Court Rules that Enforceable Contract Existed Even Without Signed Contract

In a recent breach of contract case involving a construction subcontract, the Court of Appeals of Tennessee held that the contract at issue was enforceable even though the parties never signed a written agreement. This case is a reminder that a legally enforceable contract may, in some cases, be created just by the conduct of the parties.

In Tennessee, some contracts must be in writing and must at least be signed by the party against whom the contract is sought to be enforced. The relative number of those types of contracts is pretty limited. (The largest share of those types of contracts are ones for the transfer of an interest in real estate, which, under Tennessee law (the Statute of Frauds), must be in writing and signed.)

Here are the key facts of the case:

  • The Plaintiff was a general contractor (the “Plaintiff GC”)
  • The Plaintiff GC desired to bid on a public project
  • The Plaintiff GC solicited a bid for the masonry work on the project from the Defendant, a subcontractor (“Subcontractor”)
  • The Plaintiff GC’s invitation to bid to the Subcontractor included the plans and specifications for the project
  • Subcontractor submitted its bid to the Plaintiff GC for $174,154
  • Plaintiff GC notified Subcontractor that it was the low bidder, but wanted to confirm with Subcontractor that its bid was accurate and complete before submitting its bid on the project
  • Subcontractor confirmed that its bid was complete and accurate
  • Plaintiff GC bid on the project and was awarded the bid
  • Plaintiff GC notified Subcontractor that it had been awarded the bid and Subcontractor responded by thanking it for the update
  • Since Subcontractor’s initial bid of $174,154 had been off because it inadvertently included sales tax, omitted its bond costs, and omitted some materials needed, the parties agreed to amend Subcontractor’s bid upward to $185,028
  • Plaintiff GC sent a purchase order/agreement to Subcontractor which reflected the adjusted bid of $185,028
  • Although Subcontractor never signed and returned the purchase order/agreement and the parties never signed a contract, Subcontractor submitted sample materials to Plaintiff GC
  • Subcontractor thereafter informed Plaintiff GC that it did not intend to perform the work

Plaintiff GC sued Subcontractor for breach of contract. Plaintiff GC claimed its damages were $64,971 —- the difference between the contract price for which Subcontractor had agreed to do the work and the amount it had to pay the subcontractor it contracted with to perform the masonry work that Subcontractor had bid, but never performed. The trial court found for the Plaintiff GC and awarded it the requested $64,971. The Court of Appeals affirmed the trial court.

Subcontractor’s defense was that it had never signed the purchase order/agreement, and that it was customary in the construction business that the parties sign a “full agreement” which contained all the terms related to the job before work began.

The appellate court found that, even though the parties had not expressly agreed to contract terms, the parties had manifested conduct that demonstrated mutual assent to an agreement. Thus, it held that a valid contract existed.

The appellate court found that the Subcontractor’s bid to the Plaintiff GC was an offer. It further held that, even though Plaintiff GC had not expressly accepted the offer, its actions manifested an acceptance. So, to what terms did the Plaintiff GC and Subcontractor agree? The appellate court held that, by its actions, the Subcontractor assented to the terms of the purchase order/agreement.

This holding in this case demonstrates a fundamental legal doctrine in Tennessee. A contract can be formed by objective manifestations of assent. In Tennessee, an enforceable contract requires mutual assent, sometimes also referred to as a “meeting of the minds.” A meeting of the minds can be proven by proving that a reasonable onlooker, viewing the parties’ conduct, would conclude that the parties had reached a meeting of the minds. Importantly, a meeting of the minds can occur even when the parties have not reduced their agreement to a formal signed writing.

This outcome in this case should be no surprise to experienced Tennessee construction lawyers.



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