Don’t like the terms of a contract? Michael Conroy Harris continues our jargon-busting series and explains how you can repudiate it or make a quantum claim
Q is for quantum
In the majority of circumstances where construction works are carried out or professional services are provided in relation to them, the price for those works or services will be determined by reference to what is set out in (or can be ascertained from) the contract for the works or services. In many cases the contract will be written and deal with the price in very specific terms and even where there is no written contract and an oral contract exists (i.e. one where the terms are agreed by word of mouth) the parties are likely to agree something certain on the price, even if other factors (such as the quality of the works or services or the time it will take to complete them) are not discussed in detail. In those situations, it is often possible to fill in the gaps to complete the contract (such as where it is implied that professional services will be carried out with reasonable skill and care or that the works will be to a satisfactory quality).
However, on those occasions where the gaps cannot be completed (and a failure to agree the price is a likely cause of this) no contract can be said to exist. When that happens, the party providing the goods or services is entitled to receive payment for them and it is then a question to determine how much should be paid. This principle has the Latin name “quantum meruit”, the literal translation of which is “as much as he has deserved”. While it may be tempting to read “deserved” as simply meaning “reasonable” the proper test for determining the amount due is by reference to market value. If there is a range of market values, reasonableness can be a factor in determining the appropriate market value within that range. In most cases, expert evidence will be used to help determine the market value of the goods or services.
As a quantum meruit claim sits outside a contractual relationship, other contractual arrangements (such as liquidated damages) will not apply.
“Quantum” is also used as a generic term for the amount of any claim in relation to goods or services and quantum experts specialise in establishing the amount of such claims.
R is for repudiation
Contracts can come to an end (often referred to as being “discharged”) in a number of ways including:
- discharge by performance - where all goes well and both parties fulfil their obligations
- discharge by agreement - where both parties agree to end it
- discharge by frustration - where an outside force makes it impossible for the contract to be completed
- discharge by breach - where one party breaches the contract in such a way as to bring it to and end.
Unsurprisingly, discharge by breach often proves to be the most contentious category and the outcomes can come as a surprise to the uninitiated. Terms in a contract fall into different categories:
- warranties - these are terms that do not allow the innocent party to end the contract and the only remedy is that of damages;
- conditions - these are terms that do allow the innocent party to end the contract. Breach of a condition is called a repudiatory breach; and
- intermediate (or innominate) terms can act as warranties or conditions, depending on their effect when they are breached.
Where terms are referred to as “warranties” or “conditions”, courts will usually treat them as such. Where the contract does not state which are which, other factors are considered (such as how the terms are customarily treated or how they are treated in statute).
Where a repudiatory breach is committed, the innocent party can do one of two things:
- the repudiation may be waived where the innocent party continues to treat the contract in existence. Once affirmed, the innocent party is only able to claim the remedies of damages or specific performance; or
- the repudiation may be accepted and the contract brought to an end, provided that this is clearly communicated to the party in breach.
Repudiation is a common law remedy, so needs to be considered alongside any express rights for termination set out in the contract and, depending on how the contract is worded, the common law rights may exist alongside the contractual rights. The repudiation may only be waived or accepted - there is middle-ground between these two points. This means that an innocent party needs to consider carefully its options when presented with a repudiatory breach of contract. If an innocent party wrongly brings a contract to an end, it can find itself in breach of contract and liable for damages.
This article was originally published under the headline “Deal breakers”.