What recourse do you have when you have provided services based on an agreement that is found by the court to be unenforceable? Can the value of these services be recovered despite the invalidity of the underlying agreement?
The remedy which the law offers in situations such as these is referred to as quantum meruit, and its application is well-illustrated by the recent decision of the Ontario Court of Appeal in Consulate Ventures Inc. v. Amico Contracting & Engineering (1992) Inc.
In this case, the plaintiff company, Consulate, had entered into negotiations with the Heritage Group, a related company of the defendant Amico, for the development of a number of factory outlet malls. Over the course of negotiations, the plaintiff company had provided Heritage with a range of services, including the provision of draft signage, the provision of extensive advice regarding planning, design and construction specifications, the provision of leasing plans and precedent marketing plans, and extensive efforts to secure tenant commitments.
One day before the first phase of the development was scheduled to begin, the Heritage Group's solicitors denied the existence of a binding joint venture agreement, taking the position that it was only an agreement to agree and therefore unenforceable.
The plaintiff sued for damages for breach of contract and for restitutionary relief related to the value of the services rendered on a quantum meruit basis. At trial, the court found that no joint venture agreement had been concluded and that damages were therefore unavailable in contract. The trial judge also found that since she could find no underlying valid contractual relationship, there was no viable claim to relief on the basis of a quantum meruit claim.
While the Court of Appeal agreed with the trial judge that the conduct of the parties supported the conclusion that no valid joint venture agreement existed, it disagreed with the trial judge that a quantum meruit claim required the existence of a valid underlying contract. Rather, the Court held, the claim based on quantum meruit "is a discrete cause of action, separate and apart from claims grounded in contract or tort, which contemplates a remedy for unjust enrichment or unjust benefit."
Where a claim is brought on the basis of quantum meruit, the court held that "an explicit mutual agreement to compensate for services rendered is not a prerequisite to recovery." Rather, "it suffices if the services in question were furnished at the request, or with the encouragement or acquiescence, of the opposing party in circumstances that render it unjust for the opposing party to retain the benefit conferred by the provision of these services."
Amico argued that the services in question were merely services furnished "between colleagues" or for the purpose of moving towards the joint venture, and, as such, were unrecoverable.
But on the evidence, the Court of Appeal rejected this position, finding that many of the services rendered by Consulate had been provided at either the request, or with the acquiescence, of Heritage. Consequently, the Court of Appeal directed a new trial to determine the nature, extent and value of the services provided.
The decision in the Consulate case does not mean that courts will ignore the formal contractual requirements of binding legal relationships or that parties may safely disregard these requirements and simply rely on the equitable relief that the claim of quantum meruit potentially provides. But it should provide litigants with some solace that the law will protect the interests of contracting parties who extend themselves to another's benefit on the basis of an ultimately unenforceable agreement