By: Alexander A. Miuccio Thomas H. Welby Published: September 2009

Subcontractor Allowed Recovery for Value of Work Performed

Where a contractor has not been paid he can sue for a breach of contract, for which he can recover the amount due on the contract. If there is no contract in existence between the parties, the contractor can sue for the reasonable value of the work he had performed. This legal theory is called quantum meruit. To determine the amount the contractor should be awarded in quantum meruit, the court will focus on the fair and reasonable value of the work provided by the contractor. 

It is important that the contractor understand the distinction between the two remedies because the contractor’s amount of recovery may vary significantly depending on whether he is allowed to sue for breach of contract or recover on quantum meruit for the reasonable value of the work he has performed.

In the recent case of ADCO Electrical Corporation v. HRH Construction, LLC, the subcontractor elected to sue to recover damages in quantum meruit rather than for breach for contract.

Background 

HRH Construction, LLC, as construction manager, sent a notice of intent to ADCO Electrical Corporation, an electrical subcontractor, in connection with the construction of the Performing Arts Center in White Plains, New York. The notice of intent stated in part: “This will constitute a notice of our intent to award you a contract for the Electrical Work at the [Performing Arts Center] for the total sum of …$685,000. This agreement is in accordance with drawings… dated 6/10/03 as prepared by Enviro Design, Inc.” The notice of intent also clearly stated that it was “subject to the execution of a formal contract by [general contractor], to follow”. Though the construction manager sent the subcontractor a $685,000 fixed-price subcontract, it was never signed by the general contractor, the construction manager or the subcontractor. 

The subcontractor supplied labor, materials and equipment to the project, for which it claimed a portion was unpaid. According to the subcontractor, the actual fair value of the labor, materials and equipment it supplied was $1,267,675. Since the subcontractor was of the belief that the actual fair value of the labor, materials and equipment supplied by it to the project was greater than the $685,000 stated in the letter of intent, it chose to sue based on quantum meruit

The general contractor and construction manager argued that a binding obligation arose under the subcontract by virtue of the fact that the parties agreed to all of the subcontract’s terms and simply failed to sign the document. Alternatively, they argued that the letter of intent created a contract and established an agreed fixed price which was binding on the subcontractor. 

A trial was held and the jury awarded an additional $393,469.75 to the subcontractor in quantum meruit. The general contractor and construction manager appealed.

Decision

The appellate court affirmed the judgment in favor of the subcontractor. Relying on established case law, the court stated, “(i)f the parties to an agreement do not intend it to be binding upon them until it is reduced to writing and signed by both of them, they are not bound and may not be held liable until it has been written out and signed.” The court then looked to the plain language of the notice of intent, which contemplated a future written agreement that was never entered into. Since the written agreement was never entered into, the court held that both it and the letter of intent were not binding on the subcontractor. 

The court also found no merit to the argument that the parties had actually agreed to the subcontract’s terms, but simply failed to sign it. The court noted that rather than sign the subcontract, the subcontractor proposed several material modifications, which constituted its rejection of the proposed contract and a counteroffer that was never accepted by the general contractor or the construction manager. 

Since no binding contract governed the contractor’s work at the project, the appellate court agreed that the award for the fair and reasonable value of the work performed in quantum meruit was appropriate. 

Comment 

Quantum meruit is an equitable doctrine which seeks to make a contractor “whole” by compensating him for the fair and reasonable value of his work. Quantum meruit is not available where a valid and enforceable agreement exists. Though the damages recoverable in quantum meruit may often approximate the damages recoverable for breach of contract, the prudent contractor should be familiar with the principles of quantum meruit. The distinction between the two legal remedies is readily apparent in this case where the fair and reasonable value of the work performed far exceeded the contemplated price of the work. 

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