Understanding a construction contract necessarily oscillates between text — what is written — and context — what is intended and meant. In today’s uncertain business environment, an appreciation for that inherent tug-of-war can help construction professionals deal more effectively with the fallout from the COVID-19 pandemic.
Text vs. Context in Analyzing Written Contracts: An Overview
Over time, contract law has crept along a path leading from “text” toward “context,” and from a rigid “sanctity” toward a more considered “fairness.” Historically, written contracts were narrowly construed and enforced under strict contract liability doctrine. In American contract law, this concept was expressed as the doctrine of sanctity of contract, which placed all risks of performance on the performing party unless the contract or the law expressly stated otherwise.
The legal presumption behind strict enforcement of written contracts, particularly commercial contracts entered into by sophisticated parties, was that the parties were presumed to have appraised carefully all risks inherent in performance of the work prior to entering into the contract, and to have agreed upon a price commensurate with their respective assumed risks and obligations. Those who agreed to perform a contract without expressly excepting any performance risks, necessarily were presumed to have assumed all risks in exchange for the agreed contract price. Parties entering into complex construction contracts typically were viewed as sophisticated parties, and few such contracts have been denied enforcement under the principle of “adhesion.” This remains the basic rule of contract interpretation and enforcement in some jurisdictions.
Nevertheless, judicial analysis according to “text” began to expand to include terms and interpretations arising from the fundamental significance of “context.” Courts have increasingly mitigated against the harshness of the doctrine of sanctity of contract to construe express contracts contextually as subsuming (1) terms and conditions implied by the “context” of the transaction, and (2) excuses for contractual non-performance viewed from a “practical” economic rather than an “absolute” physical perspective. As one example, the idea of the “impossibility of performance” was expanded to accommodate the understanding that an agreement is “impossible” as a practical matter if, due to supervening or preexisting causes, it can only be performed at a prohibitively excessive or unreasonable cost.
The implication of contract terms and conditions into express contracts as a matter of transactional “context” had far-reaching significance — context became relevant to every contractual transaction. Courts began to adopt the notion that, at least under certain circumstances, the legal content of any contract was not limited to its text as expressed in its “four corners.” The practical reality of viewing a contractual relationship in factual “context” rather than solely by its “text” was that legal analysis became “transaction specific.”
Implications During the COVID-19 Pandemic
Why discuss context and text in construction contracts in 2020? Well, business circumstances have emerged in the past weeks and months that have not been present in the living memory of any person active in construction today. What did the parties intend in a circumstance like the COVID-19 Pandemic? Did the parties consider an analogous situation? Who is responsible and how is risk allocated in an extraordinary construction environment with conditions and work stoppages caused by a pandemic, unforeseen labor and material shortages and governmental quarantines? Understanding the subtlety and tension in defining and resolving these questions is essential for a successful construction actor in 2020. It is key to know the differing ways these questions are answered in different forums and jurisdictions, too. Navigating these issues effectively and nimbly has never been more important.
This article summarizes content from Bruner & O'Connor on Construction Law. For more information on this topic, or for additional citations, see Section 3:1.
