may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (1996).
STATE OF MINNESOTA
IN COURT OF APPEALS
McGuire Mechanical Services, Inc.,
Filed December 15, 1998
Dakota County District Court
File No. C0-97-14417
Eric W. Forsberg, Forsberg Law Office, P.A., 100 South Fifth Street, Suite 2250, Minneapolis, MN 55402 (for appellant)
Considered and decided by Shumaker, Presiding Judge, Crippen, Judge, and Holtan, Judge.[*]
Appellant McGuire Mechanical Services, Inc. disputes the trial court's ruling that promissory estoppel prevented appellant from withdrawing its erroneously calculated subcontract bid on which respondent Rochon Corporation relied in formulating and submitting its prime contract bid for a county construction project. We affirm.
The prime bid deadline was June 4, 1996 at 2:00 p.m. At 1:52 p.m. on that day, appellant proposed to do all mechanical work, except for fire sprinklers, for $252,290. This was one of several mechanical subcontract bids.
When respondent reviewed the subcontract bids, it noticed that appellant's proposal was $66,000, or 20%, less than the next lowest mechanical bid. Respondent informed appellant of the discrepancy and asked appellant to confirm its bid. It did so and respondent used appellant's proposal in calculating the prime contract bid.
Respondent learned on June 4, 1996, that it was the lowest prime contract bidder. One hour after receipt of this information, respondent notified appellant that it was the lowest mechanical subcontractor.
On June 6, 1996, appellant notified respondent and all other bidding prime contractors that, because appellant had made a calculation error resulting in a bid $61,000 less than it should have been, appellant was withdrawing its offer. At that point, respondent had not yet accepted appellant's offer.
Respondent contacted the county to discuss its options, including the possibility of withdrawing the prime bid. Because the county would not indicate whether it would retain respondent's $87,000 bid bond until after respondent formally withdrew its bid, respondent decided to let the bid stand.
Six weeks later, the county awarded the prime contract to respondent, who then found it necessary to hire two mechanical subcontractors to replace appellant. The difference between appellant's bid price and the combined price charged by the replacement subcontractors was $58,710. Respondent sued appellant to recover that difference. After a nonjury trial, the court determined that appellant was estopped from withdrawing its bid and awarded judgment to respondent.
Appellant first argues that since respondent never accepted its offer there could not be a breach of contract. Clearly, appellant withdrew its offer before any act of express or implied acceptance occurred. See Holman Erection Co. v. Orville E. Madsen & Sons, Inc., 330 N.W.2d 693, 696 (Minn. 1983) (mere use of subcontractor's bid in submitting prime bid does not, without more, constitute acceptance of subcontractor's offer). Without acceptance of the offer, there could be no contract and no breach. But the trial court based its decision on promissory estoppel rather than contract.
In Minnesota, promissory estoppel is "a doctrine based on reliance which courts may use in a proper case to prevent injustice." Constructors Supply Co. v. Bostrom Sheet Metal Works, Inc., 291 Minn. 113, 120, 190 N.W.2d 71, 75 (1971). The supreme court in that case quoted the rule as follows:
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.
Id. at 116, 190 N.W.2d at 73 (quoting Restatement (Second), Contracts § 90(1) (1981)).
Characterizing appellant's bid as a "promise," the trial court concluded that the elements of promissory estoppel were established by the evidence and that appellant was estopped from withdrawing its "promise."
Appellant contends that the trial court applied the doctrine to the wrong "promise." Appellant urges that under a correct application of promissory estoppel the subcontractor is estopped from withdrawing its offer before the lapse of a reasonable time for acceptance. The "promise" then is to hold the offer open, rather than to do the work described in the content of the bid.
Appellant gleans this interpretation of the doctrine from Bostrom, 291 Minn. at 119, 190 N.W.2d at 75, which quotes the California Supreme Court. Referring to the plaintiff general contractor, that court said:
[I]t 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.
Drennan v. Star Paving Co., 51 Cal.2d 409, 415, 333 P.2d 757, 760 (1958).
Bostrom discussed two lines of cases that have considered the applicability of promissory estoppel in construction contract bid situations. The first line refuses to apply the doctrine unless the prime contractor actually accepts the bid. See James Baird Co. v. Gimbel Bros., Inc., 64 F.2d 344 (2d Cir. 1933). Bostrom rejects this line of decisions. The second approach provides
[a]n independent basis of enforcement of the contract based on the facts of bidding procedure, the division of risks between the prime contractor and the subcontractor, and an attempt to allow the system of bidding to operate with a minimum of injustice.
Bostrom, 291 Minn. at 118, 190 N.W.2d at 74.
It is this second line of authorities that the court in Bostrom found persuasive. The court noted that Drennan is among those authorities, but Bostrom neither adopted nor incorporated the Drennan language upon which appellant relies. Rather, with facts remarkably similar to those of the instant case, the court observed that
[p]laintiff received a clear and definite offer from defendant; that defendant could expect plaintiff to place substantial reliance on the offer; that plaintiff reasonably relied thereon to its detriment by using defendant's bid in preparing its own prime bid, with which it was required to furnish a bid bond in the amount of 5 percent of its bid; and that defendant's withdrawal caused plaintiff financial detriment.
Bostrom, 291 Minn. at 120, 190 N.W.2d at 75-76.
Affirming the trial court's award of judgment to the prime contractor for the sum lost when the subcontractor withdrew its bid, the court then held:
We must therefore conclude that plaintiff established a cause of action based on promissory estoppel and the trial court could properly apply the doctrine in order to grant relief.
Bostrom, 291 Minn. at 120, 190 N.W.2d at 76.
The rationale for this application of the doctrine of promissory estoppel to construction project bidding includes the recognition that the prime contractor necessarily relies on subcontractors' bids to his potential detriment but subcontractors do not similarly rely to their detriment on general contractors' bids. See Holman Erection Co., 330 N.W.2d at 698. Absent the application of promissory estoppel in this fashion, the prime contractor who justifiably relies on subcontract bids in submitting his prime bid is left only with traditional contract principles to address losses occasioned by the withdrawal of subcontract bids. If the prime contractor has not accepted the bids prior to withdrawal, contract law affords no remedy. Thus, the doctrine minimizes the potential for unfairness in construction bidding. Bostrom quoted with approval the observation in Reynolds v. Texarkana Const. Co., 237 Ark. 583, 585, 374 S.W.2d 818, 820 (1964), that
* * * Justice demands that the loss resulting from the subcontractor's carelessness should fall upon him who was guilty of the error rather than upon the principal contractor who relied in good faith upon the offer that he received.
Bostrom, 291 Minn. at 120, 190 N.W.2d at 75.
Finally, we find no legal or factual merit in appellant's additional arguments that respondent engaged in bid shopping, did not reasonably rely on appellant's bid, and suffered no damages.
[*] Retired judge of the district court, serving as judge of the Minnesota Court of Appeals by appointment pursuant to Minn. Const. art. VI, § 10.