Caseflicks

California Supreme Court • 1958

Drennan v. Star Paving Co.

51 Cal. 2d 409 | 333 P.2d 757 | 1958 Cal. LEXIS 245

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Takeaway

In short, this case holds that a subcontractor’s bid may become temporarily irrevocable when a general contractor reasonably and foreseeably relies on it to submit a binding general bid.

Background

General contractor Drennan was preparing a bid for a school-construction project. On bid day, Star Paving's estimator telephoned Drennan's office and quoted $7,131.60 to perform the project’s paving work according to the plans and specifications. Drennan heard the quote, used it in calculating his general bid, and identified Star as the paving subcontractor. Drennan’s general bid was the lowest, and he received the school contract.

The next morning, Star told Drennan that it had made a mistake and would not perform for its quoted price; it demanded at least $15,000. Drennan ultimately hired another paving company for $10,948.60, after seeking lower bids for several months. The trial court found that Star had made a definite bid and that Drennan reasonably relied on it. It awarded Drennan $3,817, the difference between Star’s bid and the replacement cost, plus costs. Star appealed.

Issues

Issue #1

Whether Star Paving’s subcontract bid became irrevocable when Drennan reasonably relied on it in submitting his general-contract bid.

Holding

Yes. Although no bilateral contract or option supported by consideration existed, Drennan’s foreseeable and detrimental reliance made Star’s offer temporarily irrevocable under promissory estoppel.

Reasoning

Star made a definite offer to perform the paving work for $7,131.60. Drennan did not accept that offer merely by using it in his own bid, and Star did not expressly promise to keep the offer open in exchange for Drennan’s reliance. Thus, the case could not be resolved as either a traditional bilateral contract or an option supported by consideration.

California follows Restatement of Contracts section 90: a promise is binding when the promisor should reasonably expect it to induce definite and substantial action or forbearance, it does induce that reliance, and enforcement is necessary to avoid injustice. A subcontractor’s bid is a promise to perform subject to its stated or legally implied conditions.

Star had strong reason to expect—and a business interest in having—Drennan rely on its bid. A low subcontract bid makes the general contractor’s overall bid more competitive and increases the subcontractor’s chance of receiving the work. Drennan, meanwhile, became bound on the school contract after using Star’s figure to prepare his own successful bid.

The Court treated the offer as carrying an implied subsidiary promise not to revoke after reasonable reliance, much as modern contract law protects an offeree who begins performance under an offer for a unilateral contract. Section 90 supplies the basis for enforcing that implied promise even though the reliance was not consideration bargained for in exchange for irrevocability.

The protection is limited. A general contractor may not delay acceptance after receiving the main contract while searching for a better price, nor may the contractor reopen negotiations while claiming a right to accept the original bid. Drennan acted promptly: after learning he had been awarded the project, he told Star that the subcontract was being awarded to it.

Issue #2

Whether Star’s mistaken calculation entitled it to withdraw its bid despite Drennan’s reliance.

Holding

No. Star’s mistake did not defeat recovery because Drennan neither knew nor had reason to know that the bid was erroneous.

Reasoning

A party cannot justifiably rely on an offer that it knows, or should know, is mistaken. In this case, however, Drennan had no reason to suspect error. Paving bids in the relevant area commonly varied substantially, and Star’s figure was not so unusual that it put Drennan on notice of a mistake.

Unlike rescission cases in which the offeree knew of the error and could restore the parties to their prior positions, Drennan had already committed himself to the school contract in reliance on Star’s quoted figure. Star’s error had misled him about the cost of performing the paving work.

As between the subcontractor that made the erroneous bid and the general contractor that reasonably relied on it, the loss should fall on the party responsible for the mistake. Star gave its bid knowing it was likely to be used in a general bid and knowing that an underestimate could cause foreseeable harm.

Issue #3

Whether Drennan failed to state a claim or prove damages because he did not allege inability to mitigate damages.

Holding

No. Drennan adequately alleged and proved reasonable mitigation, and any pleading objection was waived.

Reasoning

Drennan alleged that, after Star’s default, he had to obtain another paving contractor for $10,948.60. His uncontradicted evidence showed that he spent several months seeking alternative bids and accepted the lowest available bid. That conduct established reasonable mitigation.

Any claimed lack of specificity in the damages allegation had to be raised by special demurrer. Star did not do so, and therefore waived that pleading objection.