True Harvest agreed to the A101 Prime Contract without reviewing the separate standard form A201 General Conditions.
Shortly after Rocinante completed its work, True Harvest experienced lighting outages in each of the three new flower rooms. A third-party inspector reported that the wiring installed by the electrician (and approved by Rocinante) was defective, causing True Harvest to reduce the number of lights in each room from 160 to 128, which reduced the amount of marijuana produced and, ultimately, True Harvest’s profits.
Lawsuit. True Harvest sued Rocinante in Maricopa County Superior Court for negligence and breaches of contract, express warranties, and implied warranty of workmanship, and it sought damages for lost profits.
Rocinante moved to dismiss the damages claim, arguing that, when True Harvest agreed to the A101 Prime Contract, which incorporated the “consequential damages” waiver via the A201 General Conditions, it forfeited its right to sue for that type of damages.
The trial court agreed and dismissed that part of True Harvest’s lawsuit.
True Harvest appealed, arguing, among other points, that, because Rocinante was a “sophisticated” construction business and True Harvest was not familiar with the AIA contracts, True Harvest was at an unfair disadvantage in entering into the contract. True Harvest also argued they were never given a copy of the A201 General Conditions and did not know the A201 General Conditions would be incorporated.
The Arizona Court of Appeals rejected True Harvest’s arguments, variously noting that:
- “nothing in applicable Arizona law requires a drafter to explain the provisions of standardized contracts”;
- “when both parties have an equal opportunity to read and review a contract, each has a duty to do so”;
- “if [a party] will not read what he signs, he alone is responsible for the omission”; and
- “the court will not protect those who, with full opportunity to do so, will not protect themselves.”
Not surprisingly, the Court rejected True Harvest’s appeal and affirmed the trial court’s dismissal.
Takeaways. With a simple reference to a separate document, a “form” business contract can add dozens of pages of major terms. This is especially common with AIA construction contracts, including the A101, A102, and 103, all of which incorporate the separate A201 General Conditions. It is also very common in subcontractor agreements, which incorporate the prime contract. Arizona courts consistently enforce such incorporation of separate contracts, even if it may seem unfair.
In advocating for construction clients (contractors, subcontractors, owners, etc.), we see this quite often, and it is a dangerous trap when entering into a contract without an attorney’s review. The court in
True Harvest noted the multiple areas where the A201 General Conditions were referenced in the A101 Prime Contract, but still, the incorporation of the A201 General Conditions is
not obvious, especially when a copy is not provided.
In the
True Harvest case, even though both the general contractor and the subcontractor prevailed, that is not the moral of the story. This can happen to anyone.
As you review a contract that is provided by the other party, be alert to important reminders, including these:
- Know all the contract documents you’re agreeing to.
- Don’t agree to a provision you haven’t read.
- Assume that everything in the contract favors the other side.
- Recognize the value of paying an attorney to point out any provisions are unfavorable to you and to recommend substitute language.
From the Construction Advisor archives:
