Lyon Metal Products, Inc. v. Hagerman Const. Corp.

• Decision Date: 16 July 1979
• Docket Number: No. 3-477A108,3-477A108
• Citation: 391 N.E.2d 1152,181 Ind.App. 336
• Parties: LYON METAL PRODUCTS, INCORPORATED, Defendant-Appellant, v. HAGERMAN CONSTRUCTION CORPORATION, Plaintiff-Appellee.
• Court: Indiana Appellate Court

Page 1152

391 N.E.2d 1152

181 Ind.App. 336

LYON METAL PRODUCTS, INCORPORATED, Defendant-Appellant, v. HAGERMAN CONSTRUCTION CORPORATION, Plaintiff-Appellee.

No. 3-477A108.

Court of Appeals of Indiana, Third District.

July 16, 1979.

John H. Heiney, Rothberg, Gallmeyer, Fruechtenicht & Logan, Fort Wayne, for defendant-appellant.

Michael H. Kast, Shambaugh, Kast & Beck, Craig R. Finlayson, Fort Wayne, for plaintiff-appellee.

GARRARD, Presiding Judge.

This is an appeal from a judgment in favor of Hagerman Construction Corporation (Hagerman) in an action for damages resulting from the failure of Lyon Metal Products, Inc. (Lyon) to provide Hagerman with athletic lockers for a school construction project in accordance with a bid Lyon submitted to Hagerman.

In February 1974, Hagerman was preparing a bid for the general construction of Hamilton Southwestern Middle School. One of the items it was required to bid upon was athletic lockers and related equipment. Lyon became aware of this project, obtained approval from the project's architect and submitted a uniform bid to the 12 or 13 general contractors who would be bidding on the project. On or about February 12, 1974, Hagerman received a written bid from Lyon for the lockers in the amount of $16,824.00. The bid was on a Lyon's quotation form. On the bottom of the form, in small print, the following limitation is found: "This quotation is subject to final acceptance and approval by our home office at Aurora, Illinois and the further condition contained on the reverse side hereof." On the reverse side, in smaller print yet, eight conditions are found. One of these has relevance to this appeal: "This quotation may be withdrawn and is subject to change without notice after 15 days from date of quotation." The specifications for the project, which Lyon admittedly read, required that bids remain open for 120 days.

Lyon's bid for the lockers was the lowest of the four received by Hagerman and was used by Hagerman in computing its bid. Lyon expected and intended that Hagerman would use Lyon's bid, if low, in its bid. ¹ On February 12, 1974, Hagerman was informed it was the lowest bidder on the project. Lyon learned of this three or four days later. On March 1st, Hagerman sent Lyon a letter of intent which stated:

"Due to many uncertainties of prices and availability of materials, we are issuing this letter of intent covering your proposal for work and/or materials on the above named project. The formal contracts and purchase orders will be issued after the bond sale and financing is completed by the Tri-County Holding Corporation and after we receive their contract for the work. Barring any complications, we would expect this to be done on June 10, 1974. If you have not sent us a written confirmation of a telephone bid, send it to us by return mail."

Lyon did not respond to this letter.

Hagerman was notified of the completion of the bond sale and financing on May 22, 1974 and sent a formal contract to Lyon on or about June 5, 1974. Unfortunately the contract was not mailed to the address printed on Lyon's quotation form. Hagerman was unable to establish why the erroneous address was, in fact, used. However, it did establish that the address was the one which at that time appeared as the address of Lyon in the yellow pages of the telephone directory. On August 2, 1974, Hagerman sent to the same address a follow-up letter inquiring why the signed contract had not been returned. Lyon denied receiving either of these communications. However, Lyon took no steps during this time to discover why Hagerman had not sent the contracts as it had said it would. In early August, the Cincinnati office of Lyon contacted its sales representative in Chicago and inquired whether an order from Hagerman had been obtained. Without contacting either Langevin, the sales representative who had made the bid, or Hagerman, the Chicago sales representative suggested that Lyon withdraw its bid as no order had been received. On September 6, 1974, Lyon through its Cincinnati office, mailed Hagerman notice that it was withdrawing the bid due to recent price increases. Hagerman, after receipt of this notice, made several attempts to get Lyon to supply the lockers at the quoted price. Lyon instead submitted a new price of $28,750.00; $12,000.00 more than its original bid. Hagerman obtained the lockers from another supplier at a cost of $24,787.00.

The trial court entered judgment in favor of Hagerman in the sum of $7,963.00 based upon the doctrine of promissory estoppel. The sole issue upon appeal is whether the court erred in applying the doctrine to the facts of this case.

The doctrine of promissory estoppel, embodied in Section 90 of the Restatement of Contracts, provides that:

"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 the enforcement of the promise."

Although the doctrine was traditionally recognized in cases involving donative or gratuitous promises (ex charitable subscriptions), ² it is now well accepted that promissory estoppel applies with equal force in commercial transactions, including construction bid cases.

The leading case in this area is Drennan v. Star Paving Co. (1958), 51 Cal.2d 409, 333 P.2d 757. The case involved an oral bid by a subcontractor for paving work on a school project on which Drennan, the general contractor, was about to bid. The subcontractor's bid was the lowest and Drennan computed his own bid using the subcontractor's bid. Drennan was the successful bidder but the subcontractor informed him the next day that it would not do the work at the quoted price. The court applied the doctrine of promissory estoppel to prevent the subcontractor's revocation of the bid, stating:

"Defendant's offer constituted a promise to perform on such conditions as were stated expressly or by implication therein or annexed thereto by operation of law. (See 1 Williston, Contracts (3rd ed.) § 24A, p. 56, § 61, p. 196.) Defendant had reason to expect that if its bid proved the lowest it would be used by plaintiff. It introduced 'action . . . of a definite and substantial character on the part of the promisee.'

"The absence of consideration is not fatal to the enforcement of such a promise. It is true that in the case of unilateral contracts the Restatement finds consideration for the implied subsidiary promise in the part performance of the bargained-for exchange, but its reference to section 90 makes clear that consideration for such a promise is not always necessary. The very purpose of section 90 is to make a promise binding even though there was no consideration 'in the sense of something that is bargained for and given in exchange.' (See 1 Corbin, Contracts 634 et seq.) Reasonable reliance serves to hold the offeror in lieu of the consideration ordinarily required to make the offer binding.

"When plaintiff used defendant's offer in computing his own bid, he bound himself to perform in reliance on defendant's terms. Though defendant did not bargain for this use of its bid neither did defendant make it idly, indifferent to whether it would be used or not. On the contrary it is reasonable to suppose that defendant submitted its bid to obtain the subcontract. It was bound to realize the substantial possibility that its bid would be the lowest, and that it would be included by plaintiff in his bid. It was to its own interest that the contractor be awarded the general contract; the lower the subcontract bid, the lower the general contractor's bid was likely to be and the greater its chance of acceptance and hence the greater defendant's chance of getting the paving subcontract. Defendant had reason not only to expect plaintiff to rely on its bid but to want him to. Clearly defendant had a stake in plaintiff's reliance on its bid. Given this interest and the fact that plaintiff is bound by his own bid, it is only fair that plaintiff should have at least an opportunity to accept defendant's bid after the general contract has been awarded to him."

333 P.2d 759-60.

In a similar case, the Supreme Court of South Dakota held that "Obviously it would seem unjust and unfair, after appellant was declared the successful bidder and imposed with all the obligations of such, to allow respondents to retract their promise and permit the effect of such retraction to fall upon the appellant....