ContractsProf Blog

Editor: D. A. Jeremy Telman
Valparaiso Univ. Law School

A Member of the Law Professor Blogs Network

Wednesday, January 29, 2014

Ruling on Privity of Contract in Indiana

This is the second in a series of posts that draw on Michael Dorelli and Kimberly Cohen's recent article in the Indiana Law Review on developments in contracts law in Indiana.   This post will discuss State of Indiana Military Department v. Continental Electric Company, which was decided by the Indiana Court of Appeals in 2012.  

Gary Airport MapIn 2006, Continental Electric Company (Continental) submitted a bid as a subocontractor on the construction of an avaiation facility at the Gary/Chicago Internaional Airport (see the image at left).  Continental's submitted a bid of about $1.8 million to do the electrical work on the project, noting in its bid that $335,000 should be added to its bid under "Alternative 2," which was designated "Diesel Generator."  The State of Indiana Military (the State) which had issued the bid hosted a pre-bid meeting at which it sought to clarify that costs relating to Alternative 2 should be included in the base bid, but Continental did not do so, relying on its understanding of the written bid documents.  The State provided a written version of its clarification of Alernative 2, but Continental claims that the written version did not reflect what was said at the pre-bid meeting.

The Larson-Danielson Construction Company (Larson) was awarded the project and chose Continental to do its electrical work.  Continental began work in October 2006.  It dealt only with Larson and there was no contractual relationship between it and the State.  Continental billed Larson for an extra $207,000 worth of work associated with Alternative 2.

Continental complained throughout the process that it was entitled to payment for the work done under Alternative 2, but both Larson and the State believed that no extra payment was required, since both interpreted the bid documents as requiring that work associated with Alternative 2 be part of the base bid.  Getting no satisfaction from Larson, Continental brought suit against the State, claiming $207,000 in damages for breach of contract or quantum meruit.  The trial court found for Continental and the State appealed.

The Court of Appeals reversed.  It found that Continental could not bring a breach contract claim against the State because it was not in a contractual relationship with the State.  Nor had the State agreed to hear appeals arising out of controversies between Larson and its subcontrators.  

The Court then moved on to Continental's unjust enrichment claim.  Under Indiana law, four criteria must be met to establish such a claim: 

1)Whether the owner impliedly requested the subcontractor to do the work; 2) whether the owner reasonably expected to pay the subcontractor, or the subcontractor reasonably expected to be paid by the owner; 3) whether there was an actual wrong perpetrated by the owner; and 4) whether the owner’s conduct was so active and instrumental that the owner “stepped into the shoes” of the contractor.

The Court concluded that because Larson was paid in full, the trial court erred in finding that the State had retained a benefit for which it did not pay.  Basically, the Court agreed with Larson and the State the the bid documents and the clarification established that the costs associated with Alternative 2 were to be included in the base bid.  The Court concluded as follows:

In sum, we conclude that Continental Electric had no right to recover against Indiana Military. Continental Electric failed to establish that a measurable benefit was conferred on Indiana Military and that its retention of a benefit without payment would be unjust. Indeed, Indiana Military did not receive a measurable benefit from Continental Electric that it had not already paid for.

All concerned, including Continental Electric, knew long before Continental Electric ever entered into a subcontract with Larson that the wiring in question was part of the base contract with Larson and that Indiana Military would expect Larson to install the wiring between the facility building and the concrete generator pad. Larson 28completed the work, and was fully paid for that work. In short, Indiana Military has not unjustly retained a benefit without payment. 

The Court of Appeals set aside the trial court's ruling on quantum meruit and reversed its judgment.

http://lawprofessors.typepad.com/contractsprof_blog/2014/01/ruling-on-privity-of-contract-in-indiana-.html

Government Contracting, Recent Cases | Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef01a3fcadde17970b

Listed below are links to weblogs that reference Ruling on Privity of Contract in Indiana :

Comments

Post a comment