Saturday, February 4, 2017

Who Should Sign the Contract?

Every construction contractor can tell a story about working for a demanding, indecisive or argumentative property owner. But what you don't know about an owner could be far worse. A case decided in Washington DC this week illustrates the point.

Winmar Construction agreed with Restaurants America to convert leased space in a large office building at 700 6th Street, NW, Washington, DC to use as a restaurant. Work on the $1,024,824 project proceeded until May 10, 2013 when Restaurants America fell behind in their payments. Winmar was owed $575,732 and elected to sue to collect. Now, Winmar had a problem. Who, exactly, was Restaurants America, the project owner?

As it turned out, Restaurants America was a short name for Restaurants America Consulting Group, Inc., ("RACGI"), an Illinois corporation. Roger Greenfield was the sole shareholder, director, President, Secretary, and Treasurer. But Greenfield hadn’t signed the agreement with Winmar. Instead, Theodore Kasemir had signed on behalf of Restaurants America, a company that didn’t actually exist at the time.

Winmar sued in Washington DC superior court. When RACGI did not file a response, the court gave Winmar a default judgment for the full $575,732. To begin collection, Winmar registered the judgment in Cook County, Illinois, superior court where RACGI was incorporated. But RACGI didn’t have assets in Illinois. That should not have been a surprise. RACGI had been capitalized at $1,000, only enough to pay the filing fee for a new Illinois corporation. So Winmar filed a motion to hold Greenfield and Kasemir personally liable for the Washington, DC judgment.

Good idea. But the Illinois court didn’t agree. To collect from Greenfield and Kasemir, the court ruled Winmar would have to sue Greenfield and Kasemir. So, that was Winmar’s next step, filing suit in Illinois.

This time, the defendants filed an answer, insisting that the case be bounced back to Washington, DC, the place where work was done. The Illinois court agreed. So over a year and a half after work stopped, the case was back in Washington, DC, this time in U.S. District Court.

Now, the defendants filed for summary judgment, claiming they had no obligation to pay Winmar for the work. Greenfield and Kasemir didn’t have a contract with Winmar. Greenfield was only a consultant. The contract should have been with the building tenant, Townhouse DC, LLC, not the consultants. Anyhow, Winmar had already won the suit against RACGI. If the superior court agreed that the contract was with RACGI, how could Winmar now claim that the contract was with Greenfield and Kasemir?

The court wasn’t persuaded, ruling (2017 U.S. Dist. LEXIS 14869) on February 2 that the case could proceed. Winmar will have another chance to prove who owes the $575,732.

Don’t Make Winmar’s Mistake
Stay out of any “hide the owner” shell game. Your county assessor’s web site should settle any question about property ownership. If the property is owned by individuals, such as a husband and wife, both should sign your contract. If the owner is a corporation, an officer or director should sign for the corporation. If an LLC, ask a manager to sign. But check with your secretary of state to be sure the corporation or LLC really exists. If a partnership, any partner has authority to sign your contract. If the property is owned by a trust, the trustee can sign. If the property is leased, be sure the owner is informed of your work. You may not have lien rights against leased property. If you’re doing work for an unincorporated association, such as on the common area of a condominium, the owners’ association is your client. Be sure the association manager has authority to contract for the work. A resolution by the board of directors is your best evidence of that. In every case, be sure the project owner has resources to pay your bill. A copy of a loan commitment, tax return or financial statement will settle that issue.