Owner successfully denies contractor’s “extra” and quantum meruit claims for additional payment on sewer system work repair and retrofit work needed to satisfy local government requirements. The decision: Archon Construction Co. v. U.S. Shelter (PDF).
Backstory – Archon Construction Co. v. U.S. Shelter
Owner develops a subdivision for new homes. The subdivision needs a sewer system. So the owner contracts with a contractor to build the sewer system. (That contractor is the prime contractor. (And to keep things short and easy—because this case doesn’t involve controversy with subcontractors or anyone else further downstream—we’ll just refer to that prime contract as the “contractor”.)
Because the owner will later transfer the completed sewer system to the local city, the sewer system must satisfy city requirements and get city approval. The construction contract for building the sewer system—via a byzantine route of references to design plans, that include “notes,” that refer to and incorporate government specifications—adopts a completed sewer system that’s acceptable to the city as part of the work.
The contractor’s proposal specifies PVC—not iron—pipes for the system. But the city rejects the PVC pipes on a part of the system. That requires the contractor to retrofit the system, principally by excavating part of the system and replacing the PVC with iron pipe. The contractor requests additional money from the owner to pay the additional cost of that retrofit work. The owner denies that request. The contractor sues the owner, alleging claims for “extra work,” breach of contract, and quantum meruit.
Before trial, the contractor dismisses their extra work and breach of contract claims. They go to a bench trial forward solely on quantum meruit before the Honorable Lisa Curcio.
At trial, Judge Curcio rules against the contractor’s quantum meruit claim. She holds that the retrofit work was included within the work identified under the contract, and that under the contract, the contractor is responsible for any cost to remove or replace material. Judge Curcio also holds that where there’s an express contract between the litigants for the work in question, the contractor cannot succeed with quantum meruit to get additional payment. The contractor appeals.
Decision on Appeal
The Appellate Court affirms Judge Curcio. The justices begin by translating quantum meruit from Latin to English: “as much as s/he deserves.” It’s a legal principle that acts as a contract substitute to avert injustice. They catalog its prima facie elements:
- One person provides services to benefit another person
- There’s no contract between the provider and the receiver for those services
- The provider doesn’t provide those services gratuitously
- It’s unjust for the receiving person to receive the benefit of those services without paying the provider for their reasonable value
They also explain that some refer to quantum meruit as a “contract implied-in-law” or a “quasi-contract.” (To me, those terms are vague, too abstract, lacking enough descriptiveness to draw a perimeter around the concept. “Contract substitute” is more descriptive, and it suggests what the concept is there to do.)
Decisive to the justices: the second element—no contract between service provider and receiver. They hold that where the provider and receiver have a contract on the same general subject matter as that in dispute—here the building of a sewer system—the provider cannot recover extra-contractual payment via the contract substitute known as quantum meruit.
Judge Curcio held that that contract expressly imposes the cost of city mandated retrofit work on the contractor. The justices observe: retrofitting work the contractor seeks payment for is “part and parcel” of the work identified in the contract.
And according to the Appellate Court’s standard, the contract needn’t even be that particular. The general subject matter of that contract—sewer system build—is similar enough to services the contractor seeks payment for that quantum meruit isn’t available.
The justices explain why quoting from their court’s earlier decision in Industrial Lift Truck Service v. Mitsubishi International:
When parties enter into a contract they assume certain risks with an expectation of a return. Sometimes, their expectations are not realized, but they discover that under the contract they have assumed the risk of having those expectations defeated. As a result, they have no remedy under the contract for restoring their expectations. In desperation, they turn to quasi-contract for recovery. This the law will not allow. Quasi-contract is not a means for shifting a risk one has assumed under contract.
The justices suggest—at least for this case—reluctance to supplant the litigants’ bargain articulated in the construction contract.
Against this the contractor argues that their proposal included only PVC pipe. But the justices reject that counter, observing that the contract also included work approved by and accepted by the city, regardless of whether it took PVC or iron pipe to get that approval and acceptance.
The justices also explain the difference between: (a) a breach of contract claim for “extra work” and (b) a quantum meruit claim. For quantum meruit, the work provided must be “wholly beyond the subject matter of the contract that existed between the parties.” This suggests that extra work will then be something closely related to—or at least sharing some similarity with—the expressly contracted work. One might leave this discussion confounded by how to identify the maximum proximity of extra work lies and the minimum remoteness of quantum meruit. (Perhaps we’ll pick that issue up in another post?) But one thing is certain: extra work claims require a higher standard of proof. Claimants must prove the prima facie elements of their extra work claim by clear and convincing—not just a preponderance of the—evidence. And that perhaps promotes the appeal of quantum meruit as a more popular route for those attempting the summit of additional payment.
Lessons and Observations
- Identification of work is critical. We cover that in our Top Ten Construction Contract Most Important Terms series. This decision is a practical example reinforcing that notion. In this case, the contractor promised to build to city approval and acceptance in exchange for a contract price. In that they took the risk that city officials could mandate greater expense. Perhaps the contractor didn’t recognize and appreciate that when they entered into the contract. More on that below.
- Identification of work is often one of the weakest links in a contract. Probably because it’s often vast and technical. Here the contract identified the work by incorporating and referring to plans. Those plans included notes. Those notes incorporated requirements imposed by multiple government bodies. A thorough audit of all those nested requirements is a daunting task. Difficult and expensive obligations can—and here did—hide among pages upon pages of technical mandates and details. They’re often obscured in disparate separate parts, and only recognized when assembled after trouble arises.
This suggests review with great care before agreeing to incorporate extrinsic documents into your contract. Moreover, because those other documents are often technical, that review should usually feature close communication and synchronization among your businesspeople, your technical experts, and your lawyers.
- This case was pending about nine years when the justices rendered their decision here. This was the second appeal. This case will go on longer, perhaps seeking discretionary review in higher courts, and definitely after remand to Judge Curcio (or her successor). That’s at least one trial, two appeals, and nine years of litigation about whether retrofit work that was patently included in the work identified in the contract was work contracted for under the contracted work. That comes at no small cost. Makes one wonder whether the contract includes an attorney fee-shifting clause, and if there is, how much more litigation will go on over that? (The contractor defeated an owner counterclaim at trial, that was affirmed on appeal, suggesting that future fee-shifting litigation will be contentious and protracted.)