Law notes: Quantum Meruit

Quantum Meruit is a Latin phrase meaning “as much as he has deserved”. This claim is also referred to as “unjust enrichment.”

In the context of contract law, it means something along the lines of “reasonable value of services”.

The concept of Quantum Meruit applies to the following situations:

(a) When a person hires another to do work for him, and the contract is either not completed or is otherwise rendered un-performable the person performing may sue for the value of the improvements made or the services rendered to the defendant. The law implies a promise from the employer to the workman that he will pay him for his services, as much as he may deserve or merit. The measure of damages stipulated by the original contract may be tendered as evidence of the value of the improvements or services, but the stipulations won’t govern the measurement (ie. they are rebuttable).

(b). When there’s an express contract for a stipulated amount and mode of compensation for services, the plaintiff cannot abandon the contract and resort to an action for a Quantum Meruit on an implied assumpsit. However, if there’s a total failure of consideration, the plaintiff has a right to elect to repudiate the contract and may then seek compensation on a Quantum Meruit basis.

English Law Examples of Quantum Meruit

Context of failure of consideration and the law of restitution

The foundational decision for the unjust factor of failure of consideration which was relied upon in Axa is the House of Lords’ decision in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1942] 2 All ER 122. There, Lord Wright explained that failure of consideration is part of the law of unjust enrichment.

His Lordship said (at 138) that restitution is awarded for a failure of consideration because:

‘the payment was originally conditional. The condition of retaining it’s eventual performance. accordingly, when that condition fails, the right to retain the money must simultaneously fail.’

Two difficult questions were not answered by the House of Lords in that case and remain controversial.

Can a claim for restitution be brought for the value of services performed when the condition or basis for performing the services fails? If so, can a claimant recover more than the total contract price for the services by claiming in unjust enrichment for failure of consideration?

Regarding the first question, there are many cases where a Quantum Meruit award is made for the value of services performed where counter-performance has not been received, although the award isn’t explicitly acknowledged to be restitutionary and the basis for the award isn’t described as unjust enrichment. In the leading judgment in Chandler Bros Ltd v Boswell [1936] 3 All ER 179 at 186 Greer LJ said that ‘it has long been well settled that a plaintiff whose contract is broken is entitled, if he so choose, to claim damages or claim on a Quantum Meruit basis’.

However, unlike money claims, a claim for a Quantum Meruit has not traditionally been recognised as a response to a claim for failure of consideration. It has been suggested that such lack of recognition has led to anomalous results.

In the Californian case Boomer v Muir 24 P 2d 570 (Cal App 1933) a contractor repudiated a contract with his sub-contractor, who claimed a Quantum Meruit for the value of the work done on the construction project. Although only a small amount of work remained to be performed, the sub-contractor was awarded restitution of the full value of his services, less payment received under the contract. The difference was $238,000, which left him in a better position than if he’d fully performed the contract.

The decision was followed by the New South Wales Court of Appeal in Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234.

In Taylor v Motability Finance Ltd [2004] EWHC 2619 (Comm), [2004] All ER (D) 341 (Nov) Cooke J considered these issues directly. Taylor was employed by Motability as a finance director. Although bonuses were given on a discretionary basis, Taylor’s contract didn’t entitle him to a bonus as of right. In his role as finance director, Taylor was involved in the negotiation of a highly successful insurance settlement. Motability subsequently terminated his employment contract. In an alternative claim to breach of contract for wrongful termination of his employment, Taylor claimed restitution for the value of the work he did on the insurance settlement. He alleged that a negotiation consultant would have charged 0.5% of the settlement (£375,000). Cooke J treated this claim for the value of services conferred prior to Motability’s breach of contract as a claim for restitution of unjust enrichment based on a failure of consideration. His Lordship struck out the claim, stating (at [25]) that in cases of this kind, a claim for an accrued contractual right or a claim for breach of contract – ‘is the true measure of his entitlement, because it’s that which he bargained for. If it were otherwise, not only would the claimant be able to recover more than his contractual entitlement in respect of bonus, but he could also seek to establish that he was underpaid in terms of salary, despite his agreement thereto.’

In reaching this conclusion, Cooke J relied upon three decisions of the House of Lords which established that a breach of contract terminates contractual rights in futuro but doesn’t affect accrued rights:

Johnson v Agnew [1979] 1 All ER 833

Photo Production Ltd v Securicor Transport Ltd [1980] 1 All ER 556

LEP Air Services Ltd v Rolloswin Investments Ltd [1972] 2 All ER 393.

His Lordship acknowledged, however, that a claim based on a total failure of consideration is different. The reason for this must be that the right to the payment or benefit doesn’t fully accrue if the condition for retaining it’s receipt of counter-performance.

In obiter dicta, Cooke J went further, saying that even where a claim for restitution is available, the claim is limited by a contractual ceiling so that the decisions in Boomer and Renard Constructions would be decided differently under English law. The proposition that a claimant cannot recover more in unjust enrichment than the total value of the contract is attractive. But there’s a strong argument that the contract price should not form a ceiling on restitutionary recovery by the claimant because the allocation of price and risk is usually settled on the basis that the contract will be entirely performed. A claimant might agree to a contract price based on expected intangible benefits from entire performance such as reciprocal treatment by the defendant, further contracts, or reputation. Hence there are reasons to prefer the contrary decision of the Privy Council in Lodder v Slowey [1904] AC 442 (which Cooke J didn’t discuss although it was cited to him).

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