On Signing Construction Contracts
Category | Briefing Papers
Mark is a shareholder in the firm’s Construction Law Department. He can be reached at 612.359.7620 or mbecker@fwhtlaw.com
It takes a measure of fortitude, integrity, and confidence to sign a construction contract. You put your reputation, risk, funding, and mental energy on the line every time you sign one. But, if you do your job well enough, the customer pays you the agreed upon compensation and you might even get that customer’s next job.
As a construction lawyer with over two decades of experience, it continues to surprise me how often contracts between private owners and contractors, or contractors and subcontractors, or subcontractors and suppliers, are not signed. At least once a month, I’m asked, “does it matter whether the contract is signed?” or, some version of this one, “well, I didn’t sign the contract, so I’m not bound by it, right?” I can only imagine how often in-house counsel at major construction companies are asked these questions by project managers or contract administrators.
The purpose of this article is to provide some basic education on these recurring questions. We’ll save the full treatise for later. Anytime the question of whether the contract needs to be signed is asked, feel free to use this article to help with the answer.
1. Yes, the contract should be signed.
The legal elements of a breach of contract claims are: formation of a contract, performance by the plaintiff seeking to enforce the contract, and breach by the defendant. See Park Nicollet Clinic v. Hamann, 808 N.W.2d 828 (Minn. 2011). The elements of contract formation include: an offer, acceptance, and consideration. Commercial Associates, Inc. v. Work Connection, Inc., 712 N.W.2d 772 (Minn. Ct. App. 2006). The offer and acceptance must produce, objectively, a “meeting of the minds.” See Holt v. Swenson, 90 N.W.2d 724 (Minn. 1958).
So, in light of these legal requirements, what better way to prove the existence of a contract than to have a signed contract setting forth the terms? Without a signed contract, the parties are left to forensically prove in court the facts that demonstrate that the contract existed and what its terms were. Morrisette v. Harrison Intern. Corp., 486 N.W.2d 424 (Minn. 1992). Without a signed contract, your outside lawyer’s litigation budget for the cost of proving whether or not a contract exists will be considerable.
Want another reason? The statute of frauds might prevent you from enforcing the contract altogether without a signature. There are two statutes of frauds to worry about. First, for purchases of materials over $500, the general rule is that the purchase order must be signed by the parties to be enforceable. Minn. Stat. § 336.2-201(1). There are exceptions for contracts between merchants if confirmation follows within a reasonable time. Minn. Stat. § 336.2-201(2). Second, Minn. Stat. § 513.01(1) provides that a contract that “by its terms is not to be performed within one year from the making thereof” must be signed. Construction contracts for large projects, and subcontracts associated with those projects might have a duration greater than one year. Wouldn’t it be best to take statute of frauds out of the picture and have a signed contract?
Here’s another reason to consider. Licensed contractors performing residential work are required by statute to have their proposals, estimates, bids, quotations, contracts, purchase orders, and change orders in writing, providing a summary of the services, the materials to be used, the standard features to be included, and the price or a description of the basis on which the price will be calculated. Minn. Stat. § 326B.809. The licensed contractor is required to provide to the customer “a signed and dated” agreement. Not having signed contracts puts the licensed contractor at risk of fines and discipline by the Department of Labor and Industry.
Finally, if a contractor, owner, or subcontractor isn’t willing to return a signed contract, what does that say about them? Have they properly committed to fulfilling the contract? Or, are they on the fence and will do the job if it still suits them, but if it doesn’t or they have other things they’d rather do, they want the “out” of being able to say “no signed contract.” If you don’t have a long track record with the other party, be wary. Even if you do, be cautious.
2. I didn’t sign, am I bound?
You might be. Here are some principals to consider.
There is an ancient doctrine that one who accepts the benefits of a contract, may not repudiate its burdens. See Marin v. Calmenson, 197 N.W. 262 (Minn. 1924). In other words, when the subcontractor who doesn’t sign the contract claims they are not bound by the un-objected to indemnity term, the contractor can respond: “But we paid you in full, you kept the money, and thus we are right to enforce the indemnity provision against you when an injury claim surfaces after the work is done because of your negligence.”
But, do my terms apply? Depends on the forensic reconstruction. In court, the parties will need to prove where the meeting of the minds occurred. There is a rule that the “law does not favor the destruction of contracts due to indefiniteness, and if the terms can be reasonably ascertained” it will be enforced. King v. Dalton Motors, Inc., 109 N.W.2d 51 (Minn. 1961). Is there a course of dealing with invoices, lien waivers, change orders, and partial performance by both parties? If so, it’s likely that the existence of some sort of contract will be found, the terms of which will depend on a forensic evaluation of what the parties proposed, what they objected to, and possible gap filling terms supplied by the courts.
What if the terms are fatally unclear? There is a rule that “an alleged contract which is so vague, indefinite, and uncertain as to place the meaning and intent of the parties in the realm of speculation is void and unenforceable.” King v. Dalton Motors, Inc., 109 N.W.2d 51 (Minn. 1961). So, maybe the contract isn’t clear enough to be enforced.
In conclusion, the reasons for having signed construction contracts far outweigh the ones that don’t. If your unsigned construction contract needs to be forensically reconstructed through factual investigation and the application of legal principals, that is possible to be done, but there is no guarantee and you might not like the outcome.
Announcements
Matt Collins is presenting a continuing legal education seminar for Minnesota CLE on August 30, 2022, in Minneapolis on 10 Practice Tips for Successful Construction Arbitrations and Mediations. Contact Matt for more information: mcollins@fwhtlaw.com
Fabyanske, Westra, Hart & Thomson, P.A. is pleased to announce that Dean Thomson and Julia Douglass will be speaking on Mediation Strategies on October 17th to the Florida Bar Association Section on Construction Law. For more information click here.
Congratulations to the nine attorneys from Fabyanske, Westra, Hart & Thomson, P.A. who have been named 2022 “Minnesota Super Lawyers”. The polling, researching, and selecting of “Super Lawyers” is designed to identify Minnesota lawyers who have attained a high degree of peer recognition and professional achievement. Only five percent of Minnesota attorneys receive this honor. FWHT’s 2022 “Minnesota Super Lawyers” include Mark Becker, Julia Douglass, Gary Eidson, Marv Fabyanske, Kyle Hart, Teresa Molinaro, Jesse Orman, Dean Thomson, and Tom Vollbrecht. Dean Thomson was also selected as a Top 100 “Super Lawyer”. For more information click here.
This discussion is generalized in nature and should not be considered a substitute for professional advice. © 2022 FWH&T