CE-332 CONSTRUCTION ENGINEERING AND MANAGEMENTCHP 2 - PROJECT PARTICIPANTS

LECTURER : ASSOC. PROF. DR. AHMET ZTA

UNIVERSITY OF GAZANTEPDEPARTMENT OF CIVIL ENGINEERINGLecture 2

*CHP2-PROJECT PARTICIPANTSIntroductionOwnersDesign Professionals (Architects, Engineers)Construction Professionals(Contractors, Specialty contractors, Trades, Material and Equipment Suppliers) Other ParticipantsOrganization of CompaniesConclusion

*Learning ObjectivesIn this chapter you will learn the following:The roles and responsibilities of key construction participants.The division of labor within a designer and construction organizations.The common categories of construction labor.Professional registration and certification.

*INTRODUCTION-1The product of a construction project can exist for hundreds of years.Idea - graphic form - finished product.Idea defined by owner,Developed by designer, (graphic form)Produced by contractor(This process defines the construction project)

We will discuss the roles of owner, designer, and constructor as separate and distinct.

* Who fills the rolesHow they relate to each other?These are determined by many factorsTimeMoneyProject uniquenessCultural environmentINTRODUCTION-2

* At first glance, roles are simple to define;Owner is one with a deep pocketsDesigner is the expertConstructor is the guy with pickup truck and backhoeA closer look, reveals complex and interesting realityOwner:Large organizations,Designers:Depends on manufacturers, suppliers and buildersConstructer: professionals with advanced technical degrees INTRODUCTION-3

PARTIES TO A PROJECT:OWNERDESIGNERCONSTRUCTORSOCIETY AT LARGEWhat are the various obligations and privileges of the Parties? How do they relate to one another?Wow! Thats pretty complex. Are all those links present? No. But thats our topic for next slayt . . .

*OWNERS-1Owners can be;Individuals .. Seeking a home for their growing family,Organizations.. Responding to change in technology,Municipality.. Seeking to improve its infrastructure, orDeveloper.. Working to make money by filling a perceived market need.Motivation to build is as varied like individuals & companies.Whatever the motivation, owner is where the project is born.His function: financially back the project, otherwise no project

Source of financing defines the type of ownerPublic ownersPrivate ownersOther representations

*Public ownersMoney can be from local or state, but owner is taxpayer.Some of these projects are done through public agencies that commission the construction.Department of transportationState public worksDSIBecause these agencies represent the public, they must follow specific methods of managing the projects.Public approval process have to be figured out into any schedule and budget.How designer and constructor are selected is spelled out.Some projects are managed by private organizations.

*Private ownersThis category includes

Homeowner .. who builds only one house in a lifetime

Multinational company .. that owns numerous facilities

Developer .. Special type of private owner who often owns the project only for the duration of project. His goal is to make money through quick sale or long-term rental.

*Owner representation-1Because owner can be any individual or organization, that takes on a construction project, t is difficult to find a common profile.

Facility managers: most common professional owner representative. They are found most often in large organizations and institutions. Like schools, universities, hospitals. Their job is to understand the goals and objectives of their organization and ensure that facilities are planned to support them.Outside Consultants: Organizations without large in-house departments often hire consultants.Building committee: Consists of users, financial backers, and sometimes community residents.In all cases, owners are primarily concerned about their needs and their money.

*Owner representation-2Owners represent a specific interest during the project's life. While designers focus on functionality, aesthetics and innovative use of materials, owners are additionally concerned about durability of design, storage and availability of materials, simplicity of operation, and ease of maintenance. While constructors concerned with maintaining schedule and budget through efficient methods of assembly and improved management techniques, owners are additionally concerned about a turnover process that ensures complete understanding of all systems in project and a smooth start-up transition.These diverging interests forge a creative tension that pushes all team members to incorporate the interest of others.

*DESIGN PROFESSIONALSPrinciple designers: Architects and Engineers.

On Building and Residential sector projects - Architects are lead designer, laying out the concept on paper with owner.- Engineer brought in after basic concept is worked out but before details are developed.On Infrastructure and Industrial sector projects - Engineer is lead designer.- Architect is brought in to work on the aesthetics.

Example: A refinery project. Engineer designs mechanical, electrical and structural systems. Architect handles office spaces and building color schemes.

*DESIGN PROFESSIONALSEach professional contributes to projects in different ways.

For architects:Physical context guiding featureActivities that will occur in buildingCreating a unique image

Very good architecture responds to all 3 aspects. process is intuitive and subjective.

For Engineers:Tackle a challenge objectively, Break it down to identifiable components and a series of questions to be answered. Important issue for them is functional aspect of work.Example: Channel Tunnel project image was less important than safe, efficient boring of many miles of tunnel, removal of spoil, insertion of tunnel liner.

*DESIGN PROFESSIONALSWho will be lead designer? Depends on project nature.

An architect may be asked to capture a corporation's image within the form of a new headquarters building that provides convenient access for vehicles and a welcoming entrance for pedestrians.An engineer may be asked to replace and widen an existing five km interstate highway through a dense urban environment without adversely affecting the city's operations.Both designers must think mechanically, technically, and creatively, but the architect works in artistic realm while engineer works in the technical realm.

ArchitectsEngineers DraftersStructural EngineersSpecification writersMechanical EngineersInterior designersElectrical Engineers Landscape architectsCivil Engineers Surveyors

*ArchitectsArchitects are stars of building industry.First people to hear owners talk about their needs.Meet occupantsDefine budget and scheduleInfluence choice of contractorInfluence choice of delivery methodResponsibility: to translate and develop an owner's requirements and graphically represent them.To choose appropriate systems and materials (need skill & expertise) & formulate a design that is mathematically proportioned and aesthetically pleasing (talent).Drafters, Specification writers, Interior designers & Landscape architects

*EngineersEngineers work within large A/E firms, but most often they are independent consultants.Responsibility: varied depending on their discipline, but in all cases they must understand an owner requirements: budget, operations, durability and Intended use of space.Tasks:Choose structural supportSpecifying large equipment (e.g. air-handler)Lay out necessary distribution (e.g. electrical conduit, piping system)Specify and locate the termination devices (e.g. radiation units, electrical outlet).

*EngineersCivil Engineers: Determine project location on a site by studying the subsurface soil conditions and the topography of the land.Design roads, bridges, tunnels, parking lots, storm water drainage, and sewage treatment plants.Structural Engineers:Calculate strengths and deflections, foundation sizes, beam thickness, and strength of floor slabs.Ensure that a building can withstand the forces of wind, gravity and seismic activity.SurveyorsMechanical EngineersElectrical Engineers

*ConstructorsEstimatorsSchedulersPurchasing agentsSpecialty ConstructorsThe Trades (pile-drivers, ironworkers, cement masons, sheet-metal workers, plasterers, plumbers, pipe-fitters, electricians, bricklayers, glaziers, roofers, carpenters)Material SuppliersEquipment suppliersOthersConstruction Professionals

*ConstructorsConstructor is a general term used to define the professional responsible for all construction activities whether he works as a general contractor, or a construction manager. Constructor has changed in terms of type and training of personnel.In past, company executives rose through industry`s ranks, often starting as a carpenter or laborer.Today, company heads are graduates from universities.This trend is also working its way into field management of jobs.Many project managers have been trained in construction management programs, and superintendents may be recruited directly from civil engineering programs.

*EstimatorsEstimators are pivotal to any construction company; jobs are won and lost by their efforts.Work with design drawings and prepare a complete list of job costs.Need to understand construction process.Be detail-oriented and well organizedHave knowledge of costs for labor, materials, equipment.Estimating is a computerized activity.Estimators may come from variety of backgrounds and learn on the job, many start out as engineers, constructors, or designers.

*SchedulersScheduler work between the home office and the field office.Need to understand construction process, Need to define distinct construction activities, Need to understand relationships among activities,Need a strong background in construction but they learn actual skill on the job.Successful schedulers monitor job progress, coordinate subcontractors, analyze changes and the impact of delays, and solve problems.

*Purchasing agentsPA buy subcontracts once a job is won.Negotiates to get best price while ensuring that all contract requirements are met. To successfully negotiate with subs;PA must understand building materials, prices, and construction process,Have broad business sense,Be persuasive.

*Speciality contractorsGenerally known as subcontractors.

It includes mechanical, electrical, excavation, and demolition contractors.

They are usually hired by and work for directly for a general contractor.

Supply most of the material and labor on the job.

*TradesFrom the time first pencil is laid to paper in the design process to the completion of shop drawings and coordination drawings, the goal is instruct the people who actually perform the work in the field: the trades peopleTrades form the core of industry- a constant throughout its history. Pile drivers,Ironworkers,Cement masons,Sheet metal workers,Plasterers, Plumbers and Pipe fitters, Electricians, Bricklayers, Glaziers, Roofers, Carpenters

*Material suppliersA project may have talented designers, innovative constructors, and wealthy, sophisticated owners; but without materials to build with, the project would be only a dream.Materials and building components are manufactured, fabricated, and installed by suppliers. A user`s choice of materials is based in part on performance, durability, and aesthetic appeal.Without supplier`s help;Architects and engineers can not specify which material to use,Constructors can not decide which method of material assembly.

*Equipment suppliersDepending on the project, equipment can play a very big role in construction.Highway jobs, large excavations, bridges, tunnels, and tall buildings all rely heavily on the use of equipment to carry out the work.Suppliers offer it for sale or rent.Rental arrangement can vary on points concerningWho maintains the equipmentWhether it comes with an operator.

What is the difference between material and equipment?Equipment does not become part of the project at the end.

*Other participantsFinancial institutions; sometimes government agencies.Public agencies zoning boards, planning boards, historical commissions, building code officials.Insurance companiesProperty insurance to owners,Liability insurance to designers,Bonding insurance to constructorsLawyers

*The roles of design and construction firms are certainly different; but because both are project-based, they have similarities in their organization.Both are internally organized to support technical people such as marketing managers, accountants, information systems, technical supports, and human resource personnel.For example, marketing manager: His principal job is to generate business, establishing the proper mix of work among the company`s different specialties. At the project level, the profile of company roles varies to some degree. Both company hire outside help.Designers: hire consultantsContractors: hire subcontractors or specialty contractors.Organization of Companies-1

*Organization of Companies-2To manage in-house resources and outsourced specialties, each firm organizes its project teams a little differently.Common staff positions in design companies:Project managerClerk of works,Job captainCommon staff positions in construction companies:Construction project managerSuperintendentField engineer

*Design company organizationProject manager: Owner`s primary contact, responsible for scheduling in-house work, and identifying necessary staffing levels for both in-house personnel and outside consultants. He also helps the owner get bids from contractors and negotiate the construction contract. Clerk of the works: Enforce the terms of contract; interpret the plans and specs.Job captain: organizes drawings, manages personnel, communicate with engineers and other consultants, and details schematic designs.

*Construction company organizationConstruction Project manager: Configure project team, schedule the job, and set up a cost-control system. If there are changes, this person negotiate the cost with various parties. Superintendent: Interact with specialty subcontractors, coordinating the flow of workers, supplies, and equipment. He also prioritize work and negotiate disputes between trades.Field engineer: Handle various documents that flow through a field office, follow up an owner requests and communicate with tenants.

*ConclusionThe people in construction cover a wide range of skills & experience.From apprentice carpenters to company executives, one thing that they share is their passion for built environment.The building industry is tough one; risks are high working conditions are often harsh, conflicts arise because of financial pressures, and safety is always a concern.Interactions can determine project success. Thus, it is important to understand who these people are and what their motivation will be.The industry is changing. No longer are the roles of individuals distinct and understood by all participants.Owners can have large in-house design and construction groups. Designers and constructors can come together to offer services under one company heading. Both can act as owner representative.

*Homework-1Identify a new project that has been constructed in your area.Who was the lead design firm? Identify the key subconsultants/designers hired by this firm.Identify the training and/or registration of the key designers that were used on the project2.Visit a job site and identify the trades that are presently working there. Write up a description of work for each trade. Is the job union or nonunion?Write a short report for below questions and submit by 06 March 2009 to Res. Assist. Kasm Mermerda.

Next Chapter

Chapter 3 - Project Delivery Methods

CE-332 CONSTRUCTION ENGINEERING AND MANAGEMENTCHP 4 - PROJECT CHRONOLOGY

LECTURER : ASSOC. PROF. DR. AHMET ZTA

UNIVERSITY OF GAZANTEPDEPARTMENT OF CIVIL ENGINEERINGLecture 4

* / 27CHP4-PROJECT CHRONOLOGYIntroductionProject initiationFeasibility analysisFinancingDesign of projectProcurementConstructionTurnover and startupOperation of facilityDisposal of facilityConclusion

* / 27Learning ObjectivesIn this chapter you will learn the following:The principal tasks in life cycle of a projectWhat information must be gathered and investigated to successfully initiate a project.The principal phases in project design.What must be done to move from construction to operation.

* / 27Introduction-1Life of a facility goes through many phases. It starts with an idea.Idea combined with money --- project is born.Project is developed as drawings and specifications.Then, it is built.When completed, turned over to owner, and occupied, maintained, repaired and eventually dies.At some point in lifetime a facility is likely to be renovated, either to renew obsolete systems or change its use.

Figure 4.1 shows a design/build/use/dispose scenario for a shopping mall.

* / 27Life cycle of a shopping mall:Feasibility analysis; investigate the economics of the mallDesign; produce biddable contract documentsProcurement; builder selection, material order Construction; mall physically constructedTurnover; transition from construction to operationOperation; business is conducted Introduction-2

Sequence of a Project:CONCEPT APPRAISALCONCEPT DEVELOPMENTDESIGN AND DOCUMENTATIONCONSTRUCTIONCOMMISSIONINGFeasibility study.Concept estimate of cost and timingProgressive refinement of cost and timing in relation to the projects objectives.Progressive and continuous control of cost and timingoption to abandonoption to abandonoption to abandonWho are the main Parties to a project? . . .

* / 27Project initiation-1All construction activity is the result of basic economic demand. Individuals needs homes, roads, stores, shelter, etc.Specific construction projects arise because corporations or government bodies recognize the need --- serve this demand and act to create them. Construction activity tends to foster further construction activity.Recognizing needs is first step, but there must be a way to move from recognition to reality. Answer lies in economic structure of the country.

* / 27Project initiation-2Demographic and market analysis are used to forecast future growth areas in the country.

Opportunities, once identified, are financed and then projects initiated.

As businesses increase, population grow to work in them. Because these people must travel to work, roads and other transportation modes become necessary.

* / 27Feasibility analysis-1Before deciding to invest in a specific area, an investor wants to be sure on an adequate return. Therefore before any commitment, an analysis is performed to examine the proposed investment from several standpoints.

These are shown on figure;Market demand,Cost of construction,Cost of money,Timing of project,

* / 27Project initiationCost of money

Schedule

Budget

Market demand

Revise program or cancel projectProceed?

Design

Feasibility analysis-2

* / 27Feasibility analysis-3During the early analysis stage, owner consults

Architects who provide early design advice, andConstruction professionals, who offer cost and constructability advice.

Example:

* / 27FinancingIf project gets past the first hurdle of profitability for the investor, owner must arrange financial backing for some of the work. Some of it provide himself.Commonly, initial investor acquires outside funds to supplement his or her own.Barrow from banksBarrow from insurance companyInvite outside investors to share in future profits.Example: A corporation wishing to build a factory could barrow from a bank or sell additional stocks or bonds.Whatever the source of additional funds, other individuals or firms decide to lend or invest funds based on their own expectation of return on investment.

* / 27Design of projectIf owner decide to proceed, hires a design professional. If he elects to proceed using a construction management mode, he chooses a construction professional, Who provides cost, schedule, and construction advice throughout the design process.Design is divided into 4 stages.Programming,Schematic design,Design development,Construction documents.

* / 27Programming-1A program is a written statement of the requirements of the building. It is the basis of design.Program describes Spaces needed, Services required in those spaces, andRelationships of functions to be performed in the building.Written by owner or user of building, by architect, or by a professional hired.

* / 27The nature of the programming process depends on two things:The sophistication of the owner; Owners vary considerably in their degree of understanding about building process and it affects program.The complexity of the proposed facility;The complexity of the project itself can determine how the programming needs to be accomplished.Using these information owner proceed or cancelProgramming-2

* / 27When programming is complete, the owner has information about:

The needed size of the project in relation to the requirements of the usersThe mechanical, electrical and plumbing systemsVertical and horizontal circulationPublic areasProgramming-3

* / 27Once the program is complete and the owner has decided to proceed, the designer begins actual design of the project. The process begins with the schematic design-the stage in which the designer defines the buildings characteristics in a number of ways.Before schematic design begins;The owner selects a site for the buildingSite investigations done by the owner give the designer information about soil conditions and makeup that in large part determine the type of foundation and structure possible for the particular site

Schematic design-1

* / 27The architect develops preliminary floor plans that reflect the relationships of the various functional areas to one other Sitting and location of the building are determined as well as its visual form.When the schematic design is complete, the owner is again faced with the decision to proceed further or to cancel the project. At this time, all information developed to date-market information, financing costs, construction costs and design-are factored into the decision. Schematic design-2

* / 27When project team enters design development, it pursues a single design concept.The purpose of this stage is to refine the design and obtain detailed information from the users about their requirements.During this phase owner, designer and construction professional finalize the design of major building systems.For example structural, plumbing, elevator, roofing, mechanical, exterior faade, electrical.Design development

* / 27Architect creates final working construction documents used to bid the job for construction and to build the job in the field. Documents including specifications and drawings, Should meet program criteria, programmingReflect the design .. schematic design, andRefine all detailed work, design developmentConstruction documents

* / 27ProcurementProcurement: overall process of finding and purchasing the materials called for in the contract and hiring the best subcontractors to build the project. Construction documents must be accurate and must clearly communicate to the bidders.First task --- hire many subcontractorsIn traditional system owner (with help of architect) requests bids from a list of qualified contractors.In CM system project documents are divided into bid packages. owner (with help of architect and CM) evaluate requested bids.Sometimes owner purchase equipment or materials before a contractor hired. Such material is known long-lead items.

* / 27ConstructionOnce procurement process completed, construction can beginMain element: task of managing and coordinating the field operations. This means;Scheduling crews in proper sequence,Choosing most efficient and safe construction techniques and methodsDirecting the production process.To accomplish this task, construction professional must order correct material,ensure adequate supply of necessary tools & equipment,monitor schedule, cost, and quality.A parallel task is contract administration.

* / 27Turnover and start-upAfter construction completed, project must be turned over to owner for use during the rest of its economic life.Turn over involves complicated technical issues and problemsFor example: testing of pipingTurnover is also a legal process, involves various legal certification, such as certification of occupancy, and certificate of substantial completion. The process is long and tedious.Document includes insurance certificates, inspection reports,completed change orders.

* / 27Operation of facilityThis phase is the responsibility of owner or tenant of building.In this, building is put to the use for which it was intended.The period can last for many years before a major renovation is necessary.

This phase is also the period of greatest expenditure on the project total operating cost are higher.

More money will be invested up front, but the payback can be realized in the operating costs of the facilityFacility owners and managers usually need advice about the best model to use in making decisions during the planning stages of the project

* / 27Disposal of facilityAt the end of its useful life, a project or a facility may meet any one of a number of fates.

It may be closed down or simply abandoned.

It may be disassembled or removed.

It may also be renovated or overhauled

* / 27CONCLUSION People are involved in the life cycle of a building.Who analyze the need for the facility and decideProject enters the design/build phaseArchitects are hired to design Construction professionals are hired to carry out the actual assembly All parties need to work in harmony

Next ChapterChapter 5Construction Services during design

*Chapter 7: Basic Contract LawDavid Baumer, Spring 2003

*Contract LawContracts evolved from the common lawEach state has its own common law precedentsDissatisfaction with differences across state led to the Uniform Commercial Code (UCC)UCC has been adopted by all 50 states and will be discussed next chapterCurrently we are dealing with another watershed event: E-commerceLawyers and legislators are scrambling to provide a universally accepted contract law of E-commerce

*Contract LawA contract is:A promise or set of promises, the breach of which the courts will provide a remedy forWhen the two parties agree to a contract, it creates a legally recognized duty to performNot all agreements are recognized as legally bindingA promise to make a gift is not binding

*Elements of a ContractValid contracts possess the following:An agreement between the parties: an offer and acceptanceConsideration--each party must do something that they were not previously obligated to doBoth parties have capacity to contractFormation and performance of the contract are legal and not against public policy

*Contractual NomenclatureValid, void, voidable and unenforceableA valid contract is one recognized as binding in lawA void contract is not recognized at all such as a gambling contractIn a voidable contract one of the parties can not perform without liability--a victim of fraudA contract is unenforceable if there are no legally enforceable remedies--an oral real estate agreementIn a bilateral contract, both parties exchange promisesIn a unilateral contract a promise is made for performance--e.g., reward contracts

*Types of ContractsExecutory and executedA executory promise is a promise for future performanceIf the contract has been executed, both parties have performedExpress and ImpliedAn express contract can be written or oralIn an express contract the duties of the parties are clearly elucidatedAn implied contract is implied by conductAfter receiving treatment from a doctor, you will be asked to make arrangements for payment

*Quasi ContractsThe plaintiff is suing for quantum meruit (the fair market value of her services)The plaintiff performed valuable servicesThe defendant knowingly received these servicesThe plaintiff expected to get paid if the services were used by the def.The def. was unjustly enrichedQuasi contract has been used by writers who claim movies were made based on ideas they told directors-Coming to AmericaQuasi contract is sometimes used by small firms to try to salvage an inadvertent or bungled knowledge transfer to a larger firm

*Elements of a ContractAgreementOffer and AcceptanceThe offeror must have intent to make an offerIntent is judged under an objective standard--What would a reasonable person believe under the circumstances?Most advertisements are an invitation to bargain as are items submitted for auctionIf the offer is very specific, then maybe it will be termed an offerMany advertisements made on the Internet are offersCustomers can make an immediate contract

*Offer and AcceptanceThe terms of the offer must be clear and definiteUnder the common law of contracts, at a minimum the offer must contain Price, Quantity, the Parties and the Subject Matter of the contract.Must contain all material termsThe offer must be communicated to the offereeand the offeree knows of the offer before performingIf an offer is made to the offeree, a third party cannot accept the offerOffers can be directed to classes of offerees

*AcceptanceJust like an offer, the acceptance must have:Intent to be bound by the offereeAgain judged by objective standardIn general, silence is not deemed an acceptance unless the parties had prior dealingsAcceptance must be complete and unconditionalAn acceptance that contains conditions or additional terms is a counteroffer and thus a rejection of the offerAcceptance must be communicated to the offerorOfferee should use the same medium used by the offeror to make the offer if nothing is said in the offer

*AcceptanceAn acceptance must be timelyIf the offeror accepts in the manner invited by the offer or uses the same medium if there is no specified methodThe acceptance is effective upon dispatch by the offerorMailbox rule has been made irrelevant generally by faxes and E-commerce

*Termination of an offerThe offeror can revoke the offer at any time (with some limited exceptions)Thus an offeror can make an offer that is good for 10 days and then revoke it after 5 daysRevocations must be communicated to the offereeOffers and revocations are effective when receivedAmong the exceptions to the common law rule that an offeror can revoke an offer at anytime are: promissory estoppel and the UCC firm written offer by merchants rule (discussed in next chapter).

*Promissory Estoppel An offer is irrevocable if the conditions for promissory estoppel take place: (1) offeror knows or should know the offeree will rely on the offer made by the offeror (2) the offeree does rely and (3) relies to his detriment and (4) injustice can only be avoided by enforcing the promiseDamages under P.E. are based on costs of reliance

*Termination of the offerIf the offeree rejects the offer or makes a counteroffer, the offer is terminatedWill occur when the offer is deemed lapsed after a reasonable period of timeWhat is reasonable depends upon the industryAn offer could expire by operation of lawDeath or incapacity of offeror or offereeSupervening illegalityDestruction of the subject matter

*ConsiderationConsiderationIs the exchange element in a contractIn order to support a promise made by the promisor, the other party (the promisee) must do something that constitutes considerationThe promisee must incur a legal detrimentExamples of consideration:Make a promise in exchange for a promiseTransfer something of valueGive up something of value such as a legal claim

*ConsiderationGenerally the courts do not consider the adequacy of consideration unless they decide the bargain is unconscionableConsideration does not exist if the other party has a preexisting duty to perform by law or contractIn general past consideration is not considerationConsideration does not exist if the promise made by the promisee is illusoryIf the promisee maintains an unlimited right to cancel at any time for any reason, the promise is illusory

*ConsiderationThere are some promises that are enforceable without considerationA promisor is liable under the theory of promissory estoppel (PE)Note with PE it is not a contract and therefore the damages are based on reliance costs of the promisee and are generally less than if the negotiations had resulted in a contract

*CapacityBoth parties to a contract must have capacity to contractThere are three categories of people who do not have capacityMinors--under 18Intoxicated people--must not comprehend the transactionMentally deficient either due to age or disease

*CapacityMinors can enter into a contract butThe contract is voidable at the option of the minorWhen a minor voids a contract it is called disaffirming a contractUpon turning 18 the minor has a limited right to disaffirm or else the contract is deemed ratifiedIf the minor makes a payment after turning 18 the contract is ratifiedA minor cannot ratify a contract while still a minor

*CapacityIf a minor disaffirms, the minor must return the consideration if he has itThere are an increasing number of contracts that are binding on minors, though these exceptions vary from state to stateContracts with the army, insurance contracts, educational loans, bank account agreements are examplesA minor is liable for the FMV of necessaries: food clothing and shelter and tools etc for an emancipated minor

*CapacityA contract is voidable if at the time the contract was agreed to, a party was too intoxicated to understand the terms of the contractIf a person has been judged incompetent, then all contracts with the person are voidIf the person is, in fact, insane, the person can claim lack of capacity even though the courts have not ruled the person is incompetent by appointing a guardian

*LegalityContracts can be illegal by statute or by public policyIn either event, the agreement is voidThere are a number of agreements that have been ruled illegal by statute in various states:Gambling, illegal drug sales, usurious loan agreements, contracts with unlicensed professionalsIncreasingly, illegal contracts are taking place in cyberspace-- e.g., prescriptions drugs sold online.Under public policy a number of bargains are voidExculpatory agreements such as agreements not to sue employers under workmens compensationContracts to excuse intentional actions

*LegalityPublic policy constraintsThe contract is unconscionableLook at superior education and legal representation one side and relative ignorance on the other sideA contract by a third party to pay a governmental employee is illegalContracts in restraint of tradeCovenants not to compete agreed to in employment contracts must be reasonableMust be reasonably limited in time and spaceCyberspace may make spatial obsolete

*Taints on an Agreement: Mistake An agreement is voidable if there is a mutual mistake of a material factA fact is material if knowledge of the true fact would have changed the decision of the parties to contractIf one party knows or should have known the other party was mistaken, then the agreement is voidableOften occurs when bids are submitted and there is a typo

*Taints on an Agreement: FraudIf a contract is fraudulent, it is voidable at the option of the victimFraud in contract has the same elements as fraud in tort:Misrepresentation of an important factScienterIntent to defraudJustifiable reliance by the victimDamages are caused by the fraudAn innocent misrepresentation of a material fact makes the contract rescindable

*Genuineness of AssentA contract is voidable ifIt is the product of duressA party signed a contract because of threat of force, criminal prosecution, or blackmailIt is the product of undue influenceThe victim is either in a weakened mental state or the other party has a confidential relationshipThe bargain is objectively unfairThere was no consultation with outside counsel

*Writing requirementsOral contracts in general are enforceableFor certain contracts, the contract must be in writingContracts involving real estateContracts that cannot be performed within one yearSurety contractsMarriage contractsContracts for the sale of goods where the value exceeds $500Contracts where an executor is personally liable for the debts of the deceased

*Writing RequirementsThere are some exceptions to the exceptionsOral promises of sureties to obligors are enforceable by obligeesIn some states there are part performance exceptions for oral real estate agreements,where the buyer takes possession, makes improvements, and pays some or all of the purchase pricePromissory estoppelUCC exceptions--discussed in next chapter

*Writing ContractsSufficiency of the writingThe agreement must have all material termsMust be signed by the defendantNames of the parties, consideration, and the subject matter of the contract are required terms

*Parol Evidence RuleExcludes prior or contemporaneous evidence that conflicts with a written agreementIf the written agreement is incomplete, oral evidence may be introducedThe corporate party often tries to negate an inference that the agreement is incomplete by putting in an integration clauseA party can always introduce evidence of fraud or misrepresentation or mistake

*Performance, Discharge and Breach of ContractsMost contractual obligations are discharged by performanceIf performance fails in its essential purpose, it is material breachA material breach relieves the non-breaching party from the obligation to pay the breaching partyBy inserting a time is of the essence clause, late performance becomes a breach

*Delegations of DutiesIf the promisor is a company, it may delegate responsibility for performance to employeesIf the contract performance is inadequate, the business, not the employee, is liable for breach of contractMost contracts can be delegated except if the personality or talents of the promisor are uniqueIn some cases there are statutory or public policy constraints on delegationsDelegations are a very common event

*AssignmentsMany contracts can be assignedOnce the assignment takes place the assignee can enforce the contract against the obligeeThe assignee takes the benefits of the contract subject to the defenses the obligor has against the assignorAssignments are common in car loans. The car dealer is the assignor, the customer is the obligor and the bank is the assigneeIn general, contracts can be assigned unless the assignment or delegation would make performance by the third party more difficult or disagreeable

*Third Party BeneficiariesIf your parents pay a soccer camp to provide soccer training for youYou are the 3rd party beneficiaryThe purpose of the contract is to benefit youIf the soccer camp did not perform, you or your parents could sueIf you are an incidental beneficiary, you have no right to sue if the promisor breachesA garden store has no right to sue if a supplier of a beekeeper fails to deliver

*Material Breach and Obligation to PerformIf a promisor materially breaches a contract, the promisee is absolved of her obligation to performSame is true if there is an anticipatory breach--contractual obligations of the non-breaching party are eliminated, butIf a party announces it will not be able to perform, the other contracting partner need not pursue legal action immediately, but instead could continue performing in hopes that the anticipatory breacher will in fact perform

*Discharge by Agreement The parties can decide to rescind the contractEach party agrees not to perform and neither party is liable A novation occurs when a new party is substituted If A and B have a contract, and A agrees that C can fulfill Bs obligations under the contract, a novation takes placeSatisfaction and AccordThe same parties change the agreementThe accord is the new agreement and the satisfaction occurs when the new consideration is received

*Discharge Due to ImpossibilityImpossibilityIf performance is objectively impossible due to war or embargoes, the promisor is discharged without liabilityIf there is a subjective impossibility due to events that are foreseeable, the obligation to perform is not dischargedIf the promisor made a bad bid, he cannot claim he cannot perform because he is not making any money

*Discharge Due to Operation of Law and ConditionsBy Operation of LawBankruptcy, death of a party, destruction of the subject matterDischarge by conditionCondition precedent--if the condition does not take place the promisor does not have to performCondition subsequent--if the condition takes place the obligation to perform ceasesMost executory bilateral contracts have concurrent conditionsIf one party does not perform, the other partys obligation to perform ceases

*Impracticability and Compensatory DamagesThe UCC equivalent of impossibilityIt is more liberal and allows for more excuses for nonperformanceStrikes and bad weather may qualifyRemediesGenerally the remedy in contract law is money damagesThe theory of compensatory damages is to put the nonbreaching party in the position he would have occupied if the contract had been performed

*RemediesDamages: CompensatoryIn sale of goods contracts, damages are often calculated as the difference between the market price and the contract price time quantity:Damages = (Pm - Pk)Qk in this case, the seller is likely to be the defaulting partyIn addition reliance and restitution costs are sometimes recoverable Reliance:Costs associated with relying on promises of the promisorRestitution: Recovering consideration

*Consequential DamagesConsequential damagesDamages that are the result of the contract breach but are unusual in some wayLost profits are an example of consequential damagesThe non-breaching party must apprise the breaching party of the consequential damages in order to recoverIn some cases there is an obligation to notify the breaching party before the breach of the possibility of consequential or unusual damages

*Liquidated DamagesLiquidated DamagesIn many contracts damages are difficult to calculate so the parties agree in advance what damages are If the parties provide a reasonable estimate of damages, liquidated damages clauses are enforceableIf the liquidated damages clause is judged excessive it will not be enforced as a penalty

*RemediesPunitive damages in contracts are very rareThe nonbreaching party is expected to mitigate damagesLandlords whose lease has been breached cannot refuse to lease to another tenantWrongfully discharged employees cannot turn down comparable job offers from 3rd parties

*Equitable RemediesSpecific PerformanceThe remedy is appropriate if the promisee attaches great value to the consideration The consideration must be uniqueJewelry, works of art, real estate, family heirloomsInjunctionsThe courts will freeze the action if irreversible damage may occur with a continued breachThe plaintiff generally has to demonstrate that he will likely prevail in trial that the defendant is breaching the contract

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