When is Written Construction Contract Effective?

By John S. Mrowiec

It commonly happens that a contractor or subcontractor begin on-site work without a signed contract. Later, the owner and contractor or contractor and subcontractor sign a contract.

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In that situation, what are the parties’ rights and obligations for events occurring after on-site commencement but before signature? May the parties provide an “effective date” in the contract earlier than the date of signature? If they do, will that earlier date govern?

An example of a case addressing these questions is the recent decision in Stenulson v. Hunzinger Construction Co., 2007 Wis. App. LEXIS 962 (Nov. 6, 2007).

Work Begun Before Contract

In Stenulson, Hunzinger Construction Co. was the general contractor for the Harley-Davidson Product Development Center. The contractor chose Oneida Erecting Inc. to be an erection subcontractor.

The subcontractor began on-site work before signing a subcontract with the contractor. Eventually, the contractor and subcontractor signed a written subcontract.

The subcontract provided that the subcontractor would indemnify the contractor from third-party claims resulting from the subcontractor’s or contractor’s negligence. In Wisconsin, this type of clause is enforceable if “conspicuous” but would not be in Illinois and might not be in Indiana or Missouri.

Before the parties signed the subcontract, one of the subcontractor’s employees was injured on-site. After the subcontract was signed, the injured worker sued the contractor, but not his employer, the subcontractor. The contractor sued the subcontractor alleging that the subcontractor was obligated by the subcontract to indemnify the contractor from the injured worker’s suit.

Both the contractor and subcontractor filed motions for summary judgment. The trial court granted summary judgment in favor of the contractor and denied the subcontractor’s motion for summary judgment. The subcontractor appealed.

Did Obligation Exist?

The subcontractor had two arguments, only one of which is addressed in this article. The subcontractor contended it had no obligation to indemnify the contractor because the accident occurred prior to the signature of the subcontract.

The Stenulson Appellate Court reviewed the written subcontract. The subcontract provided “at its very outset that it is ‘made as of twentieth (20th) day of November, in the year of 2001.’”

Section 9.1 of the subcontract then stated “the date of commencement of the contract shall be the date of the Agreement, as first written above, unless a different date is stated below or provision is made for the date to be fixed in a notice to proceed issued by the Contractor.” The subcontract’s signature block stated “this Agreement entered into as of the day and year first written above” Stenulson, 2007 Wis. App. LEXIS 962 at * 3-4.

The subcontractor argued that it owed no indemnity for its employee’s suit because “the contract-effective date preceded the execution of the contract.” Based on the quoted subcontract language, the Stenulson appellate court rejected the subcontractor’s argument and affirmed the trial court’s grant of summary judgment in favor of the contractor.

Stenulson reasoned: “The language of the contract plainly states that the intent of the parties was to have the contract go into effect on Nov. 20, 2001.” The “plain language” regarding the “effective date” governed over the actual date of signature. Without the apparent need to cite any authority in support, Stenulson held “parties are not barred from setting a contract-commencement date to take effect before the separate signatures of the parties are actually affixed to the contract itself.”

Therefore, Stenulson held that the Subcontract “was in effect at the time the injury occurred in this case,” Stenulson, 2007 Wis. App. LEXIS 962 at *4.