Quantum Meruit: When a Contract is not Signed but Goods and Services are a Rendered

3-25-2016 | by Benjamin Fleshman

Contracts one of the basic units of modern business. Contracts bind entities together through law, requiring services, goods, or payments, as the case may dictate. There are instances, however, when a legal contract is not entered into, but services are still provided. In such instances, just as when a formal contract is entered into, there may be a breach, of sorts. The agreement may go unfulfilled, and your company may be left in the lurch. What do you do then? One possible solution is to appeal for quantum meruit.

What Does Quantum Meruit Mean?

Quantum Meruit is the Latin term for “as much as is deserved.” In the business world, quantum meruit refers to a doctrine of law in which the law enforces an agreement to pay a reasonable amount (i.e. as much as is deserved) for specific materials, goods, or services that have been provided. This is done even in the absence of a formal signature which legally binds the participants.

When Does Quantum Meruit Apply?

Let us demonstrate the principle with an example. Construction companies most often require that a formal contract be entered into before beginning construction. This allows them to seek legal compensation if the deal goes awry or is somehow hampered.

Suppose, however, that a construction company did not enter into a formal contract before beginning construction, but proceeded on good faith. What happens if the hiring person, or persons, reneges on the deal? Well, that’s where quantum meruit kicks in.

Quantum meruit is a recourse for legitimate restitution that the construction company could apply for. This judicial doctrine would permit the aggrieved party to recover losses incurred by the defaulting of the offending party, even in the absence of a formal agreement or contract.

This is not to say, however, that the aggrieved party can sue for substantial amounts of cash and still win. In fact, part of the process of granting quantum meruit is determining the exact amount of damage owed to a person. The court will determine this by first determining how much the offending party gained from the transaction, and secondly by determining the amount of expenditures of the aggrieved party in materials and services.

How Can I Receive Quantum Meruit in Court?

The U.S. court system has determined four criteria that any aggrieved party must prove if they wish to receive compensation from this doctrine. First, they must demonstrate that valuable services were rendered. Second, it must be proven that the services were rendered to the offending party. Third, it must be proven that the services were accepted. Finally, it must be proved that the offending party was aware that the aggrieved party expected payment at the completion of these services.

These seem like fairly straightforward things to prove, but they can be trickier than they look if you don’t have any documentation.  It would be your word against theirs, and that’s difficult to prove. The easiest thing to do when running a business is to simply not participate in any deal until a contract is signed.

Breaches of contract are much easier to prove, because you have the contract physically in front of you. This is particularly true if your contracts are organized and stored in a central location. A benefit to your business, particularly when dealing with agreements that might go south, is to use a cloud-based contract management system.

Such systems form a secure repository where your documents can be stored, organized, and easily accessed. This improves your capability to monitor compliance and prove your case in court. Although quantum meruit is a legal doctrine to be applauded, it is best to never need to rely on it. Instead, use a contract, and store those contracts in a safe, easy access place.