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Construction and Renovation Projects

TO SIGN OR NOT TO SIGN? DOES IT EVEN MATTER?

Disputes can happen on construction projects involving commercial/residential owners, contractors, suppliers as well as other construction participants; and a portion of those disputes may eventually end up in court, at which time a factfinder must determine what obligations were owed and who may be entitled to compensation or some other remedy. When filing a complaint in Michigan, a party is required to attach a written copy of any written instrument underlying the dispute. But what happens when one of the parties did not sign the dotted line?

As a starting point, the failure by one or both parties to sign a written agreement is not necessarily fatal to a party’s assertion that a contract was formed. Ehresman v Bultynck & Co, PC, 203 Mich App 350, 354; 511 NW2d 724 (1994). The reason for this is because the “object of a signature is to show mutuality or assent, but these facts may be shown in other ways.” Id., quoting 17 CJS, Contracts, § 62, pp 731–733. As such, “where mutuality of assent is established, written agreements do not have to be signed in order for the agreement to be binding.” See Id.

Generally, Michigan courts have recognized, in some contexts, that even though one of the parties had not signed the written agreements, “an agreement need not be signed, provided it is accepted and acted on, or is delivered and acted on.” Id. Because the plaintiff in Ehresman accepted delivery of the agreements and operated under their terms, the Court of Appeals concluded the plaintiff had clearly conveyed his assent to the written contracts. Id.

On a construction project, there could be a situation in which a subcontractor fails to execute the subcontract. However, failure to sign the contract alone does not mean a valid and enforceable contract was not formed. More specifically, if the general contractor on a construction project presented the subcontractor with a written subcontract, and the subcontractor then mobilized to perform the work at the project, by mobilizing to perform the work under the terms subcontract, the subcontractor arguably demonstrated his assent to the subcontract. See Id. In other words, courts may look for objective evidence to demonstrate whether the parties intended to be bound by the written subcontract in question. If established, the subcontract – even if only signed by one party – constitutes a valid contract which must be enforced as written. See Id.; see also Green v Gallucci, 169 Mich App 533, 538; 426 NW2d 693 (1988).

On the other hand, there are other circumstances on construction projects where it matters whether or not there is a signed contract. For example, general contractors and construction managers must execute a written contract on residential construction projects and verify the contract has required language regarding licensing per the Construction Lien Act, MCL 570.1101 et. seq. Absent a written contract signed by both parties with the statutory language could mean the residential builder may not properly record a lien or recover its outstanding contract balance in court at all. See generally MCL 570.1118a and Stokes v Millen Roofing Co, 466 Mich 660, 673, 649 NW2d 371, 378 (2002) (holding Millen Roofing Company’s failure to obtain a residential builder’s license constitute[d] a bar to its seeking compensation for installing slate on the Stokes’ roof, pursuant to MCL 339.2412).

Given the uncertainty on construction projects with rising labor and material costs over the past few years, it is more important than ever for construction participants to negotiate how risk is allocated on a construction project. And practically, after completing contract negotiations, contracting parties are likely better served by ensuring a fully executed copy of the contract is maintained as part of their records.

In conclusion, precedent in Michigan shows the importance in a construction context of not only carefully negotiating written contracts, but also in understanding that whether it is ultimately signed may not control whether it is enforceable.

This article is general in nature and should not be construed as legal advice or as creating an attorney-client relationship. Consultation with legal counsel is recommended for specific situations.

Thomas J. Vitale