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Contract Formation Q&A
Posted in Contracts

As foundational as contracts are to the construction industry, many fail to recognize when they have entered into a contract. Misunderstandings about when a contract is legally formed and how it will be enforced can lead to significant obstacles in the event of a dispute. In the brief Q&A below, we examine some common misconceptions and discuss the principles that courts would apply when ruling on contract formation.

Q:  A contractor emails a draft contract to a subcontractor who begins work but never signs the contract. Do the parties have a contract? 

A:  Yes. Despite the absence of the signature, the court will likely find that the subcontractor agreed to the terms in the contract through performance.

Q.  If a subcontractor provides a contractor with a proposal that expressly requires a signature for acceptance, will that form a contract if the parties perform its terms?

A.  Yes. This is the last evidence of the parties’ intent on the project. The Court will likely not enforce the provision requiring a signature, but all other terms should form the agreement of the parties.

Q.  If the parties perform under an unsigned contract, they don’t have a “written contract,” right?

A.  Yes . . . and no. Any writing that reflects the parties’ intent can provide the basis of the agreement; however, if the contract requires signatures but is unsigned, the parties do not have a “written contract” for purposes of the Virginia statute of limitations. This means that a party will only have three years to enforce the contract; if the agreement is signed, they would have five years.

Q.  For an oral contract, when does the three-year statute of limitations period begin?

A.  A party can sue for breaches of the agreement that occur in the three years prior to the date the lawsuit is filed. 

Q.  If there is no written evidence of a contract, signed or unsigned, the parties don’t have a contract, right?

A.  Wrong. Verbal agreements can be contracts. Verbal requests or directions for work that result in performance can create an oral contract.

Q.  If there is no written agreement and the parties perform work without reaching an agreement over the scope or cost of the work, will the court find the parties have a contract?

A.  Probably not. However, the court may use its equitable authority to imply a contract based on the value of the services performed and the manner in which the other party was enriched.

Q.  Are there any other special Virginia rules that govern unsigned contracts?

A.  Several. Virginia’s adoption of the Uniform Commercial Code governing the sale of “goods” (as opposed to “services”), provides conditions for determining which terms govern the parties’ transaction if there are unsigned or ambiguous agreements.

Virginia’s “Statute of Frauds” also requires written contracts for the sale of real estate or contracts that will take a year or more to perform – in these instances, the court will not enforce an oral agreement or a written agreement that is not signed by the party to be charged with performance.

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