Arango Construction Co. v. Success Roofing, Inc.

Citations: 730 P.2d 720; 46 Wash. App. 314Docket: 15588-4-I

Court: Court of Appeals of Washington; December 24, 1986; Washington; State Appellate Court

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Arango Construction Company, a general contractor, appeals a trial court's summary judgment in favor of subcontractor Success Roofing, Inc., which denied Arango's breach of contract claim. The court's decision was based on the statute of frauds, rendering Success's oral bid unenforceable. On December 6, 1983, Success submitted a telephone bid for roofing work at Fort Lewis totaling $34,659, which Arango included in its prime bid to the U.S. Army Corps of Engineers. After the Army Corps postponed the bid opening, Arango confirmed the bid with Success, who assured its accuracy. Despite receiving a higher bid from another contractor contingent on additional work, Arango chose Success's bid for sections 7A and 7B. After winning the contract on January 12, 1984, Arango sent a subcontract form to Success, who later discovered a significant error in their bid due to a miscalculation by Estimates, Inc. Success subsequently withdrew its bid on February 16, 1984, leading Arango to contract with Cleo Roofing for the work at a higher price. Arango filed for breach of contract on April 30, 1984, and sought summary judgment based on promissory estoppel. Success countered by attempting to add Estimates, Inc. as a third-party defendant and filed its own summary judgment motion. The trial court dismissed Arango's claim, leading to this appeal. The appellate court reverses the dismissal and remands for judgment in favor of Arango Construction.

The applicability of RCW 62A.2-201, which governs contracts for the sale of goods under the U.C.C., is questioned in this case. Arango asserts that the agreement is not a contract for goods and thus not subject to this article. RCW 62A.2-102 specifies that Article 2 applies to transactions in goods and excludes contracts that function solely as security transactions or are related to consumer sales, farmers, or other specified buyers. Notably, construction contracts are excluded from this statute, as indicated in the comments to RCW 62A.2-102 and supported by case law, including Crystal Rec. Inc. v. Seattle Ass'n of Credit Men, which clarified that contracts for work, labor, and materials fall under common law rather than the Uniform Sales Act.

The distinction between contracts for the sale of goods to be manufactured and contracts for manufacturing goods is critical. If the agreement is deemed a sale of goods, the Uniform Sales Act applies; if it is a contract for manufacture, common law governs. The precedent set in Whatcom Builders Supply Co. v. H.D. Fowler, Inc. illustrates this, where a contract for a pump was classified as a sale of goods, while the construction contract was governed by general contract principles.

In Christiansen Bros. v. State, the Washington Supreme Court reiterated that construction contracts are not under RCW 62A.2 and found no legislative intent to apply it to such contracts. The argument that the written nature of the contract in Crystal affects its applicability is countered by the necessity of first determining if Article 2 applies before considering the statute of frauds. The court maintains that construction bids or contracts are not governed by RCW 62A.2, rendering the statute of frauds inapplicable. Success argues that the contract at issue predominantly involves materials, but the case law does not differentiate based on the proportion of materials in labor and materials contracts, and the record does not support that materials constituted a substantial part.

In the $34,659 contract at issue, the material costs exceed $500. Success argues that RCW 62A.2 applies based on two cited cases. In Lige Dickson Co. v. Union Oil Co., the Washington Supreme Court ruled that promissory estoppel cannot enforce a contract violating RCW 62A.2-201, which was relevant in a case involving the supply of liquid asphalt without labor. Conversely, in Lakeside Pump Equip. Inc. v. Austin Constr. Co., the court found no enforceable contract due to a lack of agreement on specifications, despite RCW 62A.2's applicability to goods transactions. Unlike those cases, the Success contract involves construction work, thus RCW 62A.2 does not govern here.

Success claims no meeting of the minds occurred regarding the contract terms from a standard form received from Arango. Disputed terms include arbitration, attorney's fees, and liability waivers. However, the case primarily concerns the enforceability of the oral bid. Success's February 16, 1984, withdrawal letter indicated that the only disputed term was the bid price due to a calculation error. Evidence shows that both parties accepted the oral bid, which Arango later incorporated into a formal contract. Success found the bid amount significantly undervalued and withdrew without contesting terms.

Success further argues that a condition precedent—written confirmation of the bid—was unmet, making the bid unenforceable, citing Corbit v. J.I. Case Co. However, the Corbit case involved a deed contract, not construction bidding, which is uniquely treated in law. In construction, oral bids are considered irrevocable offers until the general contractor is awarded the contract, with promissory estoppel preventing subcontractors from retracting their bids.

The concept of promissory estoppel, as elaborated in Feinman's work, is particularly illustrated in construction bidding cases. In these cases, a general contractor receives bids from subcontractors and forms its own bid based on the lowest reliable offers. Conflicts arise when a subcontractor submits a bid that is either miscalculated or intentionally low, later refusing to perform after the general contractor has won the contract based on that bid. Traditional contract law would allow the subcontractor to withdraw since the bid is seen as revocable until accepted. However, the landmark case Drennan v. Star Paving Co. established that the context of the bidding process necessitates the application of promissory estoppel, making the subcontractor's offer irrevocable until the general contractor has had a chance to accept it after winning the prime contract.

Subsequent cases have upheld that promissory estoppel binds subcontractors to their bids, inferring an implicit promise to keep the bid open. The rationale from Drennan has been accepted in cases such as Ferrer v. Taft Structurals, emphasizing that a subcontractor's bid, when relied upon by a general contractor, should be considered irrevocable for a reasonable time. When a general contractor incorporates a subcontractor's bid, it demonstrates justifiable reliance, satisfying the elements of predictable reliance and change of position. If a subcontractor fails to perform after the prime contract is awarded, a breach of contract action can be initiated based on the initial bid.

In the case at hand, there is no indication that the subcontractor imposed a condition for written confirmation of its bid, suggesting that an enforceable contract was indeed formed. Furthermore, the motion for summary judgment by Arango, based on the established principles from Drennan and Ferrer, asserts that the general contractor's incorporation of the bid constitutes justifiable reliance.

A subcontractor's refusal to perform after contract award allows the general contractor to recover damages through promissory estoppel. The five elements of promissory estoppel are: (1) a promise, (2) reasonable expectation that the promisee will change position, (3) actual change in position, (4) justifiable reliance on the promise, and (5) avoidance of injustice through enforcement of the promise. In this case, elements (1) to (3) were satisfied as Success's bid was confirmed, and Arango changed its position by including that bid in its prime bid. The disputed element is whether Arango justifiably relied on Success's bid, with Success arguing that Arango, as an experienced contractor, should have recognized the bid was too low. However, Success failed to provide evidence to support this claim. The only other bid, from Tin Benders, was higher than Success's, and there was no indication that Arango should have been aware of any mistake in Success's bid prior to the contract award. Additionally, a subsequent cover price received after the prime contract award does not negate Arango's reliance on Success's bid at the time of the award. Consequently, Arango's motion for summary judgment should have been granted, leading to a reversal of the trial court's judgment and a remand for judgment in favor of Arango for damages.