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CONTRACT FOR INDEFINITE DURATION WAS TERMINABLE AT WILL

Tuesday, October 23, 2012 05:06 am

 

Contracts -- Work Scope

Denbury Onshore, LLC v. Precision Welding, Inc., 2012 Miss. Sup. Ct. Lexis 369 (Aug. 2, 2012)

A contract that doesn't name a full contract price, a full description of work scope, or a definite performance period may be valid but it's easily ended.

Under an oral agreement, subcontractor Precisions Welding, Inc. (Precision) built dehydration plants for Denbury Onshore, LLC (Denbury) on a project to recover tertiary oil at a site in central Mississippi. When Denbury terminated the contract after four years, Precision sued, claiming that Denbury had agreed to keep Precision on the job until project was complete. Siding with Precision, a jury awarded the sub $1.5 million in damages, but the Mississippi Supreme Court reversed.

The parties' oral agreement detailed the hourly rate at which Denbury was to pay Precision, but the parties disputed whether the contract defined a particular duration or the work scope.

3 elements: scope, time, price

According to the rule established in Leach v. Tingle, 586 So. 2d 799 (Miss. 1991) and Duke v. Whatley, 580 So. 2d 1267 (Miss. 1991), a contract must specify three terms: (1) scope, (2) time/duration, and (3) price. Any agreement that doesn't include these three terms is merely an agreement to agree, which is unenforceable. Indeed, contracts to enter into future contracts--e.g., "option contracts" or rights of first refusal agreements--must contain "all ... material and essential terms and leave none to be agreed upon [...]

 
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