Make Sure Your Contracts are Legal!!!

Have you ever had your service contracts reviewed by an attorney in your state?  Most service professionals I know have not done this. They are using a contract they got from a friend or colleague, or they are using something they downloaded from the Internet. Big mistake!!!  I was speaking to an attorney about this, and he told me some very sobering stories about what happened with some contractors whose contracts didn’t meet state requirements.

I want to share some of his stories below so that you can become aware of some of the some steep penalties that come with ignorance of the law:

Example #1: There is a multi-product home improvement company in New Jersey that lacked some necessary financial disclosure information in their contracts. The specific requirement is that all financing terms must be disclosed when project financing is involved. Another attorney recognized that the window company agreement lacked the financial disclosures required by New Jersey law. This attorney saw an opportunity, and filed a class action lawsuit against this home improvement company for $100 million. Win or lose, the home improvement company will spend hundreds of thousands of dollars defending themselves against this lawsuit. This attorney may have generated a very attractive settlement for himself if they choose to settle this out of court.

Example #2:  A contractor in California, who had never been sued, and who had a triple AAA rating with the Better Business Bureau (BBB), got into a disagreement with a senior citizen. The senior citizen wanted to rescind her contract, and the contractor was slow to respond. Although the contractor eventually returned her $200 deposit and cancelled the contract, the senior citizen had gotten upset waiting for a response. She filed a complaint with the local district attorney, and the DA began an investigation. The DA discovered that the contractor’s agreement violated some California contract statutes. Between fines levied by the DA and attorney fees, the contractor was forced out of business.

Example #3: A window installation company in Delaware completed a $22,000 window installation job. After the project was completed, they received notice that the homeowner was suing the window company because they didn’t properly disclose the homeowner’s right of rescission (this is a homeowner’s right to cancel a contract within 72 hours after signing). In Delaware, state law requires that the right of rescission be printed in a different color ink from the general wording in the agreement to make the contract legal. Let me repeat that: the right of rescission in Delaware must be printed in a different color ink to make the contract legal. The homeowners took the window company to court, and when the judge determined that the right of rescission was not properly highlighted with a different color of ink, sided with the homeowners and voided the contract. The homeowners received a $22,000 window job for free.

Could this happen to you?  The answer is “yes.” Ignorance is not an excuse, and if you find yourself in court, in many ways you have already lost. I know you don’t want the expense of visiting with an attorney, but take these examples to heart. Make sure your contract is legal in the state that you are doing business. If you can’t afford an attorney now, how can you ever afford one if you get sued?

Have any readers been sued and taken to court?  If so, what would you do differently knowing what you know now?

David Lupberger draws on more than two decades of experience in the residential remodeling field to work with remodelers in developing proven business systems. Come check out his websites for the TurnKey Program and the Remodeling Coach.

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