A Busted NY Home Improvement Contract

Last month I explored what Pennsylvania courts allow contractors who use a bum contract. The rules in New York are different – and the difference is major. I’ll explain. 

Like Pennsylvania (and 30 other states), New York requires a written contract for residential construction work. Like Pennsylvania, New York contracts have to include a long list of notices and disclosures. But unlike Pennsylvania, New York courts are split on what happens when a contractor uses a defective agreement. Pennsylvania allows the contractor to sue for quantum meruit, Latin for "as much as deserved". That’s a clumsy tool, as explained last month. But at least the contractor collects something. New York may or may not allow as much. The New York case of Chapman v. Davis (decided March 22, 2022) illustrates the point.

Cheryl Davis wanted to convert the basement of her Pleasant Valley, NY, home into bedrooms for her two daughters. Chapman Construction offered to do the work and wrote up the agreement. 

When it came time to make the final payment, Chapman Construction got hung out to dry. Cheryl claimed egress windows in the basement didn’t comply with the code and had to be re-done. Cheryl refused to pay. Chapman sued.

As I’ve explained before, when the job goes bad, you better have a good contract. Chapman didn’t:

• The contract was signed by a friend, not Cheryl, the homeowner.
• Chapman Construction forgot to put their address on the contract.
• The estimated starting and ending date was nowhere to be found.
• A state notice warning about mechanics liens was omitted.
• The state notice on deposit of progress payments was absent.
• The required notice of 3-day right to cancel didn’t appear anywhere.

In short, Chapman Construction’s contract didn’t even come close to meeting requirements in New York General Business Law § 771. 

Now What?

What does a New York contractor recover on a bad home improvement contract? New York courts are split on the issue.

Appellate divisions in the Third and Fourth Judicial Departments rule that failure to comply with GBL § 771 renders the home improvement contract unenforceable and bars recovery for breach of contract.

In the Second Judicial Department, some courts have ruled that failure to comply with GBL § 771 does not make the contract unenforceable. Other courts in the same Judicial Department have come to the opposite conclusion: Failure to comply with GBL § 771 leaves the contract void and unenforceable.

Eventually, the New York State Court of Appeals will wade in with a decision that’s binding on all New York courts. Absent that decision, Judge Fairlie elected to treat the Davis contract as void and unenforceable. Chapman Construction got nothing for breach of contract.

But What About Quantum Meruit?

Couldn’t Chapman Construction at least recover part of what they were owed, "as much as deserved”? That’s what Pennsylvania courts allow.

Sorry. That doesn’t work in New York Justice Courts. Quantum meruit is an equitable remedy, New York Justice Courts lack equity jurisdiction. The result: Chapman’s claim was denied and dismissed.

Don’t make the same mistake. Construction Contract Writer drafts legally enforceable contracts and subcontracts for any state and for any type of project. The trial version is free.

 

Illinois Home Repair and Remodeling Act

Cory and Angela Bogard needed more space in their Casey, Illinois home. In the fall of 2004, Dan Smith of Dan R. Smith Building Services offered to put a 26' x 20' addition on the Bogards' living-room for "$20,000 or less". 

Cory and Angela accepted Dan's offer and he started work the following month. By February, Dan had pocketed $15,000 in progress payments and was nearly done. His final bill was $10,515, bringing the total cost of the job to $25,515. That was a little over budget. But at $49 per square foot, Cory and Angela got a pretty good deal. Unfortunately for Dan, that wasn't the end of it.

The Bogards weren't satisfied. They refused to pay, claiming more work was needed. Dan didn't agree. Months passed. It was too late for Dan to file a mechanics' lien. By October, Dan still didn't have his $10,515. So he filed suit.

Dan's fate was now on the desk of two Illinois attorneys, both looking for ways to blast the other side.

The Bogard's attorney had high caliber ammunition, courtesy of the lawmakers in Springfield. The labels were HRRA, CFA and HRFA. If you make a living in residential construction in Illinois, you need to know these acronyms:

• HRRA -- Home Repair and Remodeling Act
• CFA -- Consumer Fraud and Deceptive Business Practices Act
• HRFA -- Home Repair Fraud Act

HRRA requires a written contract for just about every residential remodeling or repair job over $1,000. The builder and the homeowner have to sign and date the contract and a brochure, 'Home Repair, Know Your Consumer Rights'. That was Dan's problem. No contract, no brochure and no way to collect. The court didn't award Dan a dime for his trouble, leaving him $10,515 short on the Bogard job. But it could have been worse, as I'll explain.

The enforcement teeth for HRRA are in Illinois' Consumer Fraud and Deceptive Business Practices Act (CFA). Operating a home improvement business under an assumed name can earn a $2,500 fine and a year in prison. Dan had no problem there. He was doing business under his own name, Dan R. Smith Building Services. But failure to complete work on time gives owners the right under CFA to demand a full refund. What if the Bogards had demanded a refund a week or two after Dan pulled off the job? Under CFA, Dan would have had 10 days to return the $15,000 in progress payments to that point. The penalty under CFA for failure to make a full refund: Suspension of the right to do business and a fine of up to $50,000.

Illinois' Home Repair Fraud Act (HRFA) threatens contractors with up to a year in jail and a $2,500 fine for making false promises, misrepresenting a material fact about the job, charging more than four times fair market value for any work, making false excuses for non-performance, failing to employ qualified personnel or violating the building code. Wow!

But, as I said, Dan got off easy. He got tripped up by HRRA and lost ten grand. A mistake under CFA can be (much) more expensive. Consider the case of Joe and Chris Taylor. They agreed to pay Father and Sons Inc. $40,000 for an addition to their home in LaGrange Highlands. The job went bad and ended up in arbitration. On a $40,000 job, the Taylors got an award under CFA of $40,000 for design defects, $22,006 for consultants, $75,000 for attorney fees, $1,400 for arbitration expenses and a discharge of all mechanics liens filed by Father and Sons Inc.

The moral of these stories: When a job goes bad, your paperwork better be good. If it isn't, you've written a blank check that's going to be cashed by an attorney for the other side.

Do yourself (and your bank account) a favor. Push back against consumer protection laws that back contractors into a corner. You're liable for everything that's either in or omitted from your contracts. Why not draft agreements that bend the bias in your favor? There's nothing illegal about that.

If your client suggests using an A.I.A. form or some other boilerplate contract, explain that the document offered is unlawful for home improvement work in Illinois. Using an unlawful contract would be a deceptive act under HRRA and CFA and could land you in jail. Instead, offer an agreement that you drafted and that complies with Illinois law.

If you make a living as an Illinois contractor, have a look at this site.