The general rule in New York is that a construction contract is enforceable if it contains the necessary essential terms and conditions. Parties may enter into a valid contract without ever signing a final document. For example, by their course of conduct, they may have objectively demonstrated their intention to enter into a binding contractual obligation. In the case of J.S. McHugh, Inc. v WEB Construction, the court addressed the issue of whether the parties had an enforceable contract.
In early 2013, WEB engaged in negotiations with McHugh for McHugh to provide cabinetry at a project WEB was performing for the Long Beach Public Schools. The project was to have been performed over the summer of that year and be completed in time for the new school year.
The parties’ negotiations were comprised of a quote from McHugh to WEB to provide the cabinetry, followed by a revised quote. The revised quote provided for a furnished and installed price of $490,000, and it was signed by WEB. In comprising its quote, McHugh had priced out a cost to manufacture the cabinets of $275,475 and a cost to install of $80,000, leaving $152,575 for its profit. This quote, however, did not contain terms for the payment of the $490,000 and, in fact, stated that such terms were “to be discussed upon contract”. The emails which accompanied the quote stated that McHugh could “start shop drawings and submit . . . insurance”.
Believing that it had a binding agreement with WEB, McHugh entered into contracts with the cabinet manufacturer and installer. However, McHugh’s project manager (who was apparently leaving the company) advised WEB that the manufacturer would not supply McHugh with the cabinets due to payment issues it was having with McHugh. Upon hearing this, WEB informed McHugh that WEB would not be using its services, and it directly retained McHugh’s proposed manufacturer and installer to complete the work.
McHugh sued WEB for breach of contract, claiming $152,575 in lost profits. At trial, WEB presented evidence that although the price had been set, there had been no terms negotiated for the payment of the contract price. WEB further argued that the language “to be discussed on contract” indicated that there was no contract. McHugh, on the other hand, argued that the evidence showed that the parties had a meeting of the minds, the major terms had been agreed to, and the missing payment terms were relatively minor and could be filled in based on either what is customary in the industry or the prior course of dealing between these parties on other projects.
The court ruled in favor of McHugh, holding that there was, in fact, a binding contract between the parties. After first noting that “virtually every agreement can be said to have a degree of indefiniteness”, the court held that all that was necessary to establish a binding contract was evidence that the parties assented as to the essential terms. As to the missing specifics of the payment terms, the court found that there were certain customs and practices in the construction industry that could have filled in the missing terms, or that a form AIA contract that is typical in the industry could have done the same. Accordingly, the court held that the few missing terms in this contract could not defeat the fact that there had been a sufficient meeting of the minds on the essential terms to establish an enforceable agreement.
While it is true that an agreement does not have to be in writing to be enforceable, this case shows that where there is no writing there can easily be disputes as to what terms were included in the contract, particularly here, where there was uncertainty as to the method or terms of payment. The best practice, of course, is to have a written agreement where the essential terms are clearly set forth so that there can be no dispute as to whether a contract was formed.