Monday, August 31, 2009

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.

Thursday, August 27, 2009

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.

Tuesday, August 11, 2009

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.