Question

Engineer E and Owner O are engaged in contract negotiations for E to design and build a building for O. The proposed contract is for $200,000. The estimated duration of the turnkey project is 15 months. After reaching an oral agreement of the above, O tells E that they should get together over the next few weeks to hammer out the contract language details for a formal written contract. E begins work without notifying O and completes approximately 30% of the design work (at a cost of $3000) when negotiations break off over "technicalities." When E indicates work has already begun, O orally tells E to stop work as they cannot reach an agreement. E's budget estimated a $12,000 profit for E for the project. Assume for this question that the design/build turnkey project is NOT severable.

1. E sues O for the entire $200,000. Who wins, what, and why?

2. ADDITIONAL FACTS: O mails a check for $3,000 to E with a letter stating that the check is "to cover your costs for the work performed under our canceled agreement for the $150,000 project." E sues O for the remaining $197,000. O countersues asking for the return of the $3,000. Who wins, what, and why?

Answer 1

As we all know, oral commitments & promises does not hold any base in law of court. A legal contract/ agreement has to be in place in order to claim/ask for any belongings. Legal contract has to be signed mutually by both the parties on the agreed points, only the clauses agreed in the agreement will hold good & can be claimed by law.

In this case, E & O engaged into a conversation/negotiation without holding any contract in place. Proposed contract was orally agreed at $2,00,000 whereas no legal contract was signed. Even though the term of the project was also communicated verbally. Prior entering into any agreement E started working on the project by himself & did not even notified O about it. Post this when O realizes it is not as per communicated he asked to stop the work. E has already invested in the project without even taking consent of O & there was no legal contract in place to even claim for that.

1. If E sues O, then by above statements & by judiciary of law, O wins. As stated clearly there was no written legal contract in place that forms the basis for this project. E does not hold any witness or document which are acceptable in law & hence, O will win the case.
2. Now in this case, as per the communication O mails a letter along with a check of $3000, to cover all the spending that has been made on the project & mentioned that the cost of cancelled agreement was for $ 150,000. Post receiving a check of $3000, E sues O, for the remaining amount agreed earlier which is $197,000 (200,000 – 3000). Now O countersues E asking for return of $3000. When E sues O for $197,000, definitely E loses as there are no relevant & supporting documents/contracts in place. When O countersues E for $3000, he has the supporting doc mentioning the things about the contract, he has lost $3000, by making the loss which has been incurred by E, although the project was rejected as technicalities were incorrect. O will win the argument.