Prime contractor and owner exchange drafts of a proposed contract. They never sign. But they proceed with work and payment as if they did. Result: that proposed contract is their contract and binds them both.
Owner doesn’t want to be liable under that contract, claims they were acting merely as agent for someone else, though never announced their agency role to the contractor. Result: the erstwhile agent is the principal, and liable as the owner under the contract.
The decision: Trapani Construction v. The Elliott Group
The prime contractor and The Elliott Group, Inc. (in the owner role) have a lengthy relationship. They go back many years. Under that relationship, they have several unsigned written contracts, under which the contractor has provided about $18,000,000 worth of work and The Elliott Group’s paid for that work.
The Contractor and The Elliott Group exchange drafts of a proposed written contract for a new project called the Arlington Market. That proposed contract identifies The Elliott Group as owner. But consistent with their custom: the contractor and The Elliott Group never sign that proposed contract, the contractor starts the work and completes the work, and nearly all payments owed get disbursed from a construction escrow to the contractor.
Along the way, The Elliott Group: (a) approves more than $2,000,000 in eight contractor payment applications, (b) has representatives consult personally and by email with contractor representatives about the work, (c) receives progress reports addressed to The Elliott Group, and (d) signs 16 written change orders, a/k/a contract amendments—affecting the work in the name of The Elliott Group.
The contractor submits a ninth application for about $257,000. But the construction lender refuses to fund that payment. There’s no dispute about the quantity or quality of that work. And that prompts the contractor’s lawsuit alleging breach of contract seeking payment.
The Elliott Group defends, contending that there is no contract to enforce because they and the contractor never signed the proposed contract. The Elliott Group also contends that because they merely acted as agent for the project’s actual owner—their principal known as Arlington Market, LLC—The Elliot Group shouldn’t themselves be liable to the contractor under the contract.
The case goes to trial before the Honorable Franklin Valderrama. Judge Valderrama finds that—based on their prior custom and how they acted as the prime contractor and the owner during work on this project—the contractor and The Elliot Group formed an agreement based on the terms of the proposed contract they exchanged, referring to that agreement as a “contract implied in fact.” The evidence shows they acted like they entered into a contract, so Judge Valderrama treats them like they entered into that contract.
And based on evidence of things mentioned above, The Elliott Group doesn’t convince Judge Valderrama that they acted merely as Arlington Market’s agent. So, The Elliott Group is liable to the contractor for the remaining payment.
The Elliott Group offered countering evidence:
- A letter sent during proposed contract negotiations that’s signed by a representative of Arlington Market, but it’s also on The Elliott Group’s letterhead
- A construction payment escrow agreement signed by Arlington Market in the role of owner. The contractor signed that agreement too, and presumably saw Arlington Market there in the owner role
- Testimony from The Elliott Group’s president that he emailed proposed contract riders to the contractor, and those riders identified The Elliot Group as agent for Arlington Market. But he sponsors neither copies of those emails, nor their attachments, as offered evidence, and so Judge Valderrama admits none.
Judge Valderrama finds for the contractor: despite The Elliott Group’s evidence, the Elliot Group didn’t act as agent for Arlington Market. The Elliott Group appeals.
The Appellate Court affirms Judge Valderrama. They affirm that—by their bound-by-a-contract-like—the contractor and the Elliott Group had entered into a contract implied in fact. And so the owner under that contractor owes the contractor the remaining +/- $257,000 due.
The Appellate Court also affirms Judge Valderrama’s finding that The Elliott Group is the owner under that contract who owes that money, not just an agent for Arlington Market. They explain that to avoid liability as an agent, the agent must disclose the identity of their principal clearly, in a way that gives actual notice to their counterparty, the contractor. Hearing and viewing conflicting evidence at trial, Judge Valderrama found that The Elliot Group didn’t do that, and the Appellate Court saw no reason to reverse his finding.
Lessons and Observations
- The contractor and The Elliott Group (as owner) both performed just as if they’d signed their proposed contract. That’s enough for the judges to hold that they entered into a contract with its terms populated by language of the proposed contract they never signed. So, acting as you’ve entered into a contract substitutes for your signing a contract. Each of our courts here refer to this as a “contract implied in fact,” a phrase that strikes me as archaic and vague (at least around the edges). The kind of language that fosters controversy about “the meaning of that term” that crowds jurists’ desks and iPads with partisan interpretations for years. “Your acts substitute for your ink” is more contemporary, and more direct.
- If you’re an agent who doesn’t want to be mistaken for a principal, announce your agency early and often. The Appellate Court here puts the duty on you to disclose to your counterparties you’re acting only as someone else’s agent, and not on your own behalf. And if you disclose your agency obscurely, obliquely, or ambiguously, judges won’t round that up for you into clearly and unequivocally.
The good news: it’s not difficult to clearly disclose your agency. (The Appellate Court observes here that you needn’t use any particular “magic” words or phrases.) Just add this as a suffix to your name—followed by the name of your principal: “as agent for.” A signature line on the proposed contract, change orders, and other documents would likely have made a decisive difference in this case:
The Elliot Group, Inc., as agent for Arlington Market, LLC
- This decision suggests that both Judge Valderrama and the Appellate Court justices were pretty skeptical of the “I emailed the contract rider” testimony. One can almost hear them murmuring from the bench: “next they’ll say a dog ate ‘em.” If you claim you sent an email, you’d better be able to present it. Attachments too. And with forensics being what they are these days, be prepared to show metadata that authenticates when you sent it and the email addresses you sent it to.