Clifford R. Gray, Inc. v. LeChase Construction Services, Inc. (2008)
A number of years ago in Bunkoff General Contractors, Inc. v. Dunham Electric, Inc. (2002), a New York appellate court recognized the right of a general contractor to assert a claim against a subcontractor for refusing to honor its bid. The court held that the general contractor was required to prove the following four elements to recover damages on this type of claim:
(1) the subcontractor made a clear and unambiguous promise (i.e., a definite bid);
(2) the general contractor relied on the bid;
(3) the general contractor's reliance was reasonable and foreseeable; and (4) the general contractor was damaged as a result of its reliance.
The courts in New York have also issued a mirror-image decision, ruling that a subcontractor who was promised the job by the general contractor if the general contractor was awarded the contract, had a cause of action if another subcontractor was awarded the work. Two years ago, in Clifford R. Gray, Inc. v. LeChase Construction Services, Inc. (2006), a New York appellate court upheld the subcontractor's right to assert a claim for damages in this situation. Specifically, the subcontractor alleged it had an unwritten exclusivity agreement with the general contractor to receive a subcontract for a project in return for not submitting a bid to or dealing with any other general contractor on that project. The 2006 determination was simply an initial ruling that the subcontractor had a viable claim for promissory estoppel; however, the subcontractor was required to prove its damages at a trial in order to obtain a recovery.
The question not decided in 2006 was what type of damages the subcontractor could recover. This issue was examined when the case later went to trial this year. As would be expected, the subcontractor sought to recover the profits it expected to earn if it had received the subcontract. The general contractor, on the other hand, argued that the subcontractor's recovery should be limited to expenditures made in reliance on the general contractor's supposed promise to give the subcontractor the job.
In the second decision in the matter, a New York appellate court decided the damages question, siding with the general contractor and limiting the subcontractor's recovery to its bid costs and any other actual expenses incurred in anticipation of receiving the job. The subcontractor was not permitted to recover for lost profits. The court reasoned that because the parties never fully agreed on all the essential terms of a subcontract, the subcontractor could not recover "benefit of the bargain" damages, i.e., lost profits.
EDITOR'S NOTE:
In reaching this decision, the court stated that the result depended on the facts. Unfortunately, the court did not explain which essential contractual terms had been left open by the parties, whether it was price, schedule, scope or something else. This case also leaves uncertain the damages that a general contractor can recover when it relies on a subcontractor's bid but the subcontractor then refuses to take the job. Would the general contractor be able to recover the differential between the subcontractor's low bid and a higher-priced subcontract entered into after the sub walked away from the job, or would the general contractor be relegated to expenses incurred in rebidding the subcontract? These questions will have to await future court decisions.
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