Montgomery Industries Intern., Inc. v. Thomas Const. Co., Inc.

• Decision Date: 26 June 1980
• Docket Number: No. 79-1367,79-1367
• Citation: 620 F.2d 91
• Parties: MONTGOMERY INDUSTRIES INTERNATIONAL, INC., Plaintiff-Appellee, v. THOMAS CONSTRUCTION COMPANY, INC. of Missouri and The Travelers Indemnity Company, Defendants-Appellants. Summary Calendar. *
• Court: U.S. Court of Appeals — Fifth Circuit

Page 91

620 F.2d 91

MONTGOMERY INDUSTRIES INTERNATIONAL, INC., Plaintiff-Appellee, v. THOMAS CONSTRUCTION COMPANY, INC. of Missouri and The

Travelers Indemnity Company, Defendants-Appellants.

No. 79-1367

Summary Calendar. ^*

United States Court of Appeals, Fifth Circuit.

June 26, 1980.

William E. Simmons, Richard W. Miller, F. Phillip Kirwan, Kansas City, Mo., for defendants-appellants.

Homer H. Humphries, Jr., Peter J. Kellogg, Jacksonville, Fla., for plaintiff-appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before HILL, GARZA and THOMAS A. CLARK, Circuit Judges.

GARZA, Circuit Judge:

This is a diversity of citizenship case involving a dispute between a general contractor and a subcontractor. The dispute concerns the revocability of the subcontractor's bid to the general contractor when the general contractor uses the subcontractor's bid in formulating its own bid to another. Although involving basic principles of contract law, such as, offer, acceptance, and consideration, the reasoning and results of similar cases in various states have not been uniform. Additionally, the law of the state which controls this case, Texas, is not well settled since no definitive ruling concerning this matter has been given from the state's highest court. Absent the availability of a certification procedure to the Texas Supreme Court, we must try to ascertain Texas law and apply it to this case.

FACTS

The plaintiff-appellee, Montgomery Industries International, Inc., at all relevant times, operated its wholly owned unincorporated division, Trans Vac Systems (Trans Vac). Defendants-appellants are Thomas Construction Company, Inc. (Thomas) and Travelers Indemnity Company (Travelers). This case involves the construction of the Thomas, in preparing for its bid to the University, solicited bids from many suppliers including Trans Vac. The University had set December 18, 1973, at 2:00 P.M. as the deadline for submission of bids and on that morning Trans Vac telephoned Thomas and submitted its initial bid in the amount of $355,650.00 for the trash conveying system. Trans Vac also informed Thomas that detailed plans of the system would not be provided. ¹ Later that day, Trans Vac called and submitted a lower bid to Thomas in the amount of $319,650.00. Within less than an hour of Thomas' bidding deadline, Trans Vac called and submitted an even lower bid in the amount of $287,000.00. ² Trans Vac also submitted identical bids to several other general contractors bidding on the project. The bid given to Thomas contained no conditions or reservations nor did it indicate any deviation from the specifications issued by the University. Thomas estimated its own costs in connection with the Trans Vac alternative and submitted its entire bid to the University along with a $1,500,000.00 bid bond, with Travelers as the surety, to assure prompt and proper performance in the event the contract was awarded to it.

John Sealy Hospital Addition at Galveston, Texas. This hospital project was owned by the University of Texas System (the University). In the latter part of 1973, the University announced plans to construct the hospital and a number of contractors, including Thomas, began to prepare their bids. Trans Vac was in the business of planning, building and installing sophisticated trash disposal systems and received the project plans from a commercial service. The plans contained a number of alternatives on different aspects of the project and the general contractors were required to prepare and submit separate bids based on the alternatives. One of the aspects of construction called for separate bids on alternate pneumatic trash disposal systems. Of these alternate systems, at least three were available only through their designers. Trans Vac was the designer of one of these alternate systems and the project plans specified, by name, that the Trans Vac system be used by the general contractor in preparing one of the alternate choices within his general bid. The project plans also provided that the University would at its sole discretion select the system to be used.

On December 18, 1973, at 2:00 P.M., the bids were publicly opened and Thomas was found to be the lowest bidder. The University did not immediately award the contract to Thomas but Thomas telephoned Trans Vac that their bids had been the low ones. On January 7, 1974, Thomas received a letter from Trans Vac which indicated that there existed a deviation from the system bid by Trans Vac and the system called for by the plans. This was the first indication to Thomas that Trans Vac's bid deviated from the plans. On January 10, 1974, the University officially awarded Thomas the general contract which included the Trans Vac alternative trash conveying system.

On January 14, 1974, Trans Vac notified Thomas that certain "concessions" would be required in order for Trans Vac to sign its subcontract. On January 15, 1974, Thomas was informed by Trans Vac that a "mistake" ³, in the approximate amount of $50,000.00, had been made in Trans Vac's bid. Prior to this time, Thomas had no indication that Trans Vac would require either concessions or more money to perform their subcontract. In an attempt to resolve the problems, both Thomas and Trans Vac met with University representatives which resulted in University approval of all of Trans Vac's building concessions. The result of these concessions was to make Trans Vac's Viewing the latter as the only realistic alternative, Thomas entered into a contract with Trans Vac on February 26, 1974, for the increased amount. The evidence is undisputed that Thomas received nothing for the increased price nor was Trans Vac required to perform differently or give up anything in exchange for the price increase. ⁴

construction easier and less costly. However, Trans Vac's demands for more money were not resolved and Trans Vac refused to sign and perform its subcontract without an additional amount of $32,500.00 for a subcontract price of $321,000.00. It was clear that Thomas could not increase its contract amount in order to accommodate Trans Vac's increase. At this point, Thomas had three alternatives: (1) refuse the increased price, pursue its legal remedies, and face possible forfeiture of its bid bond due to delays in construction, (2) enter a contract for the next closest alternative trash disposal system at an increased cost in excess of $500,000.00 over Trans Vac's $287,000.00 bid and attempt to persuade the University to accept that alternative, or (3) enter into a contract with Trans Vac at the increased price.

All work was performed by Trans Vac to the satisfaction of all concerned, but Thomas refused to pay Trans Vac $32,500.00 the amount of the increase. This resulted in a trial without jury and the Court found that there had been no "meeting of the minds" until the execution of the written contract on February 26, 1974. Alternatively, the Court held that even had a contract existed before February 26, that the contract signed on February 26 was a novation and was binding on the parties. The Court awarded the full $32,500.00 under the contract plus $13,000.00 as attorney's fees.

PROMISSORY ESTOPPEL

The first issue presented, and if answered in the negative the only issue, is whether or not Trans Vac's bid submission to Thomas and Thomas' use and reliance upon that bid in formulating its bid to the University amounted to a legally binding obligation upon Trans Vac to perform for the price of $287,000.00. Thomas argues that the court below failed to properly consider the consequences of the following facts: Trans Vac was specified by the University's plans as the sole source for the project's trash conveyance system; Trans Vac received the project plans and was fully aware of the system specifications required; Trans Vac submitted a bid to Thomas without any conditions or reservations; Trans Vac submitted the bid knowing Thomas would rely on it in preparing the bid to the University; and Thomas did in fact rely to its detriment on Trans Vac's bid in the bid to the University. Thomas argues that the doctrine of promissory estoppel as applied to the facts operate to bind Trans Vac to perform in accordance with its bid. Thomas contends that, although the bid offer was not met with an unequivocal acceptance by Thomas and therefore the absence of mutual promises failed to provide consideration under traditional contract analysis, Trans Vac should nevertheless be estopped from revoking its bid offer at least until Thomas had an opportunity to accept after the general contract had been awarded.

Although there exists no Texas case "on all fours", Texas law is in accord with the doctrine of promissory estoppel and the Supreme Court, in Wheeler v. White, 398 S.W.2d 93 (Tex.1965), has recognized the applicability of Section 90 of the Restatement of Contracts. ⁵ In Wheeler, the Texas Supreme Court applied the doctrine of promissory estoppel to allow a suit for damages sustained from a breach of a financing 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 the 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...