BILL ANALYSIS
SENATE JUDICIARY COMMITTEE A
Charles M. Calderon, Chairman B
1995-96 Regular Session
2
3
9
6
AB 2396
Assemblymember Archie-Hudson
As amended on May 22, 1996
Hearing Date: June 25, 1996
Business and Professions Code
GEH:cb
home improvement contracts
- change orders -
HISTORY
Source: State Bar of California (Conference of Delegates)
Related Pending Legislation: None known
Prior Vote: Assembly Floor: 69 - 0
Assembly Judiciary Committee: 13 - 0
Assembly Consumer Protection, G.E., &C.D.
Committee: 9 - 0
KEY ISSUES
1. should change orders to contracts with home improvement
contractors be unenforceable against the homeowner if the
change order does not clearly set forth the scope of work
encompassed by the change order and the price to be
charged for the changes?
2. if the above requirement is not satisfied, should the
contractor still be able to recover compensation for work
performed to preclude unjust enrichment, and should the
bill be amended so that such recovery need not be based
upon "equitable" theories?
PURPOSE
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The purpose of this bill is to require information about
the price and scope of work to be included in any agreement
which changes the specifications for home improvement or
swimming pool construction work as a condition of the
enforceability of that change order agreement.
Existing law, Business and Professions Code ?? 7150 - 7167,
regulates the formation and performance of contracts for
"home improvements."
"Home improvements" include the "repairing, remodeling,
altering, converting, or modernizing of, or adding to,
residential property and shall include, but not be limited
to, the construction, erection, replacement, or improvement
of driveways, swimming pools, including spas and hot tubs,
terraces, patios, awnings, storm windows, landscaping,
fences, porches, garages, fallout shelters, basements, and
other improvements of the structures or land which is
adjacent to a dwelling house (?7151)."
These sections requires every home improvement to be in
writing, to disclose specified information concerning the
contractor and the work to be performed, and to be signed
by all parties to the contract. The contract must disclose
specified information concerning, among other things, a
description of the work to be performed, the agreed
consideration for the work, and a schedule of payments
stated in dollars and cents which is referenced to the
amount of work, services, materials, or equipment to be
performed or supplied (?7159).
Section 7159(h) provides, among other things, that no extra
or change-order work shall be required to be performed
without prior written authorization of the person
contracting for the construction of the home improvement or
swimming pool. This subdivision further specifies that any
change-order forms for changes or extra work shall be
incorporated in, and become part of, the contract.
This bill amends ?7159(h) by providing that no change order
shall be enforceable against the person contracting for
home improvement work or swimming pool construction unless
the change order clearly sets forth the scope of work
encompassed by the change order and the price to be charged
for the changes.
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The bill also provides that failure to comply with these
requirements shall not preclude the recovery of
compensation for work performed based upon equitable
theories, such as to preclude the unjust enrichment of the
party.
COMMENT
1. Requiring more specificity in change orders to home
improvement contracts
The sponsor, the State Bar Conference of Delegates,
states that existing law is unclear as to the required
contents of a written change-order because of the way the
requirements are specified in Business and Professions
Code Section 7159, and as a result some people have
interpreted the section as permitting change orders which
do not specify how the scope of work goes beyond that
encompassed within the original contract. There is no
clear requirement that the added cost to the consumer be
disclosed.
Some contractors submit unrealistically low bids to
perform home improvements; after commencing work they
obtain the signature of the homeowner on an obscurely
written change order which has the effect of increasing
the price sufficiently to make the job profitable.
To the extent the law accommodates such practices, the
more ethical contractors lose work due to underbidding by
competitors. From time to time, cases also appear where
it appears that a contractor makes a practice of
presenting consumers with written change-orders that do
not adequately describe the additional work and that do
not disclose the fees to be charged for performing the
additional work. Such cases can result in unconscionable
charges to the consumer.
Therefore, the sponsor argues that requiring a change
order to specify the actual changes and costs in order to
bind the consumer may reduce intentional underbidding by
the general contractor on the original contract and will
reduce the number of unconscionable charges to the
consumer.
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The Law Offices of Abdulaiz & Grossbart, which writes
standard form contracts on behalf of contractors and
construction trade associations, supports the bill
because it believes it "gives clarity to the statute
without hurting the honest contractor."
2. Allowing claims to preclude unjust enrichment
a) Unjust enrichment, "quasi-contract," and "quantuum
meruit"
This bill provides that it does not preclude a
contractor who fails to comply with its requirements
from recovering compensation for work performed to
preclude "unjust enrichment."
"Unjust enrichment" is a term used in the law of
restitution to describe the situation where a party
obtains a benefit which in justice the party should
not retain, generally because the party has not paid
for the benefit. The party from whom the benefit was
derived has a right to restitution from the party who
is unjustly enriched. This right to restitution is
known as a "quasi-contract" (See Witkin, 1 Summary of
California Law ?91).
One of the situations in which a quasi-contractual
right to restitution arises is where one person
renders services to another from which the latter
person derives benefit. This quasi-contractual
obligation arises by operation of law, even if there
is an invalid or unenforceable contract; for example,
if parties orally contract in a situation where the
Statute of Frauds requires a written contract (See
Witkin, 1 Summary of California Law ?112). The cause
of action to recover on the basis of such a
quasi-contractual obligation for the value of services
rendered is known as a "quantuum meruit" action (See
Witkin, 4 California Procedure ?517).
In Beley v. Municipal Court (1979) 100 Cal.App.3d
5, homeowners exercised a statutory right to cancel a
contract with a remodeling contractor because the
contract did not contain statutorily- required
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disclosures. Nevertheless, the court upheld a
judgment awarded on a quasi-contract theory to the
home improvement contractor for the value of its
remodeling services rendered before cancellation of
the contract.
b) Limitation to "equitable 'theories"
The bill limits unjust enrichment actions to ones
based on "equitable" theories. The term "equitable"
is sometimes used by courts to distinguish theories
and causes of action which developed in England in the
religious "courts of equity" (or "Chancery courts"),
rather than in England's secular "common law" courts.
One of the traditional distinctions between equitable
and legal actions is that legal actions are for the
recovery of money damages and equitable actions are
generally for the recovery of non-monetary relief,
such as injunctions, specific performance of
obligations, rescission of contracts, or the
imposition of equitable liens or constructive trusts.
In Beley, supra, the court refers to the
contractor's cause of action as "an equitable quasi
contractual theory." However, quasi-contract was
actually developed in the common law courts (Moses v.
McFerlan (1760) 1 W.Bl. 219, 96 Eng.Rep. 120) as a
theory for providing monetary restitution. One law
review commentary explains the confusing status of
restitutionary remedies as follows: "[Q]uasi-contract
since its inception has been limited to actions at
law, while restitution and unjust enrichment have . .
. included both legal and equitable remedies."
Comment, Restitution: Concepts and Terms 19 Hastings
L.J. 1167, 1186 (1968).
Therefore, the use of the term "equitable" in this
bill could cause courts to deny recovery to a
contractor if the court finds that the contractor's
cause of action for the value of services rendered is
a "legal" or "common law" cause of action, instead of
an "equitable" one. It might be wise to reword the
bill to more specifically state that it does not
preclude recovery based upon "quasi contract" and
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"quantuum meruit" remedies, or other similar legal or
equitable remedies designed to prevent unjust
enrichment. This amendment would spare courts the
arcane task of labeling these various actions as
"equitable" or "legal."
should the bill be amended to provide that recovery
need not be baSED UPON "EQUITABLE THEORIES?"
Support: State Bar of California (Conference of
Delegates); Painting and Decorating
Contractors of California; Abdulaiz &
Grossbart
Opposition: (NOTE: it is not clear if this opposition
remains after the most recent version of the
bill): North Coast Builders Exchange, Inc.;
Builders Exchange Legislative Network
Prior Legislation: None known
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