Pavel Enterprises, Inc. v. A. S. Johnson Company, Inc.
674 A.2d 521 (1996) 342 Md. 143 (1996)
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Rule of Law:
A general contractor's detrimental reliance on a subcontractor's bid does not make the bid binding if the general contractor's subsequent actions, such as soliciting new bids from other subcontractors for the same work, indicate that its reliance was not reasonable.
Facts:
- The National Institutes of Health (NIH) solicited bids for a renovation project.
- Pavel Enterprises, Inc. (PEI), a general contractor, prepared a bid and solicited sub-bids for the HVAC component of the project.
- On August 5, 1993, A.S. Johnson Company (Johnson), a subcontractor, verbally submitted an HVAC sub-bid of $898,000 to PEI.
- PEI used Johnson's sub-bid in computing its own total bid for the project.
- After the original low bidder was disqualified, NIH notified PEI in mid-August that its bid would be accepted.
- On August 26, after meeting with Johnson, PEI sent a fax to all prospective mechanical subcontractors, including Johnson, asking them to 'review your bid' and 'resubmit your quote' so they could 'compete on an even playing field.'
- On September 1, PEI sent a letter to Johnson formally accepting its original $898,000 bid.
- Upon receiving the letter, Johnson immediately informed PEI by phone and then by a formal letter on September 2 that its bid contained an error and was being withdrawn.
- PEI refused to accept the withdrawal and hired a substitute subcontractor for $930,000.
Procedural Posture:
- PEI sued Johnson in the Circuit Court for Prince George's County to recover the $32,000 difference between Johnson's bid and the substitute's cost.
- The trial court, sitting without a jury, entered judgment in favor of Johnson, finding no contract was formed under either traditional contract or detrimental reliance theories.
- PEI, as appellant, appealed the judgment to the Court of Special Appeals, the intermediate appellate court.
- Before the intermediate appellate court could hear the case, the Court of Appeals of Maryland, the state's highest court, issued a writ of certiorari on its own motion to decide the case.
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Issue:
Does the doctrine of detrimental reliance bind a subcontractor to its bid when the general contractor, after using the bid to win the prime contract, engages in conduct suggesting it is not relying on the bid and is instead seeking lower prices?
Opinions:
Majority - Karwacki, Judge
No. A subcontractor's bid is not binding under the doctrine of detrimental reliance where the general contractor's actions negate the reasonableness of its reliance. The court first determined that no traditional bilateral contract was formed because PEI's August 26 fax to all subcontractors demonstrated there was no meeting of the minds and that PEI was still soliciting offers. Alternatively, Johnson's withdrawal on September 2 occurred before PEI's acceptance became final, as PEI's 'acceptance' was conditional upon receiving the formal contract from NIH, which did not happen until September 28. On the primary issue of detrimental reliance, the court formally adopted the Restatement (Second) of Contracts § 90 and established a four-part test. PEI failed this test because its reliance was not reasonable. The August 26 fax was strong evidence of 'bid shopping,' which is inconsistent with the concept of relying on one specific bid. Furthermore, due to the time lapse and the fact PEI was not the original low bidder, the trial court was not clearly erroneous in finding that Johnson's reasonable expectation that its offer would be relied upon had dissipated.
Analysis:
This case is significant for formally adopting the four-part test for detrimental reliance from the Restatement (Second) of Contracts § 90 in Maryland, particularly in the construction bidding context. It tempers the rule from Drennan v. Star Paving by clarifying that a general contractor's right to enforce a subcontractor's bid via promissory estoppel is not absolute. The decision establishes that the general contractor's own conduct is critical; actions like 'bid shopping' can defeat a claim of reasonable reliance, preventing the general contractor from holding the subcontractor to its bid. This provides a crucial equitable defense for subcontractors against general contractors who might otherwise use a low bid to secure a project and then try to negotiate an even lower price.
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