Do Construction Contracts Require Consideration?
The contract laws of the United States have certain requirements in order for contracts to be valid. For example, the statute of frauds requires that certain contracts be in writing. Each state has its own requirements, but most states generally require that contracts involving marriage, land, estates/executors, goods for $500 or more, surety, and contracts for more than one year be in writing. For example, a construction contract may be required to be in writing if it takes more than one year to complete.
While the writing requirement is not applicable to all contracts, they all must have consideration. Consideration is basically defined as the value bargained for by the parties to the contract. While courts will not usually invalidate or reform a contract just because one of the parties made a bad bargain, they will make sure each party bargained for something of value. The consideration doesn't have to be equally beneficial for each party, but it does have to be an exchange for the current bargain, meaning that past consideration is not valid. Like all contracts, construction contracts require consideration in order to be legally enforceable.
Examples of Consideration
A promise that is made without the expectation of anything in return is known as a gratuitous promise. Such a promise is not generally enforceable because there is no consideration. The law can be complicated for most people to understand, so often times it's helpful to see some examples of how the law operates. Below are some examples of how the concept of consideration works in the context of construction contracts.
Example 1: I agree to pay you $2,300 to paint my house. My agreement to pay you $2,300 is the consideration (what I give up to get what you promised) that makes this contract enforceable.
Example 2: I promise to seal your driveway the next time I seal mine; you don't agree to do anything for me in return. My promise to seal your driveway is unenforceable because you haven't provided me any consideration.
Example 3: A general contractor agreed to buy a trash disposal system from a subcontractor. Relying on the subcontractor's bid, the general contractor was awarded the contract. After the award, the subcontractor demanded a higher price, which the general contractor agreed to pay. In this situation, the court found that the agreement to pay the higher amount was unenforceable because there was no consideration for the new agreement.
As you can see from the examples above, consideration can be anything from money to an agreement to take – or not take – a particular course of action in return. In the construction context, consideration may be an issue when a prime contractor is forced by a supplier to pay more than the existing contract amount with the supplier for a given item.
Getting Legal Help
If you have questions or concerns about a construction contract your small business is entering into or drafting, it's in your best interest to consult with a local business and commercial attorney before signing the contract.
You can visit FindLaw's Business Contracts and Forms section for more information and resources related to this topic.
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