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Universal Computer Systems Inc. v. Medical Services Assn. of Pa.

decided: August 7, 1980.



Before Seitz, Chief Judge, and Gibbons and Rosenn, Circuit Judges.

Author: Rosenn


This is a diversity action in which we are asked to consider questions of agency and promissory estoppel under Pennsylvania law. Specifically, we are asked to consider whether a principal is bound under a theory of promissory estoppel when an employee promised to pick up a bid from a potential bidder. We hold that the employee possessed apparent authority to make a binding promise on which the promisee relied to its detriment and accordingly reinstate the verdict of the jury awarding damages for the breach of that promise.


In July of 1975, Medical Services Association of Pennsylvania (Blue Shield) located in Camp Hill, Pennsylvania, solicited bids for the lease of a computer.*fn1 Pursuant to the bid solicitation, Universal Computer Systems, Inc. (Universal) of Westport, Connecticut, prepared a bid proposal. In order to be considered, the terms of the solicitation required that it be received by Blue Shield at Harrisburg, Pennsylvania, no later than 12:00 Noon on August 18, 1975.

Joel Gebert, an employee of Blue Shield, served as liaison between Blue Shield and prospective bidders on this contract. Shortly before the date of the bidding deadline, most probably on Friday, August 15, Warren Roy Wilson, President of Universal, telephoned Gebert and informed him that Universal could furnish a computer which would meet the required specifications. Being reluctant to entrust the bid to a conventional courier source, Wilson informed Gebert that he expected to transmit the bid via Allegheny Airlines to Harrisburg, Pennsylvania, and asked Gebert if he could arrange to have someone pick up the proposal at the Harrisburg airport on Monday morning. Gebert assured Wilson that the proposal would be picked up at the airport and delivered to Blue Shield in time to meet the bidding deadline.

On the appointed day, Wilson dispatched the bid proposal from La Guardia Airport in New York by Allegheny Airlines PDQ Service on August 18, 1975, at approximately 8:30 A.M. Wilson called Gebert again to give him the necessary information so that the bid could be picked up at Harrisburg as Gebert had agreed and timely delivered to Blue Shield. Gebert, however, informed Wilson that he had changed his mind and could not pick up the proposal. Wilson then unsuccessfully attempted to make other arrangements with Allegheny to have the proposal picked up by courier or other agents and timely delivered to Blue Shield.

Allegheny originally refused to allow anyone to pick up the proposal other than a direct employee of either plaintiff or Blue Shield. Wilson was finally able to contact the supervisors of the airline manager who instructed the manager to release the package to a courier. The bid proposal, however, was released too late to meet the noon deadline. Consequently, Blue Shield rejected the bid as untimely and returned it unopened.

Thereafter, Universal filed a complaint in the United States District Court for the Middle District of Pennsylvania seeking damages for the alleged breach of Blue Shield's promise.*fn2 The case was tried before a jury which returned a verdict in the amount of $13,000 against Blue Shield. Thereafter Blue Shield filed a motion for judgment non obstante veredicto (n. o. v.) and a motion for a new trial. The district court granted the motion for judgment n. o. v. but denied the motion for a new trial. Universal appealed from the court's entry of judgment n. o. v. and Blue Shield cross-appeals from the denial of its motion for a new trial.


In this diversity action brought in a Pennsylvania forum, Pennsylvania law applies as the place where the promise was made and where it was to be performed. See Craftmark Homes, Inc. v. Nanticoke Construction Co., 526 F.2d 790, 792 n.2 (3rd Cir. 1975). The district court's order entering judgment n. o. v. rests on two findings. The first is that Gebert, whom Universal alleged made the promise to pick up the bid proposal, lacked actual and apparent authority to make that promise and thereby bind Blue Shield. The second is whether Wilson's reliance upon Gebert's promise was justified.

It is undisputed that Gebert lacked actual authority to make the promise. The issue, however, is whether he possessed apparent authority under Pennsylvania law to make such a promise. Under the decisional law of Pennsylvania, "apparent authority" is the power to bind a principal in the absence of actual authorization from the principal, but under circumstances in which the principal leads persons with whom his agent deals to believe that the agent has authority. Revere Press, Inc. v. Blumberg, 431 Pa. 370, 375, 246 A.2d 407, 410 (1968). The test for determining whether an agent possesses apparent authority is whether "a man of ordinary prudence, diligence and discretion would have a right to believe and would actually believe that the agent possessed the authority he purported to exercise." Apex Financial Corp. v. Decker, 245 Pa.Super. 439, 369 A.2d 483, 485-86 (1976). Nevertheless, a principal is not bound by the unauthorized act of his agent if the third person had notice of the agent's lack of authority. Schenker v. Indemnity Insurance Co., 340 Pa. 81, 87, 16 A.2d 304, 306 (1940).

The district court stated that Gebert "received all calls from prospective bidders and was the sole contact pursuant to the request for bids." Nevertheless, the court found that Universal should have been aware that Gebert lacked the authority to promise to pick up the bid at the airport and, therefore, Blue Shield was not bound by Gebert's promise. The court based its holding on three findings. First, it found that the bidding process was covered by the federal procurement regulations. Second, the court found that those regulations prohibited Blue Shield from showing a preference for any bidder by receiving a bid at a time or place other than that specified in the Invitation for Bids. Finally, the court found that Universal should have known that the procurement regulations applied to the bidding process and that those ...

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