By: Jacob D. Strawn
Agreements come in all shapes and sizes: agreements to work for a certain employer; agreements to perform a particular service; agreements to buy a certain product; agreements to rent a certain property, etc. However, where there are agreements, disagreements are sure to follow. As a lawyer, I hear one type of disagreement all of the time, and it typically goes like this: “I performed a service for him, and he didn’t pay me!” Hopefully, disagreements of this nature are governed by a contract. If one party breaches a contract, the affected party can pursue a variety of legal remedies; in most cases, monetary damages.
However, not all agreements are embodied in a legally binding contract. In some cases, the parties’ actions did not actually result in a contract. In others, what the parties assumed to be a legally binding contract is actually not enforceable in court. Of course, without a contract, there is nothing to breach. Does this mean that a party to an agreement, without a contract, has no available recourse in the face of an injury by another party? Consider the following situation: a homeowner hired a contractor to remodel a bathroom. As these things happen, after the contractor completed the bathroom remodel, the homeowner refused to pay. Unfortunately, there was not an enforceable contract between the homeowner and the contractor. Is the contractor supposed to “eat” this loss? After all, didn’t the homeowner get the benefit of a remodeled bathroom?
Fortunately, under Tennessee law, there is an equitable cause of action to address this situation: quantum meruit. In a similar case, the Tennessee Court of Appeals explained this equitable remedy. In Browns Installation, Inc. v. Watermark Solid Surface, Inc., 2013 Tenn. App. LEXIS 690 (Tenn. Ct. App. Oct. 21, 2013), the Court determined that a subcontractor, injured by another subcontractor, was entitled to a quantum meruit recovery. Id. at *14–15.
While there were other issues involved in Browns Installation, Inc., this analysis focuses on the quantum meruit issues. In this case, Watermark, after securing bids for the installation of hospital bathrooms, procured, paid for, and furnished materials to Browns Installation, which then provided the actual installation services. Id. at *2. The business relationship between Watermark and Browns Installation was based on oral agreements and the parties’ course of dealing. Id. Specifically, Watermark would send blueprints to Browns Installation, and Browns Installation would calculate the estimated cost for performing the installation work. Id. at *2–3. In turn, Watermark would use Browns Installation’s estimate for bidding purposes. Id. at *3. Once Watermark was awarded a project, it would purchase all of the necessary materials and provide them to Browns Installation for installation purposes. Id. Then, Browns Installation would provide the labor and the tools to complete the installation. Id.
Browns Installation progressively billed Watermark through invoices detailing the work it completed. Id. Throughout the installation projects, Browns Installation would also update Watermark on its progress through daily conversations and emails. Id. At first, Watermark paid Brown Installation’s invoices weekly. Id. Eventually, payment occurred on a bi-monthly basis. Id. However, in time, Watermarks payments to Browns Installation became untimely. Id. at *4. As a result, their relationship deteriorated. Id.
Ultimately, Browns Installation sent Watermark a letter, demanding full payment of past-due invoices and assurances that it would continue receiving future, bi-monthly payments, consistent with Watermark’s past practice. Id. That same day, upon receipt of the letter, Watermark terminated Browns Installation and demanded that it vacate all installation job sites. Id. at *5. In response, Browns Installation filed suit alleging breach of contract, or, in the alternative, quantum meruit. Id. Following a bench trial, the trial court found that no enforceable contract existed between Watermark and Browns Installation. Id. In addition, the trial court awarded Browns Installation monetary damages based on its quantum meruit claim. Id. After this loss, Watermark appealed the trial court’s judgment to determine whether the trial court erred in its award of damages to Browns Installation under the theory of quantum meruit. Id.
Following the appeal, the Tennessee Court of Appeals found that Browns Installation had successfully proven its claim for unjust enrichment based on quantum meruit. Id. at *7. In its analysis, the Court indicated that a party may recover the reasonable value of goods and services it provided to another if:
1) there is no existing, enforceable contract between the parties covering the subject matter;
2) the party seeking recovery proves that it provided valuable goods or services;
3) the party to be charged received the goods or services;
4) the circumstances indicate that the parties should have reasonably understood that the party providing the goods or services expected to be compensated; and
5) the circumstances demonstrate that it would be unjust for a party to retain the goods or services without payment.
Id. at *8 (citing Doe v. HCA Health Servs. of Tenn., Inc., 46 S.W.3d 191, 197–98 (Tenn. 2001)).
Based on the above facts, elements 1, 3, 4, or 5 were not at issue. Browns Installation, Inc., 2013 Tenn. App. LEXIS at *8. However, Watermark argued that Browns Installation had failed to prove the value of its services, the second element. Id. In its reasoning, the Court noted that quantum meruit recoveries cannot be awarded without some proof of the reasonable value of the goods or services at issue. Id. However, the required proof could be an estimation of the value of the goods and services. Id. All in all, the reasonable value should be judged in relation to the customs and practices prevailing in that particular business. Id. (citing Chisholm v. W. Reserves Oil Co., 655 F.2d 94, 96 (6th Cir. 1981).
Here, Browns Installation offered the unpaid invoices into evidence. Browns Installation, Inc., 2013 Tenn. App. LEXIS at *10. Also, it provided testimony as to how it arrived at its invoiced fees, specifically, through the process detailed above: Browns Installation would create an estimate, Watermark would approve the estimate, and Browns Installation would generate invoices from the estimate. Id. Moreover, the Court indicated that, with proper supporting proof, “charges” on an invoice could represent the reasonable value of goods and services. Id. at *14. In its holding, the Court addressed the heart of this issue: “it would be unjust for Watermark to retain the benefits of Brown’s work without making payment to Browns.” Id. at *14–15. As a result, Brown Installation’s award for quantum meruit was affirmed. Id. at *15.
Now, let’s revisit the hypothetical scenario regarding the bathroom remodel under a quantum meruit analysis. Under those facts, no enforceable contract between the homeowner and the contractor existed. Next, assuming the contractor could provide some type of proof that it provided valuable goods and services, it would satisfy the second element. For example, it could produce unpaid invoices for its services or it could produce receipts for the cost of the new toilet, tile, vanity, etc. Next, clearly, there is no dispute that the homeowner received goods and services. After all, the homeowner received a remodeled bathroom. As for the next element, typically, when a contractor provides a service, there is an expectation of payment. Though the facts of the hypothetical are limited, the contractor did not perform the bathroom remodel out of the goodness of his heart; he expected to be paid. Finally, it is unjust that the homeowner would receive a new, state-of-the-art bathroom without paying the contractor who put his blood, sweat, and tears into the remodel. Consequently, under these circumstances, even in the absence of a contract, the contractor can recover under quantum meruit.
In conclusion, as illustrated by Browns Installation, Inc. v. Watermark Solid Surface, Inc., even if you cannot recover for a breach of contract, don’t forget to rely on the lesser-known equitable remedies, like quantum meruit.
Jake Strawn focuses on Insurance Defense Liability, Premises Liability, Products Liability and Workers’ Compensation in the Memphis, Tennessee office.
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