By: WBG, LLP Published: July 2016

The Critical Need for Record Keeping on Oral Agreements

Contractors, subcontractors and owners involved in residential or small scale construction projects often find themselves contracting through short-form, non-comprehensive written contracts or, sometimes, bare oral agreements. This is also common where extra work not contemplated in the original agreements becomes necessary. While contracting in definitive terms is generally the best plan, oral contracts have remained a part of the construction industry because some projects may seem to lend themselves to a simpler contract or an oral agreement. Counterintuitively, contracting on less-than-complete and/or oral terms often makes detailed record keeping even more critical for both owners and contractors. Such is particularly the case  when construction does not go as planned and the scope of work must be changed, or a contractor must be terminated.

The New York Appellate Division, Second Department, recently released a decision in the case of DiSario v. Rynston1 reminding of the critical importance of record-keeping on construction projects, especially those based on oral contracts. Rynston, a Suffolk County homeowner, sought to remodel his home and hired DiSario to perform the work, which included enlargement of the kitchen, remodeling of the master bath and painting of the master bedroom. The parties entered into an oral2 agreement that DiSario would perform all of the work for $48,000. While DiSario was performing the work, he discovered that there were various unforeseen extra work items that needed to be performed. Chief among these items was additional kitchen work attributable to the existence of a structural post not previously known, as well as an infestation of carpenter ants in the kitchen ceiling. Although none of these additional items were subject to the original agreed contract sum of $48,000, DiSario, with the homeowner’s consent, undertook to perform these extra tasks throughout the project. Eventually, the homeowner became dissatisfied with DiSario’s work and terminated him after paying only $15,000 of the agreed $48,000 contract price. Thereafter, DiSario demanded payment of the unpaid balance of  $27,000, which included allegedly unpaid contract work and agreed upon extras. The homeowner refused to pay any additional sum to DiSario, and DiSario filed a mechanic’s lien for $27,000. The Homeowner proceeded to complete DiSario’s scope of work with completion contractors.

DiSario brought an action to enforce the $27,000 lien, but was only awarded $7,000 of his claim. The lower court found that although DiSario could not sufficiently prove he performed $27,000 worth of work, he was able to prove that he performed $7,000 worth of work for which he was not paid. DiSario appealed the award seeking a greater payment and the homeowner cross-appealed, arguing that DiSario was not entitled to any award at all, and that he was entitled to compensation for its cost to complete DiSario’s work.

The Appellate Division, Second Department, reversed the court below and found in favor of the homeowner, holding that DiSario would not receive any payment for contract or extra work performed. The court pointed out that while DiSario was able to establish the existence of both the oral contract and the homeowner’s consent to the extra work, DiSario failed to produce the accompanying bills, invoices, receipts, timesheets, checks or other documentary evidence that supported that he performed any such work. DiSario apparently offered some oral testimony regarding the description and value of the work, but the court did not find it persuasive.

Interestingly, the homeowner’s counterclaim against DiSario for the increased cost to complete DiSario’s original scope was dismissed for similar reasons. The court found that the homeowner failed to provide documentary evidence of the description and value of alleged completion work, and found oral testimony on that point inadequate.

TAKEWAY: Owners and contractors alike need to engage in detailed record keeping, no matter the size of the construction project. Sometimes record keeping is required specifically in the contract documents, but that is not always the case and is even less common in smaller residential construction. Still, in the event something goes wrong on a  construction project of any size, witness testimony alone will often not be enough to convince a judge or jury that you are entitled to any payment. Use of simple agreements, especially oral contracts, should not be an excuse to relax record-keeping. Quite the contrary, such should instead warn of the necessity to keep especially detailed records of all contract and extra work. In the end, the party that keeps detailed records of work, including important information regarding the work such as dates, values of labor/materials and detailed descriptions, will likely have a much easier (not to mention less expensive) time winning its case. Contractor and owners undertaking a construction project would be well served to consult their construction attorney to ensure they employ adequate record keeping procedures in the event that litigation becomes necessary.

1 DiSario v. Rynston No. 2014-04072, 2016 WL 1355814, at (N.Y. App. Div. Apr. 6, 2016)

2 In some counties and in New York City, an oral agreement for home improvement contracting services is unenforceable by the contractor.

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