Nevada Supreme Court Affirms Judgment That Subcontractor Failed to Establish Express or Implied Contract

By Jerry Carter.  The Nevada Supreme Court recently decided a significant contract case against a subcontractor who refused to sign the written subcontract agreement and failed to deliver any work that could be used by the general contractor.  The case is Certified Fire Protection, Inc. v. Precision Construction, Inc., 126 Nev. Adv. Op. 35 (August 9, 2012) (“Certified”).

In Certified, a subcontractor gave a bid to design and install an early suppression, fast response sprinkler system for a warehouse construction project.  The general contractor provided the subcontractor with a subcontract, construction plans, and sprinkler system specifications.  The subcontract form required the subcontractor to complete preliminary design drawings within two weeks and to obtain a certificate naming the general contractor as an additional insured.

The subcontractor objected to the form of the subcontract.  The objections included the two week time frame for producing drawings, a change in the size of the pipes to be used, and the additional-insured requirement.  Ultimately, the subcontractor never signed the subcontract or obtained a certificate naming the general contractor as an additional insured.  Nevertheless, the subcontractor hired an individual to draft the sprinkler system designs.  The subcontractor tardily produced designs containing errors that needed correcting.  Shortly thereafter, the general contractor terminated its relationship with the subcontractor for refusing to sign the subcontract, for not providing the additional-insured endorsement, and for submitting incorrect drawings.

One of the key facts in the case is that the replacement subcontractor had to prepare its own drawings for the sprinkler system installation.  It was apparently conceded that design drawings are installer-specific and not useful to a replacement subcontractor.

The subcontractor sued for breach of contract and for breach of an implied contract.  After hearing the subcontractor’s evidence in a bench trial, the Court granted judgment against the subcontractor.  The Nevada Supreme Court affirmed.

Express Contract

The Nevada Supreme Court affirmed the judgment against the subcontractor’s breach of contract claim because the subcontractor failed to establish that the parties had a meeting of the minds on the price term or the scope of work.  The Court stated:

“Certified argues that the progress bill it sent to Precision established the price term and Precision’s urging that Certified get started on the designs established the scope of work for the express design-work-only contract it claims.[footnote omitted] But the record does not establish that Precision agreed to pay a sum certain for the design-related work. Certified’s $33,575 progress bill-which represented seven percent of the whole subcontract-went unpaid, and Precision told Certified it would not make a progress payment until the whole subcontract had been executed. Beyond this, witness testimony established that a party in Precision’s position would not execute a contract for only design drawings; such drawings are specifically tailored for the company rendering them and not useful to another installer. Thus, Certified’s argument that Precision was parceling out the work-with Certified doing the designs only-makes no sense.”

In addition, the Nevada Supreme Court held that the parties did not agree on a time for performance:

“Not only were price and scope of work terms missing from the claimed design-work contract, the parties never agreed to a time for performance. Certified objected to Precision’s proposed two-week timeline for producing the design drawings as “not realistic,” and the parties never agreed to another time frame. That the time-for-performance term mattered is demonstrated by Precision’s repeated prompting of Certified to complete the designs and Certified’s refusal to bind itself to Precision’s desired two-week turnaround. ‘When essential terms such as these have yet to be agreed upon by the parties, a contract cannot be formed.’ See Nevada Power Co. v. Public Util. Comm’n, 122 Nev. 821, 839-40, 138 P.3d 486, 498-99 (2006).”

Implied Contract

Under certain circumstances, when an express agreement fails, Nevada law will imply an agreement in favor of a party that has value to another party that should be paid for.  In this case, the subcontractor attempted to recover under two types of implied contract, both of which travel under the name “quantum meruit”: contract implied-in-fact; and unjust enrichment. The trial court and the Nevada Supreme Court rejected both theories.

Under the first theory, a contract implied-in-fact is a contract that is manifested by conduct.  The Nevada Supreme Court stated that “[t]o find a contract implied-in-fact, the fact-finder must conclude that the parties intended to contract and promises were exchanged, the general obligations for which must be sufficiently clear.”  At that point, the party invoking quantum meruit “may invoke quantum meruit as a gap-filler to supply the absent term.  The Nevada Supreme Court held that the subcontractor in Certified failed to establish a contract implied-in-fact because there were “simply too many gaps to fill”:

“Certified maintains that it had an implied contract with Precision for the design-related work. As discussed above, however, substantial evidence supports the district court’s finding that there was no contract, express or implied, for the design work standing alone. There are simply too many gaps to fill in the asserted contract for quantum meruit to take hold. Precision never agreed to a contract for only design-related work, the parties never agreed to a price for that work, and they disputed the time of performance. When Precision selected Certified, it did so on the basis that Certified would design and install the fire suppression system, not that it would draft the designs and leave installation to someone else. The evidence established that design drawings are installer-specific and so not useful to a replacement subcontractor. Accordingly, the district court properly denied recovery in quantum meruit for an implied-in-fact contract.”

Under the second theory, unjust enrichment occurs “in cases where nonreturnable benefits have been furnished at the defendant’s request, but where the parties made no enforceable agreement as to price.  But this type of implied contract requires that the plaintiff confer a benefit upon the defendant: “Unjust enrichment exists when the plaintiff confers a benefit on the defendant, the defendant appreciates such benefit, and there is ‘acceptance and retention by the defendant of such benefit under circumstances such that it would be inequitable for him to retain the benefit without payment of the value thereof.’” [citation omitted].  Here, the subcontractor failed to demonstrate that it conferred a benefit on the general contractor because the design work provided by the subcontractor was installer-specific and incomplete:

“Here, the district court found that Precision had not “unjustly retain[ed] any money or property because no work performed could be utilized by the replacement fire sprinkler subcontractor,” and that included the sprinkler designs. Every one of Certified’s witnesses admitted as much on cross-examination. Thus, Certified’s owner, Doug Sartain, testified that Certified installed nothing at the job site and its preparatory work could not be utilized by the replacement subcontractor. Gary Wooldridge, Certified’s project manager, confirmed Sartain’s statements that the design work and permitting performed by Certified could not be used by their replacement subcontractor (though he did say the water flow test could have been utilized). Finally, Ron Dusky, the man who drafted the plans, stated in his deposition (which was read into the record) that the designs Certified submitted contained mistakes that would have required one to two weeks to remedy. This was never done. Certified submitted no evidence of an ascertainable advantage Precision drew from the work it performed. It was incomplete, incorrect, and late. Therefore, we agree with the district court that Certified cannot recover in quantum meruit or unjust enrichment.”

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