Drennan v. Star Paving Co

In Drennan v. Star Paving Co. (1958), 51 Cal.2d 409, 333 P.2d 757, the defendant subcontractor submitted the lowest bid for the paving portion of a construction project. The same day, the plaintiff general contractor incorporated the defendant's bid into its own bid. The morning after the plaintiff was awarded the general contract, he stopped at the defendant's office, whereupon the defendant's construction engineer stated that the defendant had made a mistake and would not honor its bid. The plaintiff responded that he expected the defendant to perform in accordance with its bid because the plaintiff had used the defendant's bid and was awarding the contract to the defendant. The Supreme Court of California found no evidence that the defendant, by its bid, made an option contract, supported by consideration. Nor did the court find evidence that warranted interpreting the plaintiff's use of the defendant's bid as an acceptance. Nevertheless, the court affirmed the judgment in favor of the plaintiff for the difference between the defendant's bid and the plaintiff's ultimate cost for the paving. The Drennan court expressed the question presented as whether the plaintiff's reliance made the defendant's offer irrevocable. Based on the Restatement of Contracts (1932), Formation of Informal Contracts, Section 90, the court stated that the defendant's bid "constituted a promise to perform on such conditions as were stated expressly or by implication therein or annexed thereto by operation of law" and that the "defendant had reason to expect that if its bid proved the lowest it would be used by the plaintiff." Id. at 413. The court analogized the scenario to an offer for a unilateral contract, which becomes irrevocable once part of the requested performance has been performed because the main offer includes an implied, subsidiary promise that the offeror will not revoke his offer, the part performance furnishing consideration for the subsidiary promise. Thus, the court held that "reasonable reliance resulting in a foreseeable prejudicial change in position affords a compelling basis also for implying a subsidiary promise not to revoke an offer for a bilateral contract," the reasonable reliance serving to hold the offeror to his offer in lieu of consideration. Id. at 414. The Drennan analysis recognized and attempted to curb the unfairness that may result from applying traditional contract principles, i.e., that an offer may be withdrawn at any time before it is accepted, in a construction bidding context. In Drennan, at 415, the court held as follows: When plaintiff used defendant's offer in computing his own bid, he bound himself to perform in reliance on defendant's terms. Defendant had reason not only to expect plaintiff to rely on his bid but to want him to. Clearly defendant had a stake in plaintiff's reliance on its bid. 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. The promissory estoppel in Drennan, resulting from the plaintiff's use of the defendant's quote in its own bid, did not create an enforceable contract for the paving work. Indeed, the court stated that a general contractor may not delay acceptance of a subcontractor's offer after being awarded the general contract in hopes of obtaining a better offer while claiming a continuing right to rely on the subcontractor's original offer. Thus, while promissory estoppel prevented the defendant from revoking its offer before the plaintiff had an opportunity to accept it, the defendant was only bound to perform in accordance with its offer once the plaintiff accepted. In that case, the plaintiff promptly informed the defendant that the plaintiff had been awarded the general contract and that the plaintiff was awarding the subcontract to the defendant, thus binding the defendant to perform. The effect of the promissory estoppel was solely to preclude the defendant from denying the contract based on a claim that it withdrew the offer prior to acceptance.