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When Actions Speak Louder Than Words: The Impact of Chubb v. Buster & Cogdell
In Chubb Lloyds Insurance Company of Texas v. Buster & Cogdell Builders, LLC[1] the Houston [1st Dist.] Court of Appeals recently addressed important issues about contract formation and enforceability.[2]
Background:
Jeffrey and Mary Meyer hired a general contractor on a home remodeling and expansion project for around $360,000. The contractor emailed them both a draft AIA construction contract with one signature line, followed by a second version with separate signature lines for both homeowners. Jeffrey signed and returned the first version, with a request that a countersigned version be sent back to him. Mary never signed the contract. The contractor never signed it and did not return a countersigned contract. Despite this, the contractor began work. During construction Mary issued several checks to the general contractor, approved a change order, and generally engaged with the general contractor about construction pricing and the requirements of the work.
During construction, a welding subcontractor caused a fire that destroyed the house. The Meyers’ property insurer, Chubb, paid $4 million to the Meyers and then sought to recover that amount from the general contractor and subcontractor. (This is called a subrogation claim, where a property insurer seeks to recover money it paid from the party ultimately responsible for the loss.) The general contractor and its welding subcontractor moved for summary judgment, relying on a provision in the AIA contract that waived rights to recover for damages caused by fire covered by insurance. (This is sometimes called a waiver of subrogation provision, although it is technically a broader waiver of claims. These provisions are common in construction contracts and are intended to prevent an insurer from recovering damages covered by the insurer’s property policy.) Chubb argued that the contract’s waiver provision was not effective due to the failure of all parties to execute it.
Court Ruling:
The district court granted the summary judgment for the contractor and subcontractor, ruling that the contract was valid and enforceable, even though not all parties had signed it. Per the court, Jeffrey executed the contract when he signed the first version, binding him to its terms. Mary was bound to the contract because she manifested her assent through conduct consistent with the contract, by being CC’ed on the email transmitting the contract, issuing checks, and performing exactly as required under its terms. The district court held, later affirmed on appeal, that there was a meeting of the minds between Jeffrey and Mary on the one hand, and the general contractor on the other, as all parties acted as though the contract transmitted by email (but never countersigned by all parties) governed the project.
Implications and Takeaways:
The lack of full signatures issue is common, especially in residential construction. The case highlights the importance of understanding that a contract can be enforceable even if not all parties have signed it. If two parties share an agreement and indicate that they want to be bound by it by acting as if the contract is in effect, courts will enforce that implied agreement. Contracts can be legally binding based on the actions of the parties, not just their signatures. Contractors should know that beginning work can indicate acceptance of the contract terms. Owners should be aware that their actions, such as making payments or approving work, can bind them to contract terms even without a formal signature.
[1] Chubb Lloyds Insurance Company of Texas v. Buster & Cogdell Builders, LLC, 668 S.W.3d 145 (Tex. App.―Houston [1st Dist.] 2023, no pet.)
[2] This abbreviated summary is intended to alert you to recent court opinions that may affect your business. It is not a substitute for consulting with an attorney about your specific contracts, business practices, or procedures. Nor is it a substitute for reading the case in its entirety. There is no legal advice here.