April 2004
By ALEXANDER A. MIUCCIO, CIC Legal Counsel
Nearly every home improvement contractor knows that contracts with homeowners are supposed to be in writing. General Business Law ¤771 provides that such contracts must be: written, signed by the parties, show the name, address, telephone number and license number of the contractor and describe the work to be performed, the materials to be provided and the price. Approximate or estimated dates for the beginning and the substantial completion of the work are to be included in the written contract, as well as contingencies that might alter those dates, and whether "time is of the essence."
The statute supplies language to be inserted in the contract "in clear and conspicuous bold face type" to warn the owner that any contractor, subcontractor or materialman who is not paid may have a mechanic's lien. Notice must also be given to the owner that the home improvement contractor is required to deposit all payments received prior to completion in accordance with ¤71-a(4) of the Lien Law, or else supply a bond, contract of indemnity or irrevocable letter of credit, guaranteeing the return or proper application of payments.
If applicable, the schedule for any progress payments must be set forth in the contract. The owner is entitled to and must be given notice of his right to cancel the home-improvement contract until midnight of the third business day after signing the contract, and the statute spells out what constitutes cancellation, and how notice shall be given. It also provides a narrow exception for bona fide emergencies of the owner. The writing is to be legible, in plain English, and shall describe any document to be incorporated by reference. A copy must be given to the owner.
Written agreements are generally preferable to a "handshake" agreement, especially when a written agreement is expressly required by statute. If a home improvement contractor performs work without entering into a written contract, as the statute requires, will he be barred from getting paid, in the event of a dispute with the owner? According to a recent decision by a New York appellate court, the answer is "not necessarily."
Background
The case of Precision Foundations v. Ives involved a contractor hired to perform concrete work (a foundation, floors and cellar walls) for a home. The homeowner gave the contractor a down payment of $5,000. There was no written contract. The homeowner claimed that the contractor had proposed a price of $14,200 and the contractor testified that he had supplied a written estimate of $16,400.
After pouring concrete footings, frost walls and foundation walls for the homeowner's house and garage, the contractor claimed he needed two weeks to fit the remaining work into his schedule. When the contractor returned to pour the patio floor, he had a disagreement with the homeowner, left the site, and never completed the job. The contractor's testimony, which was accepted by the trial judge, was that the reasonable value of the work that the contractor performed was $11,760.
As a defense to the contractor's action, the homeowner raised the contractor's failure to produce a written contract as required under the statute. The trial court rejected this defense, and held for the contractor in the sum of $6,670 plus interest, corresponding to the value of the work, less the homeowner's $5,000 down payment.
Decision
On appeal, the Appellate Division upheld the trial court's decision in favor of the contractor. General Business Law ¤71 does bar recovery based on a theory of breach of contract, the appellate court held, because the contractor failed to observe the statutory requirement of a written contract. The court relied on a legally distinct theory of recovery for the contractor, known as quantum meruit (the Latin term means, "as much as he deserves"). This theory permitted the contractor to recover the unpaid fair value of the work he actually performed, notwithstanding the absence of a written agreement.
To prevail on an action in quantum meruit, the appellate court explained, the contractor must prove four conditions: the performance of services in good faith; acceptance of the services by the person for whom they were rendered; an expectation of compensation; and the reasonable value of the services performed. The lower court had found that the contractor had substantially performed its obligations, and reviewing the record on appeal, the Appellate Division did not find the trial court's determination to be against the weight of the evidence.
Commentary
One respect in which the appellate court modified the lower court's decision in this case was that it vacated the trial court's award to the contractor of four years' worth of interest, as the contractor had waited almost four years after performing the work before it brought its action. In New York, the award of prejudgment interest for the breach of a contract is generally mandatory, but the interest award on a quantum meruit claim lies in the court's discretion. Thus, the possibility of losing interest is an additional reason why strict compliance with the written contract requirement is a good idea.
It is important to note that this decision has nothing to do with licensing requirements, which although imposed by local laws and not statewide, are in effect in New York City, Westchester, Rockland, and many downstate areas. Although the lack of a written contract may not be an absolute bar to recovery in quantum meruit, the license requirements are stricter; failure to comply can result in the unlicensed contractor's inability to recover anything for its work. Any contractor who performs home improvement work should take care to ascertain and to comply with any licensing requirements in force in localities in which he does such business.
About the author: Mr. Miuccio is a partner in the law firm of Goldberg & Connolly, and legal counsel to the Construction Industry Council of Westchester and Hudson Valley, Inc. Geoffrey S. Pope, a senior associate with the firm, assisted in the preparation of this article.