Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

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Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Importance of Contracts

 Binding agreement between two parties.

 The “bedrock upon which the construction

industry is based.”

 All of the participants involved in a

construction project are typically linked
somehow by contract.

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Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Freedom of Contract
 The law gives significant autonomy to parties
to determine the substantive content of their
contracts.
 Ideal situation: negotiated contracts, equal
bargaining power, equal information, multiple
options.
 But, these characteristics may not be present
in practice.
 Adhesion contracts only contract there, stuck with it

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Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Contract Formation

 Agreement (“Mutual Assent”)

 Consideration

 Formality Requirements

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Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Contract Formation: Agreement

thing that contract need you to do
 What matters is the outward manifestation.

 Subjective intentions are irrelevant.

 The objective is to protect the reasonable

expectations of the parties.

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Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Contract Formation: Offer and

Acceptance
 Agreement conceptually requires an offer and
its acceptance.
 An offer creates a power of acceptance in the
offeree, whereby an enforceable contract is
created upon acceptance.
 Offer vs. mere preliminary negotiations:
 Certainty of terms;
 Further action required by the offeror;
 Past dealings.

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Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Contract Formation:
Reasonable Certainty of Terms

 Certain essential terms must be reasonably

clear to the parties and to judges. For
example:
 Price;
 Scope of work;
 Completion timeframe.

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Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Contract Formation: Offer and

Acceptance

 Counteroffers

 U.C.C. 2-207: Acceptance problem when two

parties exchange standard form contracts, but
the forms do not have identical provisions.

 Depending on the situation, acceptance may

be written, oral, or even implied by
performance of the contract’s terms.

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Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Contract Formation: Consideration

 A bargained-for exchange is necessary to

make a contract enforceable.

 One party gives up something of value in

exchange for receiving a benefit.

 Except in cases of promissory estoppel 

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Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Contract Formation: Promissory

Estoppel

 Promise-induced reliance makes a

contract binding even in the absence of
consideration. some promise that you rely on a larger,
promise giver will be consider as having
 Requirements: a contract with you
it would be wrong
 Objective reliance on the promise;
 Reasonably foreseeable that a party would rely
on the promise; and
 Enforcement of the promise is the only way to
prevent injustice.
enforce the contract the wy it is to prevent
injustice
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Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Defects in Contract Formation

 Certain defects may make the contract
unenforceable.
 Defects affecting mutual assent
 Fraud, misrepresentation and duty to disclose
 Mistake
 Unconscionability sth so wrong that no way we expected
 Economic duress
someone to perform

 Defects in formal requirements

 Statute of frauds
 Homeowner contracts

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Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Defects: Fraud, Misrepresentation

and Duty to Disclose
 Contracts are often made after promises and
representations by the parties.
 Actions that can create defects:
 False or deceiving material statements;
 Failure to disclose important facts that the
other party could not have ascertained.
 Duty to disclose for public entities.
 Remedy: Right to cancel the contract and
possibly receive monetary compensation.

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Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Defects: Mistake
 Most common defect.
 Includes mistakes in the terms of the
contract, basic facts and underlying
assumptions.
 Courts evaluate several factors when parties
claim there has been a mistake.
 Generally, the greater the carelessness, the
less likely that relief will be given (cancelling
the contract).

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Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Defects: Unconscionability

 An unconscionable contract “Shocks the

Conscience.” so wrong, this contract unperformable

 Courts examine several aspects:

 Contracts of adhesion;
 Absence of true negotiation or meaningful
choice;
 Objectionable term hidden in small print;
 Unfair or one-sided.

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Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Defects: Economic Duress

 Valid contracts require free consent.

 Economic duress: One party exerts excessive

pressure beyond normal bargaining and the
other party has no real choice.

 Very rare.

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Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Defects: Statute of Frauds

 Certain contracts must be written, including:

 Promises to answer for the debt or default of
another;
 Agreements that cannot be performed within
one year;
 Contracts for the sale of goods over $500. number
changes
 Nonetheless, sometimes full performance from state
makes a contract enforceable anyway. to state

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Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Defects: Homeowner Statutes

 Some states have instituted requirements on

contracts to protect consumers and
homeowners.

 Examples: writing requirement, type face,…

 Possible recovery outside of the contract to

prevent windfalls.

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Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Contract Completeness

 Role of prior oral agreements that contradict

the written contract. everything must be written in the
contract,every thing outside contract is
 Parol evidence rule. not enforceable
 Integration clause example:
 “This Agreement represents the entire and
integrated agreement between the Owner and
the Architect and supersedes all prior
negotiations, representations or agreements,
either written or oral.” AIA Doc. B101-2007.

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Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Judicially Determined Terms

 Contracts rarely cover all possible aspects and
situations.
 In some circumstances, courts may imply and
enforce terms that are not written in the
contract.
 Customary practices as gap filler.
 Responsibility for compliance with legal
requirements and building codes.
 Duty of good faith and fair dealing.

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Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Contract Interpretation
 Determining the intentions of the parties.
 Language interpretation:
 Start with plain and ordinary meaning;
 Ambiguous terms  look to: decide by the one who didnt
 Extrinsic evidence; write that sentence
 Conduct of the parties.
 Interpretation against the drafter.
 Reasonability and fairness: one-sided clauses
and contracts of adhesion.

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Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Contract Breach

 Failure to perform in the manner and time

required by a contract.

 A breach allows an aggrieved party to pursue

a claim for damages.

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Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Contract Breach: Material Breach

 Unless the breach is material (serious) and
not cured, the aggrieved party must still
perform its promises under the contract.
 Balancing factors for characterizing a breach
as material:
 Extent of injury;
 Extent to which the aggrieved party can be
compensated;
 Extent of loss by breaching party;
 Likelihood the breaching party will cure;
 Reason for breach.

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Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Contract Breach:
Anticipatory Repudiation

 Duty to appear ready to perform when the

time for performance comes.

 Anticipatory Repudiation: one party indicates

to the other that it cannot or will not perform
its obligations under the contract.

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Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

Summary

 The system of contract law relies on judicial

enforcement of promises between contracting
parties.
 Even if the basic requirements are fulfilled,
some contracts may be deemed unenforceable
because of defects in formation.
 For contracts that are enforceable, a breach of
obligations leads to a claim for damages.

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Construction Law for Design Professionals, Construction Managers, and Contractors Sweet and Schneier

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