Friday, 20 December 2013 10:29
By Sean McLean
The time and effort spent on drafting a good contract can save substantial costs in the long run and can often resolve disputes before litigation begins. Parties failing to execute a written contract lose the protections, control, and the certainty that it can provide, but they are not completely unprotected in the event of a dispute.
If there is no contract between the parties (or if the contract is found to be unenforceable), then the non-breaching party can pursue an equitable claim under a theory known as “quantum meruit,” which is Latin for “as much as he has deserved.” A recent decision by the Court of Appeals of Tennessee addressed this theory in a case dealing with a subcontractor who performed work for a company without a written contract.
The subcontractor developed an informal relationship with a company that was in the business of bidding on contracts for the construction of hospital bathrooms. Upon award of a bid, the company would procure, pay for, and furnish materials to the subcontractor, who would then provide installation services. The subcontractor progressively billed the company for its installation services throughout the course of each project. For approximately one year, the subcontractor and company operated in accordance with this arrangement.
After downsizing its operations, the company began to remit payment for the subcontractor’s invoices in an untimely manner and the parties’ relationship deteriorated. The subcontractor sent a demand letter to the company seeking payment of its past due invoices. The company responded by terminating the arrangement with the subcontractor and demanded that the subcontractor vacate all job sites. Thereafter, the subcontractor brought suit against the company for breach of contract or, alternatively, quantum meruit, seeking payment for its past due invoices.
Quantum meruit actions are equitable substitutes for contract claims. Under a quantum meruit theory, a party may recover the reasonable value of goods and services provided to another if it demonstrates that:
(1) There is no existing, enforceable contract between the parties covering the same subject matter;
(2) The party seeking recovery proves that it provided valuable goods or services;
(3) The party to be charged received the goods or services;
(4) The circumstances indicate that the parties to the transaction should have reasonably understood that the person providing the goods or services expected to be compensated; and
(5) The circumstances demonstrate that it would be unjust for a party to retain the goods or services without payment.
The court of appeals determined that despite the parties’ course of conduct, no enforceable contract, oral or otherwise, existed between them. The company argued that the subcontractor had failed to establish the second element under the quantum meruit theory, namely that he failed to prove the value of the services. In analyzing the record, the court found ample evidence of the subcontractor’s detailed invoices submitted to the company and testimony to support the value of the services provided to the company. The court determined that the subcontractor had satisfied the five essential elements of a quantum meruit claim. Accordingly, the court awarded the subcontractor an amount which was approximately equal to its past due invoices under the quantum meruit theory.