Maryland Law Regarding Emails May Help Subcontractors Assert Rights to Payment on “Informal” Change Order Work
January 21, 2016
When I review subcontracts for clients, it is not uncommon to see change order clauses including language such as, “no change order is effective unless it is in writing and signed by the contractor’s project manager.” Likewise, it is not uncommon for up-stream contractors or owners to dispute the validity of change order work charges based on the defense that the up-stream entity did not provide a written, signed change order authorizing the work or costs.
Unfortunately, I regularly see the “no signed change order” defense asserted even when the up-stream entity directed via email that additional work be performed, such as in the following example:
From: Bob Contractor
Proceed with the additional work we discussed.
Best Construction, Inc.
Modern Maryland law may now provide an avenue for subcontractors to fight back against the “no signed change order” defense, increasing the chance that informally ordered additional work will be compensated.
For example, Maryland’s Statute of Frauds, in a fashion similar to the change order clause described above, requires that certain kinds of agreements be both in writing and signed before a party can bring suit on them. Two common agreements falling within the Statute of Frauds are contracts relating to real estate and contracts for the sale of goods over $500.00. Historically, parties were required to sign a paper copy of an agreement with a pen to satisfy the Statute of Frauds, much as contractors have historically been required to obtain a formal, written and signed change order to have a clear path to compensation for additional work.
Under Maryland’s Uniform Electronic Transactions Act (“MUETA”), however, neither a paper agreement nor a signature in ink is necessary to form a contract that satisfies the Statute of Frauds. Instead, if a party intends to do so, it can form a contract that satisfies the Statute of Frauds merely by sending an email with a signature line. The MUETA provides that, “[i]f a law requires a record to be in writing, an electronic record satisfies the law.” Md. Code Ann., Comm. Law § 21-106(c). Likewise, “[i]f a law requires a signature, an electronic signature satisfies the law.” Id. at (d).
The Court of Special Appeals of Maryland has acknowledged that e-mails satisfy the Statute of Frauds in MEMC Elec. Materials, Inc. v. BP Solar Int’l, Inc., 196 Md. App. 318, 9 A.3d 508 (2010). In reviewing a series of e-mails that contained the terms of an agreement for the sale of goods, the Court of Special Appeals held that “e-mails constitute a sufficient writing under the Statute [of Frauds]. . . . In that regard, if so intended, a typed name is a sufficient signature as an agent of the party against whom enforcement is sought.” Id. at 339, 9 A.3d at 521. Essentially, the Court of Special Appeals held that a party can bind itself to a contract under the Statute of Frauds merely be sending an email with a signature block.
That case and others like it could have important ramifications for subcontractors working under a formal “writing-required” change order clause. The MUETA does not stop with the Statute of Frauds. Instead, emails can satisfy any contract that requires written confirmations or approvals, so long as the surrounding circumstances and contract language suggest that the parties agreed to conduct their business via email. See Md. Code Ann., Comm. Law §§ 21-104(b) and 21-108(b).
In the context of the email described above, the MUETA could therefore empower a down-stream contractor to assert that, since the parties were conducting business (including orders for additional work) via email, the email directing additional work constitutes a “signed, written change order” for the purposes of entitling the subcontractor to additional compensation for that work.