The Illinois Home Repair and Remodeling Act (815 ILCS 513/1 et seq.) (view it on the web here) declared that “the business of home repair and remodeling is a matter affecting public interest” and found that “improved communications and accurate representations between persons engaged in the business of making home repairs or remodeling and their consumers will increase consumer confidence, reduce the likelihood of disputes, and promote fair and honest practices in that business in this State.”  815 ILCS 513/5.

Courts have taken the Act very seriously, strictly enforcing its edicts that a contractor 1) must have a written contract for any remodeling or repair work over $1,000; 2) must provide specific notice of certain provisions if they are present in a contract; and, 3) must provide a consumer with a brochure detailing the consumer’s rights.  As I have previously written in a CC&M Briefing to clients (CC&M Briefing, Fall, 2008, available here), in their effort to enforce the policy set forth in the Act, courts have denied sizable claims by contractors based on their failure to comply with it.

Courts in Illinois’ Third and Fourth Appellate Districts have denied contractors’ claims for roughly $11,000 and $14,000 due to failure to obtain written contracts (Central Illinois Electrical Services, LLC v. Slepian, 358 Ill. App. 3d 545 (3d Dist. 2005; Smith v. Bogard, 377 Ill. App. 3d 842 (4th Dist. 2007)).  Most importantly, those courts determined that the contractors were not only precluded from bringing contract actions, but were also precluded from making claims in quantum meruit (a theory allowing a party to seek the fair value of work and materials actually provided to and accepted by the consumer in order to preserve substantial fairness).  Thus, under these analyses, a contractor would have no recourse to obtain payment for work, no matter how satisfactory, if the contractor did not fully comply with the Act.

The Illinois Court of Appeals for the First District has recently disagreed with its sister courts.  In an interesting case (K. Miller Construction Company, Inc. v. McGinnis, No. 1-08-2514, 1st Dist., August 10, 2009, available here), the Court determined that fundamental fairness did not allow it to restrict a contractor so completely, even in the absence of a written contract for work.

In K. Miller, the contracting company’s sole owner and the homeowners were friends who reached an oral agreement for remodeling work, but never reduced the agreement to writing.  The homeowners initially agreed to pay $187,000 for the work, but later expanded the scope of the project to a price of slightly more than $500,000.  The project was completed in accordance with the expanded plans, and the parties conducted a “walk-through” of the property.  The homeowners allegedly accepted and approved the work after agreeing to a small ($300) credit to address some minor flood damage.  The homeowners made some further payments to the contractor, but refused to pay more than a total of $177,580.33.

The Court quickly dispensed with any question of a contract claim or claim for foreclosure of a mechanic’s lien, acknowledging that the Act strictly precluded such actions in the absence of a written contract.  However, the Court more carefully considered the contractor’s claim in quantum meruit and determined, at least under the facts of this case, the claim should be allowed.

The Court carefully considered the effect of the Home Repair and Remodeling Act and the cases that had previously construed it.  After a lengthy discussion of the history of quantum meruit actions and their main purpose, i.e., providing a fair payment to a party for work that it has done.  The Court determined that allowing the claim to go forward in this case would be most equitable, allowing the homeowners to contest the fair value of the work they received but allowing the contractor to attempt to prove its entitlement to payment for the work it had done.

This case is interesting in its effect, creating a conflict between Illinois Appellate Districts that is ripe to be resolved by the Illinois Supreme Court.  However, additional facts considered by the Appellate Court may limit the applicability of the case in other Appellate Districts that have not yet ruled on the effect of the Act.  The Court took great care to note that there were significant allegations affecting the fundamental fairness questions in this case.  Most notably, the homeowner in this instance was allegedly an attorney who has practiced real estate law for nearly forty years, and the contractor was allegedly relying on a past business relationship and friendship with the homeowner when he entered this relationship without a written contract.  These additional facts seem to have had some impact on the Court’s analysis in balancing the fairness of denying any claim.  The Court specifically stated, “Such a consumer, after receiving the benefit of the contractor’s services, could use the Act, meant as a shield to protect vulnerable consumers, as a sword to deprive a contractor of the reasonable value of his services.”  The Court also stated, “Rejecting Miller’s claim would only penalize a reputable contractor, who, relying on a past business relationship and friendship with the consumer, performed remodeling work to the consumer’s satisfaction, with no involvement of predatory remodeling practices the Act sought to address.”  In other words, the Court was persuaded that a court should not be denied its equitable power to do justice between parties where one of those parties could have intentionally sought to achieve an injustice based on a technicality.

While a resolution of the conflict created by this case will be interesting, contractors and consumers are better off avoiding conflicts created by the Act.  Obtaining the advice necessary to comply with the Act when entering into a relationship will protect both the honest contractor and the honest consumer, assuring that all parties understand and agree to their rights and responsibilities under a contract and avoiding some unpleasant surprises during the project or after work is completed.  However, it will be interesting to follow the evolving case law regarding the Act, evolving law that has the potential to continue providing creative legal arguments for all parties involved in this kind of conflict.

Fender Musical Instruments Corporation, one of the acknowledged innovators in electric guitars, just lost a six year battle in which it was seeking to trademark some of the best-known (and best-loved) electric guitar body shapes, shapes it created more than fifty years ago.  Fender rocked the music world with its Stratocaster and Telecaster guitar and bass styles in the mid-1950’s, and the styles have become two of the most recognizable guitar shapes in the world.  Unfortunately for Fender, it made too many mistakes over the last fifty years and cannot fully capitalize on its innovation, as the United States Patent and Trademark Office Trademark Trial and Appeal Board has ruled (.pdf file) that Fender will not enjoy trademark rights in its iconic designs.

According to the evidence cited in the ruling, the 1960’s and 1970’s saw an explosion of guitar manufacturers issuing their own versions of guitars and basses modeled directly from the Fender Stratocaster and Telecaster body styles.  One manufacturer even testified that he obtained Fender guitars in the 1970’s and traced their bodies to create his own template to manufacture identically-shaped guitars.  Fender not only failed to object to the imitations, but also acknowledged them in advertising by exhorting consumers to buy “the true Fender sound” instead of one of the many “look-alikes.”  Finally, Fender actively pursued companies who used their trademarked names “Stratocaster” and “Telecaster,” and even pursued companies for copying the shape of their headstock (for the unitiated, that would be the opposite end of the instrument), but never pursued any claim of trademark regarding the body shape.

The end result is devastating - though the Board acknowledged that Fender had created iconic designs (one of which even appears as the generic picture of a guitar in the dictionary and in the clipart attached to this post), it determined that Fender could not assert a trademark in those designs because they are now a generic element that cannot be associated with a single manufacturer.  The Board said that Fender further compounded this problem by failing to even try to protect its body designs from copying while proving that it knew how by jealously protecting other design elements of the guitar.  The company has lost untold potential licensing fees from other manufacturers who testified they could not remain in business if they did not manufacture guitars using the classic Fender designs.

The opinion provides some simple and important lessons to anyone hoping to obtain or retain a trademark:

1. If you create a distinctive and recognizable variation of some consumer good, act to preserve your rights immediately;
2. Do not tolerate imitations or homages, no matter how flattering they may be; and,
3. Take some time to review all the possible design elements that may be subject to trademark or other intellectual property protections, to be sure that you are protecting all of your rights equally and sufficiently.

Every mortgage holder, title company, mechanic’s lien holder, or attorney assisting any party with an interest in lien rights on property realizes that the law regarding property rights is changing more quickly now than it has for years - perhaps decades.  Courts are inundated with property foreclosures, and personal experience and conversations with others working through lien priority claims reveals that parties are faced with numerous complicated, unique, and just plain strange legal issues as a result.  The sheer volume of claims passing through the courts simply guarantees a larger number of odd issues regarding deficiencies in recordings, failures to obtain proper documentation, tests of consumer laws related to mechanic’s liens, cases of outright fraud, and even (as we saw last year in Cook County) reluctance of public officials to carry out their duties in foreclosure actions.  As courts are repeatedly faced with these issues that differ wildly from the plain vanilla property rights and lien priority issues to which they are accustomed, they will undoubtedly create a wealth of new or expanded law that parties will need to consider when entering any relationship regarding real property.

Moreover, government entities are increasing their own efforts to stem the tide of what they now perceive as a foreclosure crisis, through both large and small proposed changes to laws and regulations relevant to mortgages and other liens.  In Illinois alone, there has been a steady stream of proposals for changes to mechanic’s lien and mortgage foreclosure laws, mostly aimed at attempts to protect individuals subject to liens on their residences.

Even small proposed changes could have a major impact on a number of cases.  One Illinois bill proposes requiring mechanic’s lien claimants to notify an owner before placing a lien on owner-occupied property (HB236).  Such a simple and easily overlooked requirement could make every difference in litigation, potentially devastating a contractor’s ability to obtain lien priority over a mortgage holder under the existent mechanics lien laws.

Larger proposed changes would have a more immediate and apparent impact.  One proposal set forth in the Illinois House at the end of 2008 (an amendment to HB2973 in the 2008 session) would require mortgage holders to advise homeowners upon whom they wished to foreclose to obtain housing counseling, staying any legal action for 30 days and allowing homeowners who sought counseling to obtain longer stays.  The proposal would have ultimately required mortgage holders to agree to counseling plans to save a residence from foreclosure, and explicitly could not be waived.

Illinois is hardly alone in considering changes that would affect lienholders’ rights in property and the processes to create and enforce those rights.  In Iowa, the legislature is considering a bill that would require mortgage brokers to enter into agency relationships with borrowers, with attendant changes in duties to the borrowers.  New Jersey has considered legislation that would require mediation to establish terms that may enable a homeowner in foreclosure to remain in the home, coupled with a mandatory six month forbearance period.  California considered a 90 day moratorium on all mortgage foreclosures.  The list goes on.

In the end, it is inevitable that there will be changes in laws related to real estate.  Whether changes are made through case law or legislation, they will occur, and it is likely that they will occur soon.  It is imperative that any party interested in creating, maintaining, protecting, contesting, or enforcing lien rights in real property stay abreast of the development of the law in this area, or at least be sure that someone is doing so on their behalf.