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Where contractor entered into an oral contract with a real estate attorney to perform major renovations to the attorney’s new home which had previously been a small apartment building, the owner/attorney coxed the contractor (a friend who had performed work for him in the past) into performing work without pay while the project progressed, and at the conclusion of the work, refused to pay over $300,000 – asserting that the contractor was in violation of a state law requiring written contracts, and that the oral contract was null and void.  There didn’t appear to be any argument concerning the quality of the work.  The owner apparently just didn’t want to pay, and, being knowledgeable in the law concerning oral contracts, hoped to use the law as a sword to strike the contractor’s complaint down.   The appellate court held that the statutory violation does not automatically render the contract unenforceable.  In this case, there was no public policy requiring that oral contracts for home remodeling be held unenforceable.    Miller Construction Company v. McGinnis, 238 Ill. 2d 284 (2010).

The construction firm in this case was solely owned by one individual, a Mr. Keith Miller.  The initial oral contract for remodeling was $187,000.  Shortly after the work began, the owner told the contractor he wanted to “vastly increase” the work and that an architect would be developing new plans and specifications for the expanded project.  The modifications raised the total cost of the project to $500,000.

A few months later, the contractor submitted an invoice for $58,000 and the owner refused to pay it – saying he didn’t want to make any more payments until all construction work was completed.   Incredibly, the contractor financed the balance of the construction himself by obtaining a bank line of credit for $150,000 to complete the project.    The work proceeded to completion and the owner approved all the work with the exception of some minor floor issues that would cost about $300 to repair.     For that, the owner refused to pay $300,000 that was due!

At issue was an Illinois statute (The Home Repair and Remodeling Act), that required persons “engaged in the business of home repair or remodeling” to provide customers with “a written contract or work order” prior to beginning work on a project costing more than $1,000.  Another section of that Act states that it is “unlawful” to engage in home remodeling “before obtaining a signed contract….”  Since the contract in this case was not in writing, the owner moved to dismiss the contractor’s law suit on the basis that the contract was unenforceable and that the mechanic’s lien filed by the contractor could not be enforced on a void contract.

The trial court granted the owner’s motion and dismissed the contractor’s complaint with prejudice.  The intermediate appellate court affirmed the dismissal of the breach of contract claim, but held that the contractor had a viable claim based on quantum meruit to recover the value of what had been provided to the owner.   The state Supreme Court, held that the breach of contract should not have been dismissed, and that the contractor was entitled to pursue that cause of action.  In reaching that conclusion, the court examined the statute and determined that the statute provided a small penalty for failure to have a written contract, and that the legislature did not intend to a violation of the statute to render the oral contract unenforceable.

Risk Management Note: Contractors and design professionals should beware when working on homes or small commercial buildings owned by attorneys.  It is remarkable how much litigation arises out of contracts for construction of expensive homes for lawyers.   Even sophisticated architects and engineers have suffered at the hands of attorney/homeowners of expensive homes who sometimes seem to have a penchant for requesting numerous project changes that run up the costs, and then don’t want to pay for them.  If ever there was a class of project owner where a contractor is well advised to get a written contract that provides a well defined scope of work, good payment terms, and reasonable risk allocation clauses, this is one.    Another pointer from this case is to exercise caution when working for “friends.”  Because someone is a friend there can be a tendency to be more trusting and not adhere to normal business practices.    There is an old saying that strong fences make good neighbors.  Likewise, a good enforceable written contract for work can help preserve a friendship between an owner and a contractor.

About the newsletter and author: J. Kent Holland is a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners. He is also founder and president of ConstructionRisk, LLC, a consulting firm providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk.com Report (2010) at www.ConstructionRisk.com.  This article is published in ConstructionRisk.com Report, Vol. 13, No. 4 (April 2011).