When a job goes bad, you better have a good contract. That’s a point emphasized many times on these pages.
But a New York case decided last month offers an interesting twist on this theme. When a Syracuse, NY job went south, the contractor claimed the agreement he drafted was void and unenforceable. Let’s see how a New York appellate court handled that. Hint: It cost the contractor plenty. The case is White Knight Construction v. Haugh.
Holly Anne Haugh of Madison County, NY wanted a new custom home. Kenneth Kovalewski of White Knight Construction agreed to build the home Holly Anne wanted. Kenny drafted the agreement, including a "New Home Cost Breakdown" listing both projected and actual expenses. The contract price was $93,287. But it wasn’t that simple. According to the court, Holly Anne and Kenny developed a “romantic relationship” before breaking ground.
This blog is about good and bad construction contracts. I’ll leave other issues to your judgment.
Well before final completion, Holly Anne’s romantic relationship with Kenny had cooled. But White Knight must have done considerably more work for Holly Anne than the contract required – without a change order. White Knight collected the contract price. But Kenny felt White Knight was entitled to more, lots more. White Knight filed a mechanic's lien for an extra $317,128 and sued to foreclose the lien.
At trial, White Knight had a problem – the original contract. With no contract or only an oral agreement, the $317,128 lien might be valid. With a good contract, White Knight could collect only the contract price. To collect on the lien, counsel for White Knight had to show the written agreement was void.
No Problem
Under New York General Business Law §
771, every home improvement contract has to include specific notices and disclosures.
Kenny’s contract didn’t cite a start date or a completion date and omitted several
other notices required by statute. Without these, White Knight could not recover
for breach of contract.
But noncompliance with § 771 does not necessarily render the contract void. The statute bars a contractor from collecting under a defective agreement but doesn’t prevent a homeowner from recovery against the contractor.
According to the appellate court:
“Given the context of the case at bar,
it is crucial to recognize that General Business Law § 771 is a consumer protection
statute designed to protect the homeowner. To allow a contractor to draft a noncompliant
contract and then use its noncompliance to invalidate the contract so as to entitle
him or her to relief that would otherwise be precluded by a valid contract would
incentivize contractors to disregard the statute, thereby thwarting the intent of
the statute.”
In other words, an owner may be able to enforce a lame agreement even if the contractor can’t. The appellate court dismissed the case and vacated the mechanic's lien. White Knight was out $317,128.
Contractor Beware
Thirty-one states and the District of
Columbia have consumer protection statutes that require written agreements on residential
jobs: AR, AZ, CA, CT, DC, DE, HI, IL, IN, KY, LA, MA, MD, ME, MI, MS, ND, NH, NJ,
NV, NY, OH, OR, PA, RI, TN, TX, VA, VT, WI, WV and WY. Twelve states don’t require
a written agreement but do require a written notice or disclosure before work starts:
AK, AL, FL, GA, ID, KS, MN, MO, MT, OK, SD and WA.
If you do work in any of these states, don’t make White Knight’s mistake. A bad construction contract may be worse than no contract at all. My advice: Use only contracts that comply precisely with state law. Construction Contract Writer drafts letter-perfect agreements no matter the site and no matter the type of job. The trial version is free.
