"Parties may be bound to contract terms even in absence of signed agreement"

Occasionally, in a rush to commence performance (or in some cases by intentional design), the parties to a contract may proceed despite the fact that one of them has not signed the written agreement. If a dispute later arises related to performance, the issue may arise whether the unsigned contract nevertheless controls the parties' rights and liabilities. The answer to this questions likely depends upon the specific facts of the case.

To prove a binding agreement to the terms of a contract, a "mutual assent or a meeting of the minds on all essential elements or terms" must be demonstrated. Carr v. Hoosier Photo Supplies, Inc., 441 N.E.2d 450, 455-456. Assent to the terms of that contract may be expressed by acts which manifest acceptance. Homer v. Burman, 743 N.E.2d 1144, 1146-1147 (Ind.Ct.App. 2001).

In Homer, the contractor's estimate (which amounted to the written contract between the parties) for re-wiring work was not placed into the record. In holding that a contract nevertheless existed, the court noted that there was evidence that the owners had made payment to the contractor to perform the work and that the contractor accepted the payment and commenced and completed its work. This constituted an offer, acceptance, consideration, and a "manifestation of mutual assent", despite there being no evidence of a signed written agreement. In Amelco Elec. Co., Inc. v. Arcole Midwest Corp. et al., 351 N.E.2d 349 (Ill.Ct.App. 1976), the court held that, although the subcontractor did not sign the agreement, it became bound to the general contractor both by its acts and conduct in starting performance after receiving the agreement and because it never objected to any of the terms of the agreement. After receiving a copy of the proposed subcontract, the subcontractor moved equipment and its field offices to the site and commenced performance. The subcontractor provided daily reports noting that it was the subcontractor and that the defendant was the prime contractor. There were no discussions between the parties at any time regarding the terms or provisions of the contract. See also M.J. Oldenstedt Plumbing Co., Inc. v. K-Mart Corp., 629 N.E.2d 214 (Ill. Ct. App. 1994) (holding subcontractor was estopped from denying existence of unsigned contract where it (a) told general contractor on several occasions that subcontractor had signed the contract and promised to return it, (b) had commenced performance on the project despite having received the contract and presumably was therefore aware of the alleged unsatisfactory terms, (c) did not object to the terms, and (d) was 85% complete when terminated).

Ultimately, the degree to which the parties have performed and demonstrated their agreement on all essential terms will likely control the determination of whether the unsigned written contract still controls. If the parties have proceeded with construction consistent with the terms of the written contract (e.g. referencing the contract sum on monthly pay applications, performing and completing a majority or substantial portion of the work, making and/or accepting payments) and if there were no discussions during construction regarding any disagreement over the terms of the contract, a court is likely to hold the unsigning party to the terms of the written agreement.

Posted by: Brian M. Falcon, Steven J. Strawbridge

Categories: Claims / Dispute Resolution, Construction Contracts