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Drennan v. Star Paving Co.
51 Cal. 2d 409 (Cal. 1958)
Traynor
Defendant appeals from a judgment for plaintiff in an action to recover
damages caused by defendant's refusal to perform certain paving work according to a bid it
submitted to plaintiff.
On July 28, 1955, plaintiff, a licensed general contractor, was
preparing a bid on the "Monte Vista School Job" in the Lancaster school
district. Bids had to be submitted before 8 p. m. Plaintiff testified that it was
customary in that area for general contractors to receive the bids of subcontractors by
telephone on the day set for bidding and to rely on them in computing their own bids. Thus
on that day plaintiff's secretary, Mrs. Johnson, received by telephone between 50 and 75
subcontractors' bids for various parts of the school job. As each bid came in, she wrote
it on a special form, which she brought into plaintiff's office. He then posted it on a
master cost sheet setting forth the names and bids of all subcontractors. His own bid had
to include the names of subcontractors who were to perform one-half of one per cent or
more of the construction work, and he had also to provide a bidder's bond of 10 per cent
of his total bid of $317,385 as a guarantee that he would enter the contract if awarded
the work.
Late in the afternoon, Mrs. Johnson had a telephone conversation with
Kenneth R. Hoon, an estimator for defendant. He gave his name and telephone number and
stated that he was bidding for defendant for the paving work at the Monte Vista School
according to plans and specifications and that his bid was $7,131.60. At Mrs. Johnson's
request he repeated his bid. Plaintiff listened to the bid over an extension telephone in
his office and posted it on the master sheet after receiving the bid form from Mrs.
Johnson. Defendant's was the lowest bid for the paving. Plaintiff computed his own bid
accordingly and submitted it with the name of defendant as the subcontractor for the
paving. When the bids were opened on July 28th, plaintiff's proved to be the lowest, and
he was awarded the contract.
On his way to Los Angeles the next morning plaintiff stopped at
defendant's office. The first person he met was defendant's construction engineer, Mr.
Oppenheimer. Plaintiff testified: "I introduced myself and he immediately told me
that they had made a mistake in their bid to me the night before, they couldn't do it for
the price they had bid, and I told him I would expect him to carry through with their
original bid because I had used it in compiling my bid and the job was being awarded them.
And I would have to go and do the job according to my bid and I would expect them to do
the same."
Defendant refused to do the paving work for less than $15,000.
Plaintiff testified that he "got figures from other people" and after trying for
several months to get as low a bid as possible engaged L & H Paving Company, a firm in
Lancaster, to do the work for $10,948.60.
The trial court found on substantial evidence that defendant made a
definite offer to do the paving on the Monte Vista job according to the plans and
specifications for $7,131.60, and that plaintiff relied on defendant's bid in computing
his own bid for the school job and naming defendant therein as the subcontractor for the
paving work. Accordingly, it entered judgment for plaintiff in the amount of $3,817 (the
difference between defendant's bid and the cost of the paving to plaintiff) plus costs.
Defendant contends that there was no enforceable contract between the
parties on the ground that it made a revocable offer and revoked
it before plaintiff communicated his acceptance to defendant.
There is no evidence that defendant offered to make its bid irrevocable
in exchange for plaintiff's use of its figures in computing his bid. Nor is there evidence
that would warrant interpreting plaintiff's use of defendant's bid as the acceptance
thereof, binding plaintiff, on condition he received the main contract, to award the
subcontract to defendant. In sum, there was neither an option supported by consideration
nor a bilateral contract binding on both parties.
Plaintiff contends, however, that he relied to his detriment on
defendant's offer and that defendant must therefore answer in damages for its refusal to
perform. Thus the question is squarely presented: Did plaintiff's reliance make
defendant's offer irrevocable?
Section 90 of the Restatement of Contracts 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 promise and which does induce such action or
forbearance is binding if injustice can be avoided only by enforcement of the
promise." This rule applies in this state.
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. Defendant had reason to expect that if its bid proved the lowest it would be
used by plaintiff. It induced "action . . . of a definite and substantial character
on the part of the promisee."
Had defendant's bid expressly stated or clearly implied that it was
revocable at any time before acceptance we would treat it accordingly. It was silent on
revocation, however, and we must therefore determine whether there are conditions to the
right of revocation imposed by law or reasonably inferable in fact. In the analogous problem of an offer for a unilateral
contract, the theory is now obsolete that the offer is revocable at any time before
complete performance. Thus section 45 of the Restatement of Contracts provides: "If
an offer for a unilateral contract is made, and part of the consideration requested in the
offer is given or tendered by the offeree in response thereto, the offeror is bound by a
contract, the duty of immediate performance of which is conditional on the full
consideration being given or tendered within the time stated in the offer, or, if no time
is stated therein, within a reasonable time." In explanation, comment b states that
the "main offer includes as a subsidiary promise, necessarily implied, that if part
of the requested performance is given, the offeror will not revoke his offer, and that if
tender is made it will be accepted. Part performance or tender may thus furnish
consideration for the subsidiary promise. Moreover, merely acting in justifiable reliance
on an offer may in some cases serve as sufficient reason for making a promise binding (see
§ 90)."
Whether implied in fact or law, the subsidiary promise serves to
preclude the injustice that would result if the offer could be revoked after the offeree
had acted in detrimental reliance thereon. Reasonable reliance resulting in a foreseeable
prejudicial change in position affords a compelling basis also for implying a subsidiary
promise not to revoke an offer for a bilateral contract.
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. In a case involving similar facts the
Supreme Court of South Dakota stated that "we believe that reason and justice demand
that the doctrine [of section 90] be applied to the present facts. We cannot believe
that by accepting this doctrine as controlling in the state of facts before us we will
abolish the requirement of a consideration in contract cases, in any different sense than
an ordinary estoppel abolishes some legal requirement in its application. We are of the
opinion, therefore, that the defendants in executing the agreement [which was not
supported by consideration] made a promise which they should have reasonably expected
would induce the plaintiff to submit a bid based thereon to the Government, that such
promise did induce this action, and that injustice can be avoided only by enforcement of
the promise." (Northwestern Engineering Co. v. Ellerman, 69 S.D. 397, 408 [10 N.W.2d
879]; see also Robert Gordon, Inc. v. Ingersoll-Rand Co., 117 F.2d 654, 661; cf. James Baird Co. v. Gimbel Bros., 64 F.2d 344.)
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.
It bears noting that a general contractor is not free to delay
acceptance after he has been awarded the general contract in the hope of getting a better
price. Nor can he reopen bargaining with the subcontractor and at the same time claim a
continuing right to accept the original offer. (See R. J. Daum Const. Co. v. Child, 122
Utah 194 [247 P.2d 817, 823].) In the present case plaintiff promptly informed defendant
that plaintiff was being awarded the job and that the subcontract was being awarded to
defendant.
Defendant contends, however, that its bid was the result of mistake and
that it was therefore entitled to revoke it. It relies on the rescission cases . . .
In those cases, however, the bidder's mistake was known or should have been to the
offeree, and the offeree could be placed in status quo. Of course, if plaintiff had reason
to believe that defendant's bid was in error, he could not justifiably rely on it, and
section 90 would afford no basis for enforcing it. (Robert Gordon, Inc. v. Ingersoll-Rand
Co., 117 F.2d 654, 660.) Plaintiff, however, had no reason to know that defendant had made
a mistake in submitting its bid, since there was usually a variance of 160 per cent
between the highest and lowest bids for paving in the desert around Lancaster. He
committed himself to performing the main contract in reliance on defendant's figures.
Under these circumstances defendant's mistake, far from relieving it of its obligation,
constitutes an additional reason for enforcing it, for it misled plaintiff as to the cost
of doing the paving. Even had it been clearly understood that defendant's offer was
revocable until accepted, it would not necessarily follow that defendant had no duty to
exercise reasonable care in preparing its bid. It presented its bid with knowledge of the
substantial possibility that it would be used by plaintiff; it could foresee the harm that
would ensue from an erroneous underestimate of the cost. Moreover, it was motivated by its
own business interest. Whether or not these considerations alone would justify recovery
for negligence had the case been tried on that theory (see Biakanja v. Irving, 49
Cal.2d 647, 650 [320 P.2d 16]), they are persuasive that defendant's mistake should not
defeat recovery under the rule of section 90 of the Restatement of Contracts. As between
the subcontractor who made the bid and the general contractor who reasonably relied on it,
the loss resulting from the mistake should fall on the party who caused it.
. . .
There is no merit in defendant's contention that plaintiff failed to
state a cause of action, on the ground that the complaint failed to allege that plaintiff
attempted to mitigate the damages or that they could not have been mitigated. Plaintiff
alleged that after defendant's default, "plaintiff had to procure the services of the
L & H Co. to perform said asphaltic paving for the sum of $10,948.60."
Plaintiff's uncontradicted evidence showed that he spent several months trying to get bids
from other subcontractors and that he took the lowest bid. Clearly he acted reasonably to
mitigate damages. . . .
The judgment is affirmed.