Breach of contract is a staple in the world of construction claims. Typically, one party alleges it is owed money, while the other party alleges that the claimant failed to perform under the parties’ contract. These claims may focus on contract balance, extra work, unsigned change orders, delays and related damages.
While the focus and specific subject matter may vary, such claims all address the fundamental elements of a contract — offer, acceptance and consideration — in determining whether a contract has been formed and if so, whether there is a breach by one or both of the parties. Once a breach is found, the claimant needs to assert damages — usually compensatory damages or damages used to make the claimant “whole” — in order to state a legally cognizable cause of action.
Claims for extra work, often predicated on unsigned change orders, present a unique set of problems for the owner and contractor alike. Oftentimes the contractor proceeds in good faith, performing work verbally requested by the owner, only to find that when it comes time for payment, the owner balks.
The owner refuses to pay, pointing to the parties’ written agreement, which requires a signed change order to seek payment for extra work. In response, the contractor points to his own good faith and trust in the owner, claiming that he was following the direction of the owner, and the owner should not be able to “get something for nothing.”
Who prevails? According to a recent decision of the Court of Appeals of Oregon, it may not be the contractor who acted in good faith.
In Kizer Excavating Co. v. Stout Bldg. Contractors, LLC, No. A177168, 2023 WL 2004519 (Ct. App. Ore. Feb. 15, 2023.), an excavating subcontractor, Kizer, got into a similar dustup with its general contractor, Stout. Kizer was doing excavation for a commercial project — specifically, a Jiffy Lube franchise — under a signed, written agreement with Stout.
This agreement called for excavation of 500 cubic yards of fill, but it turned out that 3,290 cubic yards of fill needed to be excavated. The parties disagreed as to the cause of this discrepancy. Kizer submitted a written change order to Stout, yet it was not timely under the terms of the parties’ agreement. As a result, Stout rejected it out of hand.
Kizer promptly brought suit, seeking damages from Stout for breach of contract and quantum meruit.
According to Black’s Law Dictionary, “quantum meruit” (kwon-tem mer-oo-it) has multiple definitions, the first two of which are relevant to our case: “1. The reasonable value of services; damages awarded in an amount considered reasonable to compensate a person who has rendered services in a quasi-contractual relationship. 2. A claim or right of action for the reasonable value of services rendered.”
It is important to note that Kizer asserted two, separate causes of action — breach of contract and quantum meruit — although it could only recover damages once. Most courts treat this as pleading in the alternative. The causes of action do not have to be consistent with one another; a plaintiff need only prevail on one of them.
Trial Court Finds for Kizer
After a lengthy bench trial (i.e., tried by a judge without a jury), the court rejected Kizer’s breach of contract claim. However, the court awarded Kizer damages in quantum meruit. The court found that Stout’s rejection of the change order was “extracontractual” and that Kizer has a reasonable expectation of payment from Stout. Kizer, 2023 WL 2004519, at *2.
Both parties filed cross-appeals, but for purposes of this discussion, only Stout’s appeal of the damage award to Kizer is relevant.
The Court of Appeals of Oregon began its analysis by discussing two kinds of implied contracts (or quantum meruit claims) recognized under Oregon law: implied-in-fact and implied-in-law. If a party requests services from another, the requesting party is liable for the fair and reasonable value of the services on an implied-in-fact contract basis.
Under this scenario, there is an implied promise to pay for those services. As the court noted, “An implied-in-fact contract is inferred, in whole or in part, from the parties’ conduct rather than from an express agreement; but in other respects, an implied-in-fact contract is no different than an express contract.” Id. at *3.
As for a contract implied-in-law, otherwise known as quasi-contract, there is an obligation to pay in order to avoid unjust enrichment. Quasi-contract arises when there is no express contract or implied-in-fact contract between the parties.
The court noted that when there is an express contract, “no contract will be implied either in fact or in law, and the terms of the express contract control.” Id. at *4.
Appellate Court Reverses Trial Court
After this detailed discussion of implied contracts, the court found that this case came down to two, undisputed issues: 1. The excavation work for which Kizer sought payment was within the scope of the parties’ express agreement; and 2. If an implied contract existed here, it would be implied at law (to avoid unjust enrichment to Stout). Id. at *3 - 4.
Based on No. 1, the parties’ had an express contract — and therefore could not have any implied contract. No implied contract existed here; the parties’ relationship was governed by the terms of their express contract. The appellate court found that the change order work was not extracontractual; rather, it was covered by the parties’ express agreement.
Since under the terms of the parties’ express contract, Kizer failed to submit its change order timely, Kizer was barred from recovering any damages in quasi-contract.
While the Kizer case covers some basic concepts of implied contracts, it provides a number of important lessons. First, if you have an express, written contract, it is critical that you follow its terms carefully so that you give notice in the time and manner required.
Second, if you have an express contract that requires a signed change order as a prerequisite to payment — do not perform the work until the promisor signs the change order.
Finally, implied contracts are not as good as express ones, but they are meaningful when there is extracontractual conduct or the scope of work is outside the parties’ express agreement. In that instance, a court is more likely to award damages for quasi-contract to prevent the beneficiary of the agreement from being unjustly enriched.