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Supreme Court: contractors can enforce oral home-repair contracts: the high court looks to a recent revision in the Home Repair and Remodeling Act in holding that a contractor can enforce an oral contract against a homeowner.

A home remodeling contractor who has entered into an oral contract for home remodeling, in violation of section 15 of the Home Repair and Remodeling Act (815 LLCS 513/1 et seq), may not only seek recovery under a theory of in quantum meruit but also enforce the oral contract, the Illinois Supreme Court has held. The case is K. Miller Const Co, Inc v McGinnis, 2010 WL 3704993 (Ill Sup Ct 2010).

Facts and lower court holding

In the fall of 2004, Keith Miller, the owner of the plaintiff, an Illinois construction firm, orally agreed to act as general contractor for remodeling Joseph and Frances McGinnis's three-flat apartment building into a single family residence for $177,000. In the succeeding months, the McGinnises told Miller that they wanted substantially more remodeling work than they had originally planned, which would raise the project's cost to around $500,000. Miller agreed, and his firm proceeded to do the work.

The McGinnises paid the first $65,000 of Miller's firm's invoices but, in September 2005, refused to pay further bills until the firm had completed all work on their building. Miller then obtained a line of credit for $150,000 to complete the project. The McGinnises approved all but around $300 worth of the remaining work that Miller's company performed but refused to pay the final bill for labor and materials of more than $300,000.

Miller filed suit against the McGinnises. His second amended complaint contained three counts: Count I, in which he sought to foreclose a mechanic's lien; Count II, in which he alleged breach of contract; and Count III, in which he sought recovery in quantum meruit for the reasonable value of his company's work.

The McGinnises moved to dismiss, arguing that the oral contract alleged in Count II violated the Home Repair and Remodeling Act and was therefore unenforceable. Because a mechanic's lien requires a valid underlying contract for enforcement, the McGinnises also argued that Count I of the complaint should be dismissed. Finally, citing Smith v Bogard, 377 Ill App 3d 842, 879 NE2d 543 (4th D 2007), they argued that allowing the construction company to recover in quantum meruit under Count III would reward deceptive practices and violate public policy.

The circuit court granted the motion in its entirety. The appellate court panel unanimously affirmed the dismissal of Counts I and II but, in a divided decision, reversed the dismissal of Count III. The supreme court granted the McGinnises' petition for leave to appeal.

HRRA amendments clarified existing common law

Section 15 of the Home Repair and Remodeling Act provides that persons in the business of home repair or remodeling must provide customers with a written contract or work order before beginning work on a project costing more than $1,000. At the time Miller filed his lawsuit, section 30 of the statute provided that it is "unlawful" to engage in home remodeling "before obtaining a signed contract or work order over $1,000."

But in enacting PA 96-1023, effective July 12, 2010, the legislature rewrote section 30, removing the word "unlawful" and providing that the remedy for violations of the statute is to be had under the Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/10a.

Quoting from the Restatement (Second) of Contracts, the court said, "If the statute explicitly provides that a contractual term which violates the statute is unenforceable then, barring any constitutional objection, the term is unenforceable." The mere existence of a statutory violation, however, does not automatically render a contract unenforceable.

On that basis, the high court said, the appellate court erred in finding the oral contract unenforceable merely because it violated the statute. Instead, the court said, the lower court should have conducted a balancing analysis and considered the relevant facts and public policies before reaching its conclusion.

Instead of directing the lower court to undertake that analysis, the court reinstated all three counts of Miller's complaint. It found that the legislature's amendment of section 30 was not a change in the law, but, rather, was a clarification that a violation of the statute's requirement of a written contract neither rendered oral contracts unenforceable nor made quantum meruit relief unavailable.

Affirming the appellate court's reversal of the circuit court's dismissal of count III and reversing the circuit court's dismissal of Counts I and II, the supreme court remanded the matter to the circuit court for further proceedings on all three counts of the second amended complaint.

In a "Quick Take" blog post on on the day of the opinion's issuance, Ottawa lawyer Michael T. Reagan called lawyers' attention to a "procedural nugget" from the court: an affirmative defense may be raised by a section 2-615 motion where the defense is established by the facts pled on the face of the complaint and need not be relegated to a motion under section 2-619(a)(9).

For more on this topic, see Adam B. Whiteman's article, The New, Improved Home Repair and Remodeling Act, in the September 2010 issue of the IBJ and Michael P. Tomlinson's article, Illinois Supreme Court holds that oral contracts not necessarily unenforceable pursuant to Home Repair and Remodeling Act, but why risk it? in the September 2010 issue of ISBA's General Practice, Solo & Small Firm Section newsletter.
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Title Annotation:K. Miller Construction Co. v McGinnis
Publication:Illinois Bar Journal
Date:Nov 1, 2010
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