Constructors Sup. Co. v. Bostrom Sheet Met. Wks., Inc.

• Decision Date: 20 August 1971
• Docket Number: No. 42562,42562
• Citation: 291 Minn. 113,190 N.W.2d 71
• Court: Minnesota Supreme Court
• Parties: CONSTRUCTORS SUPPLY COMPANY, d.b.a. Harris Plumbing & Heating Company, Respondent, v. BOSTROM SHEET METAL WORKS, INC., Appellant.

Page 71

190 N.W.2d 71

291 Minn. 113

CONSTRUCTORS SUPPLY COMPANY, d.b.a. Harris Plumbing &amp Heating Company, Respondent, v. BOSTROM SHEET METAL WORKS, INC., Appellant.

No. 42562.

Supreme Court of Minnesota.

Aug. 20, 1971.

Rehearing Denied Sept. 14, 1971.

Syllabus by the Court

Promissory estoppel was properly applied to permit recovery of damages sustained by a prime contractor in constructing a building because of a subcontractor's refusal to perform a subcontract at the price it had named in a bid submitted by it to the prime contractor and on which the latter reasonably relied to its detriment by using such bid in preparing its own prime bid on the project, with which prime bid it was required to furnish a bond in the amount of 5 percent of the amount of the bid.

Leonard, Street & Deinard, Harold D. Field Jr., Frederick C. Blackledge and Nancy C. Dreher, Minneapolis, for appellant.

Robins, Davis & Lyons and Steven H. Goldberg, St. Paul, for respondent.

Heard before KNUTSON, C.J., and NELSON, PETERSON, KELLY, and ROLLOFF, JJ.

OPINION

NELSON, Justice.

Appeal from a judgment of the Ramsey County District Court entered April 16, 1970, in favor of plaintiff-respondent, Constructors Supply Company, against defendant-appellant, Bostrom Sheet Metal Works, Inc., in the sum of $9,848.

The action was brought by plaintiff, a mechanical contractor doing business as Harris Plumbing & Heating Company, to recover damages suffered when defendant, Bostrom Sheet Metal Works, Inc., a subcontractor, withdrew a bid it had submitted to plaintiff and which plaintiff had considered in arriving at its prime bid before submitting the prime bid on a construction project. Plaintiff was subsequently awarded the mechanical contract on the project, the construction of a classroom-laboratory building for the University of Minnesota; but because of defendant's withdrawal of its bid, plaintiff had to search for and employ new subcontractors to perform the ventilation work on the project.

The pertinent facts are as follows: Defendant, a ventilation contractor, learned of the proposed construction of the building at the University of Minnesota in May 1968. Defendant contacted the architect-engineer on the project and obtained plans and specifications in order to prepare a bid as subcontractor. Since the ventilation work was included in the prime mechanical contract, defendant was to submit its bid to the mechanical contractors who were bidding on the project. The prime mechanical bids on the project were due at the university at 2 p.m. June 12, 1968. Defendant prepared its bid of $372,000 for the ventilation work and on the morning of June 12 contacted plaintiff and three other mechanical contracting firms by telephone and submitted its bid to them. Defendant's bid was prepared by Richard Bostrom, defendant's corporation secretary and estimator, and it was he who submitted the bids to the prime contractors.

Richard Bostrom personally spoke with plaintiff's vice president, Jerome Sandin, who was in charge of procuring bids from subcontractors on the ventilation work, abut 2 hours before the prime bids were due. The two men went over the items on which defendant was bidding, including the price, on the telephone. Sandin called Bostrom back after a few minutes and asked him if he were sure of his price. Bostrom replied, 'Of course, I will take the contract right now.' Sandin's reply was, 'Okay. Fine.'

Defendant's bid was the lowest submitted to plaintiff for ventilation work on the building, and it was used by plaintiff in computing its prime mechanical bid, which was submitted at 2 p.m. June 12, 1968. At that time all of the prime bids were opened and read, and plaintiff was found to be the low bidder for the prime mechanical portion of the project.

Several days later defendant notified plaintiff by telephone that it was withdrawing its bid because it had discovered substantial errors in it. On June 27, 1968, defendant wrote plaintiff a letter confirming the withdrawal but submitting a new bid of $421,000 for the ventilation work. Plaintiff on that same day wrote defendant, formally accepting the bid of $372,000 and indicating its desire to sign a contract should the project be awarded. Later plaintiff made attempts to renegotiate the ventilation contract with defendant.

On July 31, 1968, plaintiff wrote defendant, informing it that plaintiff had been awarded the mechanical contract, and advised defendant that if defendant would not enter an agreement to do the work for $372,000, plaintiff would award the ventilation subcontract to the next lowest bidder and would seek compensation from defendant for any additional costs. Plaintiff subsequently contacted other ventilation contractors and eventually contracted the ventilation work with two other firms. Suit was later instituted to recover the additional costs, and plaintiff obtained the judgment from which defendant has appealed.

The main issues are (1) whether the doctrine of promissory estoppel is applicable to bind a subcontractor to the bid it offers to a prime contractor who does not finally accept that bid but relies on it by incorporating it into the prime bid which it submits; and (2) whether the evidence justifies the application of promissory estoppel in the case at bar.

In granting judgment for plaintiff, the trial court based its decision on the bidding practices of the construction industry in the area. It was brought out at trial that subcontractors and contractors customarily negotiate on the telephone in submitting their bids. The subcontractors itemize their various costs by computing them from the plans and specifications of the project, and when they come up with final figures, they submit them as bids to the prime contractors who use these bids in arriving at their own bids. At times a subcontractor himself has subcontracted various items of the project on which he wishes to bid, and he must receive bids from his subcontractors before he can submit a complete figure to the prime contractors. This whole process usually culminates on the day that the prime bids are due on the project. Much telephoning and hurried activity takes place between the prime contractors and subcontractors in an effort to prepare bids before the prime bid deadline. It was also brought out at trial that subcontractors customarily agree to be bound by the bids they submit to prime contractors and that prime contractors act in reliance on these bids when they submit their own bids to the owner.

Taking these practices into account, the trial court found that plaintiff relied on defendant's bid for the ventilation work in submitting the prime mechanical bid. The trial court concluded that the doctrine of promissory estoppel was properly applicable in the circumstances and entitled plaintiff to recover the damages it sustained as a result of defendant's refusal to perform the work at its original bid price. We affirm.

The doctrine of promissory estoppel, or as it is sometimes called, justifiable reliance, is set forth in Restatement, Contracts, § 90, which states:

'A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.'

The doctrine has been characterized by some courts as a species of or substitute for consideration. See, Porter v. Commr. of Internal Revenue (2 Cir.), 60 F.2d 673, affirmed, 288 U.S. 436, 53 S.Ct. 451, 77 L.Ed. 880; Allegheny College v. National Chautauqua County Bank, 246 N.Y. 369, 159 N.E. 173, 57 A.L.R. 980. Other courts have called it a reliance doctrine. Schafer v. Fraser, 206 Or. 446, 290 P.2d 190, 294 P.2d 609; Annotation, 48 A.L.R.2d 1069.

Promissory estoppel has been accepted but has had limited consideration by the courts in this state. It has been applied in charitable subscription cases. See, Albert Lea College v. Brown, 88 Minn. 524, 93 N.W. 672, 60 L.R.A. 870; Horan v. Keane, 164 Minn. 57, 204 N.W. 546. It was also recognized and applied in Albachten v. Bradley, 212 Minn. 359, 3 N.W.2d 783, in which we held a debtor estopped to plead the statute of limitations where, by promising that he would later make a new arrangement or settle the plaintiff's claim, he induced plaintiff to forbear suit until after the statute had run.

There is a split of authority among the courts which have considered the applicability of the doctrine to the situation at hand. Defendant relies on that line of authority which holds that promissory estoppel does not apply to make a subcontractor's bid irrevocable where the prime contractor has not accepted the bid, even though the prime contractor may have relied on the bid by using it in its own bid. See, James Baird Co. v. Gimbel Bros. Inc. (2 Cir.), 64 F.2d 344; Milone & Tucci, Inc. v. Bona Fide Builders, Inc., 49 Wash.2d 363, 301 P.2d 759; Southeastern Sales & Serv. Co. v. T. T. Watson, Inc. (Fla.App.) 172 So.2d 239; Tatsch v. Hamilton-Erickson Mfg. Co., 76 N.Mex. 729, 418 P.2d 187.

In the Baird case plaintiff contractor received defendant's bid for a linoleum subcontract on the same day as its own prime bid was due on the construction of a public building. Defendant withdrew its offer and substituted another later that day, but the withdrawal telegram reached plaintiff subsequent to its submission of a lump-sum prime bid based in part on defendant's original bid. Plaintiff's prime bid was accepted 2 days later, and it formally accepted defendant's original offer shortly thereafter. Defendant refused to perform, and plaintiff brought suit for damages. Judge Learned Hand held that no contract had ever arisen between the contractor and subcontractor, as there had been no acceptance of defendant's bid when it was received by plaintiff, even though plaintiff relied on defendant's bid in making the prime...