How Do I Get Paid?
Insuring the Enforceability of Your Contract
by Avery H. Fromet
My history with the Ohio Glass Association (OGA) and the industry goes much farther back than my initial hiring as the chapter administrator. For a number of years, I represented a number of contractors. My first encounter with a member of the industry was a “simple” collection matter. I asked the client to forward his file and it consisted of a single invoice
(see Figure 1):
Yes, this was the entire file presented by my client. No contract, no address, no required disclosures—merely the invoice illustrated in Figure
While the industry has matured and the obvious mistakes, both tangible and implied, characterized by this invoice are no longer made, the document represented in Figure 1 is symbolic of the errors of “omission” and “commission” present even in today’s industry. Errors summarizing my experience in collecting for members of the industry can be categorized as follows: 1) enforcement issues and 2) legality issues.
Initially a contractor should be sure any contract entered into is enforceable. This means more than whether there is “a meeting of the minds.” It also requires that covenants contained in your agreement are enforceable.
Webster’s Dictionary simply defines a contract as “a formal agreement between two or more persons.” In actuality, it is a bit more complicated. Black’s Law Dictionary is a bit more illustrative of the elements of an enforceable contract by stating a contract is “an agreement, upon sufficient consideration, to do or not to do a particular thing.” It goes on, “It is [an] agreement creating an obligation in which there must be competent parties … legal consideration … [and] mutuality of agreement
Legal mumbo-jumbo, yes, but the enforcement of your agreement depends upon your ability to prove the defined elements of contract. To enforce your contract these elements must be present in your agreement with the owner of the property.
So, what should be contained in your contract in order to enforce the agreement? Here is a short list:
- Obtain the full and legal names of the owner or owners of the property;
- Get their mailing addresses. The location of the job may not be where the owners
- Be sure you fully define what you are going to do; and
- Set forth the terms and amount of your compensation as well as when payment is due.
What additional information should you accumulate? Sometimes, in spite of your efforts, issues arise regarding the terms of the contract. The following is a list of
- Retain summaries of telephone conversations you have with customers;
- Maintain labor and material job costs; and
- If possible, obtain the social security numbers of the owners (or Federal ID number of
And what about change orders—additional work that an owner or contractor wishes you to perform in addition to the terms of the initial contract? The rules do not change. Always put it in writing, including the terms and additional compensation, and always have a proper representative of the owner sign the change order. Finally, be sure there is an understanding that it is a change of order and not an item on the punch list.
Beyond the ordinary terms of any contract are statutory and legal requirements that impact the enforceability of any contract. Consumerism, politics and legal precedent have posed additional burdens upon the contractor. Over the years, the courts have ruled upon many issues, particularly the enforceability of certain covenants of a contract. Among the covenants applicable to the industry
- Liquidated damage clauses: Uniformly, most states have looked unfavorably upon these clauses. Typically, they call for the owner to pay a given amount as “liquidated damages” for the owner’s cancellation of the contract. Generally, the courts have severely limited the enforceability of such a clause. The courts have ruled there must be some correlation between the stipulated damages and the actual damages incurred by the contractor. The burden is upon the contractor to prove these damages. The inability of the contractor to prove these damages renders the clause unenforceable.
- Warranty waivers: Most contracts have some limitation to the warranties given by the contractor for the work performed. With the advent of the Uniform Commercial Code, which has a major impact on the law relating to sales of goods, the waiver of warranties or other representations require definitive language to render them enforceable. Each state has promulgated its own rules. I strongly recommend you seek assistance of a professional to determine whether your limitation of warranties clause is statutorily correct.
- Collection clauses: Typically these clauses call for the owner to pay all costs of collection, including attorneys fees, in the event the contractor must sue to collect. The courts seldom enforce these clauses. The reasoning behind this is based upon “public policy,” i.e., that the clauses are fundamentally unfair.
- “Public policy” issues: Even though a given clause may be enforceable on its face, a court may not enforce the clause on various grounds, deeming the clause or its placement in the contract untenable and, therefore, unenforceable. This issue comes into play, for example, when a contractor wishes to limit their liability or claims. For example, if a waiver of warranty clause is contained on the back of a contract in such small type that it is nearly impossible to read, the court may not enforce the clause as being against “public
Statutorily, the states have placed additional burdens upon the contractor. Among laws having applicability are:
- Consumer protection laws: These laws generally define unfair sales practices, and run the gambit from “bait-and-switch” schemes to sales tactics. Among the more pertinent laws are those relating to home solicitation sales and estimate requirements. Both laws require statutory language be included in every contract. Home solicitation laws generally require specific language notifying the consumer of their right to cancel a contract within a specific period of time and a form containing additional language outlining their rights. Estimate laws require the contractor to notify the consumer of their right to obtain an estimate for services to be rendered. Both laws materially affect the enforceability of a contract as they provide leverage for the consumer in the event the contractor fails to comply with these statutory requirements.
- Debt collection laws: The federal government has enacted the Fair Debt Collection Act, which sets forth rules a collector must follow when collecting a debt on behalf of a client. A number of states have incorporated these rules indirectly by setting forth a violation of the act as an unconscionable act under their consumer
- Mechanic lien laws: On their face, mechanic lien laws are helpful to the contractor. They give a subcontractor the right to place a lien upon the reality it has performed a service or provided material even though the subcontractor has no direct contract with the owner. But, to enforce this right, most states have enacted laws that require contractors to take certain specific actions in order to preserve those rights. Contact your attorney for the specifics of these laws.
In summary, my best advice to a contractor is to think ahead. Assume every contract will need to be collected. In taking this mindset, the contractor can generally ensure payment for a job well done.
Avery H. Fromet is the chapter administrator and counsel to the Ohio Glass Association. Mr Fromet’s opinions are solely his own and do not necessarily reflect the views of this magazine.
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