Questions frequently arise as to the proper measure of damages for the breach of a construction contract, and whether it is appropriate to seek the recovery of quantum meruit damages when a written contract exists. The general rule is, if the parties have entered a written contract, then only contract damages are recoverable — not quantum meruit damages. An important exception may exist, however, if the written contract has wrongfully been terminated.

In American Underground Engineering, Inc. v. City of Syracuse, the City hired a contractor to construct a parking deck and the contractor sued the City for breach of the contract. The contractor proved at trial that the City had breached the contract, and that the breach was so material it defeated the purpose of the contract. The jury awarded the contractor damages based on the contractor’s costs of performance, plus overhead, minus payments from the owner. In post-trial motions, the City argued that the jury impermissibly used a quantum meruit calculation when awarding damages, which would be inappropriate due to the existence of a written contract.

Rejecting the City’s arguments, the District Court, applying New York law, held that if a written contract has been wrongfully terminated, then a quantum meruit measure of damages can be used. The court also held that the wrongful failure to make payment or the wrongful imposing of delays upon the contractor’s performance of the work, can be so material a breach that it justifies the conclusion that the contract has been wrongfully terminated by the owner. In such a situation, damages calculated on the basis of a quantum meruit theory of recovery can be recovered. As stated by the court, “Once an agreement has been wrongfully terminated, the non-breaching party may elect to pursue quantum meruit damages. Where a party seeks quantum meruit damages for the premature wrongful termination of a construction contract, courts calculate the damages by considering the actual job costs plus allowance for overhead and profit minus amounts already paid.”

Although this case applies New York law and the same result may not be obtained in another jurisdiction, this case illustrates how quantum meruit can be used as a theory of recovery if a contract-based measure of damages is insufficient to fully compensate the damaged party.

American Underground Engineering, Inc. v. City of Syracuse, No. 5:00-CV-278 (FJS/DEP), 2011 WL 4809882 (N.D.N.Y. October 11, 2011).