was interlineated and initialed by the parties. When ICS contracted with the replacement subcontractors for this project, it again used the form contract it had used with AROK.

AROK filed this action alleging breach of contract, promissory estoppel, and racketeering. See Ariz.Rev.Stat.Ann. ("A.R.S.") § 13-2314 (civil remedies for racketeering). AROK appeals from the summary judgment on the breach of contract and promissory estoppel counts only.


The overarching question is whether there is a genuine issue requiring a trial that AROK had a contract with ICS. See Ariz.R.Civ.P. 56(c). It is settled law that the bidding process alone does not create a contract. ICS did not obligate itself to use AROK as a subcontractor merely by relying on AROK's subcontract bid or by listing AROK as the subcontractor in the bid. See Universal Const. Co. v. Arizona Consol. Masonry & Plastering Contractors Ass'n, 93 Ariz. 4, 8, 377 P.2d 1017, 1019 (1963) (a bid "does not ripen into a contract until voluntarily accepted by the offeree"); Corbin-Dykes Electric Co. v. Burr, 18 Ariz.App. 101, 103, 500 P.2d 632, 633-34 (1972) (a subcontractor's bid is nothing more than an offer to perform the subcontract under specified terms and does not ripen into a contract until voluntarily accepted by the general contractor). In short, both AROK's bid to ICS and ICS's bid to the Owner were mere offers to contract. These offers had no binding effect unless and until accepted by the offerees to whom the offers were directed.

A bid becomes a contract, however, when it is accepted. In Savoca Masonry v. Homes & Son Construction Co., 112 Ariz. 392, 542 P.2d 817 (1975), the Arizona Supreme Court considered facts very similar to the facts in this case. The general contractor sought bids. A subcontractor submitted a bid. The general contractor listed that subcontractor in the bid for the construction contract. The owner awarded the contract to the general contractor.

In a telephone conversation, the general contractor informed the subcontract bidder that it had the job. Despite this promise, the general contractor ultimately employed someone else to perform the work. The subcontract bidder sued for breach of an oral contract. The general contractor conceded that the subcontract bid was an offer that had been accepted. Similarly, ICS admits for purposes of this appeal that AROK's bid was an offer accepted by ICS.

Despite the presence of the contract elements of offer and acceptance, the supreme court held in Savoca Masonry that the parties' agreement was not binding. The court found that the agreement lacked terms essential to a contract. It reasoned that an enforceable contract did not exist because "such essentials, as manner of payment, time for completion ..., penalty provisions, bonding, etc.," were not agreed upon. Savoca Masonry, 112 Ariz. at 395, 542 P.2d at 820 (quoting Plumbing Shop, Inc. v. Pitts, 67 Wash.2d 514, 518-19, 408 P.2d 382, 384-85 (1965)). The court stated that "only price and work involved were agreed upon.... A sufficient mutual understanding as to all the terms of the contract did not exist." 112 Ariz. at 395, 542 P.2d at 820 (emphasis added). The court found that agreement on such terms as manner and time of payments, penalty provisions, time for completion, and bonding was essential to contract formation.

Similarly, some terms are missing from the agreement in this case and, at first blush, Savoca Masonry appears to warrant summary judgment against the subcontract bidder, AROK. However, the Arizona Supreme Court later considered the same legal issue--whether missing terms rendered an agreement unenforceable--in the context of an employment case. Schade v. Diethrich, 158 Ariz. 1, 760 P.2d 1050 (1988). In contrast to Savoca Masonry, the supreme court held in Schade that an employment severance agreement was enforceable even though important terms were left unresolved.

In Schade, the employer merely promised to enter into a fair and equitable severance agreement, with the specific terms to be resolved later. Our supreme court held that such an agreement was sufficiently definite to be enforceable. The court examined the transaction in terms of whether a bargained-for exchange and consideration existed, finding that the only provisions of a multi-term agreement which were uncertain and left for later resolution were those relating to severance pay and benefits. Schade, 158 Ariz. at 8-9, 760 P.2d at 1057-1058. The court stated that certainty of terms relates to the parties' intent to contract: "[T]he requirement of certainty is not so much a contractual validator as a factor relevant to determining the ultimate element of contract formation--the question whether the parties manifested assent or intent to be bound." 158 Ariz. at 9, 760 P.2d at 1058. Thus, the overriding question is whether the parties intended to contract.

Our supreme court found that the Schade agreement sufficiently manifested mutual assent to be bound by contract despite the absence of agreement on the most basic terms of the severance package:

Any requirement of "reasonable certainty" is satisfied if the agreement that was made simply provides "a basis for determining the existence of a breach and for giving an appropriate remedy." RESTATEMENT (SECOND) OF CONTRACTS § 33(2).... [T]he trial court did not need to take upon itself the task of filling the gaps in the parties' agreement and designing an appropriate remedy. It had, instead, the opinion of experts mutually selected by Diethrich and Schade. The Committee to which they turned to recommend a fair and equitable severance agreement was composed of businessmen familiar with personnel practices involving senior executives....

Schade, 158 Ariz. at 10-11, 760 P.2d at 1059-60. The court held that the parties had made an enforceable bargain.

Schade reflects a clear and overwhelming trend in the law. The old "formalist" view limited the agreement to written terms and emphasized rules of contract, such as the requirement that the agreement include all material terms. This has long since given way to the "realist" approach, exemplified by the Uniform Commercial Code and the Second Restatement of Contracts. The latter emphasizes standards rather...

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