Broken Promises

Examining the duties within a contract

 

May/June 2022

Jon Straw / May 18, 2022 / 2 minutes
Jon Straw

This sounds so simple: A contract is a set of promises between parties that the law will enforce.

A breach of a contract is nothing more than a broken promise(s). Enforcement of a contract is simply ensuring performance of the promise(s) already made.

Of course, it can be complicated. Only those promises within the bounds or scope of the contract can be enforced. Changes are for work outside the original bounds of the contract. Agreement to changes is nothing more than increasing or reducing (deductive changes) the scope or size of the parties’ promises. Drawing the scope­—or boundary line(s)—defines and limits each party’s responsibility, risk, and potential reward.

The bright side: The law protects the parties and their contract by precluding certain duties or obligations that would exist “but for” the creation and existence of the enforceable agreement. In every contract, therefore, some duties/obligations are created by the agreement itself while other duties are extinguished (because they are subsumed) by the agreement itself. The effects of this line-drawing, scope-defining, limitation-making are the front line in contract disputes.

In a recent example of this, a prime contractor and subcontractor on a project for the North Carolina Department of Transportation (NCDOT) each planned to enjoy the benefits and detriments of their subcontract to rehabilitate multiple bridges with latex overlays in western North Carolina. Once NCDOT awarded the prime contract, the subcontractor submitted an “after-the-fact price” to the prime. The prime responded to the sub by sending a link to download all the project documents, including the prime contract, general conditions, drawings, and specifications. After having access to the project documents, the sub submitted a series of proposals to provide latex modified concrete for the project and the prime accepted. The proposals were formalized into written subcontracts, each with terms additional to the proposals.

Notably, there is no mention whether the sub actually accessed the project documents. Nevertheless, the court inferred that because the sub could access the project documents before the proposals were submitted and because the sub promoted itself as having prior experience supplying materials for NCDOT projects, the sub therefore knew that any materials supplied by it for the project must conform to NCDOT standards.

The sub mixed and applied latex overlays for all seven bridges. Within the one-year warranty period, NCDOT noted “bullet shaped voids and openings,” so NCDOT deemed the overlays were defective and demanded complete removal and replacement on all seven bridges. The sub’s claim to its CGL carrier was denied. So, the sub refused to perform the remedial work due to funding constraints.

Typically, the prime would have completed the remedial work by defaulting the sub to engage the sub’s surety (if the sub had a surety) and/or by engaging another sub. For unknown reasons, however, the prime sued the sub before the remedial work was performed.

The sub succeeded in having the court dismiss the prime’s allegations for fraud, unfair and deceptive trade practices, negligence, products liability, and breach of an alleged separate contract for repair. The dismissals were due, in large part, to the existence of the subcontracts, which defined and limited the parties rights and obligations to simple breach(es) of the subcontract. In forming the subcontracts, the parties agreed that such allegations would not stand by themselves, but would be covered or remedied by and through the subcontract terms.

For example, the prime’s allegations of fraud were dismissed because they arose after, were related to, and/or existed only because of the alleged breach(es) of the subcontract. In other words, the parties agreed that the subcontract would define and limit both the scope of the project for NCDOT but also the scope of any dispute arising between them. In this way, the subcontract reduced both party’s risks by planning for the future.

Four of the prime’s allegations were not dismissed and, to this author’s knowledge, remain pending, including: breach of the subcontracts, breach of express warranty, breach of warranty of merchantability, and breach of warranty of fitness for a particular purpose. In this case, the subcontracts simplified any potential disputes long before they arose by planning both for what disputes could be asserted (e.g., breach of the subcontract, not necessarily fraud or negligence) and how they could be asserted.

About the Author

Straw is a partner with Kraftson Caudle, PLC, a law firm in McLean, Va., specializing in heavy-highway and transportation construction. Straw can be contacted via e-mail at jstraw@kraftsoncaudle.com.

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