Construction Client Failed To Pay

Construction Client Failed To Pay

QUESTION:


What Options Do General Contractors and Sub-Contractors Have When A Customer Fails To Pay?

ANSWER:


Many issues can arise for General Contractors and Sub-Contractors alike when a homeowner, real estate investor, property manager, etc… refuses to pay for a job, including but not limited to, being unable to pay staff, purchase materials and/or make a profit. Fortunately, there are multiple ways for Contractors to collect the monies they are owed. Often the threat of a lawsuit is enough to convince a customer to pay for the services and materials provided by the Contractor. However, when these out-of-court negotiations fail typically two types of claims can be pursued by the Contractor in court:

  • Breach of contract — A contract is a legally binding and enforceable agreement between two or more parties/persons e.g. a contractor and their customer. The contract should be clear as to the work to be performed, the price, how payment will be made, and when payment will be made. In addition, please be aware that Massachusetts law requires that residential contracting agreements for amounts greater than $1,000.00 be in writing and shall include certain provisions as a matter of law. See below.
  • A breach of contract occurs when a party to the contract fails to honor/perform their contractual obligations as agreed. The breaching party may cure/remedy said breach within a reasonable amount of time but failure to so cure is a material breach of contract. When a breach occurs, a legal principle known as the “doctrine of unclean hands” becomes relevant for consideration as the doctrine states that the first breaching party cannot thereafter enforce the contract they breached upon the other contract parties. This means that, as a contractor, you are within your rights to stop work immediately if you are not paid as agreed in the contract e.g. per the payment schedule, per inspections of the work by a lender, etc… Thereafter, contractors can file a claim against their customer for breach of contract to collect the monies they are owed. Note that both General Contractors and Sub-Contractors may file a lien the property where the labor and materials were provided before filing suit for breach of contract.
  • Quantum meruit — The phrase “Quantum Meruit” refers to the actual value of services rendered and such an action may be maintained in the absence of a valid/enforceable contract. Under a quantum meruit theory a contractor may seek to collect monies for the materials they purchased for the project in question and the fair market value of the services they rendered. Normally, contractors provide services to persons with the expectation of being compensated for their work. Quantum meruit claims typically arise following disputes over additional costs arising in the course of a job, change orders, etc… When extra materials are required, or other expenses are incurred, this principle entitles you to seek compensation for the fair market value of the services and materials you provided at the property.

What if I Am Accused of Breach of Contract?

Often, contractor nonpayment issues will involve accusations of defective or faulty workmanship, or other behavior that would place the contractor in breach of contract. In these cases, it is necessary for contractors to retain an experienced construction lawyer to respond immediately to such accusations and to make it clear to the property owner that all work was completed to code and to industry standards for quality.

If you find yourself in this situation, contact Calabrese Law Associates today. Often, the threat of legal action alone is enough to force a customer to the negotiating table. If necessary, however, we will not hesitate to take your case to court and make an effective argument on your behalf. Contact our Boston office today for more information.

MASSACHUSETTS LAW:
Chapter 142A Section 2 of the Massachusetts General Laws (as of April 2015):

“Section 2. (a) Every agreement to perform residential contracting services in an amount in excess of one thousand dollars shall be in writing and shall include the following documents and information:

(1) the complete agreement between the owner and the contractor and a clear description of any other documents which are or shall be incorporated into said agreement;

(2) the full names, social security numbers, addresses, exclusive of post office box addresses, registration number of the contractor, the names of the salesperson, if any, who solicited or negotiated the contract and the date when said contract was executed by the parties;

(3) the date on which the work under the contract is scheduled to begin and the date on which said work is scheduled to be substantially completed;

(4) a detailed description of the work to be done and the materials to be used in the performance of said contract;

(5) the total amount agreed to be paid for the work to be
performed under said contract;

(6) a time schedule of payments to be made under said contract and the amount of each payment stated in dollars, including all finance charges. Any deposit required under the contract to be paid in advance of the commencement of work under said contract shall not exceed the greater of one-third of the total contract price or the actual cost of any materials or equipment of a special order or custom made nature, which must be ordered in advance of the commencement of work, in order to assure that the project will proceed on schedule. No final payment shall be demanded until the contract is completed to the satisfaction of the parties thereto;

(7) the signatures of all parties shall be affixed to the contract;

(8) there shall be a clear and conspicuous notice appearing in the contract:that all contractors and subcontractors must be registered by the director and that any inquiries about a contractor or subcontractor relating to a registration should be directed to the director;of the registration number of the contractor or subcontractor;of an owner’s three-day cancellation rights under section forty-eight of chapter ninety-three, section fourteen of chapter two hundred and fifty-five D, or section ten of chapter one hundred and forty D as may be applicable;of all warranties and the owner’s rights under the provisions of this act;in ten point bold type or larger, directly above the space provided for the signature, “Do not sign this contract if there are any blank spaces”;of any lien on or security interest on the residence as a consequence of the contract.

(9) an enumeration of such other matters upon which the owner and the contractor may lawfully agree; provided, however, that no such agreement may waive any rights conveyed to the owner under the provisions of this chapter; and

(10) any other provision otherwise required by the applicable laws of the commonwealth.

No contract shall contain an acceleration clause under which any part or all of the balance not yet due may be declared due and payable because the holder deems himself to be insecure. However, where the contractor deems himself to be insecure he may require as a prerequisite to continuing said work that the balance of funds due under the contract, which are in the possession of the owner, shall be placed in a joint escrow account requiring the signature of the contractor and owner for withdrawal.

At the time of signing, the owner shall be furnished with a copy of the contract signed by both the contractor and the owner. No work shall begin prior to the signing of the contract and transmittal to the owner of a copy of such contract.

Any contract entered into between a contractor and homeowner shall require the contractor to inform the homeowner of the following: (i) any and all necessary permits, (ii) that it shall be the obligation of the contractor to obtain said permits, and (iii) that homeowners who secure their own permits will be excluded from the guaranty fund provisions of this chapter.

Any contract entered into between a contractor and homeowner may provide that the contractor may initiate alternative dispute resolution through any private arbitration services approved by the director, under paragraphs (a) to (e), inclusive, of section four; provided, that said alternative dispute resolution provision is clearly and conspicuously disclosed in the contract, in language designated by the director, and that each party separately signs and dates the provision, thereby assenting to the procedure.

Contracts which fail to comply with the requirements of this section shall not be invalid solely because of noncompliance.” M.G.L. Ch. 142A § 2 (2015).

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