Contractor provided written proposal to project owner, containing details of the scope of work, as well as payment obligations. The Owner signed it and made several payments for work performed by the contractor. When contractor filed mechanics liens and sued to enforce them for Owner’s failure to pay the balance of what was owed, the trial court found that there was no express written contract because the Contractor failed to sign it. The court also found the mechanics liens defective for failing to sufficiently itemize the labor and materials provided with sufficient detail. Appellate court reversed and held both the unsigned contract and the mechanics lien details were sufficient. J. Clancy v. Khan Comfort, LLC, 955 N.W. 2d 382 (South Dakota 2021).
The owner was converting a Comfort Inn hotel into a Hampton Inn. It “signed a document … that listed the specific work [contractor] needed to complete when renovating the hotel.” The document listed tasks to be performed and it showed the amount charged for the work listed.
This document was not signed, however by the contractor who submitted it. And the Owner didn’t’ pay the required 50% deposit to confirm the agreement.
About two months later, the Owner paid $20,000 as a deposit for some of the work to be performed. A few months after that, the contractor submitted another contract document to the Owner that was its “standard proposal.” This document listed many of the same projects that were included in the original proposal plus several new projects- and for a significantly higher dollar amount. Again, the Owner signed this contract document, but the contractor didn’t sign it. After signing the document, the Owner paid the contractor $154,000 which is 50% of the total contract fee and the Contractor promptly began performing the work.
As work progressed the parties agreed to several change orders. Some of these were in writing and others were oral. Two progress payment checks were issued by the Owner to the contractor as work progressed. When all work was complete, the parties did a walk through and the Owner expressed no dissatisfaction. However, it refused to pay the final payments that were invoiced by the contractor – alleging that certain work was “incomplete.”
This caused the contractor to file mechanics liens for the unpaid labor and materials, and subsequently a complaint in court to enforce the liens. At a bench trial, the trial judge found that the contractor’s work was not complete and that is performance was “divisible into units or modules of performance,” and the contractor could recover only the reasonable value of the goods and services it supported with evidence at trial. After reviewing all invoices the trial court found that the amount paid by the Owner to the contractor actually exceeded the value of the work completed, and the court therefore rejected the contractor’s claims altogether.
In reversing the trial court, the appellate court explained that the determination of whether an express contract existed is a question of law that the court would review de novo. And the court stated that “An agreement is an express contract ‘if the terms are stated in words, oral or written.” It disagreed with the trial court’s determination that the parties hadn’t agreed to a single, express, written contract. The documents as well as the Owner’s answer to the Complaint demonstrated it was a single express contract, said the court. The Owner’s signature on the document “constituted an unqualified acceptance.” “As a general principle, one who accepts a written contract is conclusively presumed to know its contents and to assent to them ….” “To permit a party, when sued on a written contract, to admit that he signed it but deny that it expresses the agreement he made … would absolutely destroy the value of all contracts.”
Why was the document deemed an express written contract by court? “The essential terms of an express contract were present…. The document listed the subject matter of the work to be performed, the quantity of materials to be ordered and installed, the price of the goods parties’ payment terms.” The fact that the document did not include a timeline for performance was not fatal said the court because “If no time is specified for the performance of an act, a reasonable time is allowed.”
Mechanics liens were sufficiently detailed. The state statute for mechanics liens required that the lien “shall set forth “an itemized statement of the account upon which the lien is claimed.” In reviewing the particular liens in this case against this standard, the court stated that the lien broke down installation labor costs between two sets of projects corresponding to the work identified in the contract documents and change orders. “While [Contractor] failed to to fully itemize the labor and material charges set forth in the lien statement, we conclude that it satisfied the [legal] requirements because in part ‘it set forth the cost and description of an entire project, and there was no separate agreement for either material or labor for the project.” Additionally, the change orders and matching invoices attached to the lien statement substantially complied with the [legal] requirements such that “an ordinarily intelligent and careful person could understand their amount and purpose.”
Comment: This decision demonstrates that an express contract can be created without both parties having to sign the written contract document so long as the intent as to the scope of work and payment terms are clear, and the parties take action on the documents to perform the work as was done here.
About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with ConstructionRisk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk Report, Vol. 24, No. 1 (January 2022).
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