Dynalectric Co. of Nev. Inc. v. Clark & Sullivan Constructors Inc.

• Decision Date: 14 July 2011
• Docket Number: No. 51758.,51758.
• Citation: 127 Nev. Adv. Op. 41,255 P.3d 286
• Parties: DYNALECTRIC COMPANY OF NEVADA, INC., a Nevada Corporation, Appellant,v.CLARK & SULLIVAN CONSTRUCTORS, INC., Respondent.
• Court: Nevada Supreme Court

255 P.3d 286

127 Nev. Adv. Op. 41

DYNALECTRIC COMPANY OF NEVADA, INC., a Nevada Corporation, Appellant,

v.CLARK & SULLIVAN CONSTRUCTORS, INC., Respondent.

No. 51758.

Supreme Court of Nevada.

July 14, 2011.

Morris Peterson and Akke Levin and Steve Morris, Las Vegas; Holland & Hart, LLP, and Philip Dabney and Lars Evensen, Las Vegas, for Appellant.McDonald Carano Wilson LLP and William A.S. Magrath, II, and Craig A. Newby, Las Vegas, for Respondent.Before DOUGLAS, C.J., CHERRY, SAITTA, GIBBONS, HARDESTY and PARRAGUIRRE, JJ.¹

OPINION

PER CURIAM:

In this appeal, we address the measure of damages applicable to promissory estoppel claims. We adopt a flexible approach as suggested in the Restatement (Second) of Contracts and apply the same factors that bear on promissory estoppel relief to the remedy afforded by the breach. The determination of the appropriate measure of damages in any given case turns on considerations of what justice requires and the foreseeability and certainty of the particular damages award sought. We further conclude that the presumptive measure of damages for a general contractor that reasonably relies upon a subcontractor's unfulfilled promise is the difference between the nonperforming subcontractor's original bid and the cost of the replacement subcontractor's performance.

FACTS AND PROCEDURAL HISTORY

This appeal arises from a dispute between appellant Dynalectric Company of Nevada, Inc., a subcontractor, and respondent Clark and Sullivan Constructors, Inc. (C & S), a general contractor, concerning a public works project (the Project). The Project involved the expansion of the University Medical Center (UMC) in Las Vegas. In 2004, UMC solicited bids for the Project. C & S, interested in serving as the general contractor for the Project, sought bids from subcontractors. Dynalectric submitted a bid to C & S to perform the electrical work for the Project and repeatedly assured C & S of the accuracy of its bid. C & S incorporated Dynalectric's bid into its bid to UMC for the general contract (Prime Contract). C & S was the low bidder, and UMC awarded it the Prime Contract. C & S notified Dynalectric. Subsequently, Dynalectric repudiated its obligations to C & S and refused to negotiate with C & S. C & S therefore contracted with three replacement subcontractors to complete the electrical work for the Project.

C & S then sued Dynalectric in district court under various theories of liability, including breach of contract, promissory estoppel, and breach of the covenant of good faith and fair dealing. Dynalectric countersued for, among other theories, breach of an implied contract, fraud, and violation of NRS 338.141.²

Following a 12–day bench trial, the district court entered a judgment for C & S on its promissory estoppel claim and rejected each of Dynalectric's counterclaims. The district court awarded C & S $2,501,615 in damages, which represents the difference between Dynalectric's bid ($7,808,983) and the amount C & S paid the three replacement contractors to complete the work ($10,310,598). Dynalectric appealed.

DISCUSSION

Dynalectric contends that the district court applied the incorrect measure of damages.³ Specifically, it asserts that the district court should not have awarded C & S expectation damages. We disagree.

Standard of review

Whether a party is “entitled to a particular measure of damages is a question of law” reviewed de novo. Toscano v. Greene Music, 124 Cal.App.4th 685, 21 Cal.Rptr.3d 732, 736 (2004).

Measure of damages for promissory estoppel claims

Broadly speaking, Nevada follows the doctrine of promissory estoppel articulated in the Restatement (Second) of Contracts. See Vancheri v. GNLV Corp., 105 Nev. 417, 421, 777 P.2d 366, 369 (1989).

The Restatement describes promissory estoppel as follows:

A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.

Restatement (Second) of Contracts § 90(1) (1981).

Comment delaborates further upon the remedies available for promissory estoppel:

A promise binding under this section is a contract, and full-scale enforcement by normal remedies is often appropriate. But the same factors which bear on whether any relief should be granted also bear on the character and extent of the remedy. In particular, relief may sometimes be limited to restitution or to damages or specific relief measured by the extent of the promisee's reliance rather than by the terms of the promise.

Id. § 90 cmt. d (emphasis added).

Thus, under the Restatement, an award of expectation damages ⁴ is often an appropriate remedy for promissory estoppel claims. But, in other instances, reliance damages ⁵ or restitutionary damages ⁶ may be more suitable.

Following the lead of the Restatement, we hold that the district court may award expectation, reliance, or restitutionary damages for promissory estoppel claims.⁷ Although the doctrine of promissory estoppel is conceptually distinct from traditional contract principles, there is no rational reason “ ‘for distinguishing the two situations in terms of the damages that may be recovered.’ ” Toscano, 21 Cal.Rptr.3d at 737 (quoting Signal Hill Aviation Co. Inc. v. Stroppe, 96 Cal.App.3d 627, 158 Cal.Rptr. 178, 185 (1979)). In sum, no single measure of damages will apply to each and every promissory estoppel claim; instead, to determine the appropriate measure of damages for promissory estoppel claims, the district court should consider the measure of damages that justice requires and that comports with the Restatement's general requirements that damages be foreseeable and reasonably certain.⁸ See Restatement (Second) of Contracts §§ 351, 352 (1981).

Whether the district court used the appropriate measure of damages

We now consider whether the district court used the appropriate measure of damages when it awarded C & S promissory estoppel damages representing the difference between Dynalectric's bid and the amount that the three replacement contractors charged C & S to complete the same work.

Drennan v. Star Paving Company, 51 Cal.2d 409, 333 P.2d 757, 761 (1958), the seminal promissory estoppel case in the subcontract bidding context, illustrates how damages should typically be computed in this situation. In Drennan, a general contractor was preparing a bid for a construction project. Id. at 758. Before the general contractor submitted its bid, a subcontractor submitted a bid of $7,131.60 to the general contractor to perform the paving portion of the project. Id. The general contractor then incorporated the subcontractor's bid into its own bid for the project. Id. Shortly thereafter, the subcontractor informed the general contractor that it would not perform the work for the price it had originally quoted in its bid. Id. at 758–59. Ultimately, the general contractor obtained a replacement pavement subcontractor to complete the work at a cost of $10,948.60. Id. at 759. The Drennan court affirmed the trial court's determination that the general contractor was entitled to $3,817, the difference between the subcontractor's bid and the amount that the general contractor had to pay the replacement subcontractor to complete the work. Id. at 759, 761.

In the decades since Drennan, courts have consistently and uniformly applied the same measure of damages for promissory estoppel claims arising from a subcontractor's repudiation of its obligations to a general contractor. See, e.g., John Price Associates, Inc. v. Warner Elec., Inc., 723 F.2d 755, 756–57 (10th Cir.1983) (appropriate measure of damages for general contractor's promissory estoppel claim was the difference between nonperforming electrical subcontractor's bid and the bid of the substituted subcontractor that completed the work); Preload Technology v. A.B. & J. Const. Co., Inc., 696 F.2d 1080, 1091, 1093 (5th Cir.1983) (damages were properly calculated as the difference between the original subcontractor's bid and the replacement subcontractor's bid); Janke Const. Co., Inc. v. Vulcan Materials Co. 527 F.2d 772, 780 (7th Cir.1976) (general contractor was entitled to award representing the difference between subcontractor's quoted prices for certain construction materials and the cost of replacement materials); Double AA Builders v. Grand State Const., 210 Ariz. 503, 114 P.3d 835, 837, 843 (Ariz.Ct.App.2005) (upholding award consisting of the difference between nonperforming insulation subcontractor's bid and the cost of a replacement subcontractor); Riley Bros. Constr., Inc. v. Shuck, 704 N.W.2d 197, 204 (Minn.Ct.App.2005) (damages were properly computed as the difference between masonry subcontractor's unperformed bid and the amount paid to two replacement subcontractors to complete the work); Branco Enterprises v. Delta Roofing, 886 S.W.2d 157, 158, 161 (Mo.Ct.App.1994) (award based upon the difference between roofing subcontractor's bid and the amount a substitute subcontractor charged was necessary to prevent injustice). We see no reason to depart from the well-established measure of damages used in Drennan.

Interestingly, despite the consensus that the measure of damages adopted in Drennan is appropriate in the type of situation presented here, courts have not definitively labeled this measure “expectation” or “reliance” damages. See Edward Yorio & Steve Thel, The Promissory Basis of Section 90, 101 Yale L.J. 111, 146 (1991) (noting the ambiguity in the caselaw with respect to classifying this measure of damages). Scholars appear to agree, however, that the Drennan measure of damages is, in fact, expectation damages. See id. (concluding that this measure represents expectation damages, even if occasionally labeled “reliance damages”); W. David Slawson, The Role of Reliance in Contract Damages. 76...