April 25, 2011

The Tale of a Home Improvement Contract -- What If It is Not in Writing?

Business and Professions Code section 7159 requires that a home improvement contract be in writing. However, in a series of cases dating back to 1980, the Court of Appeal has judicially created an exception to this statute based on the sophistication of the homeowners and whether they would be unjustly enriched if the contractor is not paid. The most recent example of this is Hinerfeld-Ward, Inc. v. Lipian (2010) 188 Cal.App.4th 86. There the Court of Appeal affirmed a judgment by trial court which enforced an oral agreement between the general contractor and the homeowners. The homeowners failed to show they were the type of persons who came within the protection of section 7159 for three reasons: the project was a complex, high-end remodel on which the design continued to evolve over the years of planning and construction; the owners' architect and designer had extensive involvement in the project as their representative; and the owners would be unjustly enriched if contractor was denied recovery. The contractor recovered approximately $202,000 that the homeowners had failed to pay.

To make matters worse for the homeowners, the homeowners had to pay the contractor's attorney's fees ($200,000) and 2% per month of the progress payments withheld (more than $54,000) because the homeowners violated Civil Code section 3260.1, a statute which governs withholding of progress payments on a construction contract. The violation resulted from the homeowners withholding an amount exceeding 150% of the disputed amount from progress payments to the contractor.

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