Legal Blog

Quantum Meruit

As we have already discussed (see May 2011 newsletter), all is not necessarily lost when lien rights are gone and the person above the claimant in the construction ladder is judgment proof. The possibility to jump a rung still exists. Such a  possibility was  tested in Interpaving Ltd. v. Ng, a 2011 decision of the Ontario Superior Court of Justice.

 Ladder

 An owner hired a consultant to oversee improvements performed on her land. The owner also entered into a very loose agreement with a general contractor. The general performed the work and a sub performed the paving portion of it. The general did not pay its subs. The paving sub, and others, registered claims for lien, but their liens were discharged on consent when the owner paid into court the holdbacks that the parties agreed were required under the Construction Lien Act. After receipt of its pro rata share, the sub was still owed $67,000.00.

 The sub commenced an action against the owner claiming that it should receive payment from the owner based on quantum meruit.

 According to the decision in Juddav Designs Inc. v. Cosgriff discussed in our May 2011 newsletter, quantum meruit applies only when there is a contract, but the amount is unknown. However, this is not correct.

 The Ontario Court of Appeal, in another case and not referring to the Juddav decision, said this about quantum meruit:

 “This misstates the test for establishing entitlement to restitutionary relief based on quantum meruit. Such a claim is not dependant on the existence of a valid contract. Rather, it 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…”

 “Thus, where the claim for restitutionary relief is based on quantum meruit, as in this case, an explicit mutual agreement to compensate for services rendered is not a prerequisite to recovery. 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 the services.”

 As it happens, this test is similar to the test for unjust enrichment (i.e. one party, to its detriment, has conferred a benefit on the other and there is no juridical reason for the benefit).

 Dispute

 The owner brought a motion for summary judgment alleging that the sub had raised no genuine issue for trial. In this type of motion, the sub has to put forward its best evidence and if that evidence is not sufficient to show that the sub has a fighting chance at trial, the sub loses.

 The judge felt that there was a fighting chance for the sub to prove that it provided its services with the encouragement or acquiescence of the owner and would not have dismissed the sub’s action on this ground.

 As to whether it would be unjust for the owner to retain the benefit of those services, the sub argued that the owner obtained and did not pay for its services because the owner did not pay the general the full amount of the contract price. An owner is not normally liable by way of a trust claim or otherwise to a sub, two rungs down the construction ladder. However, if an owner does not pay a general, who in turn does not pay its sub, it would be implicitly unjust for the sub to have no remedy against the owner when its debt against the general is uncollectible.

 The real dispute in this case was whether the sub had submitted enough evidence to demonstrate that the owner had not fully paid the general. The best the sub could do was a hearsay statement from the sub’s employee that he had spoken to the general, who stated that the owner had not paid him in full. In contrast to this hearsay statement, the consultant and the owner each deposed that the owner had paid everything she owed to the general under the contract.

 The judge noted that the sub had two years to obtain the evidence of the general and obtain the consultant’s file and had failed to do so. Based on this and the inherently unreliable hearsay statement, the judge stated that if this were the best the sub could do, it was not enough. The judge dismissed the sub’s action against the owner.

 Procedure

      We are not sure why the sub chose to make its stand by way of a separate action based on quantum meruit. It had commenced a lien action. The duty of an owner is to pay to the lien claimants the holdback it was supposed to retain under the Construction Lien Act. This holdback is not limited to 10% of the value of materials and services the general supplies; it includes all money that the owner owes to the contractor after setoff and may be greater than the 10% holdback.

 We suppose that the sub may have felt that it was better to take the pro rata share of the basic 10% holdback and then make its claim under a separate action, assuming that no other subs would do the same. In that manner, if successful, the sub would not have been limited to its pro rata share of the recovery. Unfortunately, the operative word in the last sentence is “recovery” and there was none.