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An Unsigned Contract – Is It Binding?

Alan L. Stefaniak

If you do not sign a contract but do the work do you have a binding written agreement? As with so many situations in the law, it depends. What it depends on, are the facts.

Our personal and business lives are busy and hectic. We now have voicemail, email, text messages and tweets. It is easy to overlook the details and forget to dot the i’s and cross the t’s. However, failure to do so can have consequences.

Let’s suppose you are a subcontractor and you give a bid to a general contractor who is from out of state for a job here in Illinois. The bid is verbally accepted and the job needs to start right away so you commence work. After the work is started you receive a seven page Purchase Order and then a few days latter you receive a document titled Construction General Notes and Conditions. The Purchase Order contains a description of the work to be done, a schedule for performance, the contract price and payment terms. The General Notes and Conditions document contains provisions regarding risk of loss, change orders, indemnification and insurance, Acts of God, and liens. It also has a jurisdiction provision that says that any disputes will be governed and construed according to the laws of the State where the general is located which is not Illinois and the courts of that State will have exclusive jurisdiction to decide all disputes. You don’t sign any of these documents but continue performance of the work.

As the work progresses you are delayed by causes you believe are not your fault. You give written notice to the general contractor consistent with the provisions in the Purchase Order and General Notes and Conditions that you will not be responsible for these delays or any damages caused by them. You also follow the payment procedures and requirements as set out in the Purchase Order and General Notes and Conditions. You provide the insurance called for under the written documents and tender the required certificate of insurance.

After you complete the work the general files a lawsuit in its home state and maintains you are liable for delay damages. Do you have to defend in the court’s in the general’s home state? An Appellate Court ruled that the subcontractor had consented to the forum selection clause by its conduct in following the terms and provisions of the written contract documents and was bound by all the terms and provisions even though the Purchase Order and General Notes and Conditions were never signed. What the Appellate Court looked to was the subs course of conduct which showed it was aware of the written contract documents and was following them. The Court did not agree with the sub that all it had was an oral contract by virtue of the verbal acceptance of its bid.

What should you do if confronted with this situation? If you are pressed to begin performance before receiving any written contract documents send a letter saying you will do so subject to agreeing in the future to the provisions of the written documents and if not agreed upon then you are entitled to stop work and receive payment for what is done to date. When the documents are received review them and if not acceptable suspend performance until you negotiate and agree upon all terms and provisions. Remember, no matter how busy you are or how much you want to cooperate to get the job started you need to dot the i’s and cross the t’s otherwise you may encounter unintended consequences.

Let’s look at this issue from a general contractor’s perspective. You send your standard subcontract form out to a sub for signature after verbally accepting the sub’s bid and agreeing on the basic terms, regarding scope of work and price. The sub sends the contract back but makes changes. One of those changes is that the subs warranty will apply and the subs warranty provides that if there is a claim for damages the general can only sue for direct damages which would be capped at the greater of $5000 or the contract amount. You don’t respond to these changes. At the end of the job the owner sues the general for delays and you blame the sub and sue to recover these costs. An Appeals Court ruled the general couldn’t sue to recover these costs because by its conduct i.e. letting the sub proceed with the work, it had consented and accepted the counteroffer that the sub made in sending the subcontract back with changes.

How does a general protect himself from this situation? Again, send a letter out with your form subcontract that says any changes have to be accepted in writing. Also provide in the letter that if the subcontractor begins work without a fully signed agreement in final form it has unconditionally accepted your standard form agreement without any changes.

Remember, no matter how many voicemails, emails, text messages or tweets you receive the details of a contract must be followed up on or you could find yourself in an unexpected and unintended situation.

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