Promissory Estoppel and the Contract from Hell
Although the cases are few and far between, it has long been the rule that a subcontractor, which gives a quote to a contractor, which then relies upon that quote in preparing its bid to an owner, can be bound to perform its subcontract work at the quoted price. The legal doctrine is called “promissory estoppel.” Because the contractor reasonably relied upon the subcontractor’s “promise” to perform the work at that price when preparing its bid, the subcontractor is “estopped” from walking away from its promise.
In a recent upstate case, this unremarkable legal doctrine encountered an unusual twist. It seems that after the contractor used the subcontractor’s quote to prepare its own bid, and was awarded the job by the owner, the contractor then handed its form contract to the subcontractor for it to sign. The subcontractor, taking objection to the onerous provisions in that form, refused to do the work under the “unreasonable” terms of that subcontract and walked away. The contractor then had to hire a new subcontractor, at a higher price, and sued the original subcontractor for the added costs under the theory of “promissory estoppel.”
Under a traditional analysis, the subcontractor would be bound to its price and liable for any damages if it refused to perform. But was it obligated to honor its price once it was handed an “unreasonable” contract form? The contractor moved for summary judgment and the subcontractor cross-moved for summary judgment.
The court granted neither motion, finding that “issues of fact” existed, which would require a trial. But in entertaining the notion that the subcontractor might have an excuse for walking away, the court telegraphed that the doctrine of “promissory estoppel” is not absolute. Perhaps if the contractor had been willing to replace its “unreasonable” contract with an AIA form, it might have had a better shot at immediate victory.
The takeaway might be this: when seeking a quote from a subcontractor, it might be wise to let them know the form of subcontract they are bidding on. Doing that would eliminate the possibility of the subcontractor refusing to honor its quote on the basis of the form of the agreement. It might also eliminate extended negotiation over the terms of the agreement as the contractor can argue that the subcontractor knew what it was getting into and priced its quote accordingly.
Chances are you don’t think your form of agreement is a “contract from hell.” But if the subcontractor winds up being able to walk away, that may be just where you find yourself.