Mostardi Platt Environmental, Inc. v. Power Holdings, LLC, 2014 IL App (2d) 130737-U shows the importance of clarity in contract drafting – particularly compensation terms. The case also illustrates the crucial distinction between a time-and-expense (or time and materials) contract and a lump-sum payment contract.
Plaintiff was hired to perform environmental assessment services and to secure government permits for the defendant contractor who was building a gas facility in southern Illinois. The parties’ original agreement was a time-and-expense contract and was later amended to a lump sum contract totaling about $100,000.
A dispute arose when the plaintiff realized that it underestimated the project’s scope and time commitment and sought additional monies from the defendant. The defendant refused after the plaintiff failed to specify the needed extra work. The plaintiff sued for damages and the defendant counterclaimed. The trial court ruled against the plaintiff on all counts and for defendant on its counterclaim.
The Court first rejected the consultant’s quantum meruit claim. Quantum meruit is an equitable theory of recovery used by a party to obtain restitution for the unjust enrichment of the other party.
Illinois law allows alternative pleading and quantum meruit is often pled as a fallback theory to a breach of contract claim. It allows a plaintiff to recover the reasonable value of his work where there is no contract a contractual defect. A quantum meruit claim can’t co-exist with an express contract.
Here, the court found that the parties had an express contract – the environmental consulting agreement. Because of this, the trial court properly denied plaintiff’s quantum meruit claim. (¶¶ 75-78).
The Court also agreed that the plaintiff breached the consulting contract. Under basic contract law, where parties reduce an agreement to writing, that writing is presumed to reflect the parties’ intent.
The contract is interpreted as a whole and the court applies the plain and ordinary meaning of unambiguous contract terms. A party who seeks to enforce a contract must establish “substantial performance” – that he substantially complied with the material terms of the agreement. (¶¶ 81-82, 95).
The Court found that the plaintiff breached the contract in multiple respects. Reading the original and amended consulting contracts together, the court found that the plaintiff was required but failed to provide itemized invoices for extra or “out-of-scope” work and also failed to complete its permitting tasks. By walking off the job before it secured the required environmental permit, the plaintiff breached a material contract term. (¶¶ 89-91).
The Court also rejected plaintiff’s impossibility defense, based on the claim that a substitute contractor (hired after the plaintiff walked off the job) changed the scope of the project and made it impossible for the plaintiff to perform.
Impossibility refers to situations where a contract’s purpose or subject matter has been destroyed; making performance impossible. But the defense is applied sparingly since the purpose of contract law is to allow parties to freely allocate risks among themselves and a party’s performance should only be excused in extreme circumstances. (¶ 97).
Finding no impossibility, the Court noted that the plaintiff only showed that the stated contract price was underbid and didn’t adequately compensate it for the needed extra work. The Court held that impossibility of performance requires a litigant to show more than mere difficulty in performing or that he struck a bad bargain. Performance must truly be rendered impossible due to factors beyond the party’s control. ¶¶ 97-98.
Take-aways: In the construction realm, some typical contractual compensation schemes include time-and-materials or time and expense, cost-plus arrangements or lump sum payment agreements. Labeling a contract with the proper payment designation is critical; especially when a project’s scope and duration is uncertain. This case makes it clear that in situations involving commercially sophisticated parties, a court will hold them to the clear language of their contract – even if has harsh results for one of the parties after the fact.