Pavel Enterprises, Inc v. A.S. Johnson CO. Inc.
Facts: Pavel Enterprises, also know as PEI (plaintiff) is a general contractor from Vienna Virginia. A.J. Johnson (defendant) is a mechanical sub-contractor located in Clinton Maryland. In 1993 the National Institute of health (NIH) solicited bids for a renovation project. The major component of the work was mechanical, including heating, ventilation and air conditioning (HVAC). To prepare it’s general bid, PEI solicited sub-bids from mechanical subcontractors. A.J. Johnson responded with a written scope of work proposal on July 27, 1993. Then on August 5, 1993 NIH opened the general contractor’s bids and Johnson verbally submitted a quote of $898,000 for the HVAC component. This is standard practice in the construction industry. PEI then submitted bid of $1,585,000 for the entire project using the sub bid information. PEI’s bid was the second lowest bid. NIH subsequently disqualified the lowest bidder (Kirlin) and in mid-August, NIH notified PEI that its bid would be accepted. With knowledge that PEI was the lowest responsive bidder, company president T. Pavel visited Johnson on August 26, 1993 and met with Johnson’s estimator J. Kick. Purpose was to discuss Johnson’s proposed role in the work, according to Pavel. Following the meeting, PEI sent a fax to all of the mechanical subcontractors who sent sub-bids for the NIH job (including Johnson.) Fax stated PEI would be awarded NIH contract instead of Kirlin, they expected award around first of September, and requested that subcontractors review their bids and supply more information. On August 30, 1993 PEI informed NIH that Johnson would be subcontractor. On September 1, 1993 PEI notified Johnson by mail and fax accepting Johnson’s bid. Subject of letter/fax was "Letter of Intent to Subcontract." Upon receipt of the fax of September 1, J. Kick called PEI to state that Johnson’s bid contained an error and price was too low and he sought to withdraw Johnson’s bid. He sent a letter stating this too on September 2, 1993. PEI refused to accept the withdrawal. On September 28, 1993 NIH formally awarded the contract to PEI. PEI found another subcontractor to do the HVAC work for $32,000 more than Johnson’s bid. So basically, PEI was awarded a bid with Johnson’s quote. PEI was awarded the contract. Soon after Johnson withdrew their bid. PEI wants Johnson to pay for the increased price of the new contractor. Rules: Under Maryland law Cts must now apply Restatement (Second) of Contracts § 90 (1) (1979) to contracts between General Contractors and Sub-contractors and cts are to use a four pert test to determine if contract is to be enforced. The parts are:
There must have been a clear and definite promise. The promisor must have a reasonable expectation that the offeree will depend on their offer for their actions. The offeree must actually depend on the offer The offer's revocation causes an injury that can only be avoided by enforcing the contract.
Reasoning: Ct then turns to Promissory Estoppel. Ct states that Md. Cts must apply test Restatement 2nd Contracts § 90 (1). The Ct. Gives four parts to test: 1) Clear promise - tr ct found offer was promise and it was clear & definite. Ct affirms. 2) Offeror must expect that because offeree relies on this offer it will or won't do something. Ct agrees with tr. ct. that because of the time lapse between bid and award and Ds belief that P was not low bidder D could believe that P no longer relied on its offer. 3) Offeree actually does or does not do something based on offer. Ct declines to offer a checklist for how to find this and each case must be weighed separately. Ct does state that evidence showing bad faith dealing like Bid Shopping, etc. is strong evidence that a contractor did not rely on the sub's bid. Ct. also noted that a prompt notice to the sub that the contractor would rely on their bid is good evidence that part three of test is fulfilled. Finally if sub's bid is so low a reasonable contractor would not rely on it then the court can assume the contractor did not rely on it. Tr. Ct found that P did not rely on Ds offer based on the 8/26 fax and Ct says this is a close call but accepts this as not being clearly erroneous. 4) The reliance on the offer causes a detriment that can only be remedied by enforcing the promise. Ct states that the tr ct. and not a jury must determine this element and that contractor must be free of unethical practices. Ct notes that the tr. ct. did not address this issue and infers that the tr. ct. did not find this case to merit enforcement of the contract. Because the evidence was sufficient and the trial court was not clearly erroneous the trial court's decision is affirmed. 1) Traditional Contract Approach - The offer (the bid) was open until accepted or withdrawn. Cites Baird v. Gimbel where P accepted Ds bid. D realizes bid was a mistake and withdraws it before it was accepted. Ct held there was no contract. Ct also rejected two alternate theories. P offer was not for unilateral contract and Promissory Estoppel only applied to charitable cases.
Ct then states this approach criticized because it puts undue burden on the general contractor because when general contractors bid is accepted it is bound but the subcontractor is not and if the sub withdraws the general contractor must still find some way to perform contract. 2) Promissory Estoppel - The sub-contractor bid (offer) is irrevocable until contract is awarded if the general contractor relied on the subs bid to make its own bid. 1st Restatement of Contracts § 90. But this clause was generally only used to enforce entire contract not just the offer. The Ct cites Drennan v. Star Paving where the Ct. determined that the promissory estoppel was the consideration for the promise and that the subcontractor's bid contained an implied promise not to revoke because D knew P would rely on the bid and subcontractor also had interest that whole bid would be accepted. If the general contractor had to be bound its bid it's only fair that the sub should also be bound to the general for it's bid. The criticism of this approach is that it places undue burden on the sub-contractor. The sub is bound to the general but the general is not bound to use the bid of the sub. It encourages the general to engage in unethical practices. Ct notes the 2nd restatement Contracts § 87 attempts to address issue by making offer binding an option contract where both parties are bound if offeror would know that offeree depended on the bid and that the offeree did depend on the bid for its bid. But other cts. reluctant to adopt this. The Ct then lists other solutions not relying on Promissory Estoppel or Traditional theory that other cts. have used. Ct then states that if P can prove a contract existed in either Traditional theory or Promissory Estoppel then P can recover damages. Ct then states that Ds bid was an offer because it was clear and definite. Ct then states it must decide if P accepted before D withdrew under the traditional bilateral contract theory or the Promissory Estoppel Theory. The Ct then states it can only change the trial courts ruling if it was clearly erroneous. Under traditional theory Ct. notes that although there was an offer it is only good until it is accepted or withdrawn. Tr. ct. found there was no acceptance before offer was withdrawn. Ct. agrees with tr. ct there was no meeting of minds because the lapse of time between the offer and acceptance was too long and the circumstance of Ps bid not originally being the lowest bid could make D believe their offer was not accepted. Also the letter of 8/26 was addressed to all mechanical sub-contractors and did not indicate that P intended to accept Ds bid specifically. This was enough on its own to find there was no contract. Ct. then states that tr ct. decided that even if notice did indicate Ps acceptance, P only accepted the offer contingent on Ps receipt of the contract with NIH and P did not have the power to accept until NIH awarded the contract to P on 9/28. So P could not accept until then. Since D withdrew its offer on 9/2 D withdrew before P could accept the offer.
Ct states this interpretation is logical, supported by evidence and not clearly erroneous so it affirmed. So Ct finds that there was no contract under Traditional Contract law.