Bad Contract, Good Result

Frank Salame owns a home in Pomona, California. Eleven months out of the year, Frank works in Lebanon as an engineer on building projects. When no one is home in Pomona, Frank has a friend, Antoinette Auon, look after his house.

While Frank was in Lebanon, neighbors noticed a liquid leaking from under the garage door. Turns out, a water filter under the kitchen sink had sprung a leak. By the time Frank got word of what had happened, water had seeped into kitchen cabinets, flooring, down walls and into the ceiling of the garage below. Mold was blooming everywhere.

Because he was in Lebanon, Frank asked his friend, Antoinette, to "take care of" the problem. She did, signing contracts with Star Restoration to put Frank’s home back in livable condition.

Star Restoration got to work. A plumber removed the leaking water filter. A mold expert assessed what had to go. When contaminated materials had been removed, restoration started: framing, sheetrock, plaster, painting, tile floor in the kitchen, kitchen cabinets, new countertop and sink.

Meanwhile, Frank filed a claim with his insurance carrier, giving Antoinette "full power of attorney to handle" his claim. Frank collected $28,000 from the insurance company. But when Star Restoration sent their invoice for $42,360, Frank refused to pay. Instead, he offered to settle for $28,000. Star refused the offer and filed suit.

You decide. Did Frank owe the full $42,360?

At trial, Star Restoration had some problems.

Frank Never Signed the Contract

But the court decided Antoinette was acting as Frank’s agent when she signed. Remember that Frank had given Antoinette “full power of attorney” to handle his claim with the insurance carrier. Plus, at one point, Frank gave Star instructions to "finish the job". The court concluded Antoinette had signed with Frank’s consent.

The Star Restoration Contract Was Lame

To be valid, California home improvement contracts need 18 distinct notices and disclosures: start date, end date, the contract price in dollars and cents, a description of the work and so on. Star Restoration’s contract had none of that. Contracts that don’t comply with state law are presumed void. That’s true anywhere you do business.

If the contract was void, Frank owed Star Renovation nothing.

The court had a different view. Where the contract is not otherwise illegal, courts can enforce a bad contract if:

(1) the owner is not in the class the statute was enacted to protect, and

(2) the owner would be unjustly enriched if the contract were voided.

Here, both (1) and (2) apply. Frank is an engineer with years of construction experience, not an unsophisticated consumer likely to be swindled. Second, Frank would be unjustly enriched if he kept the $28,000 and got his home renovated at zero cost.

But Star Restoration’s contract wasn’t a complete bust. The agreement gave Star 1.5% per month interest on any unpaid balance plus attorney fees if suit was necessary to collect.

The trial court entered judgment for Star totaling $212,504.09: $35,360.62 in damages, $36,375.91 in prejudgment interest, $5,926.49 in costs and $132,290 in attorney fees. Last month, an appellate court affirmed the trial court judgment.

Star Restoration also got a warning from the state license board: From now on, use only contracts that comply with state law. The best way to do that is with Construction Contract Writer. The trial version is free.

California Business and Professions Code § 7159

If you're a licensed contractor in California, you probably know all about Cal B&P 7159. It's caused more than a little grief for more than a few California contractors, some of them now former California contractors. Cal B&P 7159 is Sacramento's effort to rewrite every contract for home improvement, remodeling and repair work throughout the state – adding about eight pages to even the shortest agreement.

If there was an award for legislative ineptitude, California would be among the prime contenders. Their $billion budget deficits put California in a class by itself. But this legislature that can't shoot straight has no trouble targeting home improvement contractors. Cal B&P 7159 is the result.

A California contractor put it to me this way: "I'm a contractor. I'm not a lawyer. I shouldn't have to hire a lawyer before taking on a kitchen or bath job. I value my reputation as a builder and have nothing but satisfied clients. That's the best any contractor can do. But those guys at the state license board are looking for a way to pull my ticket. Until that happens, I'm going to go on doing business on a handshake – and keep my fingers crossed."

I can empathize – on two grounds. First, nothing the California legislature has done will add to the list of good, reputable, honest home improvement contractors. Second, I'm a California attorney and I agree completely – the crew for a kitchen or bath job shouldn't require a lawyer.

My impression is that many – perhaps most – California residential contractors simply ignore the law, like my friend who's keeping his fingers crossed. Their feeling: "The law is simply too complex and asks too much. Only a few dozen contractors get their license suspended each month. My chance of skating by is pretty good."

True. But there's another perspective. Suppose your homeowner client turns out to be a real nutcase. Or, suppose your client is a perfect angel but runs short of cash before the job is done. What then? Most likely, your dispute will end up on the desk of two attorneys, yours and your client's.

When a job goes bad, your contract better be good.

Anything less and your client’s attorney is going to turn you every which way but loose. Doing home improvement work without a letter-perfect contract is like driving without a license. Nothing bad happens until something goes wrong. Then it can go very wrong.

If you don't like the idea of finishing jobs and not getting paid, my advice is simple. Get your client's signature on an enforceable contract before breaking ground. There’s no better tool for drafting legal California contracts than Construction Contract Writer. The trial version is free.