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Isobunkers, LLC v. Byram Township Board of Education

2011 WL 601452 (U.S. Dist. Ct. D. N.J. 2011) (Unpublished)

PUBLIC BIDDING — Where, within the time period required by law, no resolution to accept a bid proposal is made by the awarding authority, no contract can be awarded and therefore the requesting authority does not violate the implied covenant of good faith and fair dealing which, as a matter of law, only arises under a valid contract.

A municipality’s board of education solicited bids for the purchase of fuel oil. It was to be delivered to eleven individual schools over a period of one year. One firm, which was not the lowest bidder, was notified by phone on the date it submitted a sealed bid, that the school board planned to award it the contract. The firm sent a confirming e-mail which was received without objection by the school board. Relying on the school board’s phone call, the firm purchased oil futures needed to fulfill the contractual obligation it believed it had accepted and upon which it relied. The very next day, the lowest bidder called to complain that its bid had been rejected, allegedly for non-compliance with the bidding procedure. Several days later, the school board, in response to the complaint, advised the previously “successful” bidder it would repeat the bidding process, thereby voiding the original bidding process. That firm was able to resell the fuel oil contracts that it purchased, taking a loss of approximately $100,000. It sued the school board, alleging damages of the $100,000 plus lost expected profits of $200,000 it would have earned had it been allowed to fulfill the contract as originally bid. The school board filed a motion for summary judgment to dismiss the complaint in its entirety.

The Court dismissed the claims of breach of contract and breach of the implied covenant of good faith and fair dealing. It said that under New Jersey’s Public School Contracts Law, an award of a contract must be made by resolution of the board within 60 days of the receipt of bid proposals. In this case, no resolution was ever authorized to award a contract under the original bid proposed, and so no contract could exist under law. As no contract could exist, neither could an implied covenant of good faith or fair dealing count which, as a matter of law, only arises under a valid contract.

The Court, however, denied the school board’s summary judgment motion, in part, by holding the firm had established a viable claim for relief under the equitable principles of promissory estoppel. It found that the doctrine requires four elements: 1) a clear and definite promise; 2) made with the expectation that the promise would rely on it; 3) with reasonable reliance; 4) and a resulting definite and substantial detriment. In this matter, the evidence suggested a long standing relationship between the parties in which the firm had bid and received prior contracts. The Court also found that because of the prior dealings, there was a material question of fact as to what the firm might reasonably have expected out of the bidding process. The firm had testified that the commitment of the school board’s agent, either verbally or in an informal writing, had always proved sufficient in the past. The firm also asserted that, based on such a relationship, it was reasonable for it to immediately purchase the necessary fuel contract in order to lock in a price and insure that it would be able to profit from of the contract. It argued that it had taken reasonable steps, based on custom and prior dealings, to its detriment.

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