Opinion ID: 1132330
Heading Depth: 2
Heading Rank: 2

Heading: application of promissory estoppel doctrine

Text: Hickel reasserts that it relied upon Bussell's bid and on an implied promise that it would not be revoked. Bussell argues that Hickel's judgment rests on an improper application of the doctrine of promissory estoppel and that contract principles of offer and acceptance should control this case. This case was properly submitted to the jury on principles of promissory estoppel and contract law. The parties disputed the terms, if any, of the agreement reached after Bussell advised Hickel of its error. They disagreed on what the intended remedy was to be. Bussell used equivocal language in its letters dated July 23 and 30, 1979 to Hickel, leaving open the question of whether it had withdrawn its bid, or, in the alternative, wanted Hickel to apply to the Air Force for an amendment to cover the additional cost to be paid to Bussell. The jury clearly decided, as expressed in its special verdict, that no contract had been formed. It also decided that the elements of promissory estoppel were present. We have not previously had occasion to apply the theory of promissory estoppel to construction industry disputes over the bidding process. However, we have recognized the doctrine in other contexts. See Glover v. Sager, 667 P.2d 1198 (Alaska 1983); Johnson v. Curran, 633 P.2d 994 (Alaska 1981); State v. First National Bank of Ketchikan, 629 P.2d 78 (Alaska 1981). In Glover, 667 P.2d at 1202, we recognized that pursuant to State v. First National Bank of Ketchikan, supra , Alaska has adopted the Restatement (Second) of Contracts, Section 90. [7] Section 90 provides in relevant part: Promise Reasonably Inducing Action or Forbearance (1) A promise which the promissor should reasonably expect to induce action or forbearance 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. The remedy granted for breach may be limited as justice requires. Quoting from State v. First National Bank of Ketchikan, 629 P.2d at 81, the Glover court states: Corbin identifies four elements necessary to a successful section 90 action: a) [sic] that the action induced must amount to a substantial change in position, 2) that the action induced must have been either actually foreseen or reasonably foreseeable by the promissor, 3) that an actual promise must have been made and must itself have induced the action or forbearance in reliance on it, and 4) that enforcement must be necessary in the interest of justice. 667 P.2d at 1202. The jurisdictions which have applied promissory estoppel to construction industry bidding disputes are split as to the scope of the doctrine. The two leading cases on application of the doctrine are James Baird Co. v. Gimbel Bros., Inc., 64 F.2d 344 (2d Cir.1933), and Drennan v. Star Paving Company, 51 Cal.2d 409, 333 P.2d 757 (1958). Baird formulated the narrower view. The facts in Baird were similar to those in the present case. The court found that since the bid was withdrawn before acceptance, the acceptance was too late. It refused to apply the doctrine of promissory estoppel, since a charitable venture was not involved and since the bid was not meant to be an offer until consideration was supplied. Id. 64 F.2d at 346. Drennan v. Star Paving Company, 51 Cal.2d 409, 333 P.2d 757 (1958) sets forth a broader application of promissory estoppel to construction industry bidding disputes. In Drennan, the court found that Defendant's [subcontractor'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. 333 P.2d at 759. Since the subcontractor's bid was silent as to revocability, the court implied a subsidiary promise that the bid would not be revoked and that if the subcontractor subsequently received an offer to contract he would accept. 333 P.2d at 760. Thus the court analogized the subcontractor's bid to a unilateral or option contract. In defense of this position, the Drennan court said: 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; ... 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. 333 P.2d at 760. The court reached this conclusion despite a finding that: 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. 333 P.2d at 759. We recognize the risk to subcontractors posed by a broad reading of the doctrine of promissory estoppel. As one commentator has noted Although promissory estoppel does at least protect the general contractor from the damages he would suffer if his only recourse were to the traditional rules of offer and acceptance, application of the doctrine in its present form is questionable because it binds the subcontractor while the general contractor is free to subcontract someone else, and because it is difficult to prove its various elements, particularly justifiable reliance. Comment, Construction Bidding Problem: Is There A Solution Fair to Both The General Contractor and Subcontractor?, 19 St.Louis L.J. 552, 566 (1975). However, we believe that Drennan is better case law than Baird. As applied in Drennan, promissory estoppel has the practical effect of encouraging subcontractors to be cautious when formulating their bids. Furthermore, it satisfies the needs of the modern construction industry. See Closen and Weiland, The Construction Industry Bidding Cases: Application of Traditional Contract, Promissory Estoppel, and Other Theories To The Relations Between General Contractors and Subcontractors, 13 J.Mar.L.Rev. 565 (1980). It is industry custom for subcontractors to submit bids at the last moment. Closen and Weiland, supra, at 574. This trade practice has evolved because of the industry demands for firm, current prices. The custom is facilitated by the ease with which a bid can be placed without the formalities of contract. However, if a contractor is to deliver a set price to an owner, these bids must be binding for a reasonable time. This operates to the benefit of the construction industry. Promissory estoppel, as applied in Drennan and adopted by this court, is a necessary element of this scheme. In the case at bar, the jury was asked three questions to determine the presence of the elements of promissory estoppel: whether it was more likely than not (1) that Bussell promised Hickel that Bussell would perform for the amount of the bid, (2) that Bussell reasonably should have expected that Vern Hickel Construction would take definite and substantial action in reliance upon the promise, and (3) that Vern Hickel Construction Company took definite and substantial action in reliance upon Bussell's promise. The jury answered yes to all three questions, as well as answering that Hickel Construction had not waived its right to seek damages against Bussell. No instruction was requested as to the fourth element of promissory estoppel, that is, that enforcement be necessary in the interest of justice, and Bussell does not challenge on appeal the omission of this element from the instruction. [8] The jury's factual findings, if supported by the evidence presented at trial, will not be disturbed where there is room for diversity of opinion among reasonable people. Levar v. Elkins, 604 P.2d 602 (Alaska 1980). We conclude that the testimony of the parties was conflicting and the trial court properly denied Bussell's motion for judgment notwithstanding the verdict.