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.

Let’s Give AI Another Chance at Drafting Construction Contracts

Last January, I asked “Can AI Draft Your Next Contract?”. My conclusion: Artificial Intelligence (such as Microsoft Copilot) is a blunt tool for writing residential construction contracts. That got a hostile response from some AI advocates. Their point: If your AI query is broad and general, expect your AI response to be the same. To get a detailed, accurate response, frame your query in detailed, precise language.

OK. I tried that. My revised query:

Generate a home improvement construction contract between a licensed California contractor and a California home owner. The contract must comply with all applicable California and federal law and regulations and survive close scrutiny by specialized legal counsel. The contract must be detailed and enforceable. Include all notices, warnings and disclosures required by state and federal laws and regulations. Scope of work is detailed in the plans and construction estimate dated April 2, 2025. Initial payment is the maximum allowed by California law. Contract price is $189,765 including an allowance of $20,000 for 7 kitchen appliances. Include a payment schedule that complies with California law. The start date is July 12, 2025. Estimated completion date is November 22, 2025. The contractor has both commercial liability and workers comp insurance. Written change orders will be required for unanticipated conditions. Settlement of disputes will be by arbitration. The contractor will take out and pay for the building permit.

I included in the query the site address, names and contact numbers for both the owner and the contractor.

The Result Was Marginal Improvement.

• A payment schedule (back loaded).
• Start date and estimated completion date.
• Change orders have to be in writing (but omitted the sample form required by CA law).
• Disputes require arbitration (but AAA is the only arbitrator allowed).
• A statement that all required notices and disclosures are included (but the contract didn’t include any).

A bare recital that “all required notices and disclosures are included” is pathetic. It’s clearly not the same as giving those notices and making those disclosures. The Contractors State License Board would probably consider this AI contract a bad joke. Many flaws noted in my January blog post remain in the revised contract:

• A statement in 12-point bold type: "You are entitled to a completely filled in copy. . . 
• California’s mechanics’ lien warning.
• A statement on release of lien in exchange for payment.
• Information about the Contractors State License Board.
• A statement on performance and payment bonds.
• California’s checklist for homeowners.
• Receipt acknowledging delivery of California’s 3-day right to cancel.    California’s 3-day Notice of Cancellation.
• The statement: "Any Notice of Cancellation can be sent to this address."
• The Federal right of rescission (Reg Z) notice.

22 states (AR, CA, CT, DC, FL, HI, IL, IN, LA, ME, MD, MA, NV, NJ, NY, OH, OR, PA, TN, VA, WV, WI) require specific notices and disclosures in residential construction contracts. Is it expecting too much of AI to lay out those notices and disclosures when required by law? Apparently so – even though the law is readily available to every large language (AI) tool willing to take a look. In my opinion, mistakes like these disqualify Copilot as a drafting tool for residential contracts. If you’re serious about drafting legal and enforceable agreements for any job in your state, have a look at Construction Contract Writer. The trial version is free.

Reasons to Estimate the Completion Date

Nearly every project owner has two questions:

1. What’s it going to cost?
2. When can you be done? 

Your answer to the cost question should include a question. See my blog post about cost estimates.  Your answer to the completion question has to be different. I’ll explain.

Seventeen states (AZ, CA, DC, HI, IL, IN, MA, ME, MD, NV, NY, PA, TN, VA, VT, WI, WV) require an estimated completion date in home improvement contracts. That’s reason enough to specify a date. But even if you don’t work in any of those seventeen states, there’s another good reason to put a completion date in your contract. It’s called the parole evidence rule. If that’s Greek to you, keep reading.

A Minnesota case decided last week makes my point.

Matt Schindele agreed to have Build 218 remodel his rental unit in Bemidji, MN: counter tops, sink, cabinets and appliances in the kitchen, a tub and vanity; siding, drywall, windows, plumbing and electrical work. The contract price was $130,915. The contract didn’t mention a completion date. A date is not required in Minnesota home improvement contracts. But Schindele claimed an oral agreement. Work should be finished by June 2022.

The job ran longer than expected. And Schindele wasn’t happy with the work. Schindele filed suit for defects in the job and claimed late completion. Slow completion delayed sale of the property. That reduced the sale price. 

The trial court dismissed Schindele’s complaint. He got nothing for either defects in the job or late completion. Schindele appealed.

The appellate court reversed the trial court’s decision. Schindele will get another chance to prove damages for late completion. The court’s reasoning hung on the parole evidence rule.

When a contract covers some issue, courts exclude any evidence that would vary, contradict or alter the written agreement. When a written agreement is incomplete or ambiguous, parole evidence is admissible in court to explain what the parties intended. Because Build 218’s contract didn’t specify any completion date, Schindele will get another chance to fill in his understanding. That’s any contractor’s worst nightmare: An owner explaining what a contractor promised (orally) and failed to deliver.

The Answer is Simple

Include an estimated completion date in your contracts. Some contractors don’t like that. Too many things could go wrong! Of course. We all understand that. Specify an estimated completion date and then append a list of contingencies. No state prohibits that. Construction Contract Writer makes it easy:

Any of the following shall constitute excusable delay for which the contract time shall be extended: Labor dispute, limits to site access, act or neglect of a public authority, shortage of labor, materials or equipment, scheduling conflicts, neglect of the owner or designer, unanticipated site conditions, delayed payment of invoices, casualty loss, epidemic or unusually adverse weather.

Add to that list any way you want. But you’re getting the idea. Drop a date in your contract. Then add a paragraph of contingencies. The only limit is your ingenuity.

Statute of Limitations: A Contractor’s Friend

How long should a contractor be liable for construction mistakes? A year? Two years? Ten years? Imagine being sued over a job completed 20 years ago. Memories fade. Witnesses die or disappear. Evidence gets lost. The property would have been out of your control for many years. Anything could have happened.

Without a time limit for making claims, construction contracting would be a very hazardous business. Fortunately, every state limits the time allowed to make claims against a contractor. But that’s just the beginning. Your contract can shorten the time to make claims. More about that later.

Consider the Minnesota Statute

In MN, construction claims for obvious defects are barred two years after substantial completion. For hidden defects, the two years starts from discovery of the defect. Of course, that could be many years after completion. So Minnesota, like other states, also provides a “statute of repose”. In MN, all claims are barred 10 years after completion no matter when discovered. Every state has a similar law. If this seems simple, consider a MN case decided last month.

• February 2020: Morningstar Remodeling contracted to improve a MN home. NB Electric Inc. was the electrical sub.
• July 2020: Work stopped when fire damaged the home. When work resumed, NB Electric was no longer involved.
• April 2021: A new general contractor replaced Morningstar.
• July 2021: Work was completed.
• July 2023: The owner’s insurance carrier filed suit against Morningstar and NB Electric alleging defective construction. That was more than two years after both Morningstar and NB Electric had been terminated.

The trial court dismissed the claim. The insurance carrier had waited too long to bring suit – filed more than. two years after Morningstar and NB Electric were terminated. The insurance carrier appealed, claiming the statute didn’t start running until two years after completion of the whole project, not just the work of Morningstar and NB.

How Would You Decide this Case?

Spoiler alert: Insurance companies usually win in appellate court. 

Here’s the court’s reasoning. Under the Minnesota statute, defect claims accrue at “substantial completion, termination, or abandonment of construction." The term “construction” refers to the entire project, not just to a particular contractor. Work on the full project was completed in July 2021. The insurance carrier filed suit within the two-year limit. If the legislature wanted the statute to run from completion of each contractor, the statutory term would have been “contractor”, not “construction”. Notice what that means.

1. Early contractors (excavators) have a longer risk period than later contractors (roofers).
2. A job running several years can extend the claim period well beyond the statutory two years.
3. An owner could delay completion for several years, resume work years later and then file suit against every contractor who set foot on the job.
4. Courts will have to decide: Was a job delayed, terminated or simply abandoned? It makes a difference. Delay extends the two years. Abandonment doesn’t.
5. Even worse, the term "construction" also appears in the MN statute of repose. Has the court's decision also extended the statute of repose beyond 10 years? 

I believe the appellate court’s decision defeats the purpose of the statute: To bar forever stale claims. The dissent by judge Cleary makes the point. Defining “construction” as the whole project begs the question. Ask an electrical contractor or a plumbing contractor about the job. His or her work is the “construction project". When that part of the job is done, the two-year statute should start running.

If you draft contracts for your jobs, you write the rules. Minnesota courts allow parties to define their own time limit for claims so long as the period is not unreasonably short. Take the hint. Let Construction Contract Writer draft agreements that protect your pocketbook. The trial version is free.

Can AI Draft Your Next Contract?

Artificial Intelligence is changing the way many documents are drafted. You’ve probably seen accounts of legal briefs written with AI. If AI can draft court documents, can AI draft your next construction contract?

No doubt, legal research tools have changed the practice of law. I use CaseText and like it. Digital tools make the full body of law available to anyone with a web connection and a few dollars a month. That’s good. In seconds, anyone can find relevant law or precedent. But is AI a substitute for experience and judgment?

To find out, I ran a test, maybe the most challenging test possible, a California Home improvement contract. Like 36 other states, California requires very specific notices and disclosures in home improvement contracts. Without these notices and disclosures, the contract isn’t legal and risks discipline by the state license board.

My AI tool was Microsoft Copilot. I gave Copilot:

• A job description,
• The construction site,
• Names of the parties,
• Scope of the work,
• Contract price.

I got a written contract back in seconds. For that, I give Copilot an A grade. It’s fast. Another plus: Copilot filled in many contract terms I had not specified:

• A payment schedule,
• Time of completion,
• Changes to the work,
• Permits and inspections,
• Warranties,
• Insurance,
• Termination,
• Governing law.

But Copilot left out nearly all the notices and disclosures required by California law. Worse, some parts of the Copilot contract were simply illegal. Here’s where Copilot blew it:

• The document title has to be "Home Improvement Contract" in boldface type.
• A statement in 12-point bold type: "You are entitled to a completely filled in copy. . .”
• The date when work will begin.
• The down payment can’t exceed $1,000 or 10%, whichever is less.
• California’s mechanics’ lien warning.
• A statement on release of lien in exchange for payment.
• A general statement about commercial general liability insurance.
• Confirmation that the contractor carries (or doesn’t carry) insurance.
• Information about the Contractor's State License Board.
• A statement on performance and payment bonds.
• California’s checklist for homeowners.
• A sample change order form including specs for any change order.
• Receipt acknowledging delivery of the California’s 3-day right to cancel.
• California’s 3-day Notice of Cancellation.
• The statement: "Any Notice of Cancellation can be sent to this address."
• The Federal right of rescission (Reg Z) notice.

For those omissions, I can’t give Copilot a passing grade -- at least for drafting residential contracts. To the discredit of Copilot, all the notices and disclosures Copilot missed are black letter law -- statutes readily available to anyone who cares to look. For example, the initial payment can’t be more than 10% for California home improvement projects. Copilot’s contract specified a 20% down payment. That’s dead wrong. Another mistake: Omitting the 3-day right to rescind required in all 50 states when working on an owner’s home.

Clearly Copilot needs one more disclaimer: “This contract may not comply with law in your state.” There’s a better choice. Construction Contract Writer drafts letter-perfect contracts for any state or type of work. The trial version is free.