Double AA Builders, Ltd. v. Grand State Construction L.L.C. 114 P.3d 835 (Ariz. Ct. App. 2005)
In anticipation of submitting a bid for the construction of a Home Depot Store in Mesa, Arizona, Double AA solicited bids from subcontractors for various portions of the work. Grand State faxed a written but unsigned bid to Double AA in the amount of $115,000 for installation of the exterior insulation finish system (EIFS) on the project. The proposal stated: “Our price is good for 30 days.” Double AA relied on several subcontractor bids, including Grand State’s, in preparing its overall price for the project.
On December 21, 2001, Home Depot advised Double AA it was the successful bidder for the project. On January 11, 2002, within the 30-day “price is good” period, Double AA sent a subcontract for the EIFS work to Grand State to be signed and returned. Grand State advised Double AA it would not sign the subcontract or perform on the project. Double AA subsequently entered into a subcontract with a replacement subcontractor to install the EIFS at a cost of $131,449, which exceeded Grand State’s quoted price by $16,449. Double AA demanded that Grand State pay the difference between its bid and Double AA’s ultimate cost to perform the same work. After Grand State refused, Double AA filed suit based on promissory estoppel.
When a general contractor prepares an overall bid for a competitively bid construction project, it receives bids and quotes from subcontractors for portions of the work. The general contractor uses the bids in preparing its overall price for the project. A subcontractor’s refusal to honor its bid can be financially disastrous for the general contractor, because the general contractor will typically be bound by the bid price it submitted to the project owner.
Promissory estoppel may be used to require that the subcontractor perform according to the terms of its bid to the contractor if the contractor receives the contract award, because the contractor has detrimentally relied on the subcontractor’s bid and must perform for a price based on that reliance. Double AA prevailed. Nonperformance by the subcontractor resulted in damages equal to the difference between what the contractor had to pay and what it would have paid had the subcontractor performed.
A second exception to the rule requiring consideration is a contract under seal. In the past, contracts were sealed with a piece of soft wax into which an impression was made. Today, sealed contracts are typically identified with the word seal or the letters L.S. (an abbreviation for locus sigilli, which means “the place for the seal”) at the end. Consumers may also purchase contract forms with a preprinted seal. The parties using them are presumed, without evidence to the contrary, to be adopting the seal for the contract. States in the U.S. no longer require that contracts be under seal. However, 10 states still allow a contract without consideration to be enforced if it is under seal.
Legal Principle: Promissory estoppel and contracts under seal are exceptions to the common law rule requiring consideration.