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Letters of Intent and Quantum Meruit

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An “iffy” contract – What to do if there no contract or if work is carried out and is agreed outside of the scope of the contract?

In the construction industry it is commonplace that the builder has not entered into a formal contract because one has been prepared but it has not been signed or the parties have chosen not to commit an agreement into writing or there is no evidence of even an oral agreement that will stand up in court. In other words the builder is asking to be paid under an “iffy contract”.

If the court finds that a contract did not come into existence because the price was not agreed or because essential terms were not agreed or if work was carried out outside of the terms of the contract then the builder can argue that they are able to establish an entitlement to be paid a reasonable sum by way of quantum meruit for the work carried out. Quantum Meruit is broadly a reasonable remuneration for work done or goods supplied where there is no agreement as to price, including where a contract never becomes binding or is later discovered to be void.

An entitlement of the builder to be paid for a reasonable amount earned by way Quantum Meruit will be relevant if it is found that the parties have:

(i) not agreed a contract or not agreed all the terms, including the price of the work;

(ii) made an agreement to pay a reasonable sum for the work done; or

(iii) agreed a scope of work under the original contract and the work falls outside that scope and the parties did not have or did not use a variation procedure in the contract, as in this case.

The circumstances where there may be an entitlement to a reasonable sum is as follows :-

(i) There is an express agreement to pay a reasonable sum,

(ii) There is no fixed price, namely where work is done under a contract express or implied and no price is fixed by the contract, there is an entitlement to be paid a reasonable sum for labour and materials supplied pursuant to an implied term. In this respect the builder can rely upon Section 15 of the Supply of Goods and Services Act 1982 to argue that they are entitled to be paid a reasonable sum where a price has not been specified and agreed.

(iii) There is a quasi contract, which may occur where there is failed negotiation, whereby work is carried out while negotiations as to the terms of the contract are proceeding but agreement is never reached upon essential terms,
“Iffy” Letters of Intent

In British Steel v Cleveland Bridge [1984] 1 All ER 504, at 509 to 511 the court said that :

(i) while parties are negotiating a contract under which they will, if the contract is concluded and they enter into reciprocal obligations binding each other as to future performance, it is highly unlikely that by conduct they will conclude in the interim an executory contract where they contain terms that are still the subject of negotiation

(ii) it is more likely that they will have entered into what Robert Goff J referred to as an “if” contract, that is a contract, that is a contract under which if one party supplies, the other agrees to pay a reasonable remuneration

(iii) even an “if” contract will not have been entered into if important terms such as those relating to standard of performance, are still under negotiation, and in such cases the proper answer is no contract, but a restitutionary remedy to the extent that one party has been unjustly enriched.
In Bendetti -v- Sawaris [2010] EWCA Civ 1427 the Court of Appeal confirmed that when compensating the Claimant for the value of the benefit received by the paying party, the court should look to the “market value” of that benefit. The court ruled that there was no distinction between an abandoned agreement and one that simply failed for some technical reason to become binding on the parties. In the absence of any prior agreement on price in the context of other communications between the parties, the court should rely on expert evidence on market value. Mr Benedetti claimed damages by way of restitution for the unjust enrichment of the value of the work. Overall what mattered was the market value (or range of values) and not simply what was “reasonable”, although reasonableness might come into the exercise of the discretion as to where in the range of market values the quantum meruit should be fixed.

Restitutionary claim
Where no contract comes into existence or the contract between the parties is or becomes unenforceable the obligation to pay for the work done or goods supplied will be governed by the law of restitution, not the law of contact. In the case of services where the benefit takes the form of the end product of the services that end product must be valued. Where the benefit takes the form of the services themselves then it is the value of the services that must be valued, on the basis of the reasonable value of the services at the time at which they were rendered.

In Kleinwort Benson Ltd -v- Lincoln CC [1992] 2 AC 349 it was decided that it is necessary to establish that the Defendant has been unjustly enriched, including where the benefit has been transferred at his own request or that the Defendant may have been enriched as a result of his own wrongdoing. The burden of proof of causation is lower than in the claims for damages in that if the Claimant’s own carelessness contributed to the enrichment this will not mean that the enrichment is unjust (Gibb -v- Maidstone Tunbridge Wells NHS Trust [2010] EWCA Civ 678). Therefore the fact the Builder has not committed discussions with the client to writing should not count against them.

The Builder is able to pursue a claim for quantum meruit in the event that the court concludes that negotiations have failed and work was carried out whilst negotiations as to the terms were ongoing but agreement was reached upon the key terms in accordance with the principles contained in British Steel -v- Cleveland Bridge [1984] 1 AER 504. In these circumstances the contractor is entitled to be paid a reasonable sum for the work outside the contract on the basis of an implied contact, and this is to be calculated n the basis of the market rate.
It is of crucial importance that your claim in the courts for quantum meruit is well put together and is water tight. We at MJD have experience of this and have conducted cases in the courts where such claims come under scrutiny by the Judge and we know how to ensure that they will stand up in court. We can help you to make sure that you give yourself the best possible chance of recovering your hard earned money through this experience.

By Anthony Philpott


MJD Solicitors | Matthew Dillon

Matthew Dillon

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