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Ask anyone who has several years of experience in construction if they ever engaged in a handshake deal and the answer will be a resounding “yes.” For those unfamiliar with the term, a handshake deal is essentially a verbal commitment that is sealed with a handshake between the contracting parties. Handshake deals were not just limited to transactions between a contractor and an individual. It was, and sometimes still is, common for businesses to engage in sophisticated deals with a simple handshake between business owners. The moment the parties shook hands, reputations were at stake and promises were meant to be kept. While the handshake did not obviate the need for documentation, the value of the handshake was understood to be the cornerstone of what the parties intended to occur for a construction project.

December 16, 2013
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Topics Contracts

Most contract negotiations boil down to several key terms.  For construction contractors, these are five critical items that you need to carefully consider and negotiate in each of your agreements.

I.  What is the Scope?

The starting place of a construction contract is the work to be performed.  Remarkably, this is often poorly or inconsistently defined.  Contractors should strive for a clear definition of what are the “contract documents” and what portion of the work is the responsibility of that contractor.

Stretch ArmstrongThose wishing to stretch indemnity clauses to the limit may want to read the recent Supreme Court of Virginia case, Uniwest Construction v. Amtech Elevator Services.  This case, in addition to a recent indemnification case from the 4th Circuit, demonstrate that there are some real risks to demanding excessive indemnity obligations in a contract.  You may actually wind up with nothing if you go too far.

Last month, we looked at Station #2, where the Virginia Supreme Court refused to turn a breach of contract allegations into a fraud claim. Contrast that with Nathan, et al. v. Long & Foster, Real Estate, Inc., et al., in which the Circuit Court for the City of Roanoke has allowed a fraud in the inducement claim to go forward.

Geeta Nathan and Santam Singh were looking to buy a home in Roanoke, and worked with Barbara Michelsen, a Long & Foster real estate agent. They signed a Purchase Agreement to buy a home for $260,000, and the agreement listed Michelsen as the selling agent.

The Virginia Supreme Court recently gave us yet another example of a breach of contract case that couldn’t rise to a fraud in the inducement claim in Station #2, LLC v. Lynch, et al., Record No. 091410.

In Station #2, the Lynches owned a three-story building in the City of Roanoke. They sold the top two floors to 237 Granby LLC in order to convert the floors to condos. The Lynches then leased the ground floor to Station #2 so it could operate a restaurant with live music and other entertainment. The lease between the Lynches and Station #2 required Station #2 to install soundproofing material in the void space between Station #2’s ceiling and the lower level of 237 Granby’s condos. 237 Granby’s agent agreed to allow Station #2 access to the void space, but the company hired by the agent to renovate and develop the condos closed off the void space before Station #2 could soundproof.

In the recent case of TC MidAtlantic Development, Inc. v. Commonwealth of Virginia, Record No. 091271, the Virginia Supreme Court was faced with the issue of properly pleading compliance with conditions precedent in a public contract. Despite the tongue-twisting nature of this issue, the crux of the case came down to simple timing.

Here is a new sampling of cases in which the Virginia Supreme Court has recently granted appeals.

In April, the Court granted the petition for appeal in Studio Center Corporation v. WKW Construction, LLC, Record No. 092257, challenging the ruling of Judge Shockley from the Circuit Court of the City of Virginia Beach. Studio Center is contesting Judge Shockley’s holding that Virginia Code Section 54.1-1115(C) applied when the unlicensed contractor admitted it knew Virginia law required a license, but did not realize that it could not use someone else’s license. This case should give us some much needed guidance on Section 54.1-1115(C)’s requirement of “good faith” and “actual knowledge.”

shredded paper binsTypically, Virginia courts will simply review and apply the terms of contracts.  This is great if you have a good contract, horrible if the contract tilts towards your opponent.  In contrast to the general rule, Virginia courts are quite hostile to non-compete agreements and are more than willing to throw them completely out when the clauses go overly broad.

Another recent example was highlighted yesterday in The VLW Blog.  The case, Specialty Marketing v. Brunson, involved Specialty, a wholesale distributor of electronics.  Brunson was a sales representative.  When he became a director and purchased stock in the company, Brunson signed a non-compete.  Brunson left Specialty's employment and was hired six months later to act as an account representative for a competitor in his old territory. 

Virginia General AssemblyThe Virginia General Assembly passed a statute, HB 797, that expressly permits architects and engineers to enter into contractual limitation of liability clauses.  The ACEC, VSPE, and VSAIA actively pushed to change the statute in the wake of several cases which ruled that previous language in the corporate enabling statute barred limitation of liability clauses for design professionals.  As can be sen from the bill tracking, the measure passed fairly easily in both the House and the Senate.

NewspaperThere are a number of important construction law and economic developments that I want to pass along to our readers.  Given timing and the plethora of topics to address, I wanted to share these developments in a more rapid fire format so these updates remained timely.