The South Carolina Court of Appeals Says Parties Must Agree on Price for an Express Agreement
In Rose Electric, Inc. v. Cooler Erectors of Atlanta, Inc., Opin. No. 5444 (S.C. Ct. App. Sept. 28, 2016), the South Carolina Court of Appeals stated that, at least in a construction contract, if parties cannot agree upon a contract price, they have not actually formed a contract with each other. This case reinforces that, if a party wants a contract to be enforced per its terms, it needs to spell those terms out and get the other party’s assent.
In Rose, a produce processing company (Southern) leased a lot from S2P at the South Carolina Farmers Market. To prepare the property for use, Southern contracted with Cooler to construct a refrigerated processing facility. Cooler contacted Rose, an electrical contractor that Cooler had worked with before at the Market, to perform electrical subcontract work. Cooler and Rose generally agreed that Rose would do the work, but did not reach an agreement as to a price. During the project, Southern and Rose agreed to modifications of the work done, but did not agree on a price for the additional work.
Southern paid Cooler, its general contractor, most of the $213,000 contract amount, retaining about 5% for potential claims of unpaid contractors. Rose finished its work on the project, but was not paid. Rose was, unsurprisingly, not pleased. It filed a mechanics’ lien on the property. Rose sued to foreclose on the mechanics’ lien and asserted claims for breach of contract and quantum meruit (meaning “what was earned”), a quasi-contract claim applicable when a party provides value to another with no binding contract.
Rose dropped all of its claims, except for quantum meruit, before trial. The trial court first needed to decide whether binding contracts existed between Rose and Cooler or Southern. If those contracts did, in fact, exist, Rose could not recover under quantum meruit. This placed Rose in the somewhat unusual position of having to argue that it did not have contracts with either Southern or Cooler. The trial court found that express agreements existed, precluding quantum meruit claims. In the alternative, the trial court ruled that, even if no agreement existed, Rose could still not recover for quantum meruit because Southern paid all but $10,108.00 of the overall contract price to Cooler and offered to pay Rose for the change orders and a share of the retainage.
The South Carolina Court of Appeals concluded that an express contract did not exist between Rose and Southern or Cooler. The court began by noting the well-known contractual rule that “[c]ertain terms, such as price, time and place, are considered indispensable and must be set out with reasonable certainty.” See McPeters v. Yeargin Const. Co., Inc., 290 S.C. 327, 331, 350 S.E.2d 208, 211 (Ct. App. 1986). If a claimed contract does not include certain such material terms, it is not an enforceable agreement. Under these rules, the Court of Appeals concluded that no contract existed.
First, the court concluded that no main contract existed between Rose and Cooler (the general contractor) because there was no agreed-upon price for the work to be performed (even though Rose and Cooler had previously worked together on several similar projects):
“We had previously done work for Cooler Erectors of Atlanta. We had completed three jobs, all of which we had been paid well. We had been paid on demand.” However, Rose acknowledged Rose Electric did not have a written contract with Cooler Erectors, nor had the two parties agreed to a contract price. Rather, Rose Electric sent Cooler Erectors invoices based on the time and cost of materials used. No evidence was presented to support the trial court’s finding that Rose Electric and Cooler Erectors manifested an agreement on the price of the electrical work required on the Southern project, which our courts require as an essential term in construction contracts.
“We had previously done work for Cooler Erectors of Atlanta. We had completed three jobs, all of which we had been paid well. We had been paid on demand.”
Likewise, the Court of Appeals concluded that no contract existed with Southern for the change orders or additional work. Again, “the lack of a price term is fatal to the existence of an express contract and the trial court erred in finding an express contract existed.”
Because no contracts existed, it was at least possible for Rose to succeed on its quantum meruit claims against Southern (and S2P, its lessor), so the Court of Appeals next examined whether Southern was unjustly benefited by Rose’s work without paying for it. As to the amount due under the contract between Rose and Cooler, the court concluded that Southern benefited because it “retained $10,103 from the contract price because ‘the work contained within the scope of the contract had not been completed.'” Given the small amount of the retention, the Court felt it would be unfair to require Southern to pay the entire $54,339.13 that Rose was owed from Cooler. The court granted Rose a pro rata share (compared to other unpaid Cooler subcontractors) of the retained amount, for a total of $6,948.24.
Regarding the change orders between Rose and Southern (outside of the Southern-Cooler primary contract), the Court of Appeals concluded that Southern should pay all those changes. As the court stated: “Rose Electric modified the electrical plans to better suit Southern’s work process; Southern has realized the benefit of Rose Electric’s services; and Southern has not paid for those services.”
This case demonstrates how important it can be to observe formality in contracting. Even if businesses have worked together in the past and even if they are on friendly terms, there must be some formalization of the key elements of their contract, particularly price. In the absence of an express agreement on that term, a party may be forced to pursue only equitable remedies. As Rose learned in this case, sometimes those equitable remedies are not equivalent to what could be recovered on a contract claim.