I had a file recently where a computer consultant did work on a project as a project manager. Unfortunately, the client decided to cut corners a bit and no formal contract was entered into with the company to whom the services were being provided. Instead, the consultant provided by e-mail a budget that set out the work to be performed but it wasn’t in great detail (although it did give at least some specificity). The company turned around and said that it wanted a larger scope of work, so my client provided a revised budget but the company decided that it didn’t want to pay the price for that additional work and so it was agreed that everyone would go back to the original budget. Then, as the work progressed, the company decided on an almost day-by-day basis that it wanted most of the additional work to be done after all. This was effected through various agreements to add the work on a piece-by-piece basis. Some of this additional work was confirmed by e-mail but most of it was through verbal discussions and agreements.
The work gets finished and my client comes looking for payment and the company says (a) that it won’t pay; (b) that the only agreement was for the work under the original budget and that any additional work done was not authorized or agreed to by the company; and (c) that my client did a lousy job and the company will have to hire another computer company to fix the “mess” made of the company’s system by my client. My client turns around and sues for non-payment for the work and the company counterclaims for the cost of “fixing” the work.
Now, what is the contract? Is the “budget” a contract? It was understood that the amounts in the budget were subject to possible change – in case software or hardware costs increased by the time that the items needed to be obtained for the work. (This was kept flexible in case a decision was made to change the system structure.) Was it only the budget or was it the additional work as well? And if it was the additional work, at what amount? At the amount of the second “budget” that wasn’t accepted? At the amount that would have been charged by the time that the work was actually done? At some other amount? Could my client say “we had a contract for which the work to be done and the price to be paid was fixed and agreed upon and therefore I should be paid in accordance with the agreement?” Could the company say “we only agreed to the original budget, and that was the fixed price and so we don’t have to pay anything more than that amount?”
Ultimately, the parties ended up at a settlement conference before a judge and the judge said, in his opinion (and I think he was right in this regard), that there was no fixed contract so neither could my client rely on the document to show what he was to be paid and, similarly, the company couldn’t say that it was only required to pay the budget amount. So, this left us with what is often a fall-back position – a claim for “quantum meruit”.
Quantum meruit is defined by the Canadian Law Dictionary, second edition, as follows:
As much as he has earned. Where one renders service or performs work for another, under a contract, express or implied, and the party gaining the benefit of such service or work fails to pay for such benefit, the other party is said to be entitled to recover a reasonable price for his services on the basis of quantum meruit – as much as he deserves.
This lead to two practical realities faced by my client if the case was to go to trial. The first is that he would have to bring in many people as witnesses to give evidence of the work that they performed over a multiple-month period in order to prove that they did the work and the value of that work. On a roughly $100,000 claim, this could easily have taken up a week to two weeks of trial – at great expense to both parties. The second practical problem is that quantum meruit relates to a “reasonable price” for the work. So, if it turned out that a sub-contractor charged $50 and the court decided that only $30 was a reasonable price, then all my client would be entitled to was payment of $30 and would have taken a loss of $20 for that work because he paid the sub-contractor the $50 charged to him.
Not surprisingly, a settlement was reached rather than going forward with a trial. The lesson here for all small businesses is that a little extra paper-work could have greatly strengthened my client’s case. The “budget” should have been transformed into a more formal agreement. In addition, the extra work that was subsequently requested should have been confirmed in writing and acknowledged by the company with an agreed upon price. This could have been effected by an exchange of e-mails. Yet without these relatively minor changes, my client ended up settling for less than the amount of the claim because there was a real question whether it would be economically worthwhile to take the claim all the way through to the end of a trial.
Lawyers bringing claims for non-payment on a contract almost always add in a “throw away” alternative claim for quantum meruit. Whether you call it a “back up”, “last-ditch”, “throw away” claim, the reality is that it is good to have made the claim, but the hope is that you never have to rely on it. And the easiest way to avoid having to make or rely on a quantum meruit claim is to have the paperwork in order before the contract is signed and during the time that the contract is being performed.
Something to think about.