The down-side is that a party gives up their rights to full appellate review, as one has when a judge or jury makes a decision with which they disagree.

Notwithstanding, many parties to construction contracts trade this away for the other benefits of the process. Because of the rights that one is giving up by submitting to arbitration, courts generally require that a party sign an agreement consenting to that process. However, in the recent case of SEG Services Corp. v Smyrna Ready Mix Concrete, LLC, a court reminds us that the requirement of a signed agreement consenting to arbitration may be dispensed with under certain circumstances.

Background

In February of 2022, Jun Construction entered into a construction subcontract with SEG Services to perform certain concrete work for the support of excavation, foundation, and superstructure for the construction of the building at 57 Caton Place in Brooklyn, NY. SEG procured the required concrete from US Concrete (Smyrna Ready Mix Concrete’s predecessor in interest). Prior to providing the concrete, US Concrete had sent over a proposal with the terms on which it would furnish the concrete; one of these terms was a clause providing that disputes would be submitted to arbitration. This purchase order was watermarked “DRAFT,” and was never countersigned by SEG. Notwithstanding, US Concrete provided the quantities set forth on the proposal, at the prices reflected.

SEG failed to fully pay for the concrete provided, and left a balance owing to US Concrete of $290,827.09. Smyrna, now the successor to US Concrete, filed a demand for arbitration with the American Arbitration Association, claiming that arbitration was mandated under both the Prompt Payment Act and the contract between its predecessor (US Concrete) and SEG. SEG moved to permanently stay the arbitration, arguing that arbitration could not be had under the Prompt Payment Act because US Concrete/Smyrna failed to comply with its notice requirements, and there was no executed written agreement compelling arbitration. Smyrna opposed, providing the US Concrete proposal and arguing that it applied to its work because, at all times, all parties adhered to its terms. Smyrna also argued that the Prompt Payment Act was applicable because SEG failed to pay for the concrete for more than 12 days after each invoice was rendered, and failed to dispute those invoices.

Decision

The motion court found that US Concrete/Smyrna was not entitled to arbitration under the Prompt Payment Act because it failed to comply with the Act’s requirement to notify the non-paying party that payment has not been received on the (deemed) undisputed invoice (and that if payment was not forthcoming, or that if no progress was being made to settle the matter, that arbitration would be sought).

The court, nonetheless, sent the parties to arbitration under the contract. In doing so, the court cited well-settled law that “the quote became a valid contract despite the absence of the parties’ signatures” (and despite the “DRAFT” watermark) because the parties abided by the terms of the terms set forth in the proposal and SEG ratified those terms when it accepted the quantities of concrete set forth in the proposal, at the prices reflected in that document. Thus, neither the lack of signature, nor the watermark, were fatal to the application of the proposal’s terms, including its arbitration clause, and the proposal was a sufficient written agreement to meet the requirement that an arbitration agreement be in writing. (The court also noted that there are also other circumstances under which a party can be compelled despite not signing an arbitration agreement, such as where, like here, the party accepted the benefits under an agreement that provided for arbitration.)

Comment

While there is an axiom in the law that “if it ain’t in writing, it didn’t happen,” that axiom is not so strict as to universally require that the writing be signed—although, clearly, that is the better practice. Also, there are contexts where the lack of a signature will, indeed, be fatal.

One such context is where an insurance policy will automatically extend additional insured status to those with whom the insured has agreed in a signed writing to provide additional insured coverage to the other contracting party. In that context, no signature equals no additional insurance under the policy. However, for purposes of enforceability, that contract you never sent back on that project you went to work on nevertheless will serve as a written memorandum of the terms of the contract you ratified through your actions.

Rather than have your actions, as opposed to your conscious understanding, set forth the agreement—with the terms often subject to competing unsigned forms, or other ambiguities that may leave you wondering about what you agreed to—the best practice is to retain experienced construction counsel to draft and negotiate your contract. That way, you will have full knowledge of what you’re agreeing to, and that those terms are as favorable as possible.

About the author: Thomas H. Welby, an attorney and licensed professional engineer, is General Counsel to the Construction Industry Council of Westchester & Hudson Valley and the Building Contractors Association and is the Founder of and Senior Counsel to the law firm of Welby, Brady & Greenblatt, LLP. Gregory J. Spaun, general counsel to the Queens and Bronx Building Association, is an attorney and a partner with the firm and co-authors this series with Mr. Welby.