National Construction
Law Manual
4E
By: James Acret
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Construction Law Manual
CHAPTER 1 -
Contracts
§ 1.01 What is a Contract
In its classic legal definition, a contract is
simply a promise that the law will enforce. In the business
of construction, a contract is usually easily recognized, consisting
as it does of a preprinted text labeled "contract", "subcontract",
"agreement", or "purchase order". Yet an enforceable
contract may also be formed in other ways, without writing, without
a handshake, over the telephone, or even without words.
Construction contract promises deal with the
performance of work and the payment of money. If we take as an
example a contract to build a hospital, the contractor promises
to build the hospital according to drawings and specifications and
the owner promises to make the jobsite available and to make
progress payments to the contractor as the work advances. The
contract documents, including drawings and specifications, may
run to 1,000 pages or more, each page containing an assortment of
promises that work will be performed as specified. The
specifications almost always refer to codes, standards, ASTM's and
technical reports that contain thousands of pages more, all of which
are incorporated into the contract documents as promises of the
contractor.
As we shall see, and as experienced
contractors know very well, despite these thousands of pages of
technical writing and hundreds of thousands of words supported by
drawings, sketches, and illustrations, it still seems impossible to
give a completely accurate and unambiguous description of the
physical characteristics of a complicated building. Therefore, even
the most elaborately articulated contract is subject to
interpretation. Moreover, judges are not satisfied merely to enforce
the promises explicitly included in the contract documents, but the
law implies additional conditions that seem necessary to carry the
intentions of the parties into effect.
One would expect that a prime contractor and
a subcontractor dealing with an $11,200,000 sheet metal job would
be pretty sure whether they had entered into a contract or not. In
the case of Allied Sheet Metal v Kerby Saunders, 619 NYS2d
260 (AD 1994), they were not. The subcontractor had prepared a
document entitled "scope sheet" dated November 26, 1986 that dealt
with the fabrication and installation of a heating ventilation and
air conditioning system in a hospital. The scope sheet was signed
by the contractor's vice-president and identified the project, the
work to be performed, the job number, and the contract price. The
court held that the scope sheet was not a contract, since there
was no indication that the document was intended to be anything
more than a memorandum of the work that was covered by the
subcontractor's bid. The court pointed out that parties would not
ordinarily commit themselves to an $11,200,000 project without a
formal writing.
§ 1.02 Competent Parties
An enforceable contract requires at least two
parties, and they must both be competent to contract. Children,
insane and intoxicated persons are not competent to enter into an
enforceable contract. A corporation whose charter has been revoked
for failure to pay taxes is not competent to contract. A person who
has no authority to act on behalf of another party cannot bind that
other party to a contract.
The superintendent of a park district and
the president of an engineering company agreed that the
engineering company would perform inspection work for the park
district and prepare drawings for the repair of a building. The
superintendent, however, had no authority to bind the park
district because the Park District Code prohibited contracts
without approval of the park district board. The court therefore
held that the supposed contract was void from the beginning, and
the engineering company had no right to be paid for its work even
though the park district may have benefited from the work. DC
Consulting Engrs, Inc. v Batavia Park Dist, 143
III App 3d 60, 492 NE2d 1000 (I986). The court said:
When an employee of a municipal
corporation purports to bind the corporation by contract without
prior approval, in violation of applicable statute, such a
contract is utterly void ... such a contract cannot be validated
by principles of ratification or estoppel.
§ 1.03 Legal Object
For a contract to be enforceable, it must have
a legal object. A contract to ship cocaine, or to divide the loot
from a bank robbery, could be unenforceable. A contract to build a
structure in violation of the zoning laws would be unenforceable. A
contract by an unlicensed contractor or uncertified or unregistered
architect or engineer may be unenforceable by the unlicensed person.
A contract to fix prices, or refrain from competition, is illegal
and unenforceable.
In Richmond Co. v Rock-A-Way,
Inc., 404 So 2d 121 (Fla. Dist Ct App 1981), two
contractors were contemplating bidding for a recreation project.
Let us call them Alpha and Beta. Alpha proposed that Beta refrain
from bidding the job as a prime contractor, but submit a
subcontract bid to Alpha. Alpha then agreed that if it was the low
bidder, and was awarded the contract, it would sub the work to
Beta rather than to any of Beta's competitors. Beta welshed on the
deal, and bid the job as a prime contractor. The court dismissed
Alpha's claim against Beta for breach of contract. Anti
competitive agreements between contractors are void. Such
agreements are against public policy because they tend to
extinguish competition.
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