Contract Disputes: The Recession Has Made People Mean
Larry’s Plumbing was thriving. Its clients consisted primarily of HOA developments. Larry contracted with one of these HOAs (Green Acres) to handle their plumbing problems. Larry had a standard contract which basically listed what was expected from both parties. Larry had written the contract.
The contract included the following language:
Larry is not responsible for doing plumbing improvements or anything else not set forth in this agreement.
Not too many weeks into the agreement, Green Acres asked Larry to do the plumbing installations for some new homes that were being built in the development. This happened once in a while with clients, and Larry felt that, by doing these extra requests without complaint, he would stay in the good graces of the clients. Usually it did.
However, with Green Acres there was always something new improvement project the manager needed Larry to help with. After a few months, Larry tried to explain diplomatically that his crew was spending too much time on these non-contract projects. The manager apologized, and they. agreed to go back to the work stated in the contract. For the next few months, nothing additional was requested. But eventually, Green Acres started requesting Larry’s help with their improvement projects again. They also suggested that this was a condition to Larry being employed by Green Acres.
Larry kept track of the extra work, but he never went back in to renegotiate. Why? Because Larry had recently lost a major client and, in this economy, could not afford to lose another one.
After four years of dependable, quality work for Green Acres, Larry was given notice. Green Acres said they just couldn’t afford Larry and had found someone that would do it for less.
Larry decided to go through the records to figure out how much extra work he had done for Green Acres and was surprised to find that, over the course of four years, Larry had provided an additional $56,000 worth of service—about $14,000 per year. Larry called Green Acres and told the manager that he wanted to be paid but would waive the debt if Greens Acres would continue with the contract. Green Acres said no to both.
Larry wants to sue Green Acres to recover the $56,000. Is he going to win?
Yes, he’ll win: Courts will look first to the words in the contract. And this contract says expressly that Larry is not responsible for work not listed in the contract. The improvements were outside the contract.
No, he’ll lose: Courts will read ambiguities against the drafter of the contract, and that is Larry. And the contract is ambiguous about extra work.
No. he’ll lose: When the contract is unclear, courts will look to “course of performance”, which means you can tell what the parties meant to do by how they performed. Here, Larry did the extra work for free for years, suggesting he had consented to free work.
Yes, he’ll win: Sometimes, when someone does a lot of work thinking he is going to get paid, and then doesn’t get paid, the courts will use equitable theories to reimburse that person for his work. The court might do that for Larry.
No, he’ll lose: Larry’s assumption that he was going to get paid must be reasonable, in other words, has to be based on something from Green Acres justifying that reliance. But here, the manager never said anything about paying Larry.
So what should Larry have done? When Green Acres asked for the extra work, Larry should have drawn up an addendum to his contract, stating the terms for the extra work, and gotten it signed by both sides. We understand that Larry was afraid of losing Green Acres as a client, but it would have been better to discover the weakness in the relationship $56,000 earlier.
What else should Larry have done? Taken both the contract and the addendum to an Arizona contract attorney or business litigation attorney. Attorneys don’t do landscaping, and Larry should not have tried to do law. The few dollars he saved by not getting help cost him big time.
As business owners, we are the eternal optimists. We believe nothing negative will come of a good business relationship, and we avoid adversarial legal advice believing it will somehow harm the good vibes in place. The truth is both sides of a relationship benefit in the long run when expectations are stated specifically and clearly. A good contract attorney or business litigation attorney can do that for you. Larry’s actions are common, and most of the time things do work out fine. But when they don’t, the resulting costs could close your doors.