Working Without a Contract Can Be Dangerous

by | Feb 27, 2011 | Contracts, Getting Paid, Liens

While most everyone is aware that states have statutes which govern construction or mechanic’s liens, many do not realize the significance of the law of contracts on contractor claims. Making sure that a valid contract is in place before work is commenced can be as important to you as being awarded the actual job.

The most obvious ramification of performing work without a contract is that if you are not paid, you cannot successfully sue the party for whom you performed the work for breach of the contract. At most, you may only be able to recover damages for what is known as “unjust enrichment,” seeking to recover the worth of that work for which you have not been paid and which has benefited the non-paying party. The problem is that this is at best, a fallback position. The measure of damages – that is, the unpaid value of the benefit received for the work performed and materials provided – is usually less than the amount of compensation that the contractor would have been entitled to if a contract were in place, and it requires proof from an independent third party to support the damages sought.

Another, and potentially more troublesome ramification of performing work without a contract is that the contractor will likely lose its rights to place a contractor’s or mechanic’s lien on the property where the work was performed. A lien is an important device to secure payment and increases the contractor’s leverage for getting paid. Using Florida as an example, no lien can arise unless the contractor had a valid contract in place to perform the work or supply the materials. In a recent case, a homeowner entered into negotiations with a tree removal service to cut down a tree on the homeowner’s property and remove it from the premises. The parties had different ideas as to what removing the tree from the premises entailed. The homeowner thought that this meant hauling it away from the property. The contractor thought that this merely meant moving it to another location on the premises. After the tree removal service filed a construction lien, the court ruled that the lien was invalid. Unfortunately because the term “removal” was never pinned down by the parties, the court determined there was never a meeting of the minds or a contract in place. Without a contract, no lien rights existed for the contractor. Worse yet, after the tree removal service lost the case, it was on the hook for the homeowner’s attorney’s fees.

What Type of Construction Contract are you using, Which is Enforceable?

It can be said that there are two types of contracts – written and oral. A written contract contains terms that are set forth in one or more written documents, or in today’s world, electronic documents that can be printed out. A contract can also be formed orally. For example, if a contractor asks a subcontractor to do a job for a set amount of money and the subcontractor orally accepts the proposal, under many circumstances, an oral contract has been created. Oral contracts are valid. They are, however, more difficult to prove in a court of law requiring testimony from witnesses. Indeed, written contracts are the preferred form when possible. However, absent a written contract, if a contractor can prove the existence of an oral contract, and if all other requirements are met, the contractor will retain its lien rights.

Working Without a Contract Can Be Dangerous

There is another concept known as a contract “implied in law.” What this means simply is that even if the parties never reached an agreement, a court can rule as though there was an agreement, simply out of fairness to the one of the parties. However, a contract implied in law only applies to prevent “unjust enrichment,” that fallback position for damages that is not as good as damages under a contract. Again, using Florida as an example, a construction or mechanic’s lien can never arise when the contract is implied in law. There must be a real valid contract between the parties. Otherwise, there are no rights for the contractor to lien the job site.

One final nail in the coffin for those performing work without a contract – there is usually no right for the contractor to recover its attorney’s fees for enforcing the right to get paid for work. Worse yet, the contractor could actually be responsible for the property owner’s attorney’s fees if a lien was improperly filed. A smart contractor will look to get its contract in place and in writing before doing any work on a job.

Related Post