Finney Co., Inc. v. Monarch Const. Co., Inc.

670 S.W.2d 857, 1984 Ky. LEXIS 253

Opinions

GANT, Justice.

In December, 1980, the Commonwealth of Kentucky advertised for bids for construction of the Primary-Ambulatory Care Center at the University of Kentucky hospital, to which invitation the respondent, Monarch Construction Co., Inc., a general contractor, elected to respond. As is customary, the general contractor mailed notices to many potential subcontractors for various phases of the work, furnishing them with the requirements and specifications for the job. One of these was the movant, Finney Company, Inc., which was and is in the heating, ventilating, air conditioning and plumbing business. After two telephone calls between the parties, Finney made a verbal proposal of $2,220,000, which figure was included in Monarch’s total bid of $11,337,000. This oral offer was made by telephone within less than ten minutes of the “bid opening” at 2 p.m., February 5, 1981. At 4:30 p.m. on that date Finney learned from the consulting engineers that the bid of Monarch had been accepted. Finney apparently also learned that its name was one of two names listed by Monarch for the plumbing, heating, ventilating and air conditioning phase of the work.

The practice of submitting the names of proposed contractors should be examined at this time. The requirement for listing is set out in the “Instruction to Bidders” and “General Conditions” issued to all prospective general contractors, which documents state that the name of each proposed subcontractor shall be submitted with the proposal and that no subcontractor may be employed or substituted without the approval of the Department of Finance, Division of Contracting & Administration. The sole evidence herein relating to this procedure is that the requirement has the purpose of assisting the Division in its evaluation of bids, and other portions of the above documents specifically provide that no contractual relationship shall arise between the Division and the subcontractor by submission of its name by the general contractor.

On February 9, 1981, Monarch contacted Finney and asked for written confirmation of its oral bid. This confirmation was sent by Finney and received by Monarch on February 12. The written confirmation became the subject matter of a meeting between the parties on March 2, 1981. The written confirmation excluded one major item and 11 lesser items which Monarch contended, and the trial court found, were included in the oral bid of February 5. Additionally, the Commonwealth had accepted all the alternates listed on the contract, and Finney’s bid on these alternates was higher than other bids received by Monarch.

At the March 2 conference the parties sought to resolve the differences, and Fin-ney was informed that, after the exclusion of the items in its written confirmation and the inclusion of the alternates, its bid was $80,000 higher than that of Aztec, another bidder. Finney contacted its own material-man and subcontractors and agreed to perform some of the omitted items and lowered its bid by some $22,000, this being communicated to Monarch on March 6. Monarch, pursuant to the requirements of the Commonwealth, secured permission to substitute the lower bidder, Aztec, and did so.

Two other bits of evidence were fed into the factual grinder which movant would rely upon. First, Finney learned from the consulting engineers that in its original bid Monarch had listed both Finney and Aztec as subcontractors for the plumbing, heating, ventilating and air conditioning, but had deleted the name of Aztec when informed by the Commonwealth that only one name could be listed. Finney also learned from the same consulting engineers that there was to be a meeting of the general contractor and all subcontractors on March 3, which meeting it attended. However, it had not been notified of the meeting by Monarch, even though they had spent the previous day in the price-haggling session.

Finney filed this action against Monarch and against the Commonwealth and certain agents thereof on five separate theories, to-wit: (a) express contract; (b) implied contract; (c) third party beneficiary; (d) constructive or quasi contract, and (e) promissory estoppel. On appeal, Finney has abandoned the third party beneficiary aspect of its contention and has appealed the summary judgment awarded Monarch. We affirm the Court of Appeals, which affirmed the Franklin Circuit Court.

On this appeal, Finney argues that a contract existed between Monarch and Fin-ney and that it should recover damages for the breach thereof. The basic question confronting this court is whether the incorporation of the name and amount of bid of a subcontractor by a general or prime contractor in its bid to the owner constitutes an acceptance which would create a contractual relationship between the general contractor and the subcontractor should the general contractor become the successful bidder. Our answer is that in the absence of a contrary statute, it does not. We are unable to find a single case to the contrary. The following cases hold that, under the stated question, there is no contractual relationship created: Holman Erection Company v. Orville E. Madsen & Sons, Inc., Minn., 330 N.W.2d 693 (1983); Interior Systems, Inc. v. Del E. Webb Corporation, 121 Cal.App.3d 312, 175 Cal. Rptr. 301 (1981); Mitchell v. Siqueiros, 99 Idaho 396, 582 P.2d 1074 (1978); K.L. House Construction Company, Inc. v. Watson, 84 N.M. 783, 508 P.2d 592 (1973); Corbin-Dykes Electric Company v. Burr, 18 Ariz.App. 101, 500 P.2d 632 (1972); Southern California Acoustics Company, Inc. v. C. V. Holder, Inc., 71 Cal.2d 719, 79 Cal.Rptr. 319, 456 P.2d 975 (1969); C.H. Leavell and Company v. Grafe & Associates, Inc., 90 Idaho 502, 414 P.2d 873 (1966); Cortland Asbestos Products, Inc. v. J & K Plumbing and Heating Company, Inc., 33 A.D.2d 11, 304 N.Y.S.2d 694 (1969); Plumbing Shop, Inc. v. Pitts, 67 Wash.2d 514, 408 P.2d 382 (1965); N. Lit-terio & Company, Inc. v. Glassman Construction Company, Inc., (D.C.Cir.1963), 319 F.2d 736; Universal Construction Company v. Arizona Consolidated Masonry & Plastering Contractors Ass’n, 93 Ariz. 4, 377 P.2d 1017 (1963); Merritt-Chapman and Scott Corporation v. Gun-derson Brothers Engineering Corporation (9th Cir.1962), 305 F.2d 659; Milone and Tucci v. Bona Fide Builders, 49 Wash.2d 363, 301 P.2d 759 (1956); Klose v. Sequoia Union High School District, 118 Cal.App.2d 636, 258 P.2d 515 (1953); R.J. Daum Construction Company v. Child, 122 Utah 194, 247 P.2d 817 (1952), and Williams v. Favret (5th Cir.1947), 161 F.2d 822.

The general and universal rule is stated in Klose, supra, 258 P.2d at 517-518, when the court states:

A subcontractor bidder merely makes an offer that is converted into a contract by a regularly communicated acceptance conveyed to him by the general contractor. No contractual relationship is created between the subcontractor and the general contractor even though the bid is used as a part of the general over-all bid by the general contractor and accepted by the awarding authority.

Movant cites two cases which he contends are contrary to the general rule, to-wit: Industrial Electric-Seattle, Inc. v. Bosko, 67 Wash.2d 783, 410 P.2d 10 (1966), and Loranger Construction Corporation v. E.F. Hauserman Company, 376 Mass. 757, 384 N.E.2d 176 (1978). However, these cases are readily distinguishable because of evidence of a series of communications between the parties which indicated an acceptance or agreement, and the Bosko case even went so far as to affirm Milone, supra, in which the Massachusetts court held that the mere listing or using the bid does not create a contract.

In the instant case, there were no actions or communications by Monarch which would give rise to any exception to the general rule. The only communication was a request from Monarch that Finney confirm its oral bid in writing, which confirmation was found by the trial court to contain material deviations. Any other information relating to the position of Finney or occasioning meetings with other subcontractors, etc., came from others. Indeed, Finney complains of actions on one hand and inaction on the other, but the mere passage of two weeks between the date Monarch signed the contract for construction and the meeting between the parties at which Finney was informed that it was not the low bidder, taken alone, can hardly be categorized as fatal inaction.

Movant also relies on a doctrine which he denominates “the rule of mutuality of contract.” In so doing, he cites two cases— Meade Construction Company, Inc. v. Mansfield Commercial Electric, Inc., Ky., 579 S.W.2d 105 (1979), and Harry Harris, Inc. v. Quality Construction Company of Benton, Kentucky, Ky.App., 593 S.W.2d 872 (1979). Each of these cases held that, when a subcontractor submits a quotation to a general contractor for use in the computation of the latter’s bid, it is bound thereby if that bid is relied upon to the detriment of the general contractor. We are certain that the lack of mutuality of obligation was argued in both those cases, but it is our opinion that, despite certain isolated statements which might indicate to the contrary, both Meade and Harris were founded in equity, not contract. In fact, both opinions consistently used the words “fairness” and “equity.” They were not based on contract law, which is relied upon herein. Despite their disclaimer of promissory estoppel, this court, in Meade, utilized the word “reliance,” an element of estop-pel, to reach its conclusion.

Finney basically asks: “Why should the subcontractor be bound and the general contractor not be bound?” The case before us furnishes a classic example to reach the answer to this question. Herein, Finney was furnished complete plans and specifications for the plumbing, heating, ventilation and air conditioning phase of the project. After considerable study, planning and technical consultations, Finney’s bid was submitted orally some ten minutes before the “letting.” There was no element of reliance by the subcontractor upon the general contractor. There was, however, reliance by the general contractor upon the subcontractor. Further, this contract was advertised with a basic bid, together with numerous alternates, as is customary in the trade. The obvious purpose for utilizing alternates is to permit the owner to evaluate the bids in order to determine just what construction can be performed for the available funds. When the alternates were utilized by the owner, the subcontractor, which may have been the low bidder for the base price, may well become the high bidder, as in this case.

It is obvious that a great amount of flexibility must be maintained in the bidding process. To adopt the position urged by the movant herein would impose an unacceptable rigidity upon the bidding process. For an excellent discussion of the problem, see Holman Electric Company v. Orville E. Madsen & Sons, Inc., Minn., 330 N.W.2d 693 (1983). As the court stated in that case, if we are to make such a change in basic contract law, “it is one properly brought before the legislature.

The trial court and the Court of Appeals are affirmed.

All concur except STEPHENS, C.J., who dissents and files herewith a dissenting opinion.