Construction contracts can incorporate documents executed by the parties without describing them with specificity
November 15, 2017
Construction contracts often “incorporate by reference” other documents that provide additional terms or further define a party’s obligations. However, the specificity required when describing the document differs depending on whether the document has been executed by the parties. As discussed in a recent case, if the parties execute the document to be incorporated, courts apply less-stringent standards on how the document must be identified in the contract.
A contractor, Dyonyx, entered into an agreement with a consultant, Castillo, to provide consulting services related to a project for the City of Houston. Under the agreement, the contractor would issue separate purchase orders specifying the consultant services during a five-year contract term. The contractor could terminate the agreement early if the City terminated the primary contract. The contractor and the consultant signed an initial purchase order for services to be provided during the first year of the contract term. Four months later, the City terminated its agreement with the contractor. The contractor then terminated its agreement and its purchase order with the consultant.
The consultant sued the contractor for breach of contract. It argued that the purchase order was not subject to the termination provisions in the agreement because the purchase order did not specifically incorporate the agreement. The court of appeals rejected this argument. Both parties executed the agreement and the purchase order, they referenced each other, and they related to the same transaction. Thus, the agreement and the purchase order had to be read together to determine the parties’ intent and to give effect to the terms governing their respective obligations and rights. These rights included the contractor’s right to terminate the contract early. Since the contractor properly terminated the consultant agreement, any purchase orders issued pursuant to that agreement also terminated without constituting a breach of the contract.
Of course, if you intend to incorporate documents into another agreement, you should make the intent clear in the agreement. However, if you have two or more documents, executed by the parties, which relate to the same project or subject matter, Texas courts will likely read them together to determine the parties’ intent.
Castillo Information Technology Srvcs. v. Dyonyx, LP , 2017 Tex. App. LEXIS 7182, Case No. 01-16-00649-CV (Tex. App.—Houston [1st Dist.] Aug. 1, 2017, no pet. h.).
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