United States v. Algernon Blair, Inc.

United States Court of Appeals for the Fourth Circuit · 1973 · Contracts

Contractsquantum meruitrestitutionMiller Actmaterial breachsubcontractorreasonable value of performancecontract price as evidence only

Facts

Algernon Blair contracted with the United States to build a naval hospital and subcontracted with Coastal Steel Erectors to perform steel erection and supply certain equipment. Coastal began performance and supplied its own cranes, but Blair refused to pay crane rental, although the district court found the subcontract required Blair to do so. After completing about 28 percent of the subcontract, Coastal terminated performance because of Blair's refusal to pay, and Blair completed the work with another subcontractor. Coastal sued to recover for the labor and equipment it had already furnished.

Issue

When a subcontractor justifiably ceases performance because the prime contractor materially breached the subcontract, may the subcontractor recover in quantum meruit for the value of labor and equipment already furnished even if it would have lost money had it completed the contract? May that recovery be had in a Miller Act action against the prime contractor and its surety?

Rule

A promisee who justifiably stops performance after the other party's breach may forego suit on the contract and recover in quantum meruit the reasonable value of labor, services, and equipment furnished. That restitutionary recovery is measured by the reasonable value of the performance at the time and place rendered, is not reduced by the loss the promisee would have incurred upon full performance, and the contract price is only evidence of value, not a cap or measure of recovery.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Blue Mesa Mechanical, a subcontractor in Phoenix, agreed to install ductwork for Summit Range Builders on a federal warehouse project. After Blue Mesa completed about one-third of the work and furnished its own lift equipment, Summit Range refused to make a payment the subcontract required, so Blue Mesa justifiably stopped work.

If Blue Mesa sues to recover for the labor and equipment already furnished, which is the strongest argument for recovery under the governing rule?

Explanation. When one party materially breaches after receiving partial performance, the injured promisee may forego suit on the contract and seek restitution in quantum meruit for the reasonable value of labor, services, or equipment furnished. The recovery is based on the benefit conferred and retained, not on an express restitution clause or proof of expected profit. (Derived from United States v. Algernon Blair, Inc. (1973).)