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Creating Substitute Construction Contracts

Earlier this week we shed some light on the consequences of cancelling construction contracts. As we noted, things can change in an instant in the construction business, causing us to reconsider the contracts we signed. Fortunately, those changes don't always necessarily lead to contract cancellation.

In certain circumstances, a contract substitute can replace an existing contract in order to account for circumstances we maybe didn't previously consider.

Of course, you can't just force a substitute contract on another party. Everyone must agree the substitute is meant to replace the existing contract. It seems simple, but the law often requires more than just a handshake agreement.

An Oregon Court of Appeals case from last year addressed this very issue. In Rucker v. Rucker, a plaintiff demanded payment based on a first contract, while the defendant insisted a substitute contract changed the payment amount. The Court held that a substitute contract is formed if the intent to substitute the new contract for the existing contract is "clearly shown."

Though the Court didn't set a hard and fast rule for when intent is clearly shown, it noted the parties in that case memorialized their new agreement in writing, as well as their intentions to abide by the new agreement. Additionally, the new contract had terms that rejected claims arising from the prior contract. 

Although the court's ruling applies beyond the construction context, you can imagine how important it is to an industry that operates mostly by handshake agreements. You should always consult a construction law attorney to help you evaluate the effectiveness of your construction contracts, especially when their terms change.

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