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Allied Mills, Inc. v. St. John

Circuit Court of Marshall County, in Equity
1963 Ala. LEXIS 558, 275 Ala. 69, 152 So. 2d 133 (1963)
ELI5:

Rule of Law:

When parties to a written contract orally agree to substantial, extra work that is outside the scope of the original agreement, the new work is treated as a separate contract for which the contractor is entitled to reasonable compensation (quantum meruit), rather than being bound by the original contract's payment terms.


Facts:

  • An owner and a contractor entered into a written contract for the contractor to excavate and remove material from the owner's property at a rate of 40 cents per cubic yard.
  • After the initial work was completed, the owner informed the contractor that a neighboring property owner required a specific slope on an embankment because some of the original excavation had occurred on the neighbor's property.
  • The parties orally discussed the new sloping work, and the contractor agreed to perform it.
  • The contractor completed the sloping, but the initial result was unsatisfactory to the owner because the slope was rounded rather than a flat plane.
  • The contractor then re-did the work according to the owner's instructions, which required an additional nine days of labor and machinery use.
  • The contractor demanded payment for the extra nine days based on hourly rates for his machinery (a front end loader, a bulldozer, and six dump trucks).
  • The owner contended that the extra work should be paid for at the original contract's rate of 40 cents per cubic yard of material removed.

Procedural Posture:

  • The property owner (complainant) filed a bill for a declaratory judgment in the Circuit Court of Marshall County, in Equity (a trial court), seeking a ruling on the amount owed to the contractor.
  • The trial court found in favor of the contractor (respondent), determining that he had been misinformed initially and was entitled to compensation for the extra work.
  • The matter was referred to a court official, the Register, who determined the reasonable value of the work was for five days of equipment use, rather than the nine days claimed.
  • The trial court affirmed the Register's report and entered a final decree in favor of the contractor.
  • The property owner (appellant) appealed the trial court's judgment to this court, with the contractor acting as the appellee.

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Issue:

Does a subsequent oral agreement for substantial extra work, which is outside the scope of an original written contract, require payment under the terms of that original contract?


Opinions:

Majority - Simpson, Justice

No. When a subsequent oral agreement constitutes a substantial change and is beyond the scope of the original written contract, its terms do not govern the compensation for the extra work; instead, the contractor is entitled to reasonable compensation. The court reasoned that the additional work was a substantial change, not a minor alteration. It was performed on different premises (the adjoining lot) and involved a different type of work (sloping) than what was contemplated in the original agreement. Therefore, the work was outside the scope of the original contract, rendering its payment terms inapplicable. Citing precedent, the court affirmed that when an original contract is materially altered by a subsequent agreement, the contractor may recover based on quantum meruit (the reasonable value of the work performed) and that a party who consents to such a modification is liable for reasonable compensation for the accepted work.



Analysis:

This case clarifies the distinction between a modification under an existing contract and the formation of a new, separate oral contract. It establishes that when 'extra work' is so substantial that it changes the location, type, and nature of the performance, it cannot be governed by the original contract's pricing structure. This decision protects contractors from being compelled to perform significantly different work at a price intended for a more limited scope. It also imposes a risk on owners who orally request major changes without a clear, written agreement on price, as they become liable for the 'reasonable value' of the work, which may be higher than the original contract rates.

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