One of the most important rules of contract negotiations is to get everything in writing. If one wants to hold the other side to the specific terms of a business deal, one must absolutely prepare a written agreement and make certain that both sides sign on the dotted line. But what if this last step is missed? Will Illinois courts hold the other side to the terms of an unsigned contract?
A corporate client recently had its legal department perform an audit, and found that eighty percent of all contracts the company believed it had “entered” in the last two years remained unsigned. The company had agreed on the terms, services were being provided, and payments were being made. If a dispute arose, would the company be able to enforce the agreement or would the other side be allowed to escape since the contract had never been signed? Unfortunately, the answer is not always the same, and depends on the specific facts of the case. This article will help make sense out of the muddy law of unsigned contracts with four guidelines based on key Illinois and 7th Circuit court decisions.
PARTIES WHO ACT CONSISTENT WITH A Written Agreement WILL Be Bound By the Written Agreement
Illinois courts have found that if parties did not sign a written contract, but acted in a way that was consistent with the terms of the written agreement, then the parties will be bound by all the terms of the written agreement. For example, if a party made payments in an amount consistent with the written agreement, such payments would be strong evidence that the parties intended to be bound by the written agreement. This is especially true if the terms of the written contract were not identified in other sources such as emails and contract discussions. For example, if the non-signing party made monthly payments, and a monthly payment method can only be found in the proposed written agreement, then it may be hard to dispute the proposed written contract.
On the other hand, if the terms can be found elsewhere, such as in emails, correspondence, or in discussions about the terms of contract (as established by sworn testimony), then it may not be clear whether the parties were acting pursuant to the terms of one of these sources, as opposed to the unsigned written contract. At least one court found that some consistent actions were not enough to bind the parties to the written contract as a matter of law. In Lundin v. Egyptian Construction Co., the court found that summary judgment could not be granted where the facts were in dispute as to whether the parties acted pursuant to an oral contract or an unsigned written agreement. In Lundin, the general contractor sent a “confirming order” to its plumbing subcontractor after an oral agreement had been reached between the parties for plumbing work. The order was never signed or returned by the plumbing subcontractor despite requests by the general contractor to do so. The plumbing subcontractor nonetheless continued to work on the contract after receiving the order. A dispute later arose between the parties regarding liability for an injured worker of the subcontractor, liability the unsigned confirming order would have addressed.
The Lundin Court held that the plumbing subcontractor’s performance of the work did not establish enough for the court to grant summary judgment for the general contractor, despite its sending of the confirming order. The court found that the recipient subcontractor may have been acting pursuant to the original oral agreement, and not the unsigned contract. The court noted that the plumbing subcontractor had specifically stated in an affidavit that he had completed the contract based on the oral agreement, and not the confirming order. Since there existed a disputed material fact as to whether or not the plumbing subcontractor acted pursuant to the oral or written agreement, the court found that it was an error for the trial court to grant summary judgment.
By contrast, in Landmark Properties, Inc. v. Architects International- Chicago , the court held that a party which did not sign a contract was still required to abide by the arbitration clause of the unsigned contract. In Landmark Properties, Inc., a developer filed a complaint against the architects on the project, seeking to block an arbitration proceeding. The developer claimed that the controlling agreement between the parties was an oral agreement entered into at the beginning of the relationship, and not the one contained in the unsigned contract. The developer maintained that a question of fact existed as to whether the developer’s actions were taken pursuant to the oral agreement as opposed to the written, unsigned contract.
The Landmark Properties, Inc. Court disagreed, and held that it was proper to grant summary judgment on behalf of the architect. The court found that the developer’s actions contradicted its claims that it was acting pursuant to the oral agreement. Since the developer never rejected the unsigned contract sent by the architect, but instead sent correspondence to the architect indicating that payment would be forthcoming provided all of the services were performed in accordance with the written contract, the court found that the developer’s actions were consistent with the conclusion that the parties were acting pursuant to the written agreement, as opposed to the oral agreement. In addition, once a dispute arose, not only did the developer request and file a submission to mediation, but it also asserted a claim of its own. The court found that since the developer maintained that there was no oral agreement as to how the parties would mediate or arbitrate their disputes, there was no question that the developer was acting pursuant to the written contract as opposed to the oral contract. The court granted the developer summary judgment based on the written contract and ordered the parties to proceed pursuant to the written contract’s arbitration clause.
FAILURE TO OBJECT TO A WRITTEN CONTRACT WILL BE STRONG EVIDENCE THAT IT WAS ACCEPTED
Similar to the court’s holding in The Landmark Properties, Inc., other courts have also held that a party’s silence or failure to object may lead to the conclusion that the proffered written agreement was accepted, although not signed. For example, in Compass Environmental, Inc. v. Polu Kai Services, L.L.C , the court held that a subcontractor, by its course of conduct, assented to the terms and conditions on the reverse side of a purchase order sent by the contractor. Despite the lack of a signed contract, the court held that the subcontractor was bound by the terms and conditions of the purchase order, which included a forum selection clause requiring lawsuits to be filed in Illinois.
The subcontractor in Compass Environmental, Inc. began work before it received the contractor’s purchase order. When the subcontractor received the electronic version of the purchase order, the subcontractor did not inquire as to the “terms and conditions” which the purchase order indicated were contained on the reverse side. Instead, the subcontractor just continued working. When the subcontractor finally received a copy of the purchase order by Federal Express, it continued to work without objecting to the terms and conditions of the purchase order. The court found that since the subcontractor continued to work without objecting to the purchase order or the terms and conditions on the reverse side of the purchase order, the subcontractor was bound by terms and conditions.
An Accepted Contract Will Be Treated As a Whole
All the reviewed cases dealing with unsigned contracts are clear on one point: the written agreements stood or fell as a whole. In other words, if the parties acted as if some terms of the written agreement applied, all of the terms of the written agreement applied.
For example, if the parties’ conduct was clearly consistent with the construction schedule of the written contract, then the parties were bound by the forum selection clause as well. If the parties’ conduct was clearly consistent with the payment terms of the written contract, the parties were bound by the arbitration clause as well.
Thus, there is no need to prove that the parties’ conduct was consistent with each and every written provision in order for that written provision to apply. Typically, the party seeking to avoid the terms of a written agreement wants to avoid some clauses, but would agree to other parts of the unsigned written agreement. Perhaps the construction schedule was fine, but the contractor felt that the price for the work should have been much higher. If the court decides that the parties were following the construction schedule because they assented to the unsigned written contract, then it is likely the court will enforce the fee provisions as well.
Limitations of Liability May be Enforced in an Unsigned Contract
Along these lines, it is important to watch out for Limitations of Liability Clauses in proposed written contracts. There may have been no conduct whatsoever to suggest that a party specifically agreed to a clause which severely restricted that party’s ability to recover in a lawsuit, and yet if the written contract controls, the courts will enforce such restrictions. Courts have specifically enforced limitations of liability clauses stated in an unsigned contract. For example, in Pratt Central Park Ltd. Partnership v. Dames & Moore, Inc., the 7th Circuit Court of Appeals held that a contract provision in a contract for an earlier job that an engineering firm performed for the property owner, capping liability at $5,000, also capped the liability on the subsequent project at issue.  In Pratt Central Park Ltd. Partnership v. Dames & Moore, Inc., the property owner filed a lawsuit against an engineering firm that performed an environmental risk assessment, but failed to discover hazardous chemicals below the property. The court held that the parties were bound by the limitations of liability spelled out in a previous contract between the parties for another job. Since a new contract was never signed, the court found that the parties were bound by the terms of the previous contracts including the cap on liability and therefore the plaintiff failed to satisfy the jurisdictional amount for a diversity action in federal court.
In conclusion, while it is always the best practice to memorialize the terms of an agreement in a signed, written contract, even in the absence of such signatures, the written contract may still control. If it seems inevitable that a lawsuit will ensue, it will be essential to gather documents and emails which reflect the parties’ intentions and subsequent actions with respect to the unsigned written contract. Moreover, carefully drafted affidavits may help explain such intentions and subsequent actions to the court. While all is not lost because of the missed signature on the contract, counsel will want to be certain to demonstrate to the court the consistencies or inconsistencies with the unsigned contract in order to prove the case. Such careful presentation of the facts will ensure that the only signature being discussed is the one on the settlement check from the other side.
 See Landmark Properties, Inc. v. Architects International-Chicago, 172 Ill.App.3d 379, 526 N.E.2d 603 (1st Dist. 1988).
 Lundin v. Egyptian Construction Co., 29 Ill.App.3d 1060, 331 N.E.2d 208 (1st Dist. 1975).
 Landmark Properties, Inc. v. Architects International- Chicago, 172 Ill.App.3d 379, 526 N.E.2d 603 (1st Dist. 1988).
 Compass Environmental, Inc. v. Polu Kai Services, L.L.C., 379 Ill.App.3d 549, 554, 882 N.E.2d 1149, 1155- 1156 (1st Dist. 2008).
 Pratt Central Park Ltd. Partnership v. Dames & Moore, Inc., 60 F.3d 350 (7th Cir. 1995).
Kevin R. Sido is a partner of Hinshaw & Culbertson LLP. His practice has long involved contract disputes involving construction and real estate matters. Since 1975 he has represented all parties in construction disputes particularly design professionals. He is the editor of Architects and Engineer Liability: Claims Against Design Professionals (Aspen, 3d ed. 2006) and is a prolific author and speaker on subjects of construction law, civil procedure, and alternative dispute resolution. He has been recognized for years as an Illinois Super Lawyer. Mr. Sido is a mediator and arbitrator on the panel of ADR Systems of America, LLC.
Joseph E. Rubas is a partner with the law firm of Senak Keegan Gleason Smith & Michaud, Ltd. He has over fifteen years’ experience in complex litigation and transactional matters with a particular emphasis in construction law. He has devoted most of his career to the representation of architects, engineers, hospitals, contractors, and small business owners. He has handled the full spectrum of construction related claims from business disputes over the construction of power plants to residential home defect cases to mechanics liens. He has also handled numerous subrogation cases involving property losses caused by catastrophic accidents including roof collapses, hotel and warehouse fires, and water pipe ruptures.