Suppose you have a small manufacturing shop. A customer you have made parts for in the past calls and says he has an emergency. He asks that you manufacture, right away, dozens of parts- identical to parts you have made for him in the past. You send your client an e-mail letting him know that you will immediately order the components needed and ask for a ten percent down payment. You also send him your regular contract for his signature. Your client immediately pays the ten percent down but fails to send in the executed contract. Still, you order the components and start manufacturing the parts trusting that the client will return the signed contract later. Less than a week goes by and the job is complete. The parts are ready for pick-up. That’s when the client tells you that he no longer needs the parts. You don’t have a signed contract in hand, but do you have an enforceable contract in place?
As business owners, we often do things for our clients and customers in the wrong order to accommodate their emergencies; only to be burned for our efforts. Luckily, in this circumstance the business owner most likely can successfully argue they do in fact, have a contract. This is because not all contracts have to be in writing. Verbal agreements are just as enforceable as written ones. The difficulty comes in trying to prove that the verbal contract exists. In the scenario above, proof of a contract is not difficult to demonstrate. The business owner made the parts for their customer in the past, so the price is not unknown. More importantly, the down payment for the parts was issued, signaling there was indeed an agreement in place. The customer who refused to pay the remainder of the bill for the parts would have a very difficult time convincingly denying that a contract ever existed.
Had the customer in this example not partially performed his end of the agreement (the down payment) the business owner still may not be without a remedy. There are legal doctrines that address such a situation called “quantum meruit” (fair pay for work done) and unjust enrichment. The two are not same. Quantum meruit is used when there is a contract. (Customer asks for work to be done but, there was no agreement on a final price). A court would determine what a fair price would be in this instance and the business owner would be entitled to recover that amount.
The doctrine of unjust enrichment prevents one party from receiving a windfall at another’s expense. So, for example, a customer requests parts, knowing the business owner was purchasing components and performing work before the actual contract was in place. The customer would be unjustly enriched if were allowed to keep the benefit of the work that had been done without paying the business owner who performed it. However, under this doctrine, the business owner might only be entitled to recover only the value of the work done.
Are you a business owner who has not been paid for work done? Has a client benefited from your work, yet they have not paid you for yours? Give us a call today. You may be owed monies under “Quantum Meruit”.
Contact us or give us a call at 505.715.5700.
Law 4 Small Business, P.C. (L4SB). A little law now can save a lot later. A Slingshot company.
