Short Contract Law Lesson
Construction projects usually involve many parties, many tasks, and consequently many different agreements. Thus, understanding basic concepts of contract law is very important. Where any of the contract elements is missing, a valid contract does not exist, and an alleged promise cannot be enforced.
The elements of a valid contract include: offer, acceptance, consideration, and meeting of the minds. Some reasons for not enforcing an agreement are lack of capacity of one or more parties to the contract, illegality, misrepresentation, duress, unconscionability, ambiguity, or mistake.
Remember, if the offer specifies a certain method of acceptance, the offeree, or the party receiving the offer, must follow the specified method in order to validly accept the offer. Also, taking an offer, adding or modifying some of its terms, and sending it back to the offeror (whoever made the original offer) turns the offer into a counter-offer. The original offeror must accept the additional or new terms for the contract to be formed.
The United States Court of Appeals for the Eleventh Circuit analyzed a contract law situation in South Cent. Steel, Inc. v. McKnight Constr. Co., 2008 Fed. Appx. 806 (2008). McKnight Construction Company (McKnight) hired Huston Steel Fabricators/Erectors (Huston Steel) to perform steel fabrication and erection work. Huston Steel then subcontracted the work to South Central Steel, Inc. (South Central).
When South Central ordered a considerable amount of steel from its suppliers and McKnight refused to pay, South Central sued for breach of contract. Evidence did show that South Central insisted on dealing directly with McKnight because of Huston Steel's financial troubles. However, the concluded a contract between McKnight and South Central did not exist.
Initially, McKnight mailed a purchase order to South Central. The purchase order had clear instructions that a valid acceptance required that South Central sign and return the purchase order, and also that McKnight then sign the purchase order too. Instead of signing the order, however, South Central sent a different letter with different terms, indicating that signature by McKnight was sufficient to accept the offer. McKnight refused South Central's counter-offer.
South Central then sued arguing it had an enforceable contract with McKnight. The court first noted that the letter South Central sent to McKnight was a counter-offer and not an acceptance because the terms were not the same that McKnight initially set forth. South Central then tried to argue that South Central later signed the purchase order McKnight had mailed. However, South Central's counter-offer terminated McKnight's offer. Even if South Central signed the purchase order later, there was no offer to accept at that point. Moreover, McKnight's purchase order specified that McKnight were to sign the purchase order upon receiving it back. McKnight never signed that purchase order.
The court therefore granted summary judgment to McKnight. South Central did not receive payment for the additional steel it ordered. South Central's loss is just one of the many reasons parties involved in ramificated construction projects should seek legal advice when entering into contracts and delegating or assuming obligations.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
Posted by Ryan McCabe at 4/9/2009 7:05 AM 
Categories: Developers, Liability and Risk Management, Contractors, Contract Law, Architects
Categories: Developers, Liability and Risk Management, Contractors, Contract Law, Architects
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