Fair Contract Case

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Fair Contract Case #1 - Practice for Spring 2021

You and your partner have just bought a house in a great neighborhood. You hire a contractor, Ace Home Contractors, to remodel a couple of rooms in your house. It’s an old house and you are trying to “open it up,” so you ask the contractor to remove some walls dividing rooms. Ace is on the job, but they point out that because it is an old house, there are uncertainties in moving walls. Ace advises you that they are a small contracting firm and have limited ability to mitigate environmental problems or solve serious engineering problems.

Even with these qualifications, Ace offers a bid to do the work, and you accept their price. For $10,000 they agreed to make the changes you request. The contract specifies a 50% draw on the final amount at the start, so you write a check for $5,000.

Quite a bit of demolition work occurs and then two bad things happen. Ace encounters asbestos from a hidden exterior wall. This needs to be removed by trained technicians, using expensive equipment, and protective clothing that Ace does not have. Second, after exposing some interior walls, a large crack was found in a structural cement wall. Work comes to a halt. Over several weeks, you call experts in, at your expense, but Ace spends some time conferring with them. They conduct previously unplanned investigations into the crack for the engineering experts you have hired. The experts conclude (and Ace agrees) that Ace cannot solve the environmental or engineering problems. Even the local experts are a little unsure how to proceed. You did not explicitly approve Ace's hours with the experts, but you were aware of it as someone living in the house and observing the work.

The next day, a representative from Ace Home Contractors shows up to say that they cannot complete the contract because of the two problems encountered. Since they provided labor and materials equal to $7,000 ($5,000 of progress was made in demolition, and about $2000 for the time they spent with the experts), they would like to suspend the contract until the asbestos and engineering problems are solved. They are willing to complete the contract for the original price, plus the extra $2,000 incurred during the discussion and exploration of the problem. Alternatively, you could pay them $2,000 and terminate the contract.

You talk things over with your partner, who argues that Ace should return the $5,000 draw on the contract since they did not fulfill the contract. That sounds harsh, but you are not so excited about paying them for the time they spent with the experts.

Identify and argue for a resolution to this contract dispute. Drawing on our reading and discussion of “fair contracts,” think about what fairness requires. Should the contractor refund the $5,000 because they did not complete the work? How do you weigh Ace’s “disclaimers” against their willingness to complete the work? Should you pay the extra $2,000 for work you did not specifically agree to, but did not object to?

In your 500 word response, identify principles which govern this case in your opinion. Then give your argued analysis of how to apply these principles and what outcome fairness requires. Consider alternative ways of looking at the issues in the case, but try to show why you prefer your analysis.

We will use the full assignment rubric (Flow, Content, Argument, and Insight) for this assignment.