Stan Martin | Commonsense Construction Law LLC | April 25, 2016
Lawyers hate this question. A contractor and subcontractor, having gone back and forth on a few contract terms while the sub is performing work, reach the end of the project – or at least the end of the sub’s work – without an agreed contract form. What happens? Lawyers hate the question because clients hate the answer: it depends. There is no “one size fits all” answer to this question. That is the situation recently confronted by the Court of Appeals in North Carolina, and there are a few lessons to be gleaned from the discussion.
The capsule version of events was:
- Sub’s July 2011 quote is accepted by the GC.
- Subcontract form is proposed by GC in early October, and sub’s comments and revisions are offered in response.
- GC reminds sub in late October: no work to start until subcontract is signed.
- Sub begins work in early November without signed agreement.
- Sub and GC continue to exchange revisions, addenda, clarifications, etc., without reaching agreement, through November, December and January.
- Sub’s work is completed in January, and sub asks to be paid.
- GC reminds sub: no payment without a signed contract.
- Sub sues GC in home court; GC argues venue should be elsewhere.
The court notes that this was not a situation where the parties impliedly accepted a contract by failing to respond or by tacitly proceeding. Rather, the sub and GC continued to go back and forth on several items in the contract, without resolution.
There are many cases in many jurisdictions holding that parties can agree on a contract even if it is not signed. The signature is simply proof of their agreement. But if the contract is not signed, and there are disputes as to the contract terms, the fact-finder must look more closely at what took place. Was there agreement on essential terms? Were the disputed terms material? Did the parties continue to argue? Or did they proceed with performance and ignore – for the time being – any disagreement over terms?
As one commentator has noted: “Failing to memorialize an oral contract does not invalidate the agreement but instead merely affects the mode of proving the terms of the contract.” Hutson, Jr. and Miskimon, North Carolina Contract Law, §§ 2-4 and § 2-7-1. The courts also attempt to determine the intent of the parties based on their actions. But in the case at hand, the actions spoke to a continuing, unresolved argument over a handful of clauses, and no one called time out until those issues were resolved.
The NC appellate court decision focuses on venue, since the sub filed suit in Forsyth County but the venue clause in the unsigned contract called for disputes to be resolved in Wake County. The trial court denied the motion to transfer venue, and the appeals court concurred. The GC had continued to modify the contract as the sub’s work was underway, the sub repeatedly disagreed with certain terms, including venue, a “finalized subcontract” from the GC had modified terms not acceptable to the sub, and the paper trail demonstrated a continuing disagreement over terms even when the sub’s work was complete. On the narrow issue of venue, the lack of agreement in the subcontract worked against the GC.
The lesson here is the larger picture. Parties who allow the schedule to control performance without resolving the paperwork could find themselves in a mess, particularly if the back-and-forth on contract terms never stops. The sub is unhappy about not being paid, and the GC is unhappy about what it perceives to be a less-than-friendly forum. (Or maybe the GC simply wants the sub to bear the inconvenience of the 100-mile or so trip between counties.) And the court will have to sort out the mess, at a greater cost than either party wants.
The case is Se. Caissons, LLC v. Choate Constr. Co., 2016 N.C. App. LEXIS 432 (April 19, 2016).