Jim Porter: Home improvement cotract contested
October 28, 2010
TRUCKEE/TAHOE, Calif. and#8212; One of the areas where contractors occasionally fall short is using a good contract. Most of the time once a contract is signed, it is never looked at again, a good thing, but occasionally things go bad. As they did when contractor Hinerfeld took on a major remodel of a high end house in Los Angeles for Mary and Mark Lipian, who from reading the court case seem to fall into the category of and#8220;difficult owners.and#8221;
Home improvement contract
Construction contracts in California must be in writing. This is particularly so for what is known as a home improvement contract, a contract for the remodel, repair or addition of a residence-as opposed to a turnkey new home.
California law assumes home remodelers are dishonest, perhaps stemming from the old and#8220;vinyl siding salesmenand#8221; days. At least that is my take. In any event, home improvement contracts for a remodel, repair or addition to a home are heavily regulated in the Business and Professions code. The repair or remodel of a home, where the contract exceeds $500 must be in writing and on a special form. No more than 10 percent may be collected as a down payment and special notices are required. All to protect the unsuspecting consumer-homeowner.
Job gone bad
The Lipians and contractor Hinerfeld did not sign a contract, although they did have a memorandum of understanding. The job went well for two years, more than 20 payments, then the parties had a falling out. Hinerfeld sued for $200,000 claiming breach of oral contract.
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The Lipians contended the verbal contract was void. The jury awarded Hinerfeld $200,000 plus $200,000 in attorney fees. The Lipians appealed.
The general rule is that a contract made in violation of a statute is void and unenforceable, so if a contract must be in writing and it isnand#8217;t, it is normally void.
However, in the home improvement contract arena, the courts have often enforced verbal contracts that do not involve and#8220;serious moral turpitude.and#8221; In one case the court wrote, and#8220;The policy of consumer protection would not be furthered by finding the contract before it to be unenforceable, since the transaction was completed. If the contract was not enforced, the owners would be unjustly enriched at the expense of the contractor, a penalty disproportionally harsh in relation to the violation. A verbal home improvement contract is and#8220;voidableand#8221; (not automatically void) depending on the factual context and the public policies involved.and#8221;
Unsophisticated homeowners are in a better position to argue a verbal home improvement contract is void, than owners with experience in residential construction or who were assisted by attorneys or architects.
The Court of Appeal ultimately ruled the Lipians were sophisticated owners and did not fall within the class of homeowners the Legislature sought to protect in enacting the home improvement laws. Their project was not a mom and pop and#8220;run of the milland#8221; home remodel; besides, they had architects working with them throughout the multi-year project. Contractor Hinerfeld recovered on the oral contract.
Hinerfeld recovered attorney fees based on Civil Code section 3260.1, which allows the contractor to recover attorney fees and 2 percent interest per month if a homeowner wrongfully withholds payment for more than 30 days. (There is a similar code when contractors do not pay subcontractors). The Court of Appeal used that section to award attorney fees to the contractor, even without a written contract. Pretty interesting.
The contractor recovered $200,000 plus 2 percent per month on a verbal home improvement contract, plus attorney fees. A successful pay-day in court.
By the way, a different California law requires turn-key residential construction projects to be in writing, but the courts frequently enforce verbal contracts, using the same analysis the Court of Appeal used in the Hinerfeld v. Lipian remodel case.
Jim Porter is an attorney with Porter Simon, with offices in Truckee, South Lake Tahoe, Incline Village and Reno. He is a mediator and was the Governorand#8217;s appointee to the Fair Political Practices Commission and McPherson Commission, both involving election law and the Political Reform Act. He may be reached at firstname.lastname@example.org or at the firmand#8217;s website http://www.portersimon.com.