Contracts for Custom or Restoration Auto Shops

February 27, 2008

Generally speaking restoration and custom auto shops have a contract form that is taken off the shelf and used for each customer. This practice can turn out poorly for both the customer and the shop. Sometimes shops have contracts that are so one sided that that a court won’t enforce them and the customer is actually benefited. Furthermore, because the shop owner is responsible for the writing of the contract all ambiguities in it are resolved in favor of the customer. On the other hand the customer can find himself to have waived his rights and to have bound himself to something far from what was understood at the time of discussions. It benefits both sides to have the contract actually fit the parties’ understandings.

Here are some things that should be considered in each contract: There should be an estimate or ceiling on the cost. This can be left a little loose, like saying “plus or minus ten percent” but every contract involving a substantial amount of work should have a total cost reference point. This ceiling is not worth much without a precise description of the parts and services that will be performed. A good restoration shop will sometimes ask for a fee to provide this estimate as a reliable one takes a lot of time, but a reasonable fee is money very well invested by the customer.

With parts, the contract should state the markup if any. Remember most parts are delivered to the shop, so you should not pay for deliveries or trips to pick up parts without prior approval.

The contract should identify what services will be billed. Some shops bill for time phoning in parts orders and for time correcting errors made by mechanics. If this is not agreeable, the contract should say this.

The contract should say what information will be provided with the bill. Information useful to the customer is the name of the person whose work is being billed and a reasonably precise description of what the person did. Avoid generic entries like “worked on body” or “worked on quarter panel.” All of this should be worked out in advance. It is useful to have the bill indicate the estimate for the work and the percentage of completion. It is important that concerns about the bills be worked out at this stage.

The customer should not waive his rights under the Automobile Repair Act.

There should be a process for change orders and for work that exceeds the budget. It should involve something in writing and it should be agreeable to both sides.

It is a good idea with larger shops to see that the contract contains some assurance about the experience level of the people working on the car.

If the salesperson made representations to the customer, the customer should be sure that those are in the contract.

There should be some date by which the shop can give assurance that the work will be done.

The contract should be clear, objectively verifiable, about the standard to which the work will conform.

A wise customer will have an expert make periodic inspections of the work to report on progress. The contract should provide for this and assure the shop’s cooperation with such inspections.

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Contract Drafting/Review Tip

January 31, 2008

When writing or reviewing a contract, there is often a section called “Background,” sometimes labeled with an obsolete latin term. This section is mostly overlooked but it can be critical to the deal. It should be used to identify the material facts upon which the parties are relying. These facts are usually too numerous to list, but care should be taken to see that — to the extent possible — critical facts are identified. This makes it easier to avoid the contract if the underlying assumptions are wrong.

A well-written contract will also state which party bears the risk of mistake. Normally this should allocate some risks to one party other risks to the other party.


Result-Oriented Judicial Decisions

January 31, 2008

Contracts are certainly not inviolate, as there are numerous legal doctrines to set them aside, reform them, even add terms to them. The general idea is to effectuate the intention of the parties as discerned by a judge or appellate court. There are numerous judicial tools to discern the parties intent, often leading to conflicting results. Ultimately though once a contract is in the court system its interpretation is left to an individual or individuals who probably have no experience and limited understanding of the area of commerce from which the contract arose.

When the contract materially departs from the agreement of the parties or the contract turns out to involve performance beyond the expectations of the parties, the court will sometimes say that there has been a “mutual mistake of fact.” This can lead to the court rescinding the contract, or reforming it to comport with the actual understanding of the parties, and sometimes awarding damages and attorneys fees.

This situation occurs throughout the law, in almost every conceivable context. People want to get out of adoption agreements, supply contracts, debts of all kinds, personal service agreements, you name it. For the sake of predictability it is quite important that you be able to determine whether a contract will be canceled or reformed or enforced. Because of the sweeping nature of the situations into which these doctrines are applied, they are defined with a broad brush and often it is impossible to anticipate what a court will do with them.

Today the Washington State Supreme Court issued a decision involving an agreement sought to be set aside. Its treatment of the notion of “mutual mistake of fact” is of interest, although I’m not sure that it goes very far in making things any more predictable.

In State v. John Shannon Codiga, a criminal defendant entered into a plea agreement, pleading guilty to three counts of a crime involving a sentence of seven years. At the sentencing hearing the defendant learned that actually the sentence was life, or could be that. The defendant not surprisingly felt that this ought to invalidate the agreement so that he could go to trial. The prosecutor explained when his office prepared a statement of the defendant’s criminal history it omitted a marijuana-related felony conviction because by its terms it was to be expunged if the defendant stayed out of trouble and it had failed to identify one or more misdemeanors that had occurred to prevent the felony from being extinguished. The prosecutor pointed out that the defendant signed off on this mistaken statement of criminal history but the defendant contended that he too had thought that the felony had been expunged. As it turned out this was a pretty big fact to be mistaken about, as the existence or nonexistence of this conviction .

The Washington Supreme Court has been criticized for deciding what result it wanted then rendering the law in a manner to justify the result. Mutual mistake is a doctrine that applies when there has been a mistake about a material fact but it classically does not apply when the parties have been mistaken about their understanding their rights. This is now a little murky. For example in In Re M.D. it was found that a mistake about the person’s rights before entering into a contract could invalidate the agreement. This decision seemed to gloss over the distinction between law and facts and skip lightly over the idea that the mistake should be mutual.

In todays decision, the State Supreme Court upheld the plea agreement, saying in effect that the defendant had waived the right to claim mutual mistake of fact in the standard printed language of the agreement in which he assumed the risk of a mutual mistake of fact. The court then went on to emphasize that this was a mutual mistake of fact, not of law, as if the doctrine applied only to mistakes of law. This is vertigo inducing language to the average lawyer. The readers’ disorientation is heightened when s/he realizes that an acknowledged mutual mistake of fact is being used by the Court to sustain a contract, not avoid it. This was a unanimous decision!

If we pull ourselves back from behind the looking glass, there is a trend in the law to permit contracting parties to allocate the risk of mistake. Generally speaking this should be bargained for and to be enforceable it should be reasonably clear about what mistakes are being allocated and not a sweeping statement that allocates all mistakes, including those of the party that drafted the agreement with superior bargaining position, to the party presented with the agreement. The court did not analyze the plea bargaining agreement in light of this emerging area of law, it just pointed to the language of the agreement, as if that were the sole determining factor.

It might help in your effort to fit these decisions into a conceptual framework to know that In re M.D. where the doctrine of mutual mistake was contorted to avoid a contract involved a Native American mother trying to reclaim her parental rights which had been contracted away. Today’s decision involved a person arrested for the first time for child molestation. In these two decisions the doctrine was used to affirm parental rights over contractual rights and to incarcerate for life, or most of it anyway, a person who confessed to three acts of child molestation. Another factor that may have come into play is that three State Supreme Court seats are up for re-election this fall.

In these decisions most people would not take issue with the outcome and many would not take issue with the reasoning that obtained the results. Later we will look at decisions that involve other interests. If you go along with this approach in these cases, no fair complaining if a result you don’t like is arrived at through unconventional reasoning.


Auto Restoration: How to Avoid Being Ripped Off

January 15, 2008

car-garage.jpgRestoration can be accurately estimated.  Buffalo Restorations in Puyallup restores vintage automobiles at costs ranging upwards of $100,000 and more, and has a number of unhappy customers. One of these customers recently obtained a jury verdict against Buffalo and its owner Robert Newgard for fraud, conversion and breach of contract. At the trial, among other witnesses, two former employees testified about Buffalo’s practices and two former customers testified about their experiences.

If you are considering having a car built or renovated, here are a few things to consider in choosing a shop and in reviewing your bills. First don’t let your decision where to take the car be swayed by advertising; let it be determined by the results of your “due diligence.” Also bear in mind that the quality of work is not necessarily related to the size of the company. Some of the best shops are one-person shops (as are some of the bad ones). Consider these things:

1. Check with the Superior Court to see the number of lawsuits that have been filed and check with the Better Business Bureau.

2. Contact the people who have sued or filed complaints.

3. Find out how long the people have been working there (high turn-over is a bad sign).

4. Find out where the employees worked before they were hired.

5. Get a list of customers who have had something similar done for them.

6. Ask for references, both customers and trade references.

7. What recognition has the shop received, such as awards or mention in publications.

8. Get an estimate and create a budget for the job, recognizing that experienced professionals can give a very close estimate of the final restoration cost with a good description of what things might be found that could change the cost. Discuss these variables in detail. Some renovation shops will spend a lot of time examining the car and preparing a budget and they will often charge a fee for this, sometimes around $500 (a good investment).

9. Discuss a completion schedule so that you have some notion of how long the car will be at the shop and be clear about what billing procedure will be followed.

10. Take the car to more than one shop and discuss with a consultant what needs to be done to the car if the estimated cost of restoration warrants it.

11. Get a written contract and make sure that it reflects what was actually agreed upon. If the contract is for a high enough amount have a lawyer review it.