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Elements of a Valid Contract

Discuss about the Dirty Dancing Investments Pty Ltd.

Construction law is a blend of different law, one of them being the contract law. The doctrine of contract law helps construction participants in managing their promises and obligations. Even though contract law urges people to make written agreements, it also guarantees that it won’t look away when one party to an agreement calls for its intervention. The main concern comes to the construction projects. Parties can draft a contract while at their office, but the nature of work demand changes at the site. With this reason, the written contract is amended to cater for the site demands. This paper will be an examination of the application of construction law using a case between of Agro builder and Ego Architect.

The main issue with this question is a concern of the required elements for the formation of a valid contract. Among other elements, a valid agreement must have an offer and acceptance, consideration, and intention to create a legal relation. A valid offer must come from the offeror, communicated to the offeree, and it should manifest a deliberate intention to give an offer. On the other hand, acceptance should come from the offeree, and it should also demonstrate the willingness of the offeree to accept the offer.[1] 

Equally important, the law states that an offer should have no considerations.[2]  After consideration, the law requires that the parties should show their intention to be legally bound by the agreement. A brief illustration of intention to create legally bound suggests that courts presume that parties in a commercial contest always have an intention to be legally bound. From what is noticeable the parties had a written agreement, and some of the terms of the agreement were that Ego Architects would prepare the drawing, and Agro builders were to pay for the drawings in 3-stages.

After the offeree has accepted the offer, the law recognizes that both parties have formed their contract and they can start executing their obligations. As mentioned, the parties had written terms and obligations. Besides those terms, it’s a good point to know that there are both implied and express terms in a contract. So apart from the conditions expressed in the contract, Ego also had implied terms to create the drawings that conform to the Agro's instructions. So even if the contract was silent on such a term, an implied term applies despite that the parties did not mention those terms during the formation of a contract or not.[3] So in this case, there was an implied duty that Ego architect was supposed to produce drawings that matched the project.

Implied Terms

Consequently, the law of contracts allows the innocent party to suspend its obligations if the other party also fails to act according to the terms agreed. So in case one party breaches and the other one chooses to suspend its obligations, and the suspension of the obligation dismisses the entire contract.[4] This means that the written contract was suspended the moment Ego breached the contract, and Agro choose not to pay Ego. Another point to note here is that Agro had the right to reject the drawings immediately after approval, as far as no work that had commenced which would have suffered a future disapproval.

Markedly, it’s well clear that “Courts will not generally make the contract for the parties. It is for the parties to make their contract and they must express their agreement in a form that is sufficiently certain for the courts to be able to enforce it.”[5] So parties to a breached contract can choose at their will to get into another agreement, or opt to amend the already suspended contract. This is exactly what happened with Agro and Ego. If parties go back and decide to vary their contract, the new contract becomes as enforceable as the old one. To point out, this means that none of the parties can go back to the old terms since they no longer exist. So when Agro Builders and Ego Architect agreed to modify the contract, they were both bound by the new terms, and no one could go back to the old agreement. Another observable viewpoint in this agreement is acceptance by conduct. This happened when Agro Builders used the drawings. Its conducts showed that it accepted them and now it can’t go back to say that they drawings were defective.

The main issue here is a question on whether an oral contract can vary a written contract. The work of Bailey states that “When two or more parties enter into a written agreement, the presumption is that the agreement is a full expression of the parties’ respective rights and obligations unless it is shown not to be the case. Strong evidence will generally be required before oral terms will be found to be introduced into a written contract” [6]

Following that explanation, it is important to realize that the court sees more value in a written contract that it sees in an oral contract. Nevertheless, it’s also well clear that the court will not look away from an oral contract that carries all its elements. So for an oral contract to be admitted in modifying a written contract, the court must analyze the observable facts. Some of these facts are the conduct of the parties. The ruling in  RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH was a very clear indication of how conducts of the parties demonstrate whether they wanted the terms of the contract to prevail or not.[7] The Supreme Court concluded that as far as the parties had executed their obligations, that meant that they had accepted the terms of their contract despite that they had not signed it. To clarify, the court said that their conducts demonstrated that they treated the unsigned contract as though it was signed.

Suspension of Obligations

Apart from the conducts, the court may also seek to find whether there was the consent of the parties. This was held in Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd.  In this case, the Court of Appeal found that the parties had consented to oral modifications. Likewise, the court may also seek to find a misrepresentation or inducement. The case of Keane Telecom Consulting, Llc V. Manhattan Telecom Corp is an excellent illustration.[8] Where one party induces the other to oral amendments, the court stated that "Once a party to a written agreement has induced another's significant and substantial reliance upon an oral modification, the first party may be estopped from invoking the statute to bar proof of that oral modification.”[9] Similarly stated that;

“A party acting on reliance upon an assurances, representation, undertakings, or conduct of another party in relation to a contract, that promising party would be estopped from benefiting from such misrepresentation.[10]

Lastly, the court also looks at the partial performance. For example, the court entered a judgment in favor of Wagner when Udevco refused with the payment.[11]   This was merely because Wagner had relied on the express oral instructions of Udevco. Similarly, Agro should order the oral agreement since it is clear that it acted in line with the methods explained above.

Due to complexity of construction projects, they involve a series of documents. Byrne stated that construction disputes "involve consideration of an enormous number of documents and due to the availability of modern computerized techniques for document management means that there is now no incentive to limit the number of these documents deployed at trial”.[12]

Even though that these documents are part and parcel of a construction project, sometimes they include discrepancies when each document stipulate different terms over one matter. Luckily, there’s an effective technique that construction professionals employ in solving these problems. The most common technique is including a clause to handle inconsistency with the hierarchy of documents. To clarify, parties to a construction may agree to include a clause stating that if there were any disagreement with the documents, the contract document would enumerate the entire hierarchy of documents.[13]

Another method that has been applied for long has been the use of common law or arranging the documents in a layout that signify their significance.  In common law application, that law will in most cases call the parties to refer to the documents by applying a reasonable man's perspective.[14] It may also call the parties to reach out to analyze the ambiguities.[15] Also, the law may invite the parties to solve the conflict by referring to the consideration of the contract as a whole.[16] Lastly, the law may suggest a dismissal of the clauses causing the confusion.[17]

Modification of a Written Contract by a Subsequent Oral Agreement

In the case of a layout according to the importance, most projects will generally have the layout starting with the agreement, specification document, the drawings, and lastly, they can have the bills of quantities or scheduled rates.[18]

Stamping specifications and other authority in construction come as the responsibility of the engineer or architect. Normally, a standard construction project involves the owner, engineer/architect, contractor, and the subcontractor. Among these people, the engineering position is the most critical to the entire construction. Any failure in this area would probably lead to a weak construction output.

Even though that it may seem like the architect’s has a lot of duties, the only requirement from that sector is just to perform with diligence and avoidance of negligence. Denning LJ summarized the tasks of the architect as;

“The law does not usually imply a warranty that [the professional man] will achieve the desired result, but only a term that he will use reasonable care and skill. The surgeon does not warrant that he will cure the patient. Nor does the solicitor warrant that he will win the case.”[19]

The most valuable thing to note is that the architect does have both implied and express obligations in a contract. In concern for approving specifications, the architect exercises its supervising authority by allowing the use of those specifications. However, this also relieves the engineer the power to disapprove the specification during the future performance of the constructions contract.[20]

Also stamping documents implies acceptance of obligation. The Architect/Engineer was held liable for breach of implied warranty because it had fixed its seal to the consultant's drawings.[21]  At other instances, the engineer has the duty to inform the owner of contractor’s mistakes.[22] Generally, after sealing the documents, it’s usually held that architects accepts both responsibilities and liabilities in case it happens that the specifications were defective.[23]

Sometimes it’s normal for variations and amendments to occur due to natural causes, but there are other times that these changes or modifications occur due to mistakes that would have been easier to evade. For example, the construction team can avoid errors that come as a result of the failure of the contract documents to cover every detail of the construction. This mistake can be avoided by correctly analyzing the project without generalization, and conducting a site visit before finalizing the contract.

At other times, amendments may come if the construction team fails to note or take seriously the mistakes that were with the drawings or missing data in the specifications. The team can avoid these errors by having their engineer ask another qualified engineer to review the specifications or the drawings. By the same token, concentrating on one project specification at a time and avoiding the double marking of different project's specifications can reduce the errors that may occur due to mismarking.

Legal Principles Applicable and the Hierarchy of Contract Documentation

Additionally, due to tendering process, the tenderer may quote a low price with the intention of raising the price after winning the tender. This may also bring amendments at one point. To avoid this problem, the tenderer can provide a reasonable budget that sufficiently covers the project, and they can try to explain themselves during the tender evaluation process. Lastly, the manager or the engineer can also adopt the use of carefully prepared and coordinated front-end documents to limit variations.[24]

Some of the disputes in a construction project arise from technical matters, and they differ depending on their complexity or subject matter. Where the parties are cooperative, tt's easier to solve uncomplicated technical disputes by using preventive ADR methods which are negotiation and mediation. These methods are applied immediately after the rise of the dispute, and parties resolve their differences in good faith.

Other methods of ADR that they can use are conciliation, arbitration, and expert determination. These methods are most common in issues of technical matters. The parties call a third party who helps the parties in assessing the differences and also actively aids them in reaching an agreement. In arbitration, the third party attends both sides and determines the case giving an enforceable judgment.

In a broader look, expert determination is dispute resolution process where the disputing parties bring in a third party with expertise in a particular field to help them settle the problem.[25] In the critical issues of technical matters, the disputing parties use an expert determination.  The main work of an Expert is to assess the quality of work delivered, determines other facts, and evaluates the legal issue.[26] Also in relation to dispute resolutions and use of experts, most of the construction contracts include a clause stating that the parties would first use an expert determination for their disputes before seeking other resorts.[27]

Construction cases are special in their nature, and unlike other court claims; construction claims involve a significant use of evidence. When a construction dispute goes for a trial, the court would first need to see how the dispute developed. By this, the court starts assessing the evidence from the time when there was no dispute. This means without enough written evidence, the court may be held up in tackling a construction claim. More importantly, it’s good to know that courts do not just accept any paper as a shred of evidence. There must be rules for admissibility of written document.

One of the rules is that for a document to bring evidence on construction disputed, it's critical that the document qualifies that it was written during the construction hours. Also, a claim should have a diary that was also written during same working hours. The next principle concerning the use of documents is that those providing evidence on the construction site should be made at the site. Additionally, it is also recommended that the persons who prepared the documents should appear as witnesses so that they can give their oral testimony. Lastly, the court would require that the information in the document to have come from a credible source.

To sum it up, a successful case between Agro and Ego would require a set of documents. For one, Agro as the complaining party would have to bring the contract document showing all the terms that were agreed during the formation of the contract.  The second thing that can add weight to the case is the diary of the work reports. The diary should clearly show the name of the persons and the time those persons attended or visited the site. In addition, it should also show the progress of the work.

Telephone recordings are also important, and so they should be part of the information submitted to the court. That is mainly because they give very good evidence on the matters deliberated by the parties as the work progressed. Notably, these recordings should be reduced into a note bearing the names of the callers and the subject of the topics discussed. Besides, the parties should bring the copies of submittals and the date they were submitted if they were not submitted on the same day.

A report of tests taken in the site should also form a part of the documents. The report should include the reason for the test, the results and the structure if the there were installation of test materials.

Courts assess  expert witness basing the assessment on two main elements; "it must be agreed or demonstrated that there is a field of “specialized knowledge”; there must be an identified aspect of that field in which the witness demonstrates that by reason of specified training, study or experience, the witness has become an expert.”[28] The other one is that “the opinion which is given must be “wholly or substantially based on the witness’s expert knowledge”[29] There are lots of issues affiliated with expert witnesses. These issues were summarized as

“There are, however, some signifi cant disadvantages to relying solely on the dual fact witness/expert witness to present expert opinion testimony at arbitration or trial. The expert ’ s involvement in the project may rise to such a level that the expert develops a “ personal stake ” in the facts in dispute, compromising that person ’ s credibility as the expert shifts from neutral observer to active and adversarial participant. The dual role of such an expert as both fact witness and expert witness also raises some difficulties for the attorney in discovery and at trial under the Federal Rules of Evidence. These concerns include the potential loss of the attorney - client privilege and work product protections over communications and information shared between the attorney and the expert. These risks can be weighed only on a case - by - case basis.”[30]

The Building and Construction Industry Security of Payment Act 2002 (Vic) gives the claimant a right to progress payment to claim the unpaid to amount that the respondent was supposed to pay.[31] Making a successful claim would require the claimant to follow the procedure stipulated in the act strictly. As an illustration, the law requires that the claim;

"Must be in the relevant prescribed form, must contain the prescribed information, and must identify the construction work or related goods and services to which the progress payment relates. Also, the claim must indicate the amount of the progress payment that the claimant claims to be due and it must state that it is made under this Act.”[32] In other words, a payment claim must hold all sufficient information that will help the respondent to understand the source of the claim.


Construction disputes are normal, but what matters is how the parties handle such conflicts. Some of them are simple, but when overlooked, they may become to be complex disputes that can end up in a trial. Therefore, it is necessary that parties should try and solve disputes as soon as they rise using the either negotiation or mediation. Also, adherence to the terms stipulated in the contract and acting in good faith are a key to a successful construction project. Altogether, this paper has examined at the formation of a construction contract, and different ways that can be used to resolve construction disputes.

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Adelaide City Corp v Altermann (1987) 46 SASR 186

Westpac Banking Corp v Tanzone Pty Ltd [2000] 9 BPR 17, 521

Greaves & Co (Contractors) Ltd v Baynham Meikle & Partners [1975] 1 WLR 1095

Tomlinson v Ashland County (1919) 173 NW 300, 170 Wis 58.

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Kerry, Inc. v. Angus Young Assocs., Inc., (Wis. Ct. App. 2005) 694 N.W.2d 407

Ambassador Baptist Church v. Seabreeze Heating & Cooling Co., (Mich. Ct. App. 1970) 184 N.W.2d 568

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