Service providers and recipients alike should understand the nuances of contract law, especially regarding unspoken agreements and remedies for a breach. Without an official contract, a quasi-contract forms between two parties based on mutual understanding. In this case, if unfair enrichment occurs on the recipient’s side, the service provider may seek remedy through a quantum meruit, unjust enrichment, or promissory estoppel.
These three remedies are for quasi-contractual agreements where the service provider feels that the recipient unjustly benefitted without compensation. Understanding the difference between the three is crucial, and both business owners and their customers should be aware of why an official contract simplifies the entire process. Read below to understand the basics of quantum meruit, unjust enrichment, and promissory estoppel.
Quantum meruit is the Latin term for “as much as he has deserved.” It involves the damages for a service performed without a contract. The term implies that the provider of the services deserves compensation equivalent to the fair market value of services. Quantum meruit embodies the measurement of damages for recovery on an implied warranty. By law, a contract is understood when both parties intend for paid services. If both parties agree, there is a chance for recovery in quantum meruit.
To recover, one must show that the recipient agreed to the services knowing they needed to pay for them, but didn’t, and was therefore unjustly enriched. It is appropriate when two parties have discussed or attempted to form a contractual relationship. Perhaps, one of the parties believed a contract had been formed, and the other believed that a few details needed to be worked out. In this situation, if the recipient has accepted the benefits of the other party’s services, then one can say there is an implied contract leading to a quantum meruit recovery.
The idea of fair market pricing comes into play because when a formal contract is not formed, there is likely not a contract price that can be determined by agreement from the parties. Under quantum meruit, courts define the measure of damages as “the reasonable value of labor performed and the market value of the materials furnished.”
Unjust enrichment means that one cannot use services without paying for them. Unlike quantum meruit, an agreement between the two parties is not required to recover for unjust enrichment. Quantum meruit comes from the parties’ expectations, but unfair enrichment arises from society’s interest preventing the injustice of a person receiving a benefit without paying for it
To recover, one must show the lacking remedy at law including the benefit received, the defendant’s appreciation of the benefits, and acceptance of the benefit without compensation. Typically, this means that the provider has fulfilled their obligation while the recipient has not in a contractual agreement. It is not the same as a gift given without expectations of payment.
Promissory estoppel is the remedy available when circumstances occur that would otherwise fall short of a contract but for which justice demands restitution. A party may recover when they relied on a promise to their detriment
Promissory estoppel creates legal obligations that, though never assumed by the parties explicitly, have the same binding effects as an actual contract. For example, if Mary promises John that she will finance his “side hustle” if he devotes full-time to it, and John quits his day job to run the business, but Mary refuses to honor her promise, John has a claim for promissory estoppel against Mary. The court may assign reliance damages or expectation damages if a party breaches the obligation created by a promise made and relied upon by another. Even without formal creation, the legal principle of promissory estoppel is enforceable by equity. It keeps people from breaking their promises and helps the party who suffered from the broken promise recover.
The attorneys at Ritter Spencer can help with business law and the creation of a formal contract with clear-cut rules to avoid having to seek a remedy at all. Our expert attorneys can help with all of your contractual obligations. Contact us today.