Wednesday, May 11, 2022
This is the eleventh in a series of posts on Victor Goldberg's work. Today's post is about Chapter 15 of his book, Rethinking Contract Law and Contract Design (RCL), and this will be the last post about that book. The book includes a conclusion, but I will hold off on commenting on Professor Goldberg's conclusions until I am ready to draw some of my own, following blog posts on his Rethinking the Law of Contract Damages. Stay tuned. Links to related posts follow this one.
The bid cases are made for teaching. First we have the opinion of Learned Hand (below, left) in James Baird v. Gimbel Brothers from 1933. A generation later, Justice Roger Traynor (below, right) authored the opinion in Drennan v. Star Paving. The facts are close-enough to identical. A sub-contractor (sub) makes an error in placing its bid. The general contractor (GC) uses the bid and wins the contract. The sub then attempts to pull out. Judge Hand allowed the withdrawal of the bid. If the GC wants an option, it can make that a condition of putting in a bid. Justice Traynor went the other way, noting the GC's reliance on the sub's bid. The Restatement (s. 87(2)) follows Drennan.
Professor Goldberg makes a number of points, showcasing his knowledge of the bid context and highlighting once again the ability of the parties to allocate risks in a manner that makes sense without the assistance of courts. First, cases like James Baird and Drennan arise only the context of public contracts, which have sealed bidding procedures. Second, there is rarely a need for courts to decide a public bid case, because the rules are laid out in statutes or ordinances. Moreover, Drennan just creates a default rule around which the parties can and do contract. We don't need the common law to fill in gaps (RCL, 232-34). Third, in the private context, the Drennan rule does not apply, and it need not apply. Parties engage in the very practices that legislators worry about (bid shopping, bid chopping, bid peddling and chiseling), but things work out all right (RCL 234-38). Disputes between GCs and subs on projects for private owners are rarely litigated, but it seems like the GCs haggle with both owners and subs throughout the process (RCL, 245-47).
But even courts that follow Drennan do not always find in favor of the GCs. Sometimes they favor the sub because the sub's bid specifically provided for revocability or called itself an "estimate," not a bid (RCL 239-40). Other courts find for subs because: (1) the sub's mistake was too obvious to induce reliance; (2) the GC proposed new terms to the sub after its bid was accepted ; or (3) the GC bid shopped. Justice Traynor addressed the first issue directly in his Drennan opinion and left the determination of whether there was a mistake to the court's discretion. The second issue seems the trickiest, because there are always details to work out in a post-bid contract. Two questions arise with respect to bid shopping: was big shopping a common practice and did this particular GC bid shop? If the answer to either question is yes, it ought to rebut the presumption that GC's rely on bids and that subs therefore must be bound by them (RCL 240-45). In any case, Drennan is a default rule, and as such, it seems to serve its purposes, with the sub on occasion contracting around it by specifying that their bids are revocable (RCL, 245).
Professor Goldberg views the bid cases as "much ado about (almost) nothing" (RCL, 225), and his review of the case law (RCL, 247-55) bears that out. Drennan's default rule is "often trumped by pro-subcontractor statutes or by extra-contractual mechanisms" (RCL, 255). Moreover, Drennan has rarely been extended to apply outside of the GC/sub bid context (RCL, 257-60). R.2d § 87(2) rarely gets mentioned in the case law. That section of the Restatement accounts for, on average, one legal victory every nine years, at least in reported cases. R.2d § 90 seems to be up to the task, for courts that want to enforce offers based on reliance (RCL, 260-63).
So why do we continue to teach Drennan, James Baird, and R.2d §87(2)? Professor Goldberg has no answer, beyond the obvious attraction of a direct standoff between two giants of 20th-century jurisprudence (RCL, 263). The danger is that, without the regulatory and law-in-action context that Professor Goldberg provides, students could emerge with a mistaken impression of the role of reliance in commercial contracts, and they also might not develop the habit of thinking about ways in which statutes and contract design can determine the applicable rules. To the contracts prof seeking to address those pedagogical pitfalls, Professor Goldberg's work serves as a valuable teaching assistant.
A post on Chapter 14 (preliminary agreements) is here
A post on Chapters 12 and 13 (excuse doctrine) is here.
A post on Chapter 11 (an Auseinandersetzung with Mel Eisenberg) is here.
A post on Chapters 8-10 (consequential damages) is here.
A post on Chapter 7 (liquidated damages) is here.
A post on Chapters 5 & 6 (speculative damages) is here.
A post on Chapter 4 (lost-volume damages) is here.
A post on Chapter 3 (timing for assessing damages) is here.
A post on Chapter 2 (the flexibility/reliance trade-off) is here.
The introductory post is here.