When a Job Goes Bad . . .

 

A case decided in Indianapolis last week makes the point once again: Any time there’s a dispute on a construction project, the contractor better have a good contract. Jim Dorey didn’t and paid the price. Here’s what happened.

 

A hail storm in December 2012 damaged the roof of Faye Warfield’s home. Liberty Mutual’s adjuster responded to the claim and asked a roofing contractor, Jim Dorey, to contact Warfield about repairs. Dorey made the sales call. He offered samples of shingles and Faye’s daughter signed Dorey’s roofing contract. At Warfield’s request, Dorey quoted a price for rebuilding Warfield's chimney before starting on the roof. 

Months later, while doing the shingle tear-off, Dorey discovered portions of the roof deck that had to be replaced. Liberty Mutual authorized Dorey to do that work too. Dorey added decking to the contract but didn’t ask Faye to sign a change order. The agreement for chimney work was entirely oral. 

When all work was done, Liberty Mutual paid with checks made out to Faye Warfield. Dorey expected those checks would be endorsed and turned over to him. Surprise! That’s not what happened. After several months, Dorey had to file suit to collect. An attorney for Warfield fired right back with counterclaims, alleging violations of Indiana law and claiming Dorey's lawsuit was frivolous.

 

Like nearly all states, Indiana sets standards for residential contracts. Dorey’s contract had problems: His delivery address was missing. There was no starting or completion date. The notice of right to cancel was omitted entirely. There was nothing in writing about the chimney. Faye didn’t actually sign the contract. Her daughter did. Worse, Dorey didn’t have a contracting license when the agreement was signed and didn’t pull a permit for replacing roof deck. Warfield’s attorney insisted the contract was void. Dorey had committed a deceptive act under Indiana’s Home Improvement Contracts Act (HICA) and had no right to collect the $13,925.78.

 

Notice this: Warfield had no complaint about Dorey’s work. Her complaint was about Dorey’s contract.

 

The trial court decided Dorey lame contract was good enough. Warfield wasn't damaged by any failure of Dorey to comply with Indiana’s HICA. Warfield appealed. The appellate court awarded Dorey his $13,925.78 under the theory of quantum meruit, the “amount deserved.” After all, it would be unjust for Warfield to benefit from Dorey’s work without paying for it. But the appellate court also found Dorey's contract to be void.

 

So Dorey Came Out OK?

Not quite. Notice the date December 2012. It took Dorey nearly four years in court to get a judgment against Warfield. That cost plenty. And because his contract was void under Indiana law, Dorey lost out on collecting attorney fees. My guess is that his attorney fees were several times the $13,925.78 award. A void contract left Dorey with none of the advantages contractors are welcome to write into their agreements:

• Contractor collects attorney fees if suit is needed to collect.
• Monthly interest is due on late payments.
• Anything not in the contract is at extra charge.
• Changes required by law are extra work.
• Changes are done at the normal selling price of contractor.
• Contractor provides no warranty other than required by law.
• Disputes have to be resolved by arbitration, not litigation.
• Full payment is due when work is done.
• The insurance carrier is authorized to pay the contractor directly..

Moral to the story: No contractor has to use a lame contract. Drafting a letter-perfect agreement is easy, no matter the state or type of job. Construction Contract Writer handles all the details. Just check a box to put any of these advantages in your agreement. The trial version is free.

 

Changes: Here Comes the Judge

Tom and Denise Ambrose wanted to add a pool to their home in Carmel, Indiana. They selected Dalton Construction to do the work. Dalton’s plot plan for the pool was approved by the city. Just to be sure, Dalton laid out the pool outline on the ground using metal stakes, string and orange paint.

When Dalton’s excavation crew arrived on site to begin work, Denise had a problem. The pool layout was wrong. Dalton re-staked the pool where Denise wanted it. And that’s where the pool was built. Tom and Denise monitored the work almost every day and never said anything more about location of the pool. But when a subcontractor began making stress cuts in the freshly poured concrete deck, Denise turned irate. The cuts were not like a neighbor's pool deck! And the concrete was the wrong color. Denise told the subcontractor to stop work.

Dalton Construction met with Tom Ambrose a few days later to get the job back on track. It wasn’t going to happen. Ambrose demanded that Dalton demolish the pool and replace it with a pool with squared corners. Ambrose refused to pay the $21,775 still due until the pool was replaced and refused to let Dalton finish the work or call for final inspection. Dalton filed a mechanic's lien against the property and won a judgment at the trial court for the $21,775 plus $42,525 in costs and attorney's fees.

Ambrose appealed, claiming the trial court’s decision was contrary to Indiana Law. He had some good points. The pool was built in the wrong place. True, Denise asked for that change. But any oral modification of their contract was invalid for two reasons. First, the contract prohibited oral changes. Second, Indiana Code § 24-5-11-10(d) prohibits enforcing oral changes: "modification to a home improvement contract is not enforceable against a consumer unless the modification is stated in a writing that is signed by the consumer." There was no written change order.

What Would You Decide?

Is Dalton out the $21,775 plus $42,525 in costs and attorney's fees for agreeing to an oral modification of contract?

Earlier this month, the Court of Appeals of Indiana sided with Dalton (2016 Ind. App. LEXIS 35), mostly on technical grounds: First, the location of the pool was not in the contract. So there was no oral modification. Second, Ambrose didn’t raise the argument about Section 24-5-11-10 during trial. In the opinion of the court, arguing that point on appeal was too late.

What can you learn from Ambrose v. Dalton Construction? That’s easy. Oral changes are toxic. Get every change in writing. A written change order could have saved Dalton Construction five years of legal wrangling. 

If you use Construction Contract Writer, simply click a box to put a blank change order form in your contract – what’s included in the change, what’s excluded, the cost, the new contract price, and an agreement to pay in full for extra work when the extra work is done. Any time you agree to make a change, whip out that form and start writing.

How Much is This Going to Cost?

Nearly everything you buy at a store or online is made before it’s sold. Construction is different. The job gets sold before work starts. That’s why an owner’s first question is likely to be about price. Experienced contractors anticipate the cost question and are ready with an answer that helps sell the job.

There’s no single best answer to the cost question. But quoting a price off the top of your head is a mistake. Even if you have a ballpark figure in mind, keep that number under your hat. Better answers include: 

•          “That depends a lot on what you decide. It’s a little too early to nail down a price. But I’m sure we can live within your budget. What figure do you have in mind?”
•          “I’ve seen jobs like this go for between $X and $Y. Of course, the cost could be less or more. It depends on finish materials and when you want to get started. Say the word and I’ll write up a detailed estimate.”
•          “I don’t want to quote a number on the fly. I’ll work up some numbers and get back to you tomorrow.”

What’s the worst answer to the cost question?

That’s easy: Starting work without quoting any price at all. A recent Indiana case makes the point. A sump pump failed at the home of Vincent Cullers, flooding his basement. Carpet was wet, wood flooring had buckled, doors had warped, etc. First Response Services, a dryout contractor, got the call. After work started, Cullers signed a "Third Party Work Authorization" giving his insurance carrier, State Farm, authority to pay First Response. The work authorization included the following statements:

Therefore, I understand it is impractical to give an accurate quote for services before completion. I have been supplied with First Response Services' standard price list and agree to pay the prices listed.

In the event any legal proceedings must be instituted First Response shall be entitled to recover the cost of collection including reasonable attorney's fees.

When work was done, First Response sent a bill for $7,722.43. That’s when problems started. State Farm denied the claim. Cullers refused to pay the bill, insisting (correctly) that he never agreed to pay that amount. First Response filed suit for $7,722.43 plus their legal fees.

Cullers' attorney claimed the Work Authorization didn’t comply with Indiana’s Home Improvement Contract Act (HICA). The act requires a detailed description of the work and an agreed price. The contract First Response used didn’t even come close to that standard.

The trial court cut the claim in half, awarding First Response $3,780.38 and no attorney fees, reasoning that suit would not have been needed if First Response had complied with Indiana’s HICA. First Response appealed the judgment and lost again in the appellate court. First Response was out nearly $4,000 on the job plus many thousands more in legal fees.

Don’t make the First Response mistake. Use contracts that comply with state law. Construction Contract Writer does that for every state and for every type of work. The trial version is free.

Home Improvement Contracting in Indiana

All states tip the playing field in favor of property owners who contract for residential work. Nearly every state requires very specific notices and disclosures in residential construction contracts. Even the slightest defect in an agreement can have consequences – fines, revocation of a license, charges for attorney fees, no right to collect or even jail time. All of these penalties fall on the contractor. The property owner gets a free ride.

Penalties for a using a defective contract are different in every state. Some states, such as Hawaii, simply make the contract unenforceable. The contractor collects nothing. See my blog for December 17, 2009. Other states give the contractor the right to collect some part of what's owed, though not the full contract price. The case of Al-Jundub v. Ardizzone Enterprises (March 2010) puts Indiana in that category. I'll explain.

A storm in March 2007 did some damage to the exterior of a home in Plainfield, Indiana. The owner, Amjad Al-Jundub needed a contractor to make repairs. John Rumpel at Ardizzone Enterprises sent Al-Jundub a signed proposal for doing the repairs – at a cost of $11,761.80. Al-Jundub signed the proposal and faxed it back to Ardizzone. As simple as that, Ardizzone Enterprises was hip deep in trouble. Here's why.

Indiana's Home Improvement Contracts Act requires ten very specific disclosures in home improvement and home repair contracts, even for small jobs like siding, painting, fencing and landscaping. A home improvement contract that omits any of the ten disclosures isn't enforceable under Indiana law.

In this case, Ardizzone Enterprises made a major mistake. Two of the ten disclosures were missing: the starting date and the completion date. And there was no written agreement on changes to the work. That made the contract unenforceable.

Ardizzone Enterprises finished the job. Al-Jundub wasn't happy with the work and refused to pay – not even a dime. Ardizzone Enterprises sued and the court agreed with the home owner. Ardizzone Enterprises has no right to collect under a contract that doesn't comply with Indiana law.

But the Indiana court wasn't done. There's a legal principle called quantum meruit. That's Latin for "as much as he deserved." In this case, the Indiana court decided Ardizzone Enterprises deserved $10,761.80, a thousand dollars less than the contract price. John Rumpel's mistake in drafting the contract earned Al-Jundub a $1,000 discount.

Moral to the story: Don't leave it up to a court to decide how much you deserve. Use iron-clad forms enforceable in your state. If you make a living in Indiana as a construction contractor, I recommend the Inadiana version of Construction Contract Writer.