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S.n. Nielsen Co. v. Nat'l Heat & Power Co.

OCTOBER 8, 1975.




APPEAL from the Circuit Court of Cook County; the Hon. ROBERT E. McAULIFFE, Judge, presiding.


The S.N. Nielsen Company (hereinafter referred to as Nielsen), a general contractor, brought this action to recover damages from National Heat & Power Company (hereinafter referred to as National), a subcontractor, for an out-of-pocket loss of $101,248 arising out of the withdrawal of National's bid to perform certain work on a project in which Nielsen had been awarded the general contract. The trial judge, sitting without a jury, entered judgment in favor of National, and Nielsen appeals.

On appeal it is contended that (1) Nielsen is entitled to recover damages under the doctrine of promissory estoppel; (2) there is no evidence to support the court's holding that a mistake was committed which excused National from its duty to perform; (3) the court erred in holding there was no contract between the parties; and (4) the judgment is against the manifest weight of the evidence.

The facts which gave rise to this action may be summarized as follows: In July of 1969 Nielsen was invited to bid as a general contractor on the second construction phase of the Budd Company plant. Sets of drawings and specifications were provided by Giffels and Rossetti, the architect. Thereafter, Nielsen contacted a number of subcontractors as well as material and labor suppliers. Bids from approximately 25 mechanical subcontractors were solicited including National. National had previously submitted bids to Nielsen, but they were never accepted. National accepted the invitation to bid, and copies of the drawings and specifications dealing with the mechanical work were provided. On several occasions National contacted the architect to clarify questions regarding the mechanical phase of the project.

On August 4 National contacted Nielsen by telephone and submitted an oral bid of $494,000. Later that day Nielsen submitted its final bid on the Budd Company project. The following day Budd informed Nielsen that it had been awarded the general contract. Nielsen in turn informed National that it would be the mechanical subcontractor. On August 18 National reconfirmed its bid by letter. That same day Nielsen submitted to the architect the names of all proposed subcontractors, including National.

On August 20, 1969, the Budd Company and Nielsen executed a formal written contract. One provision of the contract provided as follows:

"5.2.3 The Contractor shall not contract with any Subcontractor * * * for the principal portions of the Work who has not been accepted by the Owner and the Architect * * *."

On August 28 Nielsen received a letter from the architect indicating that it was withholding approval of National as the mechanical subcontractor pending a determination of National's fiscal responsibility and performance on previous projects. Nielsen transmitted this information to National by letter dated September 2, 1969, and requested a list of projects completed by it. Three days later Nielsen sent a "letter of intent" to National granting authority to proceed with its subcontract, "[s]ubject to approval of the Architects and Owner." The letter further stated, "Formal contract will be issued in the very near future." A formal contract was never delivered to National.

On September 17, 1969, Nielsen received a telegram from National stating that it was unable to enter into a contract with them. It further recited, "Circumstances have arisen since our submitting a quotation on August 18, 1969 which prevents us from entering into this project and thus we are withdrawing our bid." On December 4, 1969, Nielsen filed this action against National for out-of-pocket losses incurred as a result of National's withdrawal of its bid.

Initially, Nielsen claims that it is entitled to recover damages under the doctrine of promissory estoppel. Nielsen points out that its initial bid on the Budd project was $5,284,113; however, upon receiving National's bid, it reduced its offer to Budd by $200,000. Nielsen argues that on the basis of this action in reliance it is entitled to invoke the doctrine of promissory estoppel.

• 1, 2 The elements of promissory estoppel are set forth in section 90 of the Restatement Contracts (1932), which states:

"A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise."

There exists some early authority to the effect that the doctrine of promissory estoppel is inapplicable to commercial transactions. (E.g., James Baird Co. v. Gimbel Bros. (2d Cir. 1933), 64 F.2d 344.) Such cases generally hold that the doctrine is intended only to enforce expressions of donative intent. However, the prevalent view now appears to bring commercial transactions within the purview of the doctrine, and it can be safely said that promissory estoppel applies to cases involving bids on construction projects. (S.M. Wilson & Co. v. Prepakt Concrete Co., 23 Ill. App.3d 137, 318 N.E.2d 722.) In any event, while the courts have applied the doctrine with increasing willingness, they have never lost sight of its underlying purpose: to protect innocent parties. Thus, it has been held that in order to invoke the doctrine of promissory estoppel in the instant type of situation, the reliance must be reasonable and justifiable. (Robert Gordon, Inc. v. Ingersoll-Rand Co. (7th Cir. 1941), 117 F.2d 654; N. Litterio & Co. v. Glassman Construction Co. (D.C. Cir. 1963), 319 F.2d 736.)

The thrust of National's response to Nielsen's contention is that Nielsen was not justified in relying on its bid, particularly since Nielsen was not such an innocent party. National argues that its bid resulted from an error in calculation and that Nielsen knew or should have known ...

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