In January of 2015, Nicholas and Monica
Koudela selected Bill and Bob Johnson to build their new single-family craftsman
style home in Willowick, Ohio. The Johnsons offered a contract to do the work for
$227,200. The heading on the signed agreement showed "Johnson & Johnson Builders" as the contractor.
Johnson & Johnson Custom Builders,
LLC is a limited liability company licensed to do business in Ohio. The Johnson’s
contract with the Koudelas omitted the words "Custom" and "LLC"
from the company name. A little mistake. But it kept the Johnsons in court for two
years, as you’ll soon see.
By May of 2016, the Johnsons and Koudelas
were mired in dispute – mostly about the work. As I’ve said before in this space,
when a job turns bad, you better have a good contract.
Attorney for the Koudelas reviewed the
Johnson’s agreement and found some problems. Most obvious, there is no such company
as "Johnson & Johnson Builders”. The Koudelas claimed failure to disclose
the unregistered and fictitious name in the agreement was fraud. That prevented
a meeting of the minds. So, there was no valid contract.
Before you laugh, consider how important
a name can be. Many states license contractors, especially residential construction
contractors. Where contractors are licensed, the contract better show the true name
of the license holder. Anything else could be interpreted as contracting without
a license. Even in states where contractors are not licensed or registered, the
correct business name should be on the contract. For example, Ohio prohibits anyone
doing business under a trade name or fictitious name from filing suit until the
name is properly registered.
You Decide.
Was the contract void because Bill Johnson
was careless about listing the company name?
Koudela v. Johnson was decided by the
Ohio Court of Appeals last week. 2017 Ohio 9331 Fortunately for the Johnsons, they
did some things right. First, page one, paragraph one of the contract included a
statement that the builder was an Ohio LLC. Second, the contract required arbitration
by the Ohio Arbitration and Mediation Center. Third, the arbitration clause was
initialed by Koudela.
Every state stays legal proceedings if
arbitration is required. Even better, arbitrators don’t have to observe all the
rules that apply in court. For example, nothing prohibits arbitration of a contract
with a company name that isn’t quite right.
The appellate court thought omission
of "Custom" from the contract heading was immaterial. The Koudelas weren’t
deceived by a mistake in the company name. They knew exactly who to sue, showing
the correct company name on their legal complaint.
So the Johnson’s won. Right? Sure. But
you can bet the Johnsons are much more careful now about listing the company name
on their contracts.
Your takeaway from this little episode:
Every mistake in a contract becomes a hook the owner’s attorney can hang a hat on.
My advice: Avoid problems like the Johnsons had. Make your contracts as good as
your work on the job. It’s easy to avoid the most common mistakes. Construction Contract Writer drafts letter perfect contracts no matter the type of work and no
matter the state where you build. The trial version is free.
