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Tuesday, July 29, 2014

Pa. S. Ct.: Contract that is Unenforceable by Statute Does Not Preclude Claim for Quantum Meruit

Screen Shot 2014-07-29 at 1.01.17 PMThe borderland between contract and quasi-contract can be murky.  For example: when failure to comply with a statutory requirement makes a contract unenforceable, can a party still recover under a theory of quantum meruit?  The Supreme Court of Pennsylvania recently addressed this question in the specific context of the state’s Home Improvement Consumer Protection Act (“HICPA”), holding that a contractor could pursue a cause of action sounding in quantum meruit.

Plaintiff construction corporation (“Shafer”) was hired by defendant homeowners (the “Mantias”) to build an addition on their home.  While the parties worked up an extremely detailed plan, the proposal did not comply with specific requirements of HICPA (for example, it did not contain approximate start and completion dates).  Notwithstanding, Shafer began construction but ran into problems because the excavation work for the foundation (completed by the Mantias) was not done properly.  The excavation was revised and, with that, the design for the construction was revised.  Shafer and the Mantias were unable to negotiate a modification of their agreement and agreed to discontinue the project.  Shafer sent a final invoice to the Mantias for almost $38,000 but the Mantias refused to pay it.

Shafer sued for breach of contract and quantum meruit.  The contract was not valid, however, because it failed to comply with some of the very specific requirements of HICPA.  The question remained whether Shafer could nevertheless seek recovery on a theory of quantum meruit.  The Supreme Court of Pennsylvania affirmed the intermediate appellate court and held that the restitution theory was not precluded.  The court reasoned:

It is well-settled at common law, however, that a party shall not be barred from bringing an action based in quantum meruit when one sounding in breach of express contract is not available. Zawada v. Pa. Sys. Bd. of Adjustment, 140 A.2d 335, 338 (Pa.1958). While the General Assembly, in its role as the policy-making branch of government, certainly may in “particular sets of circumstances” modify the structure of the common law, Program Admin. Servs., Inc. v. Dauphin County Gen. Auth., 928 A.2d 1013, 1018 (Pa.2007); see also Freezer Storage, Inc. v. Armstrong Cork Co., 382 A.2d 715, 720–21 (Pa.1978); Singer v. Sheppard, 346 A.2d 897, 902 (Pa.1975), there is no indication that the legislature has done so in the Act. Indeed, the Act “is silent as to actions in quasi-contract, such as unjust enrichment and quantum meruit—which, by definition, implicate the fact that, for whatever reason, no [valid] contract existed between the parties.” Durst, 52 A.3d at 361 (emphasis added)

With this understanding, it becomes self-evident and plain that Section 517.7(g) speaks only to the availability of remedies to a contractor who complies with Section 517.7(a).5 While traditional contract remedies may not be available due to the contractor's failure to adhere to Section 517.7(a) (thus, rendering the home improvement contract void and unenforceable), Section 517.7(g) does not contemplate the preclusion of common law equitable remedies such as quantum meruit when a party fails to comply with subsection (a). The Superior Court has already decided, and we now affirm, that this is the case when the contract at issue is oral (Durst), or noncompliant with the remaining sections of Section 517.7(a) (this case). If the General Assembly had seen it fit to modify the right of non-compliant contractors to recover in contract or quasi-contract, statutory or common law, or otherwise, it could have done so. Accord Freezer Storage, 382 A.2d at 720–21. Simply put, this Court cannot insert words into Section 517 .7(g) that are not there, especially words that would extinguish an otherwise cognizable common law action. Rieck Investment, 213 A .2d at 282.

Of course, this has the potential to undermine the purpose of the requirements of HICPA, but the message from the court to the legislature is: expressly negate other theories such as quantum meruit in the statute.

Shafer Electric & Construction v. Mantia, No. J-24-2014, (decided by Pa. S. Ct. on July 21, 2014).

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