SETTING THE STAGE

In a recent ruling, the Pennsylvania Superior Court permitted a subcontractor to recover damages against a contractor on a theory of unjust enrichment without having to prove that the owner had paid the contractor. By so ruling, Pennsylvania joins a growing number of jurisdictions that have allowed subcontractors to recover damages against a contractor for unjust enrichment, or quantum meruit.

Based on the equitable doctrine that no one who benefits by the work of another should be unjustly enriched, quantum meruit as an amount of recovery means “as much as deserved” and measures recovery under implied contract to pay compensation as reasonable value of services rendered.

Certainly, in most jurisdictions, the concepts of damages for breach of contract and damages under the theory of quantum meruit are mutually exclusive. That is, quantum meruit damages cannot be awarded where a contract is found to exist. See, e.g., Powell Co. v. McGarey Group, LLC, 508 F. Supp. 2d 1202, (N.D. Ga. 2007) (“Plaintiff may not bring a claim for quantum meruit where an express contract exists.”); Gee v. Eberle, 420 A.2d 1050 (Pa. Super. Ct. 1980) (unjust enrichment clearly inapplicable when parties’ relationship founded on written agreement/express contract); Schaefer v. Stewartstown Dev., 647 A.2d 945, 948 (Pa. Super. Ct. 1994) (where parties’ relationship was founded on an express contract, the doctrine of quantum meruit was inapplicable); A&V 425 LLC Contracting Co. v. RFD 55th St. LLC, 830 N.Y.S.2d 637, 644 (N.Y. 2007) (“existence of written contract covering issues in dispute which has fully been performed” precluded the pursuit of any quasi-contractual remedies). While the Pennsylvania Superior Court’s recent ruling on unjust enrichment does not disturb the common principle that quasi-contract-based recovery is unavailable where an express contract exists, in the absence of an express contract, the law becomes less clear among jurisdictions.

THE CASE

In Northeast Fence & Iron Works, Inc. v. Murphy Quigley Co., 933 A.2d 644 (Pa. Super. Ct. 2007), the subcontractor, Northeast Fence & Iron Works, Inc. (“Northeast Fence”), filed a complaint in Bucks County Court of Common Pleas against the general contractor, Murphy Quigley Co. (“Murphy”), for breach of contract, unjust enrichment and violation of the Contractor and Subcontractor Payment Act. The dispute arose out of a contract between Murphy and the Bucks County Correctional Facility (the “Prison”) for a construction project that included the modification of perimeter fencing, creation of seven fence-enclosed recreational yards, demolition work and security upgrades. The general contract, which was valued at $713,000, largely comprised the perimeter fencing and recreational yards.

Murphy originally entered into a subcontract with Eagle Fence for the perimeter fencing work; however, Eagle Fence left the worksite after completing approximately 10 to 15 percent of the fencing work. Murphy obtained estimates for both completion and repair of Eagle Fence’s perimeter fencing work, and eventually awarded the subcontract to Northeast Fence. At trial, it was undisputed that Northeast Fence and Murphy entered into a verbal, lump-sum contract for $26,500 for the completion of the perimeter fencing work. The parties disagreed, however, as to the subcontract price for the installation of the fencing surrounding the seven recreational yards. Murphy’s project manager testified that Northeast Fence’s proposal was high, but that he accepted that the maximum price for each recreational yard would be $17,500, for a total of $122,500. Murphy’s project manager further testified that the maximum subcontract price would be $149,000, including both the perimeter fencing work and recreational yards.

On the other hand, Northeast Fence’s owner testified that the subcontract was an emergency agreement due to Eagle Fence’s abandonment, and that when he visited the worksite, the poor conditions prevented him from determining the exact amount of work required to complete the recreational yards. He testified that he presented, and Murphy accepted, Northeast Fence’s proposal of $3,500 per diem with no maximum number of days.

TRIAL COURT HOLDING

In light of the disagreement over the subcontract price for the recreational yards, the trial court held that there was no meeting of the minds and thus no contract. Turning to Northeast Fence’s unjust enrichment claim, the court considered the subcontractor’s evidence of $134,428 of outstanding invoices and testimony that Murphy’s project manager promised to pay Northeast Fence. The trial court also noted that the general contractor never raised any issues about the quality of Northeast Fence’s work or the credentials of its workers. The trial court flatly rejected Murphy’s evidence that it refused to pay some of Northeast Fence’s invoices because Northeast Fence used nonunion workers in violation of the general contract with the Prison, and that Murphy expended in excess of $75,000 for incomplete and defective work after Northeast Fence left the worksite. Specifically, the trial court stated that Murphy’s defenses “appeared to be created solely for litigation.”

The trial court held that Northeast Fence was entitled to recover on a quantum meruit theory. The court reiterated the elements for a quantum meruit recovery, stating that a plaintiff must demonstrate that it conferred benefits on the defendant, the defendant appreciated those benefits, and the defendant accepted the benefits under such circumstances that it would be inequitable for defendant to retain the benefit without payment of value. In assigning a value to Northeast Fence’s unpaid subcontract work, the trial court awarded the subcontractor its total outstanding invoices ($134,428) less 15 percent that Eagle Fence performed on the project before abandoning the worksite, resulting in a total damages award of $114,246.

THE APPEAL

On appeal, Murphy argued that Northeast Fence did not plead quantum meruit, and should not have been permitted to recover on that theory. The Superior Court rejected Murphy’s argument, holding that Northeast Fence pled “unjust enrichment,” which is synonymous with “quantum meruit” under Pennsylvania law.

Second, Murphy argued on appeal that the trial court’s award for quantum meruit was improper because the subcontractor was not required to show that the general contractor, Murphy, was paid for the work by the owner. Again, the Superior Court rejected Murphy’s argument, reasoning that because Murphy was the general contractor for the construction project, Northeast Fence’s work clearly benefited Murphy, as it satisfied Murphy’s obligations under its general contract with the Prison. The Superior Court specifically held that the subcontractor need not prove payment by the owner to the general contractor in order to recover for quantum meruit. Satisfaction of its general contract obligations was sufficient to meet the “benefit conferred” requirement for quasi-contractual recovery.

CONCLUDING THOUGHTS

It is nearly impossible to overstress the importance of an enforceable written subcontract agreement. The court’s decision in Northeast Fence clearly opens the door to quasicontractual recovery where, in the absence of a written agreement, the subcontractor can demonstrate that there was “no meeting of the minds.” The fact that the court was willing to disregard the parties’ verbal subcontract because the amount was in dispute further emphasizes the need for a written subcontract that clearly and unambiguously spells out the parties’ agreement as to scope of work and amount. In the absence of such an agreement, it is entirely possible (and probable) that a general contractor could end up on the hook for unjust enrichment, regardless of whether the owner has even paid for the work at issue.