It's time again for the annual "Stella Awards!"

To prove this blog does have a sense of humor, I pass along an article sent me by one of the followers of this blog. It is a copy of the annual Stella Awards. I make no representations regarding the truth of these lawsuits.

According to the reader, they are named after 81-year-old Stella Liebeck who spilled hot coffee on herself and successfully sued the McDonald's in New Mexico , where she purchased coffee. You remember, she took the lid off the coffee and put it between her knees while she was driving. Who would ever think one could get burned doing that, right? These are awards for the most outlandish lawsuits and verdicts in the U.S. Here are the Stellas for the past year - Enjoy:

SEVENTH PLACE - Kathleen Robertson of Austin, Texas was awarded $80,000 by a jury of her peers after breaking her ankle tripping over a toddler who was running inside a furniture store. The store owners were understandably surprised by the verdict, considering the running toddler was her own son.

SIXTH PLACE - Carl Truman, 19, of Los Angeles , California won $74,000 plus medical expenses when his neighbor ran over his hand with a Honda Accord. Truman apparently didn't notice there was someone at the wheel of the car when he was trying to steal his neighbor's hubcaps.

FIFTH PLACE - Terrence Dickson, of Bristol , Pennsylvania , who was leaving a house he had just burglarized by way of the garage. Unfortunately for Dickson, the automatic garage door opener malfunctioned and he could not get the garage door to open. Worse, he couldn't re-enter the house because the door connecting the garage to the house locked when Dickson pulled it shut.. Forced to sit for eight, count 'em, EIGHT days and survive on a case of Pepsi and a large bag of dry dog food, he sued the homeowner's insurance company claiming undue mental anguish. Amazingly, the jury said the insurance company must pay Dickson $500,000 for his anguish.

FOURTH PLACE - Jerry Williams, of Little Rock, Arkansas, garnered 4th Place in the Stella's when he was awarded $14,500 plus medical expenses after being bitten on the butt by his next door neighbor's beagle - even though the beagle was on a chain in its owner's fenced yard. Williams did not get as much as he asked for because the jury believed the beagle might have been provoked at the time of the butt bite because Williams had climbed over the fence into the yard and repeatedly shot the dog with a pellet gun.

THIRD PLACE - Amber Carson of Lancaster, Pennsylvania because a jury ordered a Philadelphia restaurant to pay her $113,500 after she slipped on a spilled soft drink and broke her tailbone. The reason the soft drink was on the floor: Ms. Carson had thrown it at her boyfriend 30 seconds earlier during an argument.

SECOND PLACE - Kara Walton, of Claymont , Delaware sued the owner of a night club in a nearby city because she fell from the bathroom window to the floor, knocking out her two front teeth. Even though Ms. Walton was trying to sneak through the ladies room window to avoid paying the $3.50 cover charge, the jury said the night club had to pay her $12,000....oh, yeah, plus dental expenses.

FIRST PLACE - This year's runaway First Place Stella Award winner was: Mrs. Merv Grazinski, of Oklahoma City, Oklahoma, who purchased a new 32-foot Winnebago motor home. On her first trip home, from an OU football game, having driven on to the freeway, she set the cruise control at 70 mph and calmly left the driver's seat to go to the back of the Winnebago to make herself a sandwich. Not surprisingly, the motor home left the freeway, crashed and overturned. Also not surprisingly, Mrs. Grazinski sued Winnebago for not putting in the owner's manual that she couldn't actually leave the driver's seat while the cruise control was set.. The Oklahoma jury awarded her, are you sitting down? $1,750,000 PLUS a new motor home. Winnebago actually changed their manuals as a result of this suit, just in case Mrs. Grazinski has any relatives who might also buy a motor home.

Put It in Writing

In former blogs, I’ve discussed contracts and their enforceability. Many of my clients - especially those in the construction and retail business - have asked me why I insist they get a written memorandum of their agreement with their customer. Allow me to elaborate:

1. Defining the terms of the agreement. Placing an agreement in writing sets down, in black and white, each party’s agreement. Oral contracts are open to each party’s interpretation of the terms of the agreement and result in misunderstanding and often litigation.

A prime example of this type of issue is the so-called “Change Order.” This type of contract is normally used in the construction industry to identify a change in the terms of the original contract. Some change orders merely identify changes in specifications having no impact on the cost of construction. Other change orders may have an impact on the cost of construction or identifies additional work to be performed. Placing the change in writing avoids the conflict in the interpretation of the change order, sets forth the terms of the change order, identifies the type of change order and any additional costs to be paid.

2. Avoiding statutory violations. Many state and federal statutes require certain terminology to be placed in a contract. Consumer protection laws and Regulation Z are typical examples. Home solicitation sales require specific language regarding a consumer’s right to cancel a contract. Regulation Z requires an entire form be completed outlining a debtors payments and the calculation of interest. Failure to include this language in a contract can have enormous consequences by way of fines, attorney fees, statutory penalties and, in some instances, criminal prosecution.

3. Warranties - In selling goods and services certain warranties are implied by law. For example, it is implied in law that a mechanic warrants that he repaired a vehicle properly. Other implied warranties are so called “merchantability” warranties - warranties that ensure that the product or service being sold can be used properly. Another warranty is the warranty that the product is fit for a particular purpose - that the merchant knew the particular use for which the product was being purchased and warrants that the product will perform that application. In real estate there are warranties relating to title and merchantability. If not specifically limited in writing, expensive litigation could ensue interpreting these warranties.

4. Avoiding protracted litigation. Oral contracts are notoriously troubling because the terms of the agreement are open to interpretation. Placing an agreement in writing avoids what is called “parole evidence” - the introduction of representations made outside the contract. Placing an agreement in writing sets forth all the terms of the contract and avoids the issue of your customer claiming something that is not in the written agreement

I’ll never forget the day I attended a local chamber of commerce luncheon. Seated at my table was a contractor. We entered into a conversion regarding a major issue he was having with his original contractor over the terms of a contract. He claimed he did the work and then, at the contractor’s request, performed additional work. He billed for this work and the contractor refused to pay him. Why? Because the contractor claimed this additional work was performed to correct problems under the original contract. I asked him if this additional work was agreed to in writing. His answer was no. I asked him why. He stated he was already on the job and didn’t think that he needed to take the time and besides, “[he] didn’t want to get the contractor angry and wanted to avoid a headache.” Well, he exchanged one headache for another.

Ohio’s Mechanic’s Lien Law - Home Construction or Purchase Contracts

In prior blogs I’ve discussed Ohio Mechanic’s Lien law and its impact on Private Improvements and Public Improvements (See blogs of July 17, 2009). In my discussion of Private Improvements I told you improvements made to private homes are treated differently than the standard “commercial” improvement. The purpose of this blog is to discuss home construction or purchase contracts and the differences between them and the standard private improvement.

Ohio Revised Code 1311.011 protects the owner of a private residence against paying more than originally contracted. If the owner can prove he has paid the original contractor 100% of the contract price PRIOR TO the receipt of the affidavit to obtain a mechanic’s lien any lien filed by a subcontractor, materialman or laborer can be invalidated.

First let me define the terms:

“Home Construction Contract” means a contract entered into between an original contractor and an owner, part owner, or lessee for the improvement of any single- or double-family dwelling or portion of the dwelling or a residential unit of any condominium property that has been submitted to the provisions of Chapter 5311. of the Revised Code; an addition to any land; or the improvement of driveways, sidewalks, swimming pools, porches, garages, carports, landscaping, fences, fallout shelters, siding, roofing, storm windows, awnings, and other improvements that are adjacent to single- or double-family dwellings or upon lands that are adjacent to single- or double-family dwellings or residential units of condominium property, if the dwelling, residential unit of condominium property, or land is used or is intended to be used as a personal residence by the owner, part owner, or lessee.”

"Home purchase contract" means a contract for the purchase of any single- or double-family dwelling or residential unit of a condominium property that has been subjected to the provisions of Chapter 5311 of the Revised Code if the purchaser uses or intends to use the dwelling, a unit of a double dwelling, or the condominium unit as the purchaser's personal residence.

As defined, this statute applies to any home construction contract or any home improvement contract. In order to take advantage of these provision the owner must prove:

1. That he is the owner of a single or double family home pr condominium, and

2. The he has paid the original contractor in full, and

3. Payment was made in full prior to receipt of the lien.

Note the definition of “Home Purchase Contract, DOES NOT include a spec house - A home constructed by a contractor, later sold to an individual intending to use it for their personal residence.

The statute goes on to say if the original contractor has not been paid in full the subcontractor, material supplier, or laborer can only recover an amount equal to the amount still owed on the home construction contract or the home purchase agreement. If more than one lien is filed, those lien holders are only paid a pro rata share of the balance owed to the original contract.

The statute also contains provisions for the invalidation of any lien recorded in violation of the statute. The provisions call for the owner to provide written notice to the lien holder that they have paid the original contractor in full and that payment in full was made prior to receipt of the copy of the lien. If the lien holder fails to satisfy the lien within 30 days, the lien holder is liable to the owner for any damages, including the cost of having the lien invalidated, attorney fees and court costs.

Furthermore, no lending institution is permitted to make any payment to any original contractor until the original contractor has given the lending institution the original contractor's affidavit stating:

1. That the original contractor has paid in full for all labor and work performed and for all materials furnished by the original contractor and all subcontractors, material suppliers, and laborers prior to the date of the closing of the purchase or during and prior to the payment period, except such unpaid claims as the original contractor specifically sets forth and identifies both by claimant and by amount claimed, and

2. That no claims exist other than those claims set forth and identified in the affidavit.

While the lending institution is not financially liable to the owner after accepting an affidavit from the original contractor (in good faith), it can be held liable if it fails to obtain a lien release after receiving a notice that a lien has been filed.

It must be noted, while these provisions of Ohio’s Mechanic’s Lien Law protect the home owner from paying twice for improvements made to their home, other provisions of the lien law fail to protect homeowners as well as they protect the owners of commercial properties. Pursuant to O.R.C. 1311.04(O) and 1311.05(E) and a Notice of Commencement need to posted or recorded and a Notice of Furnishing need not be served when providing labor or materials for a home construction contract.

Ohio's Prompt Pay Provisions - A Statute Designed to Help Lower Tier Contractors and Suppliers Get Paid

Ohio's Prompt Pay provisions, codified in Ohio Revised Code 4113.61, affords the lower tier contractor a resource to obtain payment from his contractor. The provisions, if properly followed, exact severe penalties to the contractor if they fail to pay their subs and suppliers within the statutory time limits. In the event the contractor fails to pay his subcontractors or suppliers within 10 days of being paid for the subcontractor's work or for material supplied, the law provides an 18% per annum interest rate on the amount owed, PLUS attorney fees.

In order to succeed in a claim under the prompt payment law, the subcontractor or supplier must:

1. Prove a valid and enforceable contract claim.

2. Prove that an accurate invoice was submitted to the contractor for payment.

3. Prove that the subcontractor or supplier allowed the contractor sufficient time to include the invoice in the contractor's invoice to the owner;

4. Prove that the contractor was paid for the invoice submitted for work or materials set forth in the subcontractor's or supplier's invoice.

5. Prove that the contractor refused to timely pay the subcontractor or supplier an amount equal to the percentage of completion allowed by the owner; and

6. Prove there is no valid reasons for the contractor to withhold any amount necessary to resolve disputed claims involving the work or materials.

If subcontractor or supplier successfully establish these provisions, the contractor is required to pay the subcontractor or supplier interest in the amount of 18% per annum from the 11th day the payment is not made. The law also allows for attorney fees.

As you can see enforcement of these provisions are highly technical. Competent counsel should be retained to enforce these statutory provisions.

Collecting Your Money

In my many years of practice, I have encountered many clients who have trouble collecting debts owed to them. My first such encounter was a “simple” collection matter. I asked the client to forward his “file” and it consisted of a single invoice (Names are changed for ethical reasons):

ABC Company

1234 Main Street

City, State 11111

July 1, 20–

Mr. & Mrs. Smith

For services rendered $5000.00

Yes, this was the ENTIRE file presented by my client. No contract, no address, no required disclosures – merely the invoice shown above.

While businesses have matured and the obvious mistakes, both tangible and implied, characterized by this invoice are not longer made, this document is symbolic of errors of omission and commission present even in today’s business. Summarizing my experience in collecting debts, errors are categorized as follows: (1) Enforcement issues, and (2) Legal issues.

Enforcement Issues

Initially a company should be sure any contract entered into is enforceable. This means more than a “meeting of the minds.” It also requires that covenants contained in your agreement are enforceable.

Webster simply defines a contract as “A formal agreement between 2 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 any agreement.

So, what should be contained in my contract in order to enforce the agreement? Here is a short list:

1. Obtain the FULL and LEGAL NAME(S) of the other party.

2. Get the CORRECT ADDRESS. The location where you are performing your services or where you are delivering the goods may not be where the party resides or its main place of business..

3. Be sure you fully define what service or material you are providing.

4. Set forth the terms and amount of your compensation as well as when payment is due.

5. If the other party is preparing the contract make sure all terms, exhibits, and addendums are attached to the executed copy.

What additional information should I collect? Sometimes, in spite of your efforts issues arise regarding the terms of the contract. The following is a list of recommendations:

1. Retain summaries of telephone conversations you have with customers.

2. Maintain labor and material job costs.

3. If possible obtain the social security number or federal identification number of the other party.

Legal Issues

Beyond the ordinary terms of any contract are statutory and legal requirements that impact on the enforceability of any contract. Consumerism, politics and legal precedent have posed additional burdens upon any business.

Over the years, the courts have ruled upon many issues, particularly the enforceability of certain covenants of a contract. Among the covenants applicable are:

Liquidated Damage Clauses – Uniformly, most states have looked unfavorably upon these clauses. Typically, they call for the party to pay a given amount as “liquidated damages” for the party’s of certain terms of the contract. Generally, the courts have severely limited the enforceability of such clauses. 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 creditor to prove these damages. The inability of the creditor to prove these damages renders the clause unenforceable.

Warranty Waivers – Most contracts have some limitation to the warranties given by a party. With the advent of the “Uniform Commercial Code,” which has a major impact 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.

The states have placed additional statutory burdens upon the creditor. Among laws having applicability are:

Consumer Protection Laws – These laws generally define what are unfair sales practices and run the gambit from “bait-and-switch” schemes to sales tactics. Among the more pertinent laws relate 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.

I also suggest a detailed reading of the provisions of this act. This act has provisions that regulate more than “home solicitation sales.” Consumer protection laws are used to protect the personal consumer against private lenders, auto repair shops, small furniture stores, etc. The regulations enacted under the statutory law has broadened the provisions of the act enormously.

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 laws.

Regulation “Z” – This Federal regulation is applicable to those regularly extending debt. The regulation defines who is a “creditor.” Those thinking such regulations only to banks or other such institutions are patently wrong. The definition includes many small businesses such as car dealers, rental companies, and even individuals allowing for payment over time.

As you can see there are a number of steps you can take to protect the collectibility of monies owed you. Additionally, there are steps you can take to prevent legal entanglements that could prevent the collection of monies owed you. A little accounts receivable management using some of the techniques and preventive measures outline above will go a long way in insuring the collection of money owed you.

Unjust Enrichment - Equitible Relief for the Creditor

Many of my clients fail to recognize that the law does recognize equitable forms of relief when they can not prove the existence of a contract. This is known in the law as "equitable" relief. A perfect example is the typical law school example where the contractor paints the wrong house. He has rendered a benefit to the homeowner but there is not privity of contract between the contrator and the owner. This type of equitable relief is known "Unjust Enrichment."

The theory of unjust enrichment is equitable relief a court will grant when the court deems it unfair that someone obtains a benefit without paying a fair price. This theory of liability arises when there is no privity of contract between the parties, yet one party has obtained a benefit through the other’s efforts. For example, if the XYZ Company supplies construction material for a given job and, through the principal contractor’s default, the XYZ Company does not get paid , the court could award XYZ Company an amount equal to the fair market value for the material. The theory of unjust enrichment is equitable relief a court will grant when the court deems it unfair that someone obtains a benefit without paying a fair price. The court could award the company an amount equal to the fair market value for the material supplied if all the "elements" of unjust enrichment are met.

As I said, there are elements that must be met before the contractor can succeed. These are:

1. A benefit was conferred by the contractor upon the owner of property,

2. The owner knew the benefit was being conferred, and

3. Retention of the benefit by the owner would be unjust without payment.

The latter two elements are the most difficult. The contractor must prove that the owner knew the work was being performed and that it would be inequitable for the owner to retain this benefit without paying the contractor. This final element is what is called “balancing the equities.” For example, if the owner has paid the original contractor in full, the courts, in certain jurisdictions, have stated that it is inequitable to make the owner pay twice and found in favor of the owner. On other hand, where the owner has not paid the original contractor in full or has paid others to complete the work, courts have found in favor of the contractor.

The thrust of this type of relief is that an individual can not just sit and allow another to confer a benefit upon them without paying for it. Examples are when goods are shipped or delivered to the wrong location, the person accepts the goods and uses or resells the goods or when a contractor paints the exterior of a building and the owner allows the painting to continue without notifying the painter that they are painting the wrong building or where the contractor failed to properly perfect a mechanic's lien. To give you a personal example, some years ago I represented a client who was paid even though he demolished the wrong building! My client mistakenly raised the building next door. Luckily, the building he did demolish was condemned and the court awarded my client the reasonable fees for the demolition.

So don't give up hope. There is some relief available even if

Ohio's Mechanic's Lien Law - Public Improvements

In a prior blog, I discussed the use of mechanic's liens and the statutory requirements prior to the recording and perfection of such a lien. That blog discussed the use of mechanic's liens for private improvements - improvements on property owned by non-public individuals and entities. The purpose of this blog is to discuss the requirements when perfecting a "lien on public improvements.

A “Public Improvement” means any construction, reconstruction, improvement, enlargement, alteration, demolition, or repair of a building,..., and any other structure or work of any nature by a “public authority.” A “Public Authority”includes the state, and a county, township, municipal corporation, school district, or other political subdivision of the state, and any public agency, authority, board, commission, instrumentality, or special district of or in the state or a county, township, municipal corporation, school district, or other political subdivision of the state, and any officer or agent thereof.

In applying the law to Public Improvements, the language is really a misnomer as the law does not permit a subcontractor to record a lien upon land owned by a public authority (see definition above). What the law does permit is the right of the subcontractor to place what is termed a “lien upon the fund.” As a result, the prerequisites are somewhat different.

The law is the same when it comes to an owner’s obligation to prepare and have readily available, a Notice of Commencement. Unlike a private improvement, the Notice of Commencement need only be retained by the general contractor (known under this section of the statute as the "original contractor"). It need not be posted or recorded.

While the subcontractor is required to prepare and serve a Notice of Furnishing, the law requires service upon the principal contractor only - not the owner - within 21 days of the of the material being furnished and/or the subcontractor commencing work on the job. Not withstanding this difference, I recommend my clients serve not only the original contractor, but the owner and surety (see my discussion of surety liability in a prior blog).

Having properly served the Notice of Furnishing, the subcontractor may serve an “affidavit” upon the public authority within 120 days of completion of its work, setting forth certain information required. Upon receipt of the affidavit, the public authority must set aside sufficient funds to pay the subcontractor. The public authority is then required to serve a copy of the affidavit upon the principal contractor who must dispute the claim within 20 days. If the claim is undisputed after 20 days, the public authority must pay the subcontractor. Any public authority, principal contractor or subcontractor may dispute the claim and send the claimant a “Notice to Commence Suit” which must be filed within 60 days of receipt of the notice. Once again, proof of service of the documents set forth in these statutes is critical to ensure proof of service and protection of a contractor's rights