a:\newslw.96 [4]Alan Lee MitchellStephen De'ak201998-04-23T19:21:00Z2006-07-01T22:24:00Z2006-07-01T22:24:00Z1116466355515778411.8026 FURRER & SCOTT LLCConsider . . .VOL. 7, ISSUE 2 April, 1998Law OfficesFURRER & SCOTT LLC9185 SW BURNHAM ST. POST OFFICE BOX 23414TIGARD, OR 97223 TIGARD, OR 97281(503) 620-4540 -- (800) 334-8986 -- FAX: (503) 620-4315STARTING EARLYIn today’s world of fast-paced construction projects, contractors are often asked to start work on a project before the contract documents are fully completed. “Don’t worry; we’ll take care of the paperwork later” is often heard. As you might imagine, this can lead to problems and should be avoided whenever possible.One example of these problems is that you can be bound by the terms of a contract that you have not even signed.A recent Texas case illustrates this point. In that case, a painting subcontractor was hired by a prime contractor to work on a hotel. The two contractors had worked together in the past.While the new subcontract was almost identical to previous subcontracts between the two parties, it contained a new bonding requirement to which the subcontractor objected. [See the next issue of Consider for a discussion of a few of the numerous issues surrounding bonds.] Because of this added requirement, the subcontractor refused to sign the new subcontract. Despite this, the subcontractor began working.When a dispute arose, the court held that the subcontractor was bound by the terms of the subcontract even though the subcontractor had refused to sign the subcontract.The court held that parties may agree to portions of a contract while leaving other parts open for negotiation. The court ruled that a contract, even though not complete, is binding unless one of the open terms is determined to be an “essential” term. In general, “essential” terms are those terms that must be agreed upon before one can start to perform the contract. An example is the scope of work.The moral of this story is that parties need to ensure that they understand all of the terms in prospective contracts and that both parties expressly agree to all terms that will be included in the contract. This means that you must be sure that both parties sign all contracts before work begins.STRICT LIABILITY FOR CONSTRUCTION CONTRACTORS?Contractors often mix ingredients at the project site in order to create a finished product. However, a recent case says that this may no longer be a good idea.The reason for this is that the Oregon Court of Appeals has "discovered" a new way in which contractors may be held strictly liable for their work.Strict liability means that you are liable even if you did everything right. Normally, there is no strict liability for providing a service; however, strict liability can exist for a product.In Brokenshire v. Rivas and Rivas, Ltd., 142 Or App 555 (1996) (petition for review granted and currently on appeal), the defendant flooring contractor had provided and installed an acrylic flooring system in an existing bakery. In order to achieve the desired custom finish, the contractor mixed -- on site --several types of acrylic flakes and other ingredients.After an employee slipped and fell on the new floor, the trial court awarded over $730,000.00 against the contractor. The Court of Appeals upheld that award, holding that the flooring system installation was a combination of both a service and a sale of a product and that the contractor was strictly liable for the product. The court focused on the fact that the contractor had customized the flooring system, thus "manufacturing" the floor on the site.For contractors, this case raises several issues.First, it raises the point that there are a wide variety of laws that can apply to construction work. A company may not be protected just because it is engaged in work in the manner in which it “has always done things.”Second, you may believe that your current contracts contain sufficient disclaimers to protect you from any liability. This case demonstrates that reliance on contract language is not always safe. Product liability law is not solely based upon contract law.This case should put contractors on notice whenever they mix ingredients or provide an on-site customized product that they may be exposed to significant liability.CONTRACTOR WARRANTIESMany of you are familiar with the “Spearin doctrine,” a rule that states a contractor will generally not be liable when the contractor strictly complies with the plans and specifications provided by the owner. The lack of liability arises because courts hold that the owner has provided an implied warranty of design.However, do not think that merely complying with the plans and specifications is a guarantee of safety against warranty or other claims.The reason for this is that the contract may include express warranties. An example of this is found in Paragraph 3.5.1 of the AIA A201 form agreement, under which the contractor guarantees that his work will be “free from defects.” This same paragraph states that the materials and equipment provided by the contractor will be “of good quality and new” unless otherwise agreed by the parties.A recent case illustrates this situation. In Rhone Poulence Rorer Pharmaceuticals, Inc. v. Newman Glass Works, 112 F.3d 695 (3d Cir. 1997), the subcontract contained a clause providing that the subcontractor warranted that the work “will be free from faults and defects.”As required, the subcontractor installed spandrel glass panels (of the type specified) and no complaints were raised about the installation work. However, in what was apparently a manufacturing defect, the polyethylene film glued to the glass panels delaminated.The court ruled that the subcontractor was liable for both the delamination and the cost to replace the panels, stating that the subcontract’s express warranty overrode the implied Spearin warranty.The lesson to be learned is to make sure that your contracts clearly disclaim any and all express warranties.In addition, you should make sure that your contracts also properly disclaim any and all implied warranties.FIRM NEWS:FURRER & SCOTT LLC now has a web page. The address is www.furrer-scott.com. The web page includes a firm profile, biographies of the attorneys, and general information on Oregon construction lien and bond claims. Information on Washington lien and bond claims will be posted in the near future.REMINDER: On April 23, 1998, MIKE, DOUG and ALAN, in connection with Lorman Seminars, will be conducting an all day seminar on Oregon construction lien and bond claims.MICHAEL J. SCOTT will make a presentation on April 24, 1998 about Oregon construction liens as part of a two-day seminar entitled Oregon Construction Law. This seminar, being held on April 23 and 24, is presented by Law Seminars International. If you would like a brochure about the seminar, please contact Gayle L. Allen at Furrer & Scott LLC.MARK YOUR CALENDARS for July 17, 1998 when MIKE and ALAN, in connection with Lorman Seminars, will be speaking as part of an all day seminar on Oregon construction law for design professionals. If you would like a brochure about the seminar, please contact Gayle L. Allen at Furrer & Scott LLC.RANDOM THOUGHTS:“As a people we must somehow get over the notion that the solution to every problem is a lawsuit.” Ernest Conine.This newsletter is published quarterly by the law firm of Furrer & Scott LLC for the benefit of its clients and friends and is intended to inform them about legal matters of current interest. This information is not intended to be, and should not be considered to be, legal advice. No actions should be undertaken in reliance hereon without professional legal counsel.Alan L. Mitchell, Editor