No Enforceable Contract: How About Quantum Meruit?

February 12, 2010

Fall 2007 — “As much as he has deserved,” that is what the phrase quantum meruit means in Latin and that is what a plaintiff with a successful quantum meruit claim will be awarded by a court. Quantum meruit is a legal concept by which a party may be able to recover the value of work, labor, or services performed based upon a finding of an implied promise by the Defendant to pay the Plaintiff the reasonable value of those services. It is used as a device for the prevention of unjust enrichment of one party at the expense of another in the absence of a valid contract. In order to successfully recover under a quantum meruit theory, the plaintiff generally must demonstrate to the court (1) the performance of the services in good faith, (2) the acceptance of the services by the person to whom they are rendered, (3) an expectation of compensation for those services, and (4) the reasonable value of the services.

Quantum meruit claims generally arises in several situations. The first and most typical situation is where a person employs another to do work without a contract or any agreement as to compensation but the facts indicate that the parties agreed the services should be performed and that payment for those services would be made. Here, the law will typically imply a promise from the employer to the employee that he will pay him the reasonable value of the services he rendered or the benefit conferred. Although the burden is on a Plaintiff to demonstrate all four elements of the claim, the first element is generally presumed from the facts. The second and third elements are premised on the idea that it cannot be assumed that a company or an individual performs work gratuitously, and a company commissioning another to do work on its behalf is held to such knowledge when they accept the result of the services. Finally, and often most importantly, the plaintiff must provide the court with some framework for evaluating the amount of damages incurred. The types of damages generally recoverable can include the cost properly and reasonably incurred by the person rendering the services or labor, together with a reasonable allowance for profit.

Generally, the existence of a valid and enforceable written agreement governing a particular subject matter will prevent a plaintiff from recovering under a quantum meruit claim arising out of the same subject matter. However, a party may assert causes of action for breach of contract and for quantum meruit where there is a legitimate dispute concerning the existence or the enforceability of a contract, or where the defendant has wrongfully prevented the plaintiff’s performance under a written contract. A good example of this type of situation arose in D’Accord Financial Services v. Metsa-Serla Oy, where the plaintiff entered into a letter agreement with the defendant whereby the plaintiff agreed to find investors and manage the various parts of a transaction, and in return, the plaintiff would receive a percentage of the value of the transaction at the closing. No. 98 Civ. 5847, 1999 WL 58916 (SDNY Feb. 8, 1999). According to the complaint, the plaintiff performed all its obligations under the letter agreement, but the transaction never closed. The plaintiff sued for quantum meruit, among other causes of action, seeking to be paid the reasonable value of the services performed for the defendant. The court concluded that the plaintiff had failed to state a claim for quantum meruit because “[t]he existence of a valid and enforceable written contract governing [the] particular subject matter … preclude[d] recovery in quasi contract for events arising out of the same subject matter of the … written contract.” Id. at 1999 WL 58916, *3,

Another good example of the issues that arise with quantum meriut claims is the case of Maglica v. Maglica, 66 Cal.App.4th 442, 78 Cal.Rptr.2d 101 (Cal. Ct. App. 4th Dist. 1998). In that case, Anthony Maglica, founded his own machine shop business, Mag Instrument, in 1955. In 1971, he met Claire Halasz and they began living together, holding themselves out as man and wife, but never actually getting married. They worked side by side building the business and when the business was incorporated in 1974 all shares went into Anthony’s name. A few years later, the business began manufacturing flashlights and, due in part to some great ideas and hard work contributed by Claire, business boomed. In fact, at the time the case was heard the business was worth hundreds of millions of dollars. In 1992 the couple split up and a year later Claire sued Anthony for, among other things, quantum meruit. The case came to trial and the jury awarded Claire $84 million for the breach of fiduciary duty and quantum meruit causes of action, finding that $84 million was the reasonable value of Claire’s services. On appeal, the case was remanded back down to the trial court to modify the judgment amount since the jury instructions given allowed the value of services to depend on their impact on the defendant’s business rather than their reasonable value. Demonstrating one of the issues in the valuation of damages of these claims, the court noted, “the benefit is not necessarily related to the reasonable value of a particular set of services. … Allowing recovery based on resulting benefit would mean the law imposes an exchange of equity for services, and that can result in a windfall … or a serious shortfall in others.”

There are things one can do to preserve a possible quantum meruit claim whenever they find themselves in a situation where there may be no enforceable contract. First, keep detailed records of the work performed. The burden is on the plaintiff to demonstrate what the reasonable value of the services they rendered are, and the better the framework given to assign value to those services, the more likely the plaintiff is to receive as much as they truly deserve. Additionally, keep the company commissioning the work updated on all the cost associated with the work, and make clear your expectation of compensation for the work you are performing on their behalf. Once the services are completed, make a demand for payment, while giving a reasonable time for tender of payment. Finally, if it appears someone is attempting to avoid their obligation to pay you for the services you performed on their behalf, immediately seek legal advice in how to properly preserve your claim and receive compensation–as much as you are deserved.