It is not unusual for the low bidder on a large job to be told, by the end user, he has won the bid and the contracts are being prepared. For purposes of our discussion today, let us assume that this happened. Let us further assume that in anticipation of this contract award the low bidder, a general contractor, enters into an oral agreement with a floor covering sub-contractor for the supply and installation of various carpet required for the job.

As sometimes happens while all this is going on, the specified manufacturer announces the price on the needed product will shortly be increased. In anticipation of this increase the sub-contractor, with the general contractor’s approval, orders the needed broadloom for immediate delivery at the old price. Keep in mind that the contract still has not actually been awarded by the end user, a large municipality, although it is aware the carpet is being ordered from the mill it specified and that it is being custom dyed to its specification.

In any event, sometime after the product is manufactured and delivered to the warehouse, the municipality, due to budgetary concerns, decides not to award the contract to anyone but rather to put off the renovation job for an indefinite period. The question now is, who gets stuck paying for the broadloom?

There are four parties involved—the mill, flooring sub-contractor, general contractor and municipality. Since the carpet was manufactured by the mill pursuant to a special order of the sub-contractor, and since it was delivered, accepted and paid for before the problems arose, the manufacturer should be out of the picture.

Although the municipality would, by its procrastination, seem to be the one who has caused all the problems, it has also covered itself pretty well for just this type of problem. In its bid proposals, and in later correspondence between itself and the general contractor, it specifically stated, in no way would it be responsible for the purchase of or payment for any goods in the event the contract was not finally awarded. The municipality then, similar to the mill, should be void of responsibility. This leaves the flooring sub-contractor and general contractor to fight it out.

A situation very similar to the above was recently presented to a local judge for decision. In this case, after receiving notice the contract would not be awarded as planned, the sub-contractor invited the general contractor to take possession of the goods at cost. The general contractor declined and the sub-contractor was forced to sell the specially-made goods at the best price it could get. This sale resulted in a net loss of $14,020 for which amount it now sued the general contractor.

In the lawsuit, the sub-contractor claimed it was entitled to reimbursement because the general contractor, prior to the ordering of the goods, had orally agreed to pay for all goods as billed by the mill in the event the main contract was not awarded. The general contractor denied this with his contention that the sub-contractor assumed the risk in order to get the job.

As proof of the alleged oral agreement, the sub-contractor offered as evidence a copy of a letter it sent to the general contractor on the day the material was ordered. This letter stated, “In the event you are not awarded a contract on this project…you will pay for all goods as billed to us by the manufacturer plus handling and trucking.”

The general contractor protested the admission of this letter as proof of the oral argument. This protest was based upon the statute of frauds language of the Uniform Commercial Code (UCC), which requires a contract for the sale of goods in excess of $500 must be in writing and signed by the party against whom enforcement is sought. Since he did not sign the letter, the general contractor claimed it could not be considered an agreement.

The court did not buy this defense. Instead, it relied on another section of the UCC which states in a transaction between merchants, if “a writing in confirmation of the contract” is received and not objected to within a 10-day period, this writing will satisfy the written contract requirements even though it has not actually been signed.

As a point of information, in this case, the general contractor admitted receipt of the letter and testified that the day after his receipt, he telephoned the sub-contractor and told him he did not accept its terms. The judge, handled this alleged phone call by simply stating, “the court does not believe this testimony.”

According to this court, the general contractor was obligated to reimburse the sub-contractor for its entire loss. Once again, we see how important it is to “put it in writing.”