What One Has Earned – Courts Impose Compensation Where Parties Fail to Solidify a Contract

By Jeremy Burgess
Categories: Blog, Construction

Often times, parties will get to the edge of entering into contractual relations, but miss the steps required to form a contractual agreement. This often results from the performance of the duties of an intended contract being commenced before a contract is entered and the parties simply assuming that a certain contractual relationship exists between them or the parties failing to address changes in their intended contractual dealings as such changes arise. Disputes may follow where parties then take differing views about what compensation is owed for work/services/goods provided. When faced with such situations, the Court may turn to the concept of quantum meruit (in Latin – “what one has earned”).

The concept of quantum meruit was at the heart of the dispute in Nygard v Continental Steel Ltd., 2018 BCSC 541 (CanLII). In that case Mr. Nygard had worked for one of the defendants for years as a plant manager before retiring and moving from Calgary to Abbotsford. Once retired, Mr. Nygard aided the defendants, his former employer and a sister company, on small projects through informal retainers.

At issue was when Mr. Nygard was requested to and agreed to take over the duties of a general manager on a temporary basis. This work, which was intended to be for a few months, eventually lasted for a period of 15-16 moths and included living in Calgary during that time. Issues arose over Mr. Nygard’s compensation when the defendants paid him approximately $48,000 for his services.

A year passed since Mr. Nygard took over the general manager duties and it did not appear that there was another general manger to be hired imminently. Mr. Nygard gave evidence that he requested that his deferred salary be paid on a lump-sum basis quarterly until paid in full and he received a lump sum payment of $47,742 for a period of January 1, 2014 to June 15, 2014 based on the former general manager’s salary of $7,957 monthly. Mr. Nygard eventually resigned and requested payment of expenses of $14,888 and 9.5 months’ worth of unpaid wages.

The defendants disputed the general circumstances under which Mr. Nygard took over as general manager, disputed the extent of time he dedicated to his duties and disputed his claims for work-related expenses. They argued that Mr. Nygard had been sufficiently compensated and rejected the notion that he should be compensated based on the wages of the former general manager.

In its analysis of the substantive disputes, the Court first started with whether a contract had been reached. The Court noted that a contract requires a meeting of the minds on all essential terms and that a failure to fix a price for service could be remedied by implying a term of reasonable compensation for services. The Court rejected Mr. Nygard’s contention that there was an agreement about salary; preferring to find that there was a loose arrangement with the expectation that Mr. Nygard’s services would last only a few months. Neither side had proceeded on the expectation that Mr. Nygard would be working for many months.

There were insufficient grounds for the Court to even attempt to imply a contractual term where the dynamic and ever-evolving situation left the parties without any agreement about compensation; however, the Court found that the parties were likely on their way to arriving at an agreement as to compensation similar to the claims Mr. Nygard had made.

More precisely, what the Court found was that both sides had demonstrated an intention to use the former general manager’s salary as a basis for Mr. Nygard’s compensation. The Court also found that the elements of quantum meruit were made out; that is: (1) the defendants were benefitted by Mr. Nygard’s services; (2) he suffered a corresponding detriment (his time and efforts); and (3) that restitutionary principles required that some compensation be paid to Mr. Nygard.

The defendants attempted to argue that Mr. Nygard had been sufficiently compensated already, but the Court rejected this contention finding that the elements it had to consider when assessing what Mr. Nygard might be owed on a quantum meruit basis included:

a) the nature and extent of the services Mr. Nygard provided;
b) their reasonable market value of Mr. Nygard’s services;
c) Mr. Nygard’s special expertise and personal connections;
d) the negotiations between the parties; and
e) any other facts bearing on the benefit of the services to the defendants.

Taking all the factors into account, the Court found that the value of Mr. Nygard’s services could be calculated based on the salary of the general manager whose duties he covered resulting in $62,258 owed for services provided after adjustments were made. The court also found that much of the expenses claimed by Mr. Nygard were to be paid out by the defendants.

Nygard v Continental Steel Ltd. demonstrates that Courts are not wont to leave a party with no compensation for goods and/or services given to another which are not given as gifts. On the other hand, the case also illustrates that there are risks of parties failing to complete contractual relations which include uncertainty as to what amounts to the contractual terms that might be imposed on them as well as the attendant legal expenses to support or defend a quantum meruit claim. While quantum meruit remains a method by which a party who has given value to another to their own detriment may seek redress, the better alternative remains for parties to arrive at clearly agreed upon terms and to commit those terms to writing.

Jeremy Burgess is a litigation associate at Pushor Mitchell with broad experience in litigation and with particular, extensive experience in contractual disputes. If you have any questions about a legal dispute, we’d be happy to assist you. Feel free to contact Jeremy in a confidential manner toll free at 1-800-558-1155 or at burgess@pushormitchell.com. You may also contact our litigation group.

The foregoing is for informational purposes only and is not legal advice, nor should be construed as such.