What do a church, comedy club and bingo parlor have in common? It turns out, construction. To be more specific, a lot of electrical work. It starts with the recent decision of the South Carolina Court of Appeals in Boykin Contracting, Inc. v. K Wayne Kirby d/b/a Carolina Gold Bingo, Case No. 2012-209067 (Richland County; Aug. 28, 2013), as follows.
Back in 2007, a church in Columbia, South Carolina hired a bingo promoter to operate Carolina Gold Bingo. The promoter leased two suites in a former grocery store and hired a general contractor to upfit the space for $316,400. When funds to complete construction ran out, the general contractor stopped working in November 2007.
In April 2008, the promoter met with Brock, the vice-president of Boykin Contracting, Inc. (BCI), to show Brock various electrical work still needed. This is where the trouble began. Brock believed BCI would complete the necessary electrical work and submit the bill directly to the promoter. To the contrary, the promoter later testified he instructed BCI to perform the remaining work under the supervision of the original electrical contractor and to be paid from the approximately $5,000 allocated to complete electrical work from the original contract. BCI began working the next day, without a written contract, and worked diligently for the next month to complete electrical work for both the bingo parlor and comedy club. At the end of July, BCI submitted an invoice to the promoter for $73,925.40 (i.e. much more than $5,000).
Surprisingly (not really), the promoter failed to pay, and BCI filed a mechanic’s lien (which we discussed in our newsletter last month, in case you missed it…). BCI filed a lawsuit in January 2009 to foreclose on the lien. However, after a one-day trial, the court ruled there was no enforceable contract between the parties. How did the subcontractor ultimately prevail?
A legal theory applicable in most jurisdictions called “quantum meruit” allows a contractor to sue for work done but for which it has not been paid and does not have a written contract. These claims are presented in courts of equity in South Carolina. The contractor pursuing a claim in quantum meruit has to prove three things: “(1) a benefit conferred upon the defendant by the plaintiff; (2) realization of that benefit by the defendant; and (3) retention by the defendant of the benefit under conditions that make it unjust for him to retain it without paying its value.” Earthscapes Unlimited, Inc. v. Ulbrich, 390 S.C. 609 (2010). In the Boykin case, BCI did just that.
First, BCI performed work for the promoter on the bingo space over which the promoter “exercised dominion and control” throughout construction. Second, the benefit was realized by the promoter, as a certificate of occupancy was issued to the promoter as “owner” of the space. Third, because the promoter never paid BCI for any of the work to upfit the bingo parlor, the court found that it would be unjust to keep and operate the improved building without paying BCI for the work.
However, the court ultimately concluded the promoter did not have to pay BCI’s invoiced amount because when there is no express or written contract, the party who performed the work is still entitled to “the reasonable value of the labor and materials furnished under an implied in law or quasi-contractual theory.” See Costa & Sons Constr. Co. v. Long, 306 S.C. 465 (Ct. App. 1991). When determining what was reasonable, the court deducted the 15% profit and certain credit card charges that the court could not directly attribute to the job. Thus, the court awarded BCI $59,494.31, which included pre-judgment interest from the date of the invoice.
The larger point from Boykin should be clear: parties must get the scope of construction work to be performed and the price for which they expect that work to cost IN WRITING. This seems so basic, yet failure to reduce the contract terms to writing is a recipe for litigation. Sure, it takes some time and effort to write a construction agreement, review it, and sign it. But consider the possible outcomes if the parties do not do so.
Consider first the time it takes to reduce a construction agreement to writing. For the contractor performing legitimate, requested work without a written contract, litigation is the SLOWEST way to get paid, if at all. Look back at the Boykin case. The electrical contractor submitted its invoice to the owner on July 31, 2008. It then filed a mechanic’s lien about one month later. It then filed a lawsuit seeking to foreclose on the lien in January 2009. It was not until December 30, 2011, that the court ruled the contractor was entitled to (some of) the amount invoiced. But wait – that was not the end of the litigation. The owner appealed, and the appeal was not heard until March 14, 2013. The Court of Appeals’ written opinion was not issued until August 28, 2013 – more than FIVE YEARS after the invoice was submitted.
Consider also the effort it takes to reduce a construction agreement to writing. What is important about the effort is that it forces the parties to agree before any work is performed. If the parties cannot agree on the written agreement before construction begins, then what makes them believe that they will agree on the payment terms after the work is complete?
Consider further the certainty the written, signed agreement brings. Without the writing, there is no guaranteed amount an owner or general contractor must pay a subcontractor. In Boykin, the electrical contractor’s invoice was $73,925.40. However, without an agreement with the owner, the contractor – via court intervention – was ultimately awarded $59,494.31. Moreover, the contractor had to pursue a claim for quantum meruit, instead of breach of contract, leaving it to the court to decide what the “reasonable value of the labor and materials furnished” would be instead of pursuing an agreed-upon sum stated in a contract.
What is the lesson we learn from a simple case like Boykin? Beware of renovation jobs for a bingo promoter, after the first contractor stopped working, that require a lot of work to retrofit an old Winn-Dixie into a bingo parlor (for a church) and a comedy club? Sure, those may be red flags. Even if you ignore red flags, remember one thing: get your contracts in writing. Please.