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Appendix A: CONTRACT LAW

A contract is "a promise that the law will enforce." The elements required to make a contract are:

Mutual Assent

This is manifested through an offer and acceptance. Offers must be accepted exactly as offered. If modified terms are proposed, they become a counteroffer. Unless otherwise specified, an offer is open for a "reasonable" time. (It is often advisable to specify 30 days or some other time period.) Unless otherwise specified, an offer may be withdrawn at any time prior to acceptance. (It is sometimes advisable to require that offers remain open for "x" days to allow review and action.)

Consideration

Consideration is “the price, motive or benefit that induces the parties to contract." There must be a bargained-for exchange of something of legal value for there to be a binding contract. Be aware that commercial value is normally irrelevant with respect to valid consideration (e.g., you could purchase my car for $1). In some states a contract "under seal" is presumed to have proper consideration. (This is not referring to a corporate seal which is something entirely different.)

Legal capacity to contract

  • A person is incapable of entering into a contract if:
  • Under age (18 or 21, depending on the state),
  • Drunk (or unable to understand the action being taken),
  • Mentally ill, or
  • Under legal guardianship.

(Note that corporations may not be empowered or licensed to sign contracts for specific types of work or services.)

Legally Permissible Objective

A contract that requires one or both parties to perform illegal acts is unenforceable.

Contracts may be assigned. An assignment transfers one party's rights under a contract to a third party (not originally a contracting party). This is often done at the time of funding of a construction loan when the lender wants a "contingent assignment" of the owner-architect agreement. Generally, an assignment does not discharge the original party's obligations under the contract.

Warranties are a type of contract. They are assurances of the quality or performance of a product or work, or of the duration of satisfactory performance. Warranties are not insurable under professional liability insurance.

Uniform Commercial Code (UCC)

The UCC is a model law governing commercial transactions. It has been enacted virtually intact in all states except Louisiana. Article 2 covers the sale, by a merchant, of goods worth $500 or more. The UCC does NOT apply to most design contracts and general construction contracts, because services predominate over the sale of goods. UCC concepts like "fit for a particular purpose" or "merchantable" are not transferrable to design contracts, as a rule.


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