National Construction Law Manual
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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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