Before Signing That Contract, Be Sure You Understand All of the Terms Incorporated by Reference

BEFORE SIGNING THAT CONTRACT, BE SURE YOU UNDERSTAND ALL OF THE TERMS INCORPORATED BY REFERENCE

By: Larry R. Lieby, Esq. and Robert S. Tanner, Esq.

About the Author: Larry Leiby, Esq. was the founder and first chairman of the Florida Bar Construction Law Committee in 1976. He is the author of the Florida Construction Law Manual. He is Board Certified in Construction Law and was on the Construction Law Certification Committee that creates and grades the tests for construction law board certification. He was awarded the lifetime achievement award by the Florida Bar Construction Law Committee and teaches construction law at the Florida International University College of Law. He can be reached at leiby@mkpalaw.com. For more information, please visit www.mkpalaw.com.

A common practice in the construction industry is to incorporate by reference other documents into the contract between two parties. For example, subcontracts frequently incorporate the "Contract Documents" (which term is usually defined) and have a statement to the effect that the subcontractor has either reviewed the Contract Documents or had an opportunity to do so. Florida law recognizes the rights of contracting parties to agree to the terms and conditions in documents that are only referred to in the contract. "It is a generally accepted rule of contract law that, where a writing expressly refers to and sufficiently describes another document, that other document, or so much of it as is referred to, is to be interpreted as part of the writing." OBS Company, Inc. v. Pace Construction Corp., 558 So. 2d 404 (Fla. 1990). However, at least one Florida appellate court "requires that there must be some expression in the incorporating document ... of an intention to be bound by the collateral document.... A mere reference to another document is not sufficient to incorporate that other document into a contract, particularly where the incorporating document makes no specific reference that it is 'subject to' the collateral document." Kanter v. Boutin, 624 So. 2d 779 (Fla. 4 th DCA 1993).

The issue of "incorporation by reference" perhaps most frequently comes up when a party to a contract attempts to force the other party into arbitration based upon an arbitration clause contained in a document that is only incorporated by reference. Arbitration clauses incorporated by reference are generally enforced. For example, in Frank J. Rooney, Inc. v. Charles W. Ackerman of Florida, Inc., 219 So. 2d 110 (Fla. 3d DCA 1969), the appellate court ruled that the subcontractor could compel the general contractor to arbitration where the arbitration clause of the AIA general provisions were incorporated by reference in the general contract which, in turn was incorporated by reference into the subcontract.

The courts will also only enforce provisions that are incorporated by reference if . . . well, if they are incorporated by reference. In the aforementioned Frank J. Rooney, Inc. case, the subcontract stated that if a dispute arose as to the amount claimed by the subcontractor for extras, the dispute would be finally determined by the architect. The court stated, "It was not necessary for the parties to agree that all disputes be decided by the same authority. They had a perfect right to make a distinction between claims that would arise under the original sub-contract . . . and to provide a different method for claims that would arise subsequent to the execution of the sub-contract . . . ." Thus, although the subcontractor's claims concerning the contract balance were properly the subject of arbitration, the claims concerning extras were for the architect to decide.

One of the steps to doing a good job negotiating a contract is to understand it, including the terms to be incorporated by reference. In some instances, what would be incorporated by reference might be beneficial and, therefore, should be accepted. In others, the outside terms might be unreasonable and potentially harmful and, therefore, negotiating exceptions would make sense.