Article by Thomas C. Galligan, Jr.
When contracting, parties often allocate risks temporally. They enter into a present agreement to fulfill a future obligation and necessarily make some assumptions about both the present and the future. These suppositions have a definite effect on the key contract term, namely, price. If the parties' assumptions are correct, then the agreed-upon price should govern the transaction; however, if the parties' predictions turn out to be incorrect, a party may seek discharge or a price change. Litigation is the vehicle often used when trying to turn these desires into reality.
In construction cases, parties rely heavily on preconstruction documents such as conditions, plans, and specifications to predict actual job conditions, to direct performance, and to govern the parties' relationship. The precontract predictions that these documents represent are frequently inaccurate because of insufficient data, human error, changes of heart, or unforeseen conditions. Because these variables may cause actual conditions to vary from preconstruction predictions, construction litigation is common.
This Article focuses on one prevalent type of construction contract dispute: the claim for extra work. Extra work is any work beyond the scope of the original contract which, as a result, is not compensable thereunder. The central dispute in an extra work case is whether the work falls within the contract terms. The owner typically claims that the work is included by the contract terms and is part of the parties' original exchange. The contractor often claims that the work is not part of the contract work and that he is entitled to extra compensation.
The extra work cases discussed in this Article involve disputes in which the contractor has fully performed the contract, but claims extra compensation for allegedly additional work. The claim may arise in several ways, including: (1) When work beyond that provided for in the contract is performed, resulting in an additional structure or end-product; (2) when an assumed method of performance is changed, thereby rendering performance more difficult and more expensive; or (3) when the owner breaches his contract, thereby rendering performance more burdensome.
In extra work cases, courts rely heavily upon implied-in-fact and implied-in-law contracts to justify extra compensation awards. The implied-in-law contract, or quasi-contract, is a restitutionary device designed to prevent a defendant's unjust enrichment. Frequently, courts confront the problem by awarding or refusing compensation under the label quantum meruit, which literally means ‘as much as he deserved.’ In many cases, a court's resort to these flexible doctrines has resulted in ignoring or bypassing literally applicable contractual risk allocations, such as clauses that allow the owner to order any extra work or that require all extra work orders to be in writing.
Unfortunately, courts have not clearly explained the real bases of their decisions in these cases. They often refer only to an implied contract without stating whether it is implied-in-fact, (that is, a real contract), or implied-in-law, (that is, a restitutionary device). Interestingly, in many decisions, neither category of contract really corresponds with the facts. Often the parties' statements do not reveal any intent to contract, thus making an implied-in-fact contract inapplicable. Furthermore, the defendant receives no tangible benefits or enrichment. The courts are using implied contract, particularly quasi-contract or restitution, to reorganize the parties' relationships when unanticipated, on-the-job events occur.
To explain this phenomenon, one must consider the extreme difficulty of accurately allocating all risks in a construction contract at the time of contracting. Professor Ian Macneil has referred to the attempt to allocate future risks in a presently written contract as presentiation. As he points out, total presentiation is impossible, even in the simplest contracts, and it becomes more difficult as relationships become more complex. Current contract law, with its reliance on the notion of presentiation, is designed to deal with relatively simple, one-time exchange transactions. Presentiation loses its explanatory power when courts use its rules to resolve disputes arising in long-term complex relationships. The owner-contractor arrangement is one such complex relationship. Perhaps this understanding of the law's limitations in the construction context has led courts to resort to the flexible fairness inherent in implied contract doctrines, particularly restitution.
This Article then has two broad, interrelated themes: a doctrinal theme and a relational one. The doctrinal theme becomes apparent from an examination of extra work cases. Courts use implied contract and restitution in manners that defy their traditional definitions, suggesting that such use of doctrine is one of the malleable tools that neoclassical courts have employed to satisfy the need for flexibility in complex contractual relationships. Thus, restitution appears to be playing a new role in readjusting relationships, a role at which commentators previously only hinted. Despite the desirability of this doctrinal refocusing, the extra-work problem ultimately requires a relational response because the underlying legal confusion that extra work cases engender arises out of the need for flexibility, which the jurisprudence and courts cannot provide. This Article notes the limitations of judicial governance in the relational context and the psychological barriers that current alternative governance structures present. Finally, it sets forth a truly relational response, which is oriented toward the parties' needs and the construction project itself.
About the Author
Thomas C. Galligan, Jr. Professor of Law, Louisiana State University; A.B. Stanford University 1977; J.D. University of Puget Sound 1981; LL.M. Columbia University 1986.
Citation
63 Tul. L. Rev. 799 (1989)