American Airlines, Inc. (“American”) hired Jones Brothers Construction Company (“Jones”) to prepare bid specifications, accept bids, and award contracts for the expansion of American’s facilities at O’Hare International Airport. Quake Construction, Inc. (“Quake”) was invited by Jones to submit a bid on American’s employee and automotive maintenance shop facilities (the “project”). After receiving Quake’s bid, Jones orally notified Quake that it had been awarded the contract for the project. Jones also asked Quake to provide the license numbers of all subcontractors Quake intended to use on the project. Quake advised Jones that the subcontractors would not allow Quake to use their license numbers until they received an executed subcontract agreement, which Quake could not provide until it received a signed contract from American. Jones advised Quake that a written contract for the project would be prepared by Jones shortly.
Thereafter, Jones sent Quake a letter of intent setting forth the terms and conditions of Quake’s contract with American. The letter stated that a contract between Quake and American was being prepared by Jones. Quake used the letter to obtain their subcontractors’ license numbers for Jones. Later, at a preconstruction meeting, Jones told Quake, Quake’s subcontractors, and governmental officials present at the meeting that Quake was the general contractor for the project. However, immediately after the meeting, American informed Quake that Quake’s involvement with the project was terminated. Quake filed suit against American and Jones for breach of contract and promissory estoppel.
In determining whether Quake could proceed against American, the court noted that the letter of intent clearly stated a contract between American and Quake was conditioned upon the execution of a written agreement. Thus, Quake could not maintain a cause of action against American for breach of contract.
Quake, however, also sought to recover against American on the theory of promissory estoppel. To establish a promissory estoppel, a party must prove: (1) the defendants made an unambiguous promise, (2) which was relied on by the other party, (3) the reliance was expected and foreseeable by the defendants, and (4) resulted in detriment to the other party. Moreover, the party’s reliance must be reasonable and justifiable. If the elements of a promissory estoppel can be established, a party may then recover damages against the defendants despite the absence of a contract.
The court proceeded to find Jones, on behalf of American, orally and through the letter of intent, notified Quake that Jones had awarded Quake the contract for the project. Further, in reliance upon Jones’ prior statements, Quake had expanded its office space, hired a project manager, secured subcontractors for the project, provided the subcontractors’ license numbers to Jones, and prepared to perform the work required by the project. Finally, Jones and American knew Quake incurred substantial time and expense in performing these tasks. These allegations were sufficient to allege a cause of action under promissory estoppel and allow Quake to proceed against American and its representative, Jones.
The Quake case is important to contractors because the court’s holding prevents owners or their representatives from reneging on the award, verbal or otherwise, of a contract after the contractor has expended substantial time and money on the project even if no written contract has been executed by the parties. If you have questions regarding construction contracts, please contact a member of the firm.