Creating the Construction Contract

Question 1

Why are agreements to agree not legally recognized in general contract law?

Answer 1

Because they lack certainty

Question 2

Construction industry exceptions to agreements to agree not being legally recognized

Answer 2

They accept letters of intent

Question 3

Letter of intent

Answer 3

After entering contract A the owner can communicate success to bidder through letter of intent. Often formal execution of contract B follows delivery of letter of intent

Question 4

Why does construction industry recognize letter of intent?

Answer 4

Often work commences on the basis of the letter and work compensable on basis of letter

Question 5

Letter of intent binding contract?

Answer 5

Could become one if all important terms from contract B are in the letter, delivered, and owner signs and returns

Question 6

Cases where letter of intent not binding

Answer 6

If execution of contract B is a condition of the bargain

Question 7

Meeting of the minds

Answer 7

If execution of formal contract is simply repeating something already agreed to in letter of intent will demonstrate meeting of the minds (if contract A and letter than hard to say it is not a contract even if not contract B)

Question 8

Formal elements of a contract

Answer 8

• Must be consideration

- Do not need to be in writing to be enforceable unless mandated by statute

Question 9

Exception for rule that there must be consideration in construction

Answer 9

Construction contracts made under seal (if not under seal must be consideration)

Question 10

Consideration for contract B

Answer 10

• Owner: promise of payment

- Contractor: promise to construct project to specification

Question 11

Effect of absence of agreement on price to consideration?

Answer 11

• Does not mean no consideration

- Court has implied a promise by owner to pay reasonable renumeration

Question 12

What if owner doesn’t pay reasonable renumeration?

Answer 12

Can bring a quantum meruit action

Question 13

Quantum meruit action

Answer 13

quasi contractual term that requires payment of reasonable amount of money for work done

Question 14

Other type of consideration

Answer 14

When owner gives contractor some right in the property or benefit

Question 15

Consideration that operates in the negative

Answer 15

loss taken by the other party (ex: I will take a penalty instead of you)

Question 16

Adequacy of consideration?

Answer 16

Largely irrelevant (exception: inadequacy so gross there is evidence of fraud)

Question 17

Exception to contracts do not need to be in writing to be enforceable unless mandated by statute

Answer 17

Provincial lien legislation is an exception to the usual statutory rule

Question 18

Normal vs lien legislation for writing requirement

Answer 18

Normal= contracts for land have to be in writing

Lien legislation= interest in land created upon commencement of work (when first shovel hits the ground lien rights created)

Question 19

Agreements that do have to be in writing

Answer 19

contract to answer for a debt, default or miscarriage of another person (construction bonds must be in writing)

Question 20

Requirement to be in writing satisfied if:

Answer 20

Essential elements are in writing

Question 21

Illegal Contracts

Answer 21

• Contracts made contrary to statutory requirements

- In private contracts may still be enforceable

Question 22

Factors to consider for illegal contracts

Answer 22

• Purpose of the law it violates: whether the law intends to make a contract inherently illegal or only illegal because outside of statute?
• Can illegal portion be severed?

Question 23

Illegal contracts: In municipalities you have licensing requirements to protect the public from unskilled contractors

Answer 23

If contractor fails to obtain license then illegal but if contractor can demonstrate knowledge, skill and requirements then public doesn’t need the license

Question 24

CCDC General Conditions

Answer 24

set out the general duties and obligations of the parties to the contract—represent an industry norm

Question 25

CCDC Precedence of Contract Documents

Answer 25

Have different sections and rank sections based on what takes precedent when interpreting to assist in the event of contradiction between terms

Question 26

CCDC contain specifications

Answer 26

precise details of work to be performed (normally prepared by design professionals)

Question 27

CCDC specs met by contractor

Answer 27

• Contractor who builds project as per specifications will not be liable for damages due to improper design
• No implied warranty for fitness for use
• Will be liable if guaranteed a certain result

Question 28

Contractor duty with design

Answer 28

If design contains obvious errors contractor owes a duty to the owner to recognize defects and warn owner of danger that is inherent in executing the design

Question 29

Contractor facing additional work as a result of specs

Answer 29

If contractor faces additional work as a result of the specifications wrongly prescribing an inappropriate construction method, the contract will be compensated for those as extras to the contract

Question 30

Intent of parties

Answer 30

Read in terms of words used and circumstances at the time it was entered into

Question 31

Where provision is clear or unambiguous

Answer 31

no extrinsic factors may be considered to vary or change interpretation of intention

Question 32

Where provision not clear

Answer 32

court will interpret in a way that gives meaning to all terms in question

Question 33

Contra proferentem

Answer 33

if you drafted the contract with ambiguity that court interpretation can’t solve, it will be resolved against your interest

Question 34

Implied terms in contract B

Answer 34

• Owner will make site acceptable for contractor to perform the work
• Contractor will complete the work within a reasonable period of time
• Contractor will perform its duties diligently and in a workmanlike manner
• Contractors work will comply with codes and building obligations

Question 35

Implied terms in contract A

Answer 35

• Treat all bidders fairly and equally

- Only accept compliant bids

Question 36

Specific implied term for dwelling

Answer 36

Implied term that it will be fit for human habitation

Question 37

Specific implied term for cost-plus

Answer 37

implied term limiting the contractor to costs reasonably incurred

Question 38

Bhasin v Hyrnew

Answer 38

Facts: B sold products for CanAm (try to force merger)

Ratios:
-Duty to act honestly (don’t lie/knowingly mislead) and in good faith (can still be self serving but cannot undermine in bad faith) in performance contracts

Question 39

Contractor and subcontractor

Answer 39

Absent provision to the contrary, contractor free to enter into sub-contracts

Question 40

Contractor and subcontractor incorporating contract B

Answer 40

Contracts can expressly incorporate contract B into sub-contracts but they are not required to (if not subs not bound to B)

Question 41

Pay when paid clause

Answer 41

• subcontractor not entitled to payment except to the extent that has been paid by the owner for the same work/materials
• Must be clear and specific
• Cannot be relied on if reason not paid was contractors doing

Question 42

Relationship between sub and owner

Answer 42

• No privity of contract

- Sub cannot sue for breach or demand payment

Question 43

Unjust enrichment

Answer 43

• Very rare case where sub has claim against the owner

- One party enriched at expense of another in unjust circumstance

Question 44

Winnipeg Condo Corp v Bird Construction

Answer 44

Facts: Masonry

Ratio: contractors, subs and others who take part in design/construction owe a duty of care to subsequent purchasers if it can be shown that it was reasonably foreseeable that failure to take reasonable care in construction of a building would create defects that would pose a real and substantial danger to health and safety of occupants