Home Improvement Contracts: Noncompliance with GBL § 771 Not Per Se Unenforceable; Written Change-Order Clauses May Be Waived by Conduct; Owner Credits Must Offset Extra Costs

1. Introduction

P.E. Smith Assoc., Inc. v. Bandoian (2026 NY Slip Op 04512 [2d Dept July 22, 2026]) arises from a long-running residential renovation dispute in Cold Spring Harbor, New York. Kevin and Melissa Bandoian (the “Bandoians”) retained architect Peter E. Smith to design renovations and later contracted with Smith’s construction company, P.E. Smith Associates, Inc. (“Smith Associates”), to perform the work.

Two related actions were tried nonjury:

  • Action No. 1: Smith Associates sued for breach of contract, seeking payment of an invoice for “extra costs” allegedly caused by owner-requested changes. The Bandoians counterclaimed, including for breach (failure to refund/credit overpayments) and violations of Lien Law §§ 70, 71, and 71-a.
  • Action No. 2: The Bandoians sued Smith, Smith Associates, and P.E. Smith Architecture, P.C. (“Smith Architecture”) asserting, among other claims, fraud and an alter-ego theory to impose personal liability.

The central appellate issues were (i) enforceability of the home improvement contract despite alleged defects under General Business Law § 771, (ii) whether the contract’s written change-order requirement was waived by the parties’ conduct, (iii) whether Smith Associates could recover for extra costs when it had issued a substantial credit to the owners, and (iv) whether the record supported claims under the Lien Law, fraud, and alter ego.

2. Summary of the Opinion

The Appellate Division, Second Department modified the judgment “on the facts.” It agreed with the trial court that:

  • Smith Associates held a valid home improvement license during the project.
  • The contract was not automatically unenforceable merely because it did not strictly comply with General Business Law § 771.
  • The Bandoians and Smith Associates waived the contractual requirement that change orders be in writing, and thus the Bandoians were responsible for extra costs attributable to their verbal change requests.
  • The counterclaim for Lien Law §§ 70, 71, and 71-a violations was properly dismissed.
  • The Bandoians’ fraud and alter-ego claims were properly dismissed.

However, the Second Department held the trial court should have found that Smith Associates breached the contract by not refunding/crediting the owners for acknowledged overpayments. Because the undisputed credit of $146,000 exceeded the claimed extra costs, Smith Associates did not prove it was owed additional money. The Bandoians were entitled to an offset and a net judgment of $40,000 in their favor.

3. Analysis

3.1 Precedents Cited

A. Standard of appellate review after a nonjury trial

The court grounded its review authority in Virgilio Trailer Corp. v Ferrandino & Son, Inc. and Northern Westchester Professional Park Assoc. v Town of Bedford, emphasizing that the Appellate Division’s fact-review power is “as broad as that of the trial court,” while still giving weight to the trial judge’s opportunity to observe witnesses. This framing mattered because the Second Department both affirmed and reversed factual findings—upholding waiver and breach by the owners, but altering the net damages outcome based on the undisputed credit.

B. Elements of breach of contract

For the governing elements, the court cited Virgilio Trailer Corp. v Ferrandino & Son, Inc. and Matter of Atane Engrs., Architects & Land Surveyors, D.P.C. v Nassau County. Those cases served as the template for analyzing: (i) existence of contract, (ii) performance, (iii) breach, and (iv) damages—applied here to both the contractor’s extra-cost claim and the owners’ refund/credit counterclaim.

C. Enforceability despite imperfect compliance with GBL § 771 (home improvement contracts)

The opinion’s enforceability analysis relies on a line of Second Department authority: Big C Contr. Corp. v Fishman, Wowaka & Sons v Pardell, and Porter v Bryant. The core principle, reiterated here, is that because General Business Law article 36-A does not explicitly render noncompliant contracts unenforceable, failure to strictly satisfy General Business Law § 771 is not a per se bar to enforcement.

Importantly, the court emphasized the “meeting of the minds” test and the causation-like inquiry into whether the “alleged contractual omissions played no part whatsoever in inducing” the consumer to contract, quoting and applying Big C Contr. Corp. v Fishman (and the reasoning drawn from Wowaka & Sons v Pardell and Porter v Bryant). The court also cited Environmental Appraisers & Bldrs., LLC v Imhof as supportive authority that imperfect statutory compliance does not necessarily defeat enforceability in appropriate circumstances.

D. Licensing

The court cited ENKO Constr. Corp. v Aronshtein to support the finding that Smith Associates held a valid home improvement license during the project. Licensing was a key factual predicate: a contractor lacking a required license can face serious enforceability and remedial barriers; here, the license finding removed that obstacle and allowed the case to turn on contract interpretation and performance.

E. Waiver of written change-order provisions by conduct

The waiver holding was anchored in Kamco Supply Corp. v On the Right Track, LLC and Fundamental Portfolio Advisors, Inc. v Tocqueville Asset Mgt., L.P.. These authorities supplied two critical propositions applied to home renovation disputes:

  • Parties may alter contractual requirements “by course of performance, or by conduct amounting to a waiver or estoppel” (Kamco Supply Corp. v On the Right Track, LLC).
  • Waiver requires a knowing, voluntary, intentional abandonment; it can be shown through affirmative conduct or inaction evincing intent not to claim a contractual advantage (Fundamental Portfolio Advisors, Inc. v Tocqueville Asset Mgt., L.P.).

Applying those cases, the court held the Bandoians’ repeated verbal change requests during construction demonstrated a pattern of conduct waiving the “all change orders must be in writing” clause, thereby obligating them to pay the resulting extra costs (subject, critically, to later accounting via the credit/offset analysis).

F. Accounting for credits/offsets and the contractor’s burden to show amounts due

The modification turning the net judgment in favor of the owners drew on Fortuna Design & Constr., Inc. v 888 Crescent, LLC. The court treated the credit as undisputed and dispositive: once it was established that the owners were entitled to a $146,000 credit and that the credit exceeded the extra-cost invoice, Smith Associates could not prove it was owed additional funds “in excess of what it was paid.” This is a practical burden-of-proof holding: a contractor seeking additional payment must account for credits and advances and demonstrate a net balance due.

G. Fraud (inducement) and causation

In rejecting fraud, the court cited Tutor Perini Corp. v State of New York and distinguished cases including Crippen v Adamao and International Exterior Fabticators, LLC v Decoplast, Inc.. The point was not merely that a statement was allegedly false, but that the record did not show the alleged misrepresentation induced the Bandoians to enter the contract with Smith Associates. The opinion also referenced General Business Law § 772 in this discussion, reinforcing that statutory consumer-protection context does not eliminate the need to prove inducement and reliance for common-law fraud.

H. Lien Law article 3-A trust claims and injury requirement

The dismissal of the Lien Law counterclaim relied on Ippolito v TJC Dev., LLC, with additional citations to Teves v Greenspun and Anthony DeMarco & Sons Nursery, LLC v Maxim Constr. Serv. Corp.. These cases reflect that even where technical noncompliance with trust-fund obligations is alleged, a claimant must establish injury tied to the alleged Lien Law article 3-A violation. The Second Department found that evidentiary link missing here.

I. Alter ego / veil piercing

For alter ego, the court cited KSZ Bldg. Materials v Stognin and Vivir of L I, Inc. v Ehrenkranz. Those cases encapsulate the familiar two-part veil-piercing standard applied here: (1) complete domination and control, and (2) use of that domination to commit a fraud or wrong causing injury. The court concluded the Bandoians did not prove the second prong—wrongful use of control resulting in their injury.

3.2 Legal Reasoning

A. Enforceability of the home improvement contract despite GBL § 771 defects

The court balanced consumer-protection policy (GBL article 36-A) against contract stability. Rather than adopting a rigid forfeiture rule, it applied a functional test: (i) did the evidence show a “meeting of the minds” on material terms, and (ii) did any statutory omission actually induce the homeowner to sign?

The Second Department found both satisfied: testimony and the contract showed mutual assent on material terms, and the omissions did not induce the Bandoians’ agreement. Consequently, the contract could be enforced, permitting Smith Associates to pursue compensation for owner-directed extras (subject to offsets).

B. Waiver of written change orders through course of performance

The court’s waiver analysis is a practical construction-law holding: a written change-order clause, though common in renovation contracts, can be waived when both sides proceed as if oral change requests are operative. Here, repeated verbal requests for changes—accepted and acted upon during construction—constituted conduct evidencing intentional abandonment of the writing requirement.

The legal consequence was significant: the owners could not avoid responsibility for the extra costs by pointing to the absence of written change orders. The court thus affirmed the finding that the Bandoians breached by refusing to pay the extra-cost invoice—but only as a gross obligation before accounting for the credit.

C. Netting out the parties’ accounts: credit offsets extra costs

The opinion’s key modification is its insistence on net accounting. Even though the owners were obligated for extra costs due to waived writing requirements, the contractor had issued a $146,000 credit for costs the owners advanced for materials and services. The court treated entitlement to that credit as undisputed.

Because the credit exceeded the extra-cost claim, Smith Associates failed to prove a net amount due. The proper remedy was not merely to deny the contractor’s recovery but to enter judgment for the owners for the difference—$40,000—reflecting that the contractor’s failure to refund/credit constituted a breach.

D. Fraud, Lien Law, and alter ego: higher thresholds not met

On the tort and equitable theories, the court’s reasoning reflects evidentiary discipline:

  • Fraud: without proof that a misrepresentation induced entry into the contract, fraud fails even if the parties’ relationship was complicated by Smith’s dual role as architect and affiliated builder.
  • Lien Law article 3-A: allegations of trust-fund misconduct require proof of injury connected to the statutory breach; the record did not establish that causal injury.
  • Alter ego: dominance alone is insufficient; there must be a wrong causing injury. The Bandoians did not carry that burden.

3.3 Impact

  • For contractors: This decision is a warning that even where extras are validly incurred through oral change requests (due to waiver), contractors must maintain a coherent ledger that nets owner credits, advances, and offsets. Failure to refund an acknowledged credit can flip a contractor win into an owner judgment.
  • For homeowners: Owners who routinely request changes verbally during construction may waive protective contract clauses requiring written change orders, making them liable for resulting extra costs. Owners should insist on written change documentation if they intend to rely on it later.
  • For litigators and trial courts: The case illustrates the Appellate Division’s willingness, after a nonjury trial, to make granular factual corrections to damages and accounting while leaving liability findings largely intact.
  • For consumer-protection enforcement under GBL article 36-A: The decision reinforces the Second Department’s non-forfeiture approach: imperfect compliance with General Business Law § 771 does not automatically invalidate an otherwise mutually assented-to contract absent inducement by the omission.

4. Complex Concepts Simplified

  • “Not per se unenforceable” (GBL § 771): A home improvement contract that misses some statutory items is not automatically void. Courts may still enforce it if the essential deal terms were mutually understood and the missing items did not trick the homeowner into signing.
  • Waiver by conduct: Even if a contract says “changes must be in writing,” both parties can effectively abandon that rule by repeatedly handling changes verbally and performing accordingly.
  • Offset/credit: If one side owes money for extras but the other side has already advanced funds or is owed a credit, the amounts are netted. The party claiming money must prove the net balance due.
  • Lien Law article 3-A trust funds: Certain construction payments are treated as “trust” funds for subcontractors/suppliers. But a claimant typically must show a concrete injury tied to the alleged misuse to recover.
  • Alter ego (veil piercing): Courts will not impose personal liability on an owner/controller of a company simply because they control it. The plaintiff must show the control was used to commit a wrong that caused injury.
  • Nonjury trial appellate review: The Appellate Division may reweigh evidence and make its own factual findings, while still recognizing that the trial judge saw and heard the witnesses firsthand.

5. Conclusion

P.E. Smith Assoc., Inc. v. Bandoian clarifies three practical rules in New York renovation litigation: (1) a home improvement contract’s imperfect compliance with General Business Law § 771 does not automatically defeat enforceability where there is a meeting of the minds and no inducement by the omission; (2) a written change-order clause can be waived by a pattern of verbal requests and performance; and (3) contractors must prove a net balance due after applying owner credits—otherwise, the failure to refund an undisputed credit is itself a breach supporting an owner’s monetary judgment.

The opinion simultaneously narrows the reach of fraud, Lien Law trust, and alter-ego theories to cases supported by specific proof of inducement, injury, and wrongful use of control. In the broader legal landscape, the decision promotes substance over form in contract enforceability, but demands rigor in construction accounting and causation-based proof for statutory and tort claims.