CONSTRUCTION BIDDING-FIRM OFFER-UCC
§ 2-205 AND PROMISSORY ESTOPPEL
Plaintiff, a subcontractor, submitted a bid at the request of the defendant, a general contractor, which was to be used in computing the general
contractor's bid on constuction of two buildings for the Port of New York
Authority. The general contractor's bid was lowest, and the subcontractor was notified. Prior to the general contractor's formal acceptance of
the subcontractor's offer, the subcontractor withdrew his offer. The general contractor notified the subcontractor that he was holding him to the
contract, but the subcontractor never performed. On appeal from a denial of the general contractor's counterclaim for breach of contract and
cross-motion for summary judgment, held, reversed and remanded. The
Subcontractor's offer was not a "firm offer" within the provisions of UCC
§ 2-205, but the offer might still be irrevocable under the doctrine of
promissory estoppel. E.A. CoronisAssociates v. M. Gordon Constr.Co.,
90 N.J. Super. 69, 216 A.2d 246 (Super. Ct. App. Div. 1966).
The problem presented by the instant case has occurred with increasing frequency in recent years' and arises out of the common law rule that
an offer can always be withdrawn before it is accepted, unless it is supported by consideration. 2 The common law rule is inflexible and impracticable in modem commercial transactions. 3 Consequently, with the disintegration of the common law seal that once made offers firm without
the necessity of consideration, many attempts have been made to change
the common law rule.4 A more recent attempt to alter the common law
rule to conform with the realities of modem commercial transactions has
been the firm offer provision of the Uniform Commercial Code:
An offer by a merchant to buy or sell goods in a signed writing which by
its terms gives assurance that it will be held open is not revocable, for
1 Note, 39 N.Y.U.L REV. 816 (1964); Schultz, The Firm Offer Puzzle: A Study
of Business Practice in the Construction Industry, 19 U. Cm. L. REv. 237 (1952).
2 RrsTATha5Er, CornRAcTs § 35 (1932).
3Professor Corbin has referred to "a growing custom among merchants in both
Britain and America to differentiate between two kinds of offers." Corbin, The
Uniform Commercial Code-Sales; Should it be Enacted?, 59 YALE LJ. 821, 827
(1950). See also Schultz, supra note 1, at 237.
4 See generally, the UmFoas
aN-rrN OaLIGIATIONs Acr proposed in 192.5 by
the Conference of Commissioners on Uniform Laws and adopted in only two
states, Utah and Pennsylvania. Utah Laws 1929, ch. 62; PA. STAT. AiN. tit. 33, §§
6-8 (1949). See N.Y. GEN. OBLIGATONS LAw § 5-1109 (which supplements UCC
§ 2-205). This section integrated N.Y. Sess. Laws 1941, ch. 328, § 3 and N.Y.
Sess. Laws 1941, ch. 328 § 2.
MAINE LAW
REVIEW
lack of consideration, during the time stated or if no time is stated, for
a reasonable time, but in no event may such a period of irrevocability
exceed three months; but any such term of assurance on a form supplied
by the offeree must be separately signed by the offeror.3
A further attempt to alleviate the injustice that may result from strict
adherence to the common law rule has been achieved by applying the
6
doctrine of promissory estoppel.
The New Jersey court in the instant case attempted to cope with the
problem in terms of both UCC § 2-205 and promissory estoppel. In interpreting USS § 2-2057 the court held that the language "We are pleased
to offer
.
.,,,stating no terms giving assurance that the offer would be
held open, does not come within the provisions of the section. 9 The court
recognized that just as an offeree runs a risk in acting on an offer before
accepting it, the offeror also runs a risk if his offer is considered irrevocable." The court's reasoning conforms with the primary purpose of section 2-205: "to give effect to the deliberate intention of a merchant to
make a firm offer binding." " So although it is true that UCC § 2-205 attempts to eliminate consideration as a requirement for a firm offer, it
does not eliminate the requirement of a manifestation by the offeror of
12
a "deliberate intention" that his offer be firm.
The court held further that even though the offer was not irrevoc-
5UNIFORM COMMERCIAL CODE § 2-205 [hereinafter cited as UCC]. See approval
by Corbin, supra note 3, at 828. See also Williston, The Law of Sales in the proposed Uniform Commercial Code, 63 HARv. L. REV. 561, 576 (1950), who favors
a broader statute such as the New York statute, supra note 4, which is not limited
to the sale of goods.
0
RESTATEMENT, CONTRACTS § 90 (1932):
"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."
7N.J. STAT. ANN. § 12A:2-205 (1962), effective January 1, 1963.
8 See subcontractor's letter submitting bid in E.A. Coronis Associates v. M.
Gordon Constr. Co., 90 N.J. Super. 69, 71, 216 A.2d 246, 248 (Super. Ct. App.
Div. 1966).
9Id.at 249. See also Wilmington Trust Co. v. Coulter, 200 A.2d 441 (Del. Sup.
Ct. 1964).
10 Instant case at 249. The court in making this observation cited James Baird
Co v. Gimbel Bros., Inc.. 64 F.2d 344, 346 (2d Cir. 1933), where Judge Learned
Hand indicated that there was not the least reason to suppose that an offeror would
subject itself to such a risk. This point warrants further discussion and will be
examined later.
11UCC § 2-205, comment 2.
12 See also Jarka Corp. v. Hellenic Lines, 282 F.2d 916, 919 (2d Cir. 1950),
which interprets N.Y. PERS. PROP. LAW § 33(5), which is now incorporated in
N.Y. GEN. OBLIGATION LAW § 5-1109, which is supplemented by the provisions of
UCC § 2-205.
CONSTRUCTION BIDDING
able under UCC § 2-205, it might be irrevocable under the doctrine of
promissory estoppel. No New Jersey case had applied the rule before,
but the highest court of the state had twice implied that it could be applied in appropriate circumstances. 13 The court recognized that a promissory estoppel is not a true estoppel, in that it applies to representations
of facts to exist in the future, i.e., a promise, rather than a representation of an existing fact. 14 The doctrine has found basic acceptance in
this country; 15 and although it has been limited by many courts to
charitable subscriptions, it has gained recognition for application in
16
other areas.
The basic issue before the court was whether or not the doctrine of
promissory estoppel should be applied to commercial transactions.
The plaintiff relied on James Baird Co. v. Gimbel Bros., Inc.,' 7 and
the defendant relied on Drennan v. Star Paving Co.18 Both of these
decisions were based on facts similar to the instant case. The Baird decision illustrates the reluctance to apply the doctrine of promissory estoppel to commercial transactions. Judge Learned Hand's concern in applying the doctrine was that it would make the subcontractor's offer irrevocable while the general contractor had the option either to accept or reject the offer. He found no reason why subcontractor would subject itself to such a one-sided obligation. His further concern was that the general contractor could insist, and both parties could agree, on a conditional contract before the figures were used in the general contractor's bid-"
Justice Traynor in the Drennan decision refused to follow the Baird case
and held that since the subcontractor could reasonably foresee that submission of his bid would induce substantial reliance resulting in a prejudicial change of position by the general contractor, it affords therefore
13 Friedman v. Tappan Development Corp., 22 NJ. 523, 126 A.2d 646 (1956);
American Handkerchief Corp. v. Frannat Realty Co., 17 NJ. 12, 109 A.2d 793
(1954).
14 Instant case at 250. See I WILSTroN, CoNTcrAs § 139 (3d ed. Jaeger 1957).
15 Instant case at 250. See Boyer, Promissory Estoppel: Principle from Precedents (pts. 1&2), 50 McH. L. REv. 639, 873 (1952).
l6lbid.; IA Corbin, Contracts §§ 193-209 (1960); Annot., 48 A.L.R.2d 1069,
1079-87 (1950).
64 F.2d 344 (2d Cir. 1933). See Brief for Appellee, p. 5.
18 51 Cal. 2d 409, 333 P.2d 757 (1958). See Brief for Appellant, p. 8.
17
19"The contractors had a ready escape from their difficulty by insisting upon a
contract before they used the figures; and in commercial transactions it does not
in the end promote justice to seek strained interpretations in aid of those who do
not protect themselves." James Baird Co. v. Gimbel Bros., Inc., 64 F.2d 344, 346
(2d Cir. 1933). But see Schultz, supra note 1, at 283, where he indicates that
binding of the parties before the award of the general contract seems to be con-
trary to custom in the construction industry. In fact Schultz concludes that contractors in general are neither aware of nor significantly influenced by the law in
this area.
MAINE LAW REVIEW
a sufficient basis for implying a promise not to revoke the offer under
the doctrine of promissory estoppel. 20 In taking cognizance of the ever
expanding scope of liability to compensate those injured by wrongful
conduct, 21 the court chose to follow the Drennan22reasoning, as did the
court in N. Litterio& Co. v. Glassman Constr.Co.
In accepting the doctrine of promissory estoppel the court seems to
be willing to ignore its recognition, earlier in the opinion, of the risk that
the offeror will run if his offer is considered irrevocable, 23 and becomes
concerned with the risk the offeree runs in relying on the subcontractor's
bid. The court is now willing to say that this risk is to be assumed when
the subcontractor submits his bid, reasonably foreseeing that the general
contractor will rely on that bid.
A further problem exists in whether the existence of section 2-205 of
the Uniform Commercial Code precludes reliance on an offer not conforming to its provisions. Can a court hold that an offer is not firm or
irrevocable which by its terms does not give assurance that it will be held
open, and in the next breath say that such an offer can be reasonably
relied on? Possibly yes, since it is felt that reasonable reliance will dealso on
pend on more than just the terms of the offer, but will depend
24
the actual knowledge of the custom and usage of the trade.
The prime concern of the court in the instant case, as well as other
courts that have applied the doctrine of promissory estoppel, is the grave
injustice that can arise when a promisee reasonably relies on the promise
of a promisor to his economic loss and detriment. Surely it is reprehensible for a promisor to induce reliance resulting in a substantial change of
position on the part of the promisee and then never fulfill the promise.
The injustice that can result in such a situation is not excluded from commercial transactions. In commercial transactions it is possibly even more
20
Drennan v. Star Paving Co., 51 Cal.2d 409, 413, 333 P.2d 757, 760-61 (1958).
Instant case at 251. See, e.g., Ekalo v. Constructive Service Corp. of America,
46 N.J. 82, 215 A.2d 1 (1965) (wife's action for loss of consortium allowed for
defendant's negligence in causing serious bodily injury to the husband and consortium deprivation to the wife); Falzone v. Busch, 45 N.J. 559, 214 A.2d 12
(1965) (action allowed for fright proximately resulting from defendant's negligence in operating an automobile so close to plaintiff as to put her in fear for her
safety, despite lack of physical impact); Schipper v. Levitt & Sons, Inc., 44 N.J.
70, 207 A.2d 314 (1965) (action for injury to child of purchaser's lessee, caused by
excessively hot water drawn from bathroom faucet, allowed against builder-vendor
of mass-produced homes on theory of warranty or strict liability).
22 319 F.2d 736 (D.C. Cir. 1963). See also Robert Gordon v. Ingersoll-Rand
Co., 117 F.2d 654 (7th Cir. 1941); Northwestern Engineering Co. v. Ellerman, 69
S.D. 397, 10 N.W.2d 879 (1943). For criticism of the Baird decision see Notes,
28 ILL. L. REV. 419 (1933); 20 VA. L. REv. 214 (1933).
23 See supra note 10.
24 Instant case at 253.
21
300
CONSTRUCTION BIDDING
important to be concerned with reprehensible conduct.25 The doctrine of
promissory estoppel is a doctrine that will provide the courts with the
necessary flexibility to deal with situations such as arise in the instant
case. While the purpose of UCC § 2-205 is to give effect to the "deliberate intention" of the offeror to make a firm offer, the doctrine of promissory estoppel allows an even greater possibility of making an offer firm
by allowing an offeree to act in reasonable reliance.
The effect of holding that the subcontractor's bid is firm or irrevocable, once the bid is used and relied on by the general contractor, is to
bind the subcontractor while the general contractor is still free to look
for a better bargain. This disparity in bargaining position is said to be
justified by the necessities of modem commercial transactions. If this is
so then the subcontractor may wish to alleviate this disparity. Insisting on
a conditional contract is a possibility, although this has been suggested to
be contrary to custom in the construction industry.? The subcontractor
could insist also on a prompt acceptance of his bid once the general contractor receives his contract, thereby limiting or reducing the amount of
time the general contractor would have to shop around for a better bargain. A number of other devices can be used by a subcontractor, but it
has been suggested further that most subcontractors are pessimistic about
compelling the general contractor to abide by the competitive rules of the
game.? Consequently, since the general contractor seems to maintain
almost complete control over the situation and is allowed the privilege of
relying on a bid which he has not accepted, it would seem that the subcontractor should be equally privileged in relying on the general contractor to award him the contract once his contract is accepted. The necessities of modem commercial transactions may justify protecting the general
contractor, but they also justify protecting a subcontractor who must rely
on the good faith of the general contractor to award him the contract.
The subcontractor-general contractor relationship is, by its very nature,
one in which each party must be able to rely on the other. The firm offer
provision of the Uniform Commercial Code and the doctrine of promissory estoppel must be used to insure that this reliance will be protected.
Clinton A. Stuntebeck, '68
25
See POuND, AN INTRODUCTION TO THE PHILOSOPHY OFILAW 276, 282 (1922):
"All promises should be enforced which a reasonable man in the position of the
promisee would believe to have been made deliberately to assume a binding rela-
tion. A man's word, in the course of business, should be as good as his bond, and
his fellow man must be able to rely on the one equally with the other, if our
economic
order is to function efficiently."
28
See Schultz, The Firm Offer Puzzle: A Study of Business Practice in the ConstructionIndustry, 19 U. CmL L. R v.237, 270 (1952).
27
1d. at 270-71, where it is indicated that bid bonds, bid depositories, direct bidding with the owner, and requiring the general contractor to list his subcontractors
are methods that have been used by some subcontractors.
28 Id.at 272.
'JAI