What Makes a Contract a Contract?

A cabinet-maker's builder customer has bailed out on a design-build job after paying a deposit and okaying plans. Now who owes what to who? This thread from Woodweb's Business forum provides a good clarification of just what kind of statements and actions add up to a legal contract. November 11, 2005

We have a project where the builder is threatening to pull the job from us, based primarily on the fact that he has a lower bid. We have worked for months for this guy, doing drawings for the entire project, procuring some materials, and beginning to build some boxes. He has paid us a deposit, plus signed our shop drawings which stated, by signing, that he is giving us an order to proceed with this work.

One of the issues is that it was a design/build, with constantly changing details and scope. I've given him budget estimates numerous times throughout the process, but never a formal contract.

What can he do at this point? I didnít specify if the deposit was refundable or not. Does anyone know what the laws might be? I'm waiting for my lawyer to get back into town, but this guy is trying to negotiate a better number. Do I legally have to return any of the money? Do the deposit and signed drawings constitute a contract?

Forum Responses
(Business Forum)
From contributor A:
Your second paragraph says it all. I believe it would hold up in court no matter what state you are in.

From contributor B:
I would send him a bill for all the work that you have done and the materials that you have purchased that cannot be returned. Tell him you will give back the deposit minus the bill and he can have whoever he wants build the cabinets. Be sure to include all of the hours that you have spent on the project and not just the time in the shop. Include all of the travel, phone conversations, drawing time, field measurements. Any costs or anything that used your time needs to be included in the bill. It doesn't sound like this is a guy you want to work for in the future.

From contributor C:

Take it one step further and include the work you passed on while you were doing his work and include that in your costs to date. This can be a significant and very real number. You could have spent 200 man hours doing something profitable rather than half way through a dead end. And don't forget to add in the legal fees.

From contributor D:
You details indicate a meeting of the minds, which the majority of the states in this country use for a definition of a contract. Keep the money, and force the subject to take you to court. Make copious notes of all the time, effort and materials used in preparing the bid, carrying out the efforts needed to complete the project, and all subsequent efforts to appease this disgruntled buyer.

From contributor E:
In my experience, we kept the deposit and the materials and the client was free to go with whomever they wanted. You should get him to sign a release from the job which should put an end to everything.

From contributor F:
A contract consists of an offer and acceptance. It looks as if you have met the basic requirements for a contact. However, it gets sticky after that.

It really doesn't matter what the law is. The question is whether your attorney can convince 6-12 people that you are absolutely right. There is a good chance that the judge will order mediation ($750 for 1/2 day plus attorney fees). If this doesn't work, then you go to trial. Plan on a $1,000 - $2,000 to file the petition, etc., then $8,000 to $10,000 for the trial. I have 3 attorneys working on 2 different cases, and their fees range from $190/hr for the construction attorney to $250 for the trial lawyer. Then there is your time. I asked 2 questions about the case and it cost me $2,400 for 5 pages of references.

The legal system is a whole different world. Things move ever so slowly, and they have their own set of rules - literally. The legal system is not always just.

With that warning, do the best that you can. You are at an advantage in that you are holding the money. If it goes to court, you may be required to sell the material, and someone on the jury may find sympathy for the builder and you get next to nothing for your time. Any good attorney will be able to exploit the loop holes in a weak contract. And if he wins, you are responsible for court costs and his attorney fees.

From contributor G:
In all states the key elements of a contract are:

1. Binding Agreement: A competent party offering to perform a specific, legal, service (the Offer) for a given price, within a given period of time (Performance), and that offer being understood and accepted by another competent and authorized party (Acceptance/Assent).

2. Consideration: Something of value (usually money) must be given in exchange for the services rendered.

The only other element is that certain contracts require specific form, such as an official form, or must be reduced to writing (can't be verbally agreed upon).

All that being said, you hold the money, and a court is unlikely to make you return it, especially since you've provided work/performance. Secondly, while it is correct that there can be significant other costs and delays in the legal system, one thing that has worked very well for me has been to utilize the Small Claims Courts or Special Civil Part Court system (at least that's what they're called here in NJ).

Small Claims court is up to $3000, and Special Civil is $25,000. The small claims court isn't lawyer driven. You write up the problem, present it to the judge, and he than acts as the lawyer for both sides. Special Civil has more lawyers, but also a fair number of people representing themselves, and most of the cases are contract disputes.

From the original questioner:
I made the decision to hold firm on my pricing, and told him I would be willing to look at details and scope issues that might reduce costs, but that I also felt with the deposit and signed drawings, we have a contract and should consult with an attorney to determine how much money, if any, would be returned.

After first saying he wouldn't be intimidated by that, he changed his tune and is trying to work this out with me. I think he probably consulted his attorney who told him he was in the wrong. If I do move forward with the job, I will be getting payment up front prior to continuing any work.