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March 29, 2016

Those of you who are engaged in home repair and remodeling have had to contend with the Illinois Home Repair and Remodeling Act (Act) since it went into effect on January 1st, 2000.  As you know the Act requires that before starting home repair or remodeling work for over $1,000 you have to provide the customer for signature a written contract or work order.  Also before the customer signs the contract you have to provide a pamphlet “Home Repair: Know Your Consumer Rights.”  The customer has to sign an acknowledgment form that this has been done.

As we all know “things happen” in life as well as in business.  Even the most organized business may run into a situation where although unintentional an oversight occurs and one of the requirements of the Act is not followed.  Initially the Illinois Appellate Courts took a very rigid stand on violations of the Act.  Basically the Courts position was if there was a failure to comply with the Act a contractor could not recover even under equitable principles such as unjust enrichment or quantum meruit.  For example, in the Appellate Court decision in Smith v Bogard a contractor made a contract with a customer for a room addition to their house but failed to commit the contract to writing and did not give the homeowners the consumer rights brochure. When the work was finished the homeowners refused to pay the balance owed and the contractor sued.  The homeowners raised the contractors violations of the Act as a defense.  The Appellate Court upheld the trial court’s dismissal of the contractor’s lawsuit.  The contractor argued that even if the Act precluded recovery he should still be allowed to recover under equitable principles of law otherwise the homeowners would receive a windfall.  The Appellate Court disagreed and stated, “Allowing a contractor a method of recovery when he has breached certain provisions of the Act would run afoul of the legislature’s intent of protecting consumers, would reward deceptive practices, and would be violative of public policy.”  A pretty harsh result without considering how the violations of the Act may have affected the work done or the fact that the homeowners were getting something for nothing.

Fortunately the Illinois Supreme Court has addressed the issue of violations of the Act in its recent decision in K. Miller Construction v McGinnis.  At issue in McGinnis was whether a home remodeling contractor who violates the Act and enters an oral contract for home remodeling work over $1000 can enforce the oral contract or seek recovery in quantum meruit against the homeowners who refuse to pay for a completed home remodeling project.

The facts showed that the contractor had done work for these homeowners previously and before the litigation the owner of K. Miller Construction and Mr. McGinnis were friends.  The McGinnis’s bought a three flat apartment and wanted to convert the building into a single family residence.  Initially the project was to cost $187,000.  After work began the McGinnis’s informed Miller that they wanted to significantly increase the work and had new plans drawn for the larger project.  The modifications increased the total cost of the project to approximately $500,000.  The homeowners paid the first $65,000 of invoices but after that told Miller they did not want to make further payments until the end of the project.  Miller could not self-finance the work and therefore obtained a bank line of credit.  The homeowners regularly visited the construction project and approved all of the work except certain flooring which was estimated to cost about $300 to repair.  At the close of the project there was a balance due of over $300,000 which the homeowners refused to pay.

The contractor filed a lawsuit seeking in Count I to foreclose a mechanic’s lien, Count II was for breach of contract and Count III sought recovery in quantum meruit.  The homeowners filed a motion to dismiss and raised the violation of the Act, no written contract, as a defense and also the decision in Smith v Bogard as to the contractor’s claim to recover in quantum meruit.  The trial court granted the homeowner’s motion. The Illinois Appellate Court affirmed in part and reversed in part.  The Appellate Court agreed that because there was no written contract recovery on the oral contract and for a mechanic’s lien could not be had.  The Appellate Court reversed on the issue of quantum meruit recovery since there was no clear and plain intent in the Act to do away with this equitable remedy.

The Illinois Supreme Court approached the issue as determining whether or not Illinois public policy precludes recovery under an oral contract that is violative of the provisions of the Act.  In doing so the Court commented that a statutory violation does not automatically render a contract unenforceable if not seriously injurious to the public order.  The Supreme Court also commented that the Illinois legislature is capable of stating when a contract that violates the statute is unenforceable.  No such provision is made in the Home Repair Act.  The Illinois Supreme Court never really addressed the public policy issue because on July 12, 2010 the Act was amended and the provision that previously provided that oral contracts in violation of the Act were unlawful was changed in its entirety to now provide that any person who suffers actual damages as a result of a violation of the Act can bring an action under the Consumer Fraud and Deceptive Business Practices Act.  The Illinois Supreme Court held that this amendment was not a change in Illinois law but a clarification of existing law and made clear that a violation of the Act does not render oral contracts unenforceable or relief in quantum meruit unavailable.  The Supreme Court concluded that there is no public policy requiring oral contracts over $1,000 be held unenforceable or that relief in quantum meruit be denied.

I represent many of you who are home remodeling contractors or do home repair work.  The Illinois Supreme Court’s decision in McGinnis is important for you and a practical approach to what I think was getting out of hand with certain Appellate Court decisions.  In the McGinnis case the contractor and homeowner had done work together before and were friends.  Why wouldn’t the contractor think a written contract was not necessary?  It’s easy in hindsight to criticize but in the real world it’s easy to see how this could happen.  As a result should the McGinnis’s get a windfall and be able to use over $500,000 worth of work without having to pay for it.  Also in this case all of the work was done properly with only a small portion needing to be corrected.  It would be an extreme injustice in a case such as this to say that the contractor loses and the homeowner wins just because of violations of a statute.

I have not had a case yet where home remodeling or repair was done under an oral contract.  However, I have had a case where a claim was made by the homeowners that the required brochure was not timely given.  After the contract was entered the contractor and homeowners communicated regularly and the real issue was timely commencement of the work.  In this case just as McGinnis the homeowners would have been hard pressed to show any actual damages as a result of not getting the “Home Repair: Know Your Consumer Rights” pamphlet even if that allegation had been true. The amendment that was recently made to the Act by our legislature and the Illinois Supreme Court’s decision in McGinnis are important for the home remodeling industry and bring some practicality to situations that could otherwise lead to unjust results.