The contract Jacob Cooper provided was a boilerplate document that did not provide sufficient protection for us, the buyers. We had always planned to have an attorney arrange the deal and in late October, 1985, after the plans were completed, contacted Zack Schroeder, a lawyer whose firm our accountant recommended. We soon learned that Cooper had once done business with Schroeder's firm, but this fact didn't concern us too much. Schroeder said he did not know Mr. Cooper, but that the senior partner of the firm (8 lawyers total) had once represented Cooper on a non-real estate matter. Neither Schroeder nor his senior partner perceived any conflict of interest.
In any case, it just didn't seem necessary to look for another lawyer to draw up our contract. We remember thinking at the time: 'A contract is a contract. We just need a legal document to protect us in the event of major dispute. Working with competent people of decent integrity, we could probably build a house without a formal contract, so we're just being extra cautious anyway.'
Schroeder reviewed Cooper's building contract and wrote a lengthy addendum to fill in the gaps and give us added protection. Schroeder also included in the addendum all the building speci-fications that were supplied by Mr. Murdock, such as type of plumbing, size and location of wood joists, etc. The contract and addendum identified Mr. Cooper as the "Developer," and Mr. Frank Murdock as the "Builder." The building contract and addendum contained two key paragraphs that should have protected us. Paragraph 6 of the building contract, the document provided by Cooper, states:
Paragraph 6 is clear enough. But suppose Cooper died or defaulted while our house was under construction? To protect against such possibility our lawyer included the following paragraph in his addendum.
Although the prose is convoluted, paragraph 16 means that any contract between Cooper and Murdock is "assigned" to us in the event Cooper does not/cannot deliver as promised. This paragraph in no way intended to absolve Cooper of the responsibility so clearly stated in paragraph 6 of his building contract. We had no reason to doubt that paragraph 16 of the addendum, added to paragraph 6 of the building contract, protected us against all potential problems. Yet the documents signed that November day provided no useful protection for what was to follow.
Until November 8, 1985 we had not actually met Mr. Murdock, but knew his firm was to do the actual construction. We had seen, but not formally inspected, some of his houses, and knew nothing to make us avoid his business. Nelson, a licensed professional architect, spoke highly of Murdock. In any case, we viewed Murdock as Cooper's agent, responsible to Cooper who, in turn, was responsible to us. We first met Mr. Murdock the day the contract was signed, in Zack Schroeder's law office. Up to that point the deal was 100% Cooper's, in both spirit and fact, so we were not concerned about the delay in meeting Cooper's builder.
Larry and I, Schroeder, and Cooper were sitting around a large table when Mr. Murdock came into the room. He was younger than we had imagined, probably in his late thirties, although he had apparently been in the construction business for over a decade. Murdock was very accommodating, and handled all our concerns about leaky basement, adequate ceiling lighting, and other matters with a `don't-worry-I-can-take-care-of-it' attitude. He tried hard to impress us as a knowledgeable and self-confident builder. But perhaps there was a little too much bravado in his answers. Was he competent to build our house? We had no real basis for concern, and probably felt the jitters of anyone contracting to build a new home. Just to be safe, we insisted that Cooper pay for three on-site reviews by Nelson during construction. (Nelson had earlier told us he would have no responsibility once the plans were delivered.) Cooper agreed and Nelson's on-site visits were added to the contract.
Based on the way the contracts were drawn up, it was only necessary for Murdock to sign the addendum, and then "only in regard to paragraph 16." Otherwise, as was clear to Larry and me, Jake Cooper was ultimately responsible for our house. Cooper was selling us the house and, except for $30,000 downpayment, was financing the construction. Not only did paragraph 6 clearly state his responsibility, Cooper himself had left no doubt. On several occasions Cooper had assured us with comments such as: "I am responsible"; "You're buying the house from me, not Murdock"; and "Call me if there are any problems."
We realized that Jake Cooper was a wealthy man with no reason to defraud us. We were not concerned about the house not being completed, or worried that Cooper would skip town with our down-payment. As I stated before, we also felt some security from the construction of his son's house next door; this fact alone seemed sufficient evidence that Cooper was legitimate, that he was concerned with quality in home construction. (As to his declaration of responsibility, it never occurred to us that he might simply be lying to sell a house.) Having Nelson review construction at critical stages was additional assurance that our house would be properly built.
We were not naive. We understood this was a business deal and that we needed protection in case of any disputes. That's why we went to a lawyer, to be protected. Hadn't we thought of everything? What could go wrong? Plenty, as it turned out. The addendum drawn up by our attorney did not clearly and unequivocally designate ultimate responsibility for major construction and design errors. It did not delineate responsibility for people we did not hire or pay, such as the architect. It said nothing about how to resolve disputes between us and any of the principles. It did not provide for arbitration of any sort. Finally, by reason of ambiguity, it allowed Cooper to interpret Paragraph 16 of the addendum as absolving him of all responsibility once we took possession of the house.
In retrospect, the contract and addendum did not protect us against greed and incompetence, key ingredients of man-made disaster. The documents would have been adequate if we were dealing with a competent architect and builder, and an ethical developer. But if that were the case we would not have needed legal protection. Contracts are supposed to help prevent or resolve disputes. They are not supposed to create problems.
We were to become innocent and helpless victims of Cooper's vindictive greed and Murdock's and Nelson's incompetence. Without enormous added expense for major and protracted litigation, the contract and addendum that Cooper and Murdock signed were as useless as a roll of toilet paper. But hindsight is hindsight. The truth is, on that November day in 1985 we felt pretty good about the deal.