Five Hundred Pages Later

As pointed out last month, 31 states require a written contract for residential construction. The question I didn’t answer last month: What can the contractor collect if there is no valid contract?

Last month, a Pennsylvania court framed a very precise answer to that question. First, the facts:

So Young Jang wanted to renovate the kitchen of her home in Berwyn, PA. She selected Artisan Builders Inc. (ABI) of East Norton, PA to do the work. ABI got a signed contract. That was February of 2016. When the kitchen was done, Jang had more work for ABI: new flooring, renewing the master bathroom, baseboards, lighting, crawlspace insulation, replacing joists, multiple doors and frames. In all, ABI wrote five contracts and got eighteen signed change orders.

That was all before June 2016. After working together for over five months, Jang fired ABI and refused to pay any more. ABI was stuck. They filed a lien claim for work completed and not paid. At the close of trial on the lien claim, Judge Tunnell granted Jang’s motion for a non-suit. The 23 contracts and change orders omitted notices and disclosures required by Pennsylvania’s Home Improvement and Consumer Protection Act ("HICPA"). The contracts were invalid under PA law.

Now what? ABI claimed they were still due $35,371. Judge Tunnell gave ABI leave to file an amended complaint for quantum meruit. That’s the reasonable value of services requested by Jang.

Six months later, trial resumed. This time ABI had their paperwork ready, over five hundred pages of receipts, time sheets, and invoices -- including costs and expenses, estimates and invoices all kept by QuickBooks. ABI claimed damages of $43,525 as quantum meruit (the value of services requested). Counsel for ABI added an unjust enrichment claim (value Jang received). Work done by ABI had increased the value of Jang’s home by over $100,000.

Once again, the trial court ruled in favor of Jang. “[ABI] cannot merely submit its own loss, i.e., the value of labor and materials expended, as the measure of recovery, but must instead demonstrate that the defendant has in fact been benefitted . . .” So ABI got nothing.

ABI wanted another try, this time at the appellate court. Last month the Pennsylvania Superior Court reversed the trial court. A busted contract leaves the contractor with:

1. No lien rights.
2. No right to recover for benefits received (unjust enrichment).
3. But with a suit for the reasonable value of services (quantum meruit).

Fine. ABI was going to get something. But the court wasn’t willing to accept ABI’s invoices as the reasonable value of services. “Therefore, we remand to the trial court to determine the reasonable value of the services based on the evidence presented at the January and June 2020 proceedings, and to convene an additional hearing if it deems it necessary to do so.” And that’s where the case of ABI vs. Jang stands now, six years after work started. ABI has to show that every expense on the job, both labor and materials, was “reasonable”.

Don’t go down that road. Working under a void contract is foolish, like building what can’t possibly pass inspection. Construction Contract Writer drafts perfectly legal contracts for every type of work and for any state. The trial version is free.

Essential Contract Terms

Don and Molly Krumwiede had a serious house fire a few years ago. Their home in Allamakeen, IA was a total loss. Fortunately, Don and Molly had full insurance, including up to a year of living expenses while their home was rebuilt.

What Don and Molly needed next was a contractor. They met with Tim Kruse of Kruse "N" Bries Construction. Kruse brought along a plan book from the building material dealer Menards. Don’s choice was a plan called The Woodsman. Kruse went back to Menards for a detailed set of plans for The Woodsman. A few days later, Kruse came back with a five-page labor and material list for the new home: excavation, footings, framing, electrical, plumbing, heating, siding and so on. At the bottom of the last page, on a line titled "Total Materials and Labor" was the price $175,000. But the $175,000 was crossed out and replaced, in handwritten numbers, with “$190,000.” Under that total, typewritten in all capital letters and heavy bold type, were the words, "This is a bid not an estimate. 50% down payment required.”

The Krumwiedes liked the proposal and agreed to have Kruse "N" Bries build their house for $190,000. Molly and Don advanced $92,000 and Kruse started work. That was November 2012. But there was a problem.

Other than the material list, down payment and total price, there was nothing in writing: No start date. No completion date. Nothing about plans or specs. No payment schedule. Not a word about changes. In fact, the 5-page material list didn’t even mention The Woodsman.

As work progressed, payments to Kruse reached $168,000 including the initial $92,000. But in August 2013, when Kruse asked for the next payment, the Krumwiedes balked. Work was far from finished and their year of living-expense reimbursement was running out. With no more money coming in, Kruse "N" Bries stopped work and sent a final bill for $69,500. When the Krumwiedes didn’t pay, Kruse "N" Bries sued for $96,815.

What Should the Court Do?

Before deciding, here are a few things you should know:

• Don and Molly hired other contractors to finish the work. Their total cost for the home, including what was paid to Kruse "N" Bries, was about $250,000.
• While suit was pending, Don Krumwiede took a job in another state. He sold the new house, about half their acreage and existing outbuildings for $330,000.
• Testifying in court, Kruse claimed to have done work beyond the original bid of $190,000: a two-car garage instead of one, more living space above the garage and a walk-out basement.

Now take a guess at how much the court awarded Kruse “N” Bries on their claim for $96,815.

The trial court awarded the contractor exactly nothing -- zero. And last month the appellate court agreed. (2019 Iowa App. LEXIS 329) Here’s why. The court couldn't be sure what the contractor had agreed to build or when the owner had agreed to pay. For example:

• Kruse “N” Bries insisted the Krumwiedes breached the oral contract when they refused to make a payment in August 2013. The court didn’t agree. Nothing in the agreement set when payments were due.
• The court couldn’t identify anything the Krumwiedes received that they were not entitled to. The 5-page bid didn’t make clear what Kruse “N” Bries promised to build. For example, the plan for The Woodsman showed a one-car garage. But the 5-page bid didn't refer to The Woodsman and the permit issued for the job specified a two-car garage.

An Expensive Lesson Learned

Construction is complex. The contract for any job is like a road map -- getting you from where you are to where you want to be. Without a good map, expect a result like what happened to Kruse "N" Bries.  Construction Contract Writer makes it easy to draft letter-perfect contracts that cover all the essentials. The trial version is free.