The U.S. Court of Appeals upheld a decision that Permasteelisa North America was not bound to a project it “disengaged” from prior to signing a formal subcontract.

gavelIn 2013, general contractor C.G. Schmidt (CGS) selected Permasteelisa’s bid to fabricate and install a custom curtainwall on an 18-story office building in Milwaukee. However, the sides never entered into a formal contract after more than a year of negotiations, and Permasteelisa withdrew from the project in 2014.

In December 2014, CGS filed a diversity action again Permasteelisa in the Eastern District of Wisconsin claiming breach of contract and promissory estoppel. The general contractor claimed its selection of the bid constituted an enforceable contract despite the fact that Permasteelisa wouldn’t sign a formal agreement until negotiations were complete. A formal agreement was never reached or signed. CGS says it suffered damages from Permasteelisa’s backing out of the project because it was then required to use a different subcontractor at a higher price.

The court ruled in Permasteelisa’s favor in October 2015, and CGS appealed. On June 16, 2016, the U.S. Court of Appeals for the Seventh Circuit upheld the decision.

“Before negotiations began, [Permasteelisa] made clear that it intended to be bound only after reviewing the prime contract and executing a formal subcontract with agreed upon language,” the appeal decision reads in part. It adds that two letters of intent between the parties prove they “had not yet solidified their relationship in a binding agreement.”

It continues, in part, “The undisputed evidence shows that up until the point of disengagement, CGS and [Permasteelisa] were in the midst of a negotiation. The parties intended to reach a final, binding agreement, but that agreement never materialized.”

According to court documents, during negotiations, the contract glazier repeatedly raised concerns with some of the terms of the proposed subcontract agreement. Meanwhile, it had been working to confirm a timeslot with its manufacturing facility in Thailand, as the use of that facility would result in a notable reduction in cost.

After continued communications, Permasteelisa stopped activity on the project, citing civil unrest in Thailand and claiming it no longer had the capacity to produce the curtainwall. CGS urged Permasteelisa to honor the bid, but the glazier refused, as it never signed a formal subcontract. The general contractor then brought in a new subcontractor for what it says was a higher price and filed the action against Permasteelisa.

In addition to ruling in favor of the glazier on the breach of contract accusations, the judge ruled that CGS’s promissory estoppel claim also failed. CGS argued Permasteelisa made a promise to supply the curtainwall and that CGS relied on that promise by incorporating its bid price into its own bid with the project owner. The judge asserts that CGS didn’t actually accept the bid, as the sides were still negotiating, as was CGS with the project owner.

“CGS knew, or at least should have known, that the negotiations could fall apart before the parties entered into a binding agreements,” the appeal decision reads.