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.

 

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.