Quantum Meruit

The remedy of quantum meruit consists of two distinct concepts. The first is a remedy in contract and the second as a remedy of unjust enrichment. ¹

Existing Contract

The first remedy applies where there is found to be a contractual relationship between the parties which lacks payment terms. In this instance, a court has determined that there is an implied term for reasonable payment. Where the contract sets out the terms of payment, there is no room for the application of this principle. In the event of a finding of a contract with such an implied term, the principle will apply. To fix this sum, the court will do its best to examine and apply the intention of the contracting parties.

The theory of the application of quantum meruit in this instance is that the parties arrived at an agreement containing an implied term for compensation, yet without setting the sum or a formula to determine it. One might imagine that the situation would be infrequent when the court finds a valid contract, yet one which has not defined the consideration. Often these cases show an “agreement to agree” on this subject.

Unjust Enrichment

The second branch applies where there is no contract found in which case the court may apply the principle of unjust enrichment, which is also referenced as restitutionary quantum meruit.

Given the above, there will not exist a contract. The plaintiff must then show that the services performed were at the request of, or with the encouragement of, or acquiescence of, the opposing party in such a context where it would be unfair for this party to obtain the benefit provided. ²

This principle may also be applied where there is an existing contract, but the work done exceeds that performance contemplated by the agreement.

The Criteria

The test of unfairness requires that there has been “(1) an enrichment of the defendant; (2) a corresponding deprivation of the plaintiff; and (3) absence of juristic reason for the enrichment and the corresponding deprivation”. ³

No Juristic Logic

This raises the issue of the definition of “juristic reason” which may permit the defendant to retain the benefit without providing compensation for it. ⁴

This issue was explored in a 2018 Supreme Court of Canada decision. ⁵ This, the Court noted, is a two stage test.

Step 1 is to determine if the defendant may be allowed to retain the benefit due to an “established” category of juristic reasons. These may include a contract, a disposition of law, the intent to donate the benefit, or any other common law or equitable or statutory obligation.

Presuming that the plaintiff denies the application of the above, then the plaintiff has shown a prima facie case. Step 2 then allows the defendant to rebut the case by showing some other reason to deny recovery. The burden then is on the defendant. Regard, in this last review, should be had to the reasonable expectations of the parties and also public policy.

In the application of this remedy, the law allows some degree of flexibility. The assessment may consider the cost to the plaintiff to provide its services or products, the market value of the same or the value placed on these services or product by the defendant. This review may also include any estimates provided and the actual work done.

Even when difficult to do so, “ ... the court must do the best it can to arrive at a figure which seems to it fair and reasonable to both parties, on all the facts of the case.” ⁶

As is the case with any plea in equity, the plaintiff must come with clean hands. Unjust enrichment is an equitable remedy. The questioned conduct must be immediately and necessarily related to the equitable claim. ⁷ This analysis may include a defence that the plaintiff is in default of its obligation, such as failing to provide fair notice of their resignation. ⁸

Application of Quantum Meruit in an Employment Context

The case law does not, in each instance, clearly define which branch of the remedy is being applied.

At Trial A Contract & QM Applied: On Appeal No Contract & QM Applied

A 1998 case in Nova Scotia illustrates well the two branches of the rule. The trial judge found a binding agreement with the commission to be agreed and applied the first branch of the rule. The Court of Appeal found no contract and applied the second branch of unjust enrichment ⁹

The defendant had advised the plaintiff, a sales representative, and others, in late 1993 of its intent to reduce staff due to economic considerations. It was also considering changing the status of employed sales representative to agents. The plaintiff and the company could not come to terms on this new relationship. In the same time period, the plaintiff was negotiating with the province a significant transaction. The president had instructed the plaintiff’s immediate superior in late April to terminate the plaintiff’s employment, which, however, was not communicated to the plaintiff. On May 5, the plaintiff was advised by the province that the company was awarded this contract. The plaintiff was then promised that he would be compensated for this pending contract as an agent. The letter sent to the plaintiff stated:

This is to confirm our intention to pay you commission for the New Brunswick Finance opportunity (recent RFP) at a rate to be agreed between the parties but not to exceed 10% of net invoiced value of the equipment and service provided. The commission will be based upon cumulative Total Net Revenue and will be paid as follows: Commission for 50% of order value will be advanced upon shipment of customer's order. After receipt by Data General, of full payment for the applicable End User order, the remaining 50% commission will be paid.

If Data General Canada is required to discount the products and services to New Brunswick Finance beyond Data General Canada standards, then Data General Canada reserves the right to reduce the commission rate mentioned above.

The plaintiff requested an amendment to allow the contract to read 10%, rather than up to !0%. This was refused and the contract was signed.

The trial judge saw this as a binding contract with reasonable payment implied. He then required the sum to be paid at 10% on a quantum meruit basis by applying part one of the quantum meruit principle. This resulted in an award of $120,000.

The Court of Appeal found that there was no agreement as the compensation was undefined. These contrary decisions reveal the difficulty of predicting which branch of the rule may apply. Often it is a difference, as in this instance, without a meaning.

There was, however, a valid claim for unjust enrichment and applied the unjust enrichment principle. The appellate court reviewed the work done by the plaintiff and concluded that a fair sum for compensation would be $80,000.

Value of Equity Not Defined

A 1998 B.C. decision also considered the application of the first branch of quantum meruit. The plaintiff had been hired as an employee of the defendant and was promised a base salary and an equity interest of 25%. This latter amount was not defined as to how it was to be acquired in legal terms.

However, I do not agree with counsel for the defendants that there was an enforceable employment contract that can be severed from the "agreement to agree" regarding an equity interest.  In my view of the facts, as I have said, the agreement that the plaintiff would have some equity position was firm and inextricably linked to the plaintiff's agreement to come to work for the company.  As to their enforceability at law they must rise or fall together.  If the overall agreement was not enforceable because of the lack of an essential term then the plaintiff must be compensated, if at all, on a quantum meruit basis.  Indeed, as pointed out earlier, although taking the position that there was a complete and enforceable agreement as to a share of the company the plaintiff now seeks only restitution by way of a monetary judgment on the basis of quantum meruit, a subject to which I now turn.al judge made this finding:

The trial judge based the value of the benefit conferred upon the defendant by the lower than industry expected salary that the plaintiff received for the duration of his employment. This sum was found to have been $90,500.

Bonus to be Mutually Agreed

A similar claim, on this occasion, for a bonus payment was allowed in a 1980 case from New Brunswick. ¹⁰  The court found that there had been no agreement as to the terms on which a bonus sum was to be made, although the parties had agreed that an arrangement would be made which was “mutually agreeable”. The court determined that its task was to set that sum which had not been defined. $5,000 was awarded, having examined similar bonus payments to other employees.

More Compensation Promised on Sale

A similar claim succeeded in the Manitoba Court of Appeal in 1981. ¹¹ The plaintiff had been promised that in addition to his salary, he would be paid additional compensation on the sale of the business, which did sell in 1978 for $4 million. These promises had been made from 1953-54 and thereafter. The trial judge had used two methods of assessing the claim. The first was based on the work done and salary paid for 12 years prior to the sale, which was determined to be $120,000 short of his entitlement on a quantum meruit basis. The alternative reasoning was that this same sum would be a fair number to meet the plaintiff’s needs for the rest of his life.

The evidence showed that as time progressed, the plaintiff was induced to work at a lesser that expected salary based on the promise that he would be looked after on the sale of the business. By the mid 1970’s he was earning $750 per month, managing a business selling more than $10 million of products annually. There was a modest adjustment on appeal to the award, reducing the sum from $119,000 to $103,000 for reasons unrelated to this reasoning. ¹²

No Agreement on Bonus – QM Applied

The Ontario court considered a fact situation in which the parties set out in a written agreement the compensation due to the plaintiff and a formula for the determination of the plaintiff’s bonus entitlement, ¹³ The bonus clause stated that the calculation was to be based on “net profit”. The parties took opposing interpretations as to whether this term included general operating expenses or not. The trial judge concluded that there was no agreement on this term and accordingly, that the concept of unjust enrichment offered the solution to define the bonus sum owing. The court concluded that this sum was roughly $30,000:

The plaintiff was employed by the defendant for a period of 35 months from November 1, 1999 to September 30, 2002.  In my view a bonus amount that would be consistent with the reasonable expectations of the parties in all of the circumstances and would represent reasonable compensation to the plaintiff for the work done by him would be $10,000.00 per year or $29,166.00 for the 35 months of his employment.

Services Beyond the Contract

Generally speaking, a claim for the second branch of quantum meruit, that is, unjust enrichment, may be made even where there is an existing employment agreement where the alleged benefit has been provided “extra-contractually” or “beyond the scope of the contract”. ¹⁴ This plea may also be made where the existing contract has been challenged due to frustration, illegality or a similar argument which denies the validity of the employment agreement.

The two broad sets of circumstances where claims for unjust enrichment and breach of contract can properly coexist, are: (1) where the “purported benefit was found (or, at the certification stage, pleaded) to have been provided to the defendant extra‑contractually, or beyond the scope of the contract” and (2) where “some issue in relation to the validity or enforceability of the contract in question is raised” such as “illegality, capacity, or frustration”: Revolution at paras. 42–51.

A claim was made in a 2002 B.C. case in which the plaintiff was subject to a employment agreement which set out his commission rate for retail computer sales. ¹⁵ His title was Director of Retail Sales, Western Canada. The relationship did not last long. He was terminated after three months.

In the course of his employment, he had done work on a project outside of the ambit of his agreement which dealt with retail sales. He had approached Future Shop to become a vendor of the defendant’s products. This invitation was declined but Future Shop did state that it was looking for a manufacturer to produce for it a privately labeled product. There followed a series of meetings and discussions as a result of which the defendant and Future Shop concluded such an agreement. It was successful.  Between the time the agreement was signed and February 2002, computers worth in excess of $82 million had been sold by the defendant to Future Shop. The trial court found that the relationship between the plaintiff and the Future Shop contact person was key to the deal being made.

The date of termination of the plaintiff was May 8, 2000. The contract with Future Shop was signed May 10, 2000. A finding was made that the defendant did not act in good faith when it made this decision.

It was also determined that private label sales were fundamentally different from normal retail sales due to numerous factors. ¹⁶. Further, it was concluded that the written agreement did not contemplate sales of this nature. For that reason, the quantum meruit analysis was applied.

To value the claim on this basis, the court looked to the terms of a letter of intent given to the defendant by Future Shop. While not a binding commitment, it was seen as influential as to the intent of the parties as of the date of termination. It was said to be for a one year period, renewable, unless terminated prior, for successive one year periods.

The court used a commission rate of .5%, lower than the 1% number set in the contract for retail sales and applied this to the sales for this one year period:

In my view it is reasonable in light of the above to value the plaintiff’s services to the defendant on the basis of the sales that flowed from the private label agreement over the first year of the life of the agreement.  Those sales amounted to $39,992,266.  The commission due to the plaintiff on a quantum meruit basis is therefore $199,961.

The decision did not consider the differing forms of quantum meruit, but given the finding that there was no contract in place on this topic, it was clearly based on unjust enrichment.

A similar finding was made in a 2021 case, also in the B.C. Supreme Court. The plaintiff was employed as an executive chef for which she was paid a salary. She also provided services to plan for and open a second location over and above her duties as a chef. The trial court found that she was entitled to succeed on this claim as an unjust enrichment remedy and awarded $7,0000. [efn_ note] Dhaliwall v Hook Restaurant Ltd [/efn_ note]

The same approach was successfully taken in a B.C. case in October of 2010. This was not an employment case but the principles will apply. The plaintiff had a written agreement with the defendants which set out his entitlement to a finder’s fee relating to an investment project. The contract was found to be ineffective in the context. Recovery was allowed, however, as unjust enrichment, to allow for a judgment of $60,000. The trial decision was upheld by the Court of Appeal. ¹⁷

No Agreement But Services Provided

Unjust enrichment may also apply where no agreement has been made, yet services have been rendered. Such were the facts in a Saskatchewan case in 1991. ¹⁸ It was found that fair compensation for the 6.5 months of services provided in 1986 was $65,000, based on an annual salary of $110,000.

Trust Me

One might imagine a context, typically in a small business environment, in which a person agrees to take a lower level of compensation in exchange for a promise that “one day all this will be yours”.  This was the case that led to a 2016 Saskatchewan trial decision in which the plaintiff was awarded some $3 million. The successful arguments were based on both contract and unjust enrichment. This was in a family setting in which the father promised his two sons that he would bequeath the farm property to each of them equally upon his death. This decision was then reversed, after many years, by the father who left the ranch property in its entirety to the plaintiff’s younger brother. The trial decision was unsuccessfully appealed. No issue was taken with respect to the finding of unjust enrichment on appeal, as only the quantum of the award was reviewed. ¹⁹

To date, no cases have included a Bhasin component to the reasoning, which would be anticipated to be used, at the very least, as a tool of construction, by implying a honesty and good faith requirement.