By: Bryant Byrnes, Esq.
We all know that California law requires that a contract for home improvement between an owner and a contractor must be in writing and contain specific provisions (see Business & Professions Code section 7159). Although I am sure that every contractor reading this article would never enter into an oral contract for home improvement, it has been known to occur.
Oral agreements for home improvements are generally unenforceable because they are contrary to California’s well established public policy of protecting unsophisticated consumers. In addition, the writing requirement acts as a procedural safeguard protecting all parties against the possibility of fraudulent claims. However, the following California case is an example of when a contractor may enforce an oral contract for payment – but only when certain factors are present.
Hinerfeld-Ward, Inc v. Lipian, decided in 2010, involved a high end home improvement project. Although mandated by law, the homeowners did not have a written contract with the contractor. The owners (the Lipians) retained Hinerfeld as their contractor and work proceeded for the next two years, generating 19 invoices. The Lipians then disputed certain charges on the 20th invoice. (That darn 20th invoice.) At that time, the Lipians owed their contractor over $200,000.
The Lipians terminated Hinerfeld. Hinerfeld, in turn, sued for payment. The Lipians claimed they owed nothing because the oral contract with Hinerfeld was void and thus unenforceable. They contended that California’s statutory requirement that all “home improvement” contracts must be in writing prevented the court’s enforcement of the “void” oral home improvement contract. The trial court disagreed and awarded the contractor Hinerfeld damages and attorneys’ fees.
On appeal, the court set forth factors to establish when it would be unjust to declare an oral contract void and thus unenforceable. The factors included: i) the homeowners Lipians were sophisticated individuals and not within the class of unsophisticated consumers intended to be protected by the statute; ii) the contract in question, for a unique, long-term, ever evolving construction project, was not the type that California’s public policy would declare void; iii) the owners’ relationship with their architect as their representative was long-term and well-established, and served to protect the owners’ interests; and iv) the owners had accepted the benefit of the agreement. In summary, the court said that “…this is a compelling case warranting enforcement of the oral home improvement contract…” All the factors combined to support enforcement in favor of the contractor.
And there is even an odd twist. California law restricts the ability of a homeowner to hold back progress payments by limiting any amount withheld to 150% of the value of the disputed item. Rather than paying the amount that was undisputed, the Lipians withheld the entire amount of the billing, thus violating the statute. This aggressive tactic of withholding the entire amount seriously back-fired. The court strictly applied the statute against the Lipians. Their violation cost them the additional statutory penalties and attorneys’ fees.
The lesson here is that in any business relationship it is important to “get it in writing” to avoid this kind of thing. But this case demonstrates that even if a statute requires a written contract, exceptions may exist – especially when a strict reading would work an injustice.
This case also offers a number of lessons on how to manage and document a successful home construction project – some of them strategic, some of them psychological, and some of them legal. So look it up on Google.
Bryant H. Byrnes, Esq. practices construction law in the San Francisco Bay Area and is counsel to the SFBA NARI Board of Directors. Questions? His website is www.bryantbyrnes.com. Feel free to contact Bryant by email at firstname.lastname@example.org.