February 7, 2012

Quite often kitchen and bath renovations are designed and supervised by interior designers, general contractors and other agents acting on behalf of a homeowner. In the typical scenario, the homeowner hires the interior designer who, with the authority of the homeowner, then goes into your showroom and orders kitchen cabinets, countertops, appliances and accessories. The interior designer signs a contract with you that indicates the kitchen is for the homeowner and instructs that it be delivered to the latter’s address. Most of the time everything runs smoothly, and you successfully complete the contract signed by the interior designer. However, depending upon the designer’s client, this routine occurrence could result in significant liability for you.

In a typical agreement with a homeowner’s agent, you design, deliver and install the kitchen cabinets and other materials at the direction of the interior designer or contractor. When your job is completed, you receive final payment directly from them. Along the way, if issues or problems arise with the products you installed, the interior designer or contractor will contact you directly. You then resolve the issues to their satisfaction and ultimately to that of their client. The key distinction in this example of a successful transaction with a homeowner’s agent is that you deal directly with the interior designer, and all communication remains between the two of you.

However, where problems may occur is when the homeowner bypasses their interior designer or contractor and contacts you directly to discuss the project. Following is a real-world example that illustrates the dangers of such communication.

IN THE REAL WORLD

A kitchen and bath design firm had recently entered into a contract with an interior decorator hired by a wealthy stockbroker who had a distinct vision for the redesign of his house. During the course of the cabinet fabrication, the homeowner contacted the kitchen and bath designer to inquire about the design and cost of certain cabinets, countertops and appliances. Understanding the contract entered into between the interior designer and the kitchen and bath designer was for the benefit of homeowner, the kitchen and bath designer provided the homeowner with the requested information.

Shortly thereafter the kitchen and bath designer received an irate telephone call from the interior designer. The latter explained that he had been working with the homeowner for more than a year on the redesign of his house and given his client deep discounts on various construction activities. The interior designer’s brother, an electrician, did all of the electrical upgrades for a fraction of the real price, and his brother-in-law, a drywaller, installed and prepared all of the drywall well below normal cost. To make up for lost commissions, the interior designer had upped the price of the kitchen and bath designer’s total work and passed on this bulked up total to his client.

Having learned the actual costs of the kitchen from the kitchen and bath designer, the homeowner fired the interior designer, who in turn sued the kitchen and bath company for negligence, breach of contract and tortious interference with business. The interior designer sought damages based on the expected commission he was to receive for the completion of the entire project, not just the kitchen. After eight months of litigation and $25,000 in attorney’s fees, the kitchen and bath designer settled with the interior designer for the sum of $37,500.

Had the kitchen designer simply told the homeowner that he could not speak directly with him but only through the interior designer, he would not have lost half of his income for the year. The golden rule when dealing with residential contracts is simple: You should not discuss job details with anyone other than the individual or company who signed your contract. Certainly, this rule is relaxed in commercial settings where you are working on a massive multi-unit project and are retained by an architect, but even in these instances, you need to communicate with the building coordinator and contractor.

In the example above, the homeowner is a third-party beneficiary to the contract and therefore, under the law of contracts, could have the right to sue on the contract if the kitchen and bath company had not fulfilled its obligations. However, the designation of third-party beneficiary did not authorize the kitchen and bath designer to communicate directly with him. Interior designers frequently, whether they admit it or not, bump up costs for various items in order to make up for lost commissions somewhere else in the job. By revealing the actual cost to the homeowner, the kitchen and bath designer in the above example undermined the interior designer’s authority and ultimately caused him to lose his job.

RELATIVE ISSUES

The rule that you should only speak about details of a job to the individual or company that signed the contract with you extends beyond the interior designer or contractor relationship. Often, relatives such as estranged children or divorced spouses contact kitchen designers to obtain specific information concerning the cost of their family member’s kitchen. This frequently happens in active divorce proceedings. For example, recently a doctor was upgrading a kitchen in his condo in Florida. Unbeknownst to the kitchen designer, the doctor was in the process of obtaining a divorce from his wife. His wife, at her attorney’s suggestion, contacted the kitchen and bath designer to inquire about the outstanding amount due and the total cost of the contract. The kitchen and bath designer, thinking it was his wife, provided her with the details. The woman went back to her attorney and made allegations against the husband concerning hidden bank accounts and other monies he was not disclosing. Once the divorce was finalized, the doctor sued the kitchen designer for breach of contract.

What should you do if a homeowner or his soon-to-be ex-family member demands that you provide him with, say, pricing information? In a perfect world, you would simply explain to them that your contract is with the interior designer and it would be ethically inappropriate for you to discuss the details of the contract with anyone other than the interior designer. And that would be the end of it. However, we all know that in the real world the homeowner would most likely not accept that explanation and instead become agitated and say something to the effect of, “It’s my money paying for the cabinets and my house, so you better tell me the actual cost of the cabinets.”

What often works best in such a situation is to advise the caller that you are with other clients and will get back to them shortly. Then immediately contact the interior designer or contractor, advise them of the call from their client and request instructions from them as to how to proceed. Take down the information the interior designer or contractor gives you and keep it in a memo that you place in the client file. This way, if you are ever sued, you have the memo as evidence of instructions received directly from the interior designer.

In conclusion, make sure you and your staff only communicate details of a particular job with the individual or company that signed the contract. Unless you are authorized by the designer or contractor to speak with the third-party beneficiary, doing so may result in liability and the loss of a significant amount of money.

—Peter J. Lamont, Esq., is a commercial litigation attorney
with offices in Hawthorne, NJ, as well as Massapequa, NY. His practice
focuses on the representation of small- to large-size companies in the
building and design industry, as well as individual designers and
architects. To contact him with questions and suggestions on topics for
future articles, please email him at plamont@peterlamontesq.com or call him at (973) 949-3770.