When an Owner Wants an Oral Contract

Maurine McCarthy selected Chris Taussi of RHI Home Improvement to do work on a home she bought in Pequannock, New Jersey. Maurine wanted to add a bedroom and bathroom, renovate the kitchen and make other improvements. New Jersey’s Consumer Fraud Act (CFA) requires a written contract for home improvement projects. The contract has to cover scope of work, price, start and end dates and any right to cancel. That’s all well and good. But Maurine didn’t want to sign the contract RHI offered. Instead, she insisted on an oral agreement and nothing more. Chris Taussi started work based on the oral understanding he had with Maurine.

As you might guess, it didn’t go well. Maurine and Chris got into a dispute over scope and quality of work and payment terms. Maurine paid Chris for most of the job but filed suit to resolve items not completed to her satisfaction. In her complaint, Maurine alleged violation of New Jersey’s Consumer Fraud Act  – no written contract. The penalty for a CFA violation can include a refund of all money collected or treble damages plus legal fees.

With no written contract, RHI had a problem. They couldn’t refute Maurine’s claims or prove completion of the job. It was a case of “he said” and “she said”.

How Would You Decide This Case?

The trial court wouldn’t buy Maurine’s claim of a CFA violation. She had insisted on an oral agreement. RHI offered a written contract. On that basis, the trial court dismissed Maurine’s complaint. Maurine appealed.

The appellate court affirmed dismissal of the case. Why? Because there was no way to identify Maurine’s loss. Scope and quality of the work were uncertain. There were no start, finish or payment dates. There was no agreement on making changes or resolving disputes. Also missing: any right to cancel the job and duration of the warranty.

Why couldn’t Maurine win this case under the doctrine of “contra proferentem” as described in this space last month? True, contracts are interpreted against the drafting party. But in this case, Andrews21 LLC vs. RHI Home Improvement, the court couldn’t interpret the contract for or against anyone. Two reasons:

1.       There was no written contract. There was nothing to interpret.

2.       RHI had offered a written agreement. Maurine opted out. RHI shouldn’t be penalized for Maurine’s choice.

What should you do if an owner insists on an oral agreement? You could simply walk away. Working under an oral agreement always puts the contractor at risk. Loss of reputation, time lost and money wasted in litigation are just the start. But there’s a better way.

A Better Choice

Instead, write up a good contract. Use Construction Contract Writer to be sure you’ve covered all the important points. Send the draft to your client. Retain a copy in your file. The written agreement is your understanding of job requirements. If the owner gives an OK to begin work and starts making payments, you’ve got a written agreement, even if never signed by the owner.

Don't Risk Contra Proferentem

A spring 2024 storm damaged the roof on Arthur Robertson’s 1,800 SF Jacksonville home. Arthur agreed to have Florida Roof Specialists (FRS) make repairs. Arthur signed a FRS contract with no price. Salesman for FRS said Arthur didn’t have to worry about the price. FRS would negotiate a price with the insurance carrier.

When FRS finished work, Arthur’s insurance company wrote a check for $23,000. Arthur paid FRS. So far, so good. But that wasn’t the end of the story.

After completion, Arthur got a “final invoice” from FRS. FRS claimed Arthur owed another $23,000. The job cost was now $46,000. When Arthur refused to pay, FRS filed suit to enforce a lien on Arthur’s home. That put the FRS contract front and center.

Turns out, the FRS contract was a printed form with blanks to be filled in by hand. Only the owner’s name, job address and the contract date changed from job to job. Did FRS have an enforceable contract?

To be enforceable, a contract has to cover:

Scope of work: The contract required FRS to restore the property to pre-loss condition. But there was no list of materials and no quantities. There was no scale drawing. And think about it. If the roof was leaking pre-loss and was still leaking after FRS finished work, wasn’t that the “pre-loss condition”?

Price: The amount due was left to the contractor’s discretion or the insurer’s later adjustment. There was no dollar amount or cost per unit.

Labor and material specs: FRS didn’t identify the type, brand or quality of roofing materials. The court had no way to evaluate whether FRS had performed what the owner expected.

Payment date: The contract made payment due “upon insurance payout”.  But was that after an initial advance? Or was it after payment in full? What if the insurance company refused to pay in full?

Changes: Nearly every job has changes or extra charges. The FRS contract said nothing about change orders or how changes would be approved.

Start and finish date: The contract required that work begin “as soon as possible”. What does that mean? The court found that term indefinite and unenforceable.

With terms this vague, either the owner’s interpretation or the contractor’s interpretation could be right. What’s a court to do?

The Court's Decision

When a contract is vague on some issue, courts are required to construe meaning against the party who drafted the agreement. That’s known by the Latin name Contra Proferentem. As the drafter, FRS had to show clear and mutually agreed meaning for contract terms. If a contract term can be interpreted several ways, the term will, as a matter of law, be interpreted against the party that drafted the agreement.

Without a clear definition of the (i) scope of work, (ii) price, (iii) job specs, (iv) payment date, (v) change order procedures and (vi) timeline, the FRS contract did not meet Florida minimums for a residential contract. The contractor had no right to enforce the agreement or claim a construction lien.

All these deficiencies could have been avoided by clear, custom contract drafting. That’s my recommendation. Use Construction Contract Writer to draft an enforceable agreement for any type of construction project and for any state. The trial version is free.

Protect Your Plans

Your bid for every job is based on the plans. That’s clear. What’s not clear unless made explicit in the contract: Who owns those plans? If you or your designer drew the plans, those should be your plans. Leave no doubt. A recent case highlights the issue.

Jason and Kacie Highsmith needed new cabinets and closets in their North Carolina home. The Highsmiths liked a proposal prepared by Design Gaps, Inc. and signed an agreement to have Design Gaps do the work. The contract had no completion date. But eight months later the job still wasn’t done. After multiple delays, the Highsmiths gave up on Design Gaps and opened negotiations with Bryan Reiss of Distinctive Design. Before signing a second agreement for their cabinet job, the Highsmiths shared with Distinctive Design the plan prepared by their first contractor, Design Gaps.

Disregard the ethical question -- sharing a prior contractor’s plan with a subsequent contractor. What’s the legal obligation? What prevents an owner from sharing one contractor’s ideas (plan) with some other contractor? Essentially, who owns the plans? Design Gaps claimed copyright in their plan -- though nothing had been filed with the Registrar of Copyrights. Was passing the plan to Distinctive Design a violation of Design Gaps copyright?

The case went into arbitration, as required by contract. The arbitrator’s decision did no favor for the contractor:

[Design Gaps] failed to enter into evidence a valid copyright registration; however, even if they had, [Distinctive Design] certainly established fair use of the design work, especially considering that [the contractor] did not profit from the design. The sharing of a PDF of the design did not materially impair the marketability of the design. [Design Gaps] failed to prove that [Distinctive Design] or anyone else converted its designs for this project. Bryan Reiss of Distinctive Design confirmed that he did not use Design Gaps' designs for the cabinets. I am convinced by Reiss's testimony and the exhibits provided that any similarity in the designs is due to the limitations of the space and the client's desired layout. Therefore, there has been no violation of any copyright which [Design Gaps] may have had.

The arbitrator denied relief on Design Gaps' counterclaims and declared the Highsmiths the prevailing party, awarding them $152,884 in damages plus $17,411 in arbitration costs and $126,113 in attorney's fees.

Any Time You Draw the Plans

Adding your name and a copyright symbol to your plan isn’t enough. Neither is registering your plan with the Copyright Office. Leave no doubt about who owns the plans. Make it clear in the contract: You own the plans. My recommendation: Use this option in Construction Contract Writer:

Plans, Drawings, Specifications and copies prepared for use in construction under this agreement are the property of Contractor. Contractor retains all common Law and statutory rights to these Plans, Drawings and Specifications. Owner agrees that these documents will not be used on any other project and, with the exception of one record set to be retained by Owner, will be returned to Contractor on request.

No Valid Contract in New York

George Azarias wanted some electrical work done before moving into his Manhattan apartment. Work included upgrades to electrical wiring, a sound system and Internet connection. Azarias solicited a proposal from Orpheous Nelson of Orpheous Electrical, Inc. According to Azarias, the proposal from Nelson was a little vague. It didn’t specify either the work to be done or the total price. Still, Nelson got an OK to start work. Unfortunately, the job didn’t go as planned.

Nelson’s work was slow and “lousy” according to Azarias. After paying over $20,000, Azarias fired Nelson and hired another electrical contractor. Then Azarias filed suit against Nelson, asking damages of $30,000 for breach of contract.

Counsel for Nelson defended, insisting there was no valid contract. Hence there could be no breach of contract. Neither Azarias nor Nelson signed anything. Nelson sent his proposal by email. It was never signed. New York General Business Law § 771 makes it clear. Home improvement contracts must be in writing and must be signed by both the contractor and the owner.

Section 771 is cited most often by owners as defense against a contractor’s claim for payment. A New York contractor who ignores § 771 isn’t going to collect the full contract price. Instead, the law implies an obligation to pay only some reasonable amount to prevent unjust enrichment. That’s called quasi-contract. The contractor can claim quantum meruit – the reasonable value of services, usually excluding any profit.

But can an owner claim contract damages if there is no valid written agreement? Put another way, can a contractor use § 771 as defense against a contract claim by the owner?

A July 1, 2025 decision by the Supreme Court of the State of New York, New York County, answers that question:

Of course, this statute [§ 771] typically arises in situations . . .where a contractor is suing the homeowner for failure to pay. But the Court sees no reason to depart from this caselaw and find that there is no valid breach of contract claim as there was no contract signed by the parties as required under the General Business Law. Plaintiff [Azarias] can pursue his claim under a quasi-contract claim . . . barring a contractor from recovering under a breach of contract theory for failure to obtain a signed written agreement but permitting the contractor to pursue a quantum meruit claim

Notice that § 771 is heads I win and tails you lose for New York property owners. With a lame contract, New York contractors are at a disadvantage, whether plaintiff or defendant. I agree with the court’s decision. Here’s why. Section 771 is consumer protection law. It’s purpose is to protect owners from abuse by sophisticated vendors. Allowing contractors to use the law against owners would be contrary to what lawmakers in Albany intended.

If you do home improvement work in New York, the case of Azarias v. Nelson is just one more reason to work under good contracts. There is no better contract-writing tool than Construction Contract Writer. The trial version is free.

When an Owner Delays the Job

No owner has the right to delay a job indefinitely. Any owner who insists on slowing or stopping work may be liable for damages. That’s true of any type of project, residential, commercial or public works. Law in many states makes it easier to collect damages when a public agency delays a job. For example:

Martin Brothers Contractors won a contract to remodel Crozet Hall, the main dining facility at Virginia Military Institute. Changes requested by VMI during construction delayed the work by 270 days. VMI paid in full for all changes and paid another $99,646.20 for delaying the job. Martin Brothers sued for an additional $330,596 in delay damages, including the cost of bringing suit. VMI’s response cited two contract clauses. The first allowed damages only for “unreasonable” delay. The second limited delay damages to costs incurred on site rather than the full cost of delay, which would include home office expense. VMI insisted that the 270-day delay was reasonable and that the claim for an additional $330,596 was beyond what the contract allowed. The Virginia Supreme Court (277 Va. 586) sided with Martin Brothers, citing Virginia Code § 2.2-4335 which voids any limit on a contractor's right to recover delay damages. It was an expensive lesson for VMI, nearly $1,600 per day of delay.

But any owner can be liable for delay. Be ready to raise the issue when:

• An error in the plans or specs isn’t (or can’t be) fixed promptly.
• An owner insists on multiple changes in the scope of work.
• Progress payments aren’t made when due.
• An owner or designer refuses to meet with you or make timely decisions.
• An owner wants you off the site for a few days (or weeks).
• An owner is tardy in requesting an approval or authorization.

When you sense that work is being slowed by an owner, advise the owner of your right to collect for delay. Don’t wait until project closeout. Put the basis for your claim in writing during the delay.

1. Explain fully the grounds for your claim,
2. Provide complete documentation supporting the claim,
3. Emphasize that you’re standing by, waiting to resume work,
4. Cite the day delay began and the duration, if known,
5. Specify the compensation requested, and
6. Document each element of the requested compensation.

Contractor claims for delay can include both direct overhead (job site) expense and a share of indirect (home office) overhead. On-site costs tend to be easier to calculate than home office (indirect overhead) costs. Your claim should include lost profit -- typically 15% of all delay expenses. Here are the cost categories to include in your claim for delay:

Direct Overhead

• Labor (with taxes, insurance and fringe benefits) for the idle work force,
• The fair rental cost of idle vehicles, tools and equipment,
• Facilities (temporary structures, water, power, toilets, etc.), sometimes called general conditions,
• The additional cost of bonds and insurance,
• Direct overhead costs of all subcontractors,
• Demobilization and re-mobilization costs.

Indirect Overhead

This includes the proportionate share of office rent, office supplies, office utilities, office equipment, advertising, professional fees, management salaries, technical services, estimating, selling, accounting, bookkeeping and clerical expense, business licenses, taxes (except income taxes) and insurance.

Protect yourself. On any job likely to run more than a few weeks, be sure your contract nails down a right to collect for delay by the owner. Construction Contract Writer has what you need – no matter the state and no matter the type of project. The trial version is free.

Holding a Contractor Personally Liable

Alicia and Sean Leake hired Alex General Construction, LLC (AGC) to renovate their Washington, D.C. home. Work included a new laundry room, renovating the kitchen, new appliances, removing several walls, opening a stairwell and painting the whole house. The job didn’t go well. After fifteen months and four extensions, the Leakes claimed AGC still wasn’t done: electrical sockets and loose wiring were exposed. Three walls had holes. Plumbing was faulty. Paint splatter hadn’t been cleaned up. Urine was standing in a toilet. To that point, the Leakes had paid AGC $39,000. They spent another $100,000 to make good on AGC’s mistakes.

But that wasn’t the end of this project. The Leakes filed suit against AGC and moved to add their contractor, Bayron Salguero, as an additional defendant. AGC is a limited liability company. Salguero is the sole owner of AGC. Salguero moved for his dismissal from the case, citing black letter law: Officers of a limited liability company are not personally liable for what their company does or doesn’t do.

How would you decide the motion to dismiss?

Chief Judge Boasberg of the Washington District Court wrote the May 8, 2025 decision. You may recognize the name. Judge Boasberg has been in the news recently. According to Judge Boasberg, a contractor can be held personally liable for acts of a LLC if:

(1) there is unity of ownership and interest, and

(2) the LLC form was used to perpetrate fraud or wrong.

Every construction contractor should understand these two rules for “piercing the corporate veil”. Make a mistake and your LLC or corporation offers no protection against personal liability.

The first prong of this two-part test is called the “alter ego” standard, unity of ownership and interest. Does a single shareholder dominate work of the LLC? Has there been a commingling of company and personal funds, staff, and property? For examples of what to avoid, see my blog post of August 2016. 

The Decision In This Case

The Leakes claim that [Salguero] was the person who deceived them, defrauded them, and decided that AGC would do inferior or unsafe work. They allege, for instance, that he was the one who misled them during the contract formation, decided to hire unlicensed subcontractors and workers, illegally obtained an electrical license in the name of another person, fraudulently demanded and accepted installment payments, knew that he “had neither the expertise nor man power to complete the project” on time, misrepresented the reasons for the project delays, and refused to refund the $39,000 already paid by the Leakes. [citations omitted]

Judge Boasberg reinforced his decision with the second prong, using the LLC form to perpetuate a fraud or wrong.

Salguero used the existence of AGC to mislead them. As they tell it, he consistently “misrepresented his status and authority” vis-à-vis AGC. When executing the agreement, instead of signing on the line provided for the contractor (here, AGC), he signed beneath it. In doing so, they say, he meant to conceal the fact that he was the contractor — i.e., the company’s owner. Later, when parrying their complaints, he “routinely” told them he had a “boss,” thereby implying that he was a mere employee of the company that he in fact owned. [T]hese allegations arguably indicate that Salguero hid behind his LLC in order to obscure, misdirect, and delay. . . [citations omitted]

Don’t make the same mistake. Start your jobs with an enforceable contract:

• Made in the name of the license holder,
• Signed by an officer of the LLC,
• In his or her capacity as an officer.

No matter the type of work or the construction site, Construction Contract Writer drafts letter-perfect agreements. The trial version is free.

Five AI Apps Get A Tryout at Construction Contract Drafting

Artificial Intelligence (AI) was created to gather, organize and present information. Ability to draft a legal construction contract should be a good test for any large language AI model:

1.       Given a set of job specs (the site, a job description, price, parties, etc.);

2.       Find and apply applicable laws, regulations and common sense;

3.       Craft an enforceable contract. 

Given current enthusiasm for AI models, that doesn’t seem too much to ask. So I’ll ask again. Results of my first two attempts were summarized in January and April posts. Those two tries used Microsoft’s Copilot. That’s just one AI tool. This time I’ll test a few more AI apps: Google’s Gemini AI, Perplexity, Meta’s AI, ChatGPT and Elon Musk’s Gork, all using the same query as in April.

My measure of success: “Is it a legal, enforceable contract?” Twenty-two states require specific notices and disclosures in residential construction contracts. Without these required notices and disclosures, some state courts won’t enforce the agreement. Other states will enforce the contract but suspend the contractor’s license, impose a fine, or even jail time on the contractor. 

Again, I tested using a hypothetical California construction project. Legal California contracts need 31 notices and disclosures when improving an owner’s residence. Here’s what I found.

Gemini’s contract was 6 nicely organized pages. Paragraphs were headed in bold. Clauses were identified with bullet points. Two pages were devoted to California’s required notices and disclosures. I like that. But this section is totally foolish. The notice required by B&P Section 7030 appears twice, once with the board’s phone number and Web address and a second time without either. Gemini’s contract includes disclosures about asbestos (H&S 25916) and lead paint (H&S 25410). Nice try! But neither disclosure is required in a construction contract. Yet six contract notices required by California B&P section 7159 were omitted entirely: (1) "You are entitled to a completely filled in copy of this agreement . . .” in 12-point bold type, (2) owner has the right to request a performance and payment bond, (3) a notice requiring release of liens after payment, (4) a notice explaining the owner’s right to cancel (initialed), (5) a sample change order form, (6) the 415-word warning about mechanics liens. Also missing: two checklists for homeowners required by 16 California Code of Regulations Section 872 and 872.1. The Gemini contract includes a section on arbitration. That’s fine. But the section is worthless. California courts won’t enforce an arbitration clause against homeowners unless the contract includes a 150-word statement initialed by the owners giving up their right to sue. Omitting those 150 words from the contract doesn’t show much intelligence, either artificial or otherwise. 

Perplexity produced the shortest contract, only 2 pages. The contract included only 16 of the 31 required notices. But that’s being generous. For example, the official California mechanics lien warning has 415 words. Perplexity’s abbreviated version of the warning had only 39 words. Notable omissions in the Perplexity contract: (1) a statement about written change orders and a change order form, (2) information about the state license board including a phone number and address, (3) the checklist for homeowners.

Meta AI’s contract was a little more than 2 pages. Bold section headings made the contract easier to read. But only 14 of the 31 required notices and disclosures appeared in the contract. Notable omissions included the mechanics lien warning, the CSLB homeowner’s checklist and a sample change order form. Worse, some of the contract was simply wrong. For example, California limits the initial payment on home improvement jobs to $1,000. The Meta AI contract required a $16,976 down payment. Another example. The contract query specified two owners. There was just one signature line for “owner” on the Meta AI contract. Getting just one signature is asking for trouble if a husband and wife are the owners. 

Chat GPT offered a 4-page contract and gave at least a summary version of 18 of the 31 required notices and disclosures. Omitted in the Chat GPT contract: (1) “You are entitled to a completely filled in copy . . .” in 12-point bold type, (2) a statement on release of liens in exchange for payment, (3) the agreement by owners to binding arbitration (initialed), (4) notice that the owner could require a performance or payment bond, (5) the CSLB checklist for home owners, (6) the owners’ acknowledging receipt of California’s 3-day right to cancel, (7) the sample change order form.

Grok’s contract was 6 pages and included some surprises: The progress payment schedule had seven detailed job phases. That’s good. What wasn’t good (and maybe out of compliance with California law): progress payments were heavily front loaded. Initial payment for demolition was 13% of the contract price. Final payment was less than 2%. No lender is going to like that. Grok’s mechanics lien notice is an abbreviated summary of the notice required by California B&P section 7159. Why doesn’t Grok show the full official notice? That’s a mystery to me. Grok prints a paragraph on the 3-day right to cancel. But Grok assumes the 3 days starts running from the date the contract is printed. Wrong on two counts. First, “3 days” is actually 3 business days (excluding Sundays and holidays). Second, the 3 days doesn’t start running until the notice of right to cancel is delivered to an owner, usually the signature date. The Grok contract cites California B&P section 7159 five times. Obviously, Gork’s algorithm found the statute. Why then doesn’t the Gork contract include all notices and disclosures required by section 7159? Omitted from the Gork contract: (1) "You are entitled to a completely filled in copy of this agreement . . .” in 12-point bold type, (2) owner has the right to request a performance and payment bond, and (3) a sample change order form. 

My Conclusion

AI’s ability to draft legal and enforceable home improvement contracts (at least for California) isn’t quite invented yet. An attorney turning out contracts like the five reviewed here would be bordering on malpractice. Construction Contract Writer is a far better choice. The trial version is free.