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Do You Really Have An Enforceable Contract?

Do You Really Have An Enforceable Contract?

By: Ian T. Kravitz, Esquire

You have probably heard a million times not to worry if your contract is verbal or vague, as the law will protect what the parties to an agreement intended. This remains the general rule. However, depending on what terms your agreement is vague on, even if in writing, can leave you without an enforceable contract. For many contractors, especially those performing emergency remediation, and other work for which you often look to the owner’s insurance for payment, this can lead to costly lessons being learned.

When contracting for work, whether written or oral, it is imperative under the law that the parties have a “meeting of the minds” as to all of the material terms. While what is a material term can vary depending on the circumstances, generally scope, price, and duration are essential materials terms that require definiteness to allow for the forming of a binding contract. Such definiteness is not always possible, however, there are still steps you can take to protect yourself.

For instance, if you are contracting for emergency water removal and dry out of a water damaged property, you often do not know how long it will take to dry out the property, and how much equipment will ultimately be required. Often in these situations, work authorization agreements are entered into between contractors and property owners. These agreements are generally one page, and simply provide for authorization to commence the remediation work. This may not be enough.

If you find yourself in such a situation, being as definite as to all material terms as possible is essential. For instance, you can and should provide a price list for labor rates, and various equipment usage rates in or along with your authorization agreement, so that the owner understands what each element of labor, service or material will cost. You can and should also provide an estimate as to either the price of the job, or at least an estimate as to the expected duration of the job, with a reference to the price list discussed above. As long as you do so, even if you provide a relatively broad estimate as to such duration, it will be easier in a court of law to later show that the parties at least had a meeting of the minds as to how the contract price would be calculated.

Another issue that often arises in these authorization agreements is where the agreement provides no indication as to any agreement on price, or how price will be determined, but instead leaves it up to the contractor and the insurance company to determine what price should be paid after the fact. This is clearly NOT A CONTRACT between the contractor and the property owner. Multiple Florida courts have now made clear that when the price or method of determining price is left to the negotiations of the contractor and insurer, no binding contract can be found to exist with the property owner as any such contract fails for lack of definiteness as to the material term of price.

If you find yourself in such a situation, it is imperative that your agreement be worded properly. While the property owner can assign their claim to you in the authorization agreement, you should still have language regarding price as discussed above, and make it clear that should the insurer fail to tender timely payment, that the property owner is still liable to the contractor for such timely payment pursuant to the terms of the agreement. This is essential not only to be able to have a binding contract claim against the property owner, but also to have any rights whatsoever to record a construction lien against the owner’s property. Something that may prove your only leverage to getting paid in the end.

As in all business dealings, having a properly worded and enforceable contract is often the difference between getting paid, and learning a costly lesson. Your Construction Law Firm TM remains available to assist you in all aspects of your construction business, from contract drafting, to bid preparation, to litigation and appeal.