Bailey-Allen Co., Inc. v. Kurzet
1994 Utah App. LEXIS 82, 240 Utah Adv. Rep. 17, 876 P.2d 421 (1994)
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Rule of Law:
A contractor who materially breaches a contract, and thus has not substantially performed, cannot recover damages on the contract. However, the contractor may be entitled to restitution under a theory of quantum meruit for the reasonable value of the benefit conferred upon the non-breaching party, less any damages caused by the breach.
Facts:
- In July 1990, Stanley Kurzet hired Bailey-Alien Company, Inc. to build a home under a written 'cost plus fixed fee' contract.
- The contract required Bailey-Alien to provide Kurzet with a certificate of insurance within 10 days of the agreement.
- The contract also stipulated that Kurzet was concerned about quality and that Bailey-Alien was responsible for supervising workers to avoid substandard workmanship.
- Kurzet requested the required certificate of insurance 10 days after the contract was signed, but Bailey-Alien never provided it.
- It was later revealed that Bailey-Alien's insurance policy had expired almost two years prior to the contract.
- In October 1990, Kurzet terminated the contract due to Bailey-Alien's failure to provide proof of insurance and his dissatisfaction with their supervision.
- At the time of termination, the project was approximately 10% complete.
Procedural Posture:
- Bailey-Alien Company, Inc. sued the Kurzets in a Utah district court (trial court) alleging breach of contract, mechanics’ lien, unjust enrichment, and failure to obtain a bond.
- The trial court granted the Kurzets' motion for partial summary judgment, dismissing the mechanics' lien, unjust enrichment, and bond claims.
- During the subsequent bench trial on the breach of contract claim, the trial court reinstated the unjust enrichment claim on its own motion (sua sponte).
- The trial court found that Bailey-Alien had materially breached the contract but nevertheless awarded it net damages of $11,141 under a theory of quantum meruit/unjust enrichment, along with interest.
- The trial court also denied the Kurzets' motion for attorney fees related to their successful partial summary judgment.
- The Kurzets (appellants) appealed the damage award and denial of attorney fees to the Utah Court of Appeals (intermediate appellate court).
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Issue:
Does a contractor who materially breaches a construction contract, thereby failing to substantially perform, have a right to recover for the work completed under a theory of quantum meruit?
Opinions:
Majority - Billings, Presiding Judge
Yes. A contractor who has materially breached a contract is precluded from recovering damages on the contract but may recover in quantum meruit for the benefit conferred upon the non-breaching party. To recover on a contract, a party must have rendered substantial performance. Here, Bailey-Alien materially breached by failing to provide insurance and by inadequately supervising the project, and completing only 10% of the work does not constitute substantial performance. Therefore, Bailey-Alien cannot recover under the contract. However, recovery is possible under the quasi-contractual theory of unjust enrichment (a branch of quantum meruit). This remedy is available to prevent the non-breaching party from being unjustly enriched by retaining the benefits of the breaching party's partial performance without paying for them. The trial court failed to properly apply the three-part test for unjust enrichment, so the case is remanded for the trial court to make specific findings on whether: (1) the Kurzets received a benefit, (2) they knew of the benefit, and (3) it would be unjust for them to retain it without paying. If recovery is appropriate, the measure of damages is the benefit conferred on the Kurzets in excess of the damages they suffered due to Bailey-Alien's breach.
Analysis:
This case clarifies the distinction between recovery on a contract versus recovery in equity for a party in breach. It affirms the traditional contract law principle that substantial performance is a constructive condition precedent to recovering the contract price. However, it also embraces the modern restitutionary principle that a breaching party is not left without a remedy and can recover under unjust enrichment to prevent forfeiture and avoid a windfall for the non-breaching party. The decision provides lower courts with a clear analytical framework (the three-part Davies test) for determining liability and calculating damages in cases of partial performance by a breaching contractor, focusing on the benefit to the defendant rather than the cost to the plaintiff.
