California's Home Improvement Statute, found in Business and Professions Code
§7159, requires that all contracts for home improvement in excess of $500 must be in
writing. The failure by the contractor licensee to comply with this statute shall be cause for
discipline. However, a heavily litigated question concerns whether a Home Improvement
Contract, while oral, can be enforced where the cost of work exceeds the $500 threshold.
In Asdourian v. Araj (1985) 38 Cal.3rd 276, the California Supreme Court ruled that,
while in general, contracts made in violation of a regulatory statute are void, illegal
contracts will be enforced to avoid unjust enrichment to the defendant at the expense of the
plaintiff. However, the Asdourian case concerned a real estate developer defendant which
was the owner of a grocery chain, who had bought and sold real property for investment
purposes, and was a friend of the plaintiff before the disputes between them occurred.
In holding that the oral contracts in the Asdourian case were enforceable, in
violation of Business and Professions Code §7159, the California Supreme Court
commented, while the "courts will not 'lend their aid to the enforcement of an illegal
agreement or one against public policy … ' … 'the rule is not an inflexible one to be applied
in its fullest rigor under any and all circumstances.'" Asdourian, supra, 38 Cal.3rd at 291.
The Supreme Court went on to indicate that illegal contracts will be enforced in order to
"avoid unjust enrichment to a defendant and a disproportionately harsh penalty upon the
plaintiff." Asdourian, supra, 38 Cal.3rd at 292. The Court went on to find that the Home
Improvement Contract statute was to encourage written contracts for home improvements
in order to protect unsophisticated consumers, and further ruled that a contract made in
violation of Business and Professions Code §7159 does not involve the kind of "illegality"
which automatically renders an agreement void under all circumstances.
The Asdourian decision was the subject of vigorous dissent and left open the
question as to what class of person was protected by Business and Professions Code §7159.
The Morrison Law Journal
September 2010
Volume V, Edition 9
A Compelling Circumstance … Court of Appeal Rules That Oral Home Remodel Contract
Is Enforceable Against Homeowners Where Homeowners Were, In General, Highly
Educated And There Would Be Substantial Unjust Enrichment If Contract Was Found Void
By: Edward F. Morrison, Jr., Esq.
Brett C. Drouet, Esq.
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In regard to that question, the recent California Court of Appeal decision in
Hinerfeld-Ward, Inc. v. Lipian (2010) 188 Cal.App.4th 86 appears to shed further light on
this issue. In Hinerfeld-Ward, Inc., the defendant homeowners – the Lipians - purchased
real property in Los Angeles and undertook a major remodel. The Lipians hired a noted
architect, Michael Folonis, to design the project in 2000, and then hired a general contractor,
Cameron Aston, as a general contractor. The Lipians had disputes with Aston and Aston
left the project. Folonis then recommended Hinerfeld-Ward, Inc., as the new general
contractor. Hinerfeld-Ward, Inc. went forward with the project, which took place over two
years, without an actual written agreement. Hinerfeld-Ward, Inc. submitted 19 payment
applications for work which had been completed, all of which were approved by Folonis
and paid for by the Lipians. However, about two years into the job, the Lipians disputed
some of the charges in payment application 20, which included project management and
supervision charges. The relationship thereafter soured. The Lipians then terminated
Hinerfeld-Ward, Inc., which, at the time of termination, was owed approximately
$200,000.00.
Hinerfeld-Ward, Inc. then sued the Lipians for breach of oral contract, quantum
meruit, and wrongful withholding of progress payments. The Lipians countersued.
At trial, the Court held that the oral contract was enforceable even though it violated
Business and Professions Code §7159. After a jury trial, Hinerfeld-Ward, Inc. was awarded
the entire balance that it was owed, with the homeowners being awarded only $1,000.00.
On appeal, the Lipians argued that the failure to produce a written agreement by
Hinerfeld-Ward, Inc. warranted a finding that the contract was void and unenforceable as a
matter of law.
The Court of Appeal, after carefully examining the Asdourian case, as well as two
related cases on the issue, Arya Group, Inc., v. Cher (2000) 77 Cal.App.4th 610 and Calwood
Structures, Inc., v. Herskovic (1980) 105 Cal.App.3rd 519, ruled that because the Lipians
were highly educated - Dr. Lipian is a psychiatrist with an M.D. and Ph.D. in psychology,
and his spouse has a Master's Degree in both education and clinical psychology, they were
not in the class which the Legislature intended to protect and the oral contract was not
necessarily void. The Court of Appeal acknowledged that the Lipians were not
sophisticated in home improvements per se, but noted their education, that they had their
own architect and had substantial remodeling experience, at least with respect to the
subject job. Also, the Court of Appeal noted that the value of the services rendered by
Hinerfeld-Ward, Inc., $820,000.00, would result in a substantial, unjustified windfall to the
property owners. On that basis, the Court found that the Hinerfeld-Ward, Inc. case
presented "compelling" facts warranting the enforcement of the oral home improvement
contract.
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The Hinerfeld-Ward, Inc. decision is an important one. The Court's ruling holds
that the owner's education, training and experience, even outside real estate development,
can be considered in determining whether an oral contract in violation of Business and
Professions Code §7159 of can be enforced. The Court also, just as with the Asdourian
Court, examined the value of the construction services at issue, which is also to be
considered a factor.
About the Authors: Edward F. Morrison, Jr. is the founding partner and Larry Schwartz is Of
Counsel with The Morrison Law Group, a professional corporation. Their biographies can be viewed
at the website www.morrisonlawgroup.com.
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Disclaimer Note: The legal article presented above is intended to provide general
information which may be of interest or use to clients and colleagues of The Morrison Law
Group and should not be construed as legal advice on any matter.
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