Grandscale Developers plan to build a condominium community in the
Blue Zone Mountain area.  Part of the plans includes constructing a
pool at the foot of a hillside.  Grandscale contracts with Priceright
Construction Company to dig a tunnel through the mountain for access
to the site of the proposed pool.  The contract is based upon an
estimate that calls for removal of 600,000 cubic yards of dirt.  When
Priceright begins the job it is discovered that the inner portion of
the mountain is composed completely of shale and the job will now
require $50,000 of additional expenses to complete.  Grandscale agrees
to Priceright?s demand for additional compensation.  Later
Priceright?s demand for payment is refused and Priceright brings a
lawsuit on the promise to pay the additional $50,000.

How might the Court rule on Priceright?s request for payment of the
additional $50,000 and why?

***CONTRACT LAW***

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Request for Question Clarification by politicalguru-ga on 30 May 2004 17:25 PDT

Dear Another, 

Could you tell us more about the case? Where did it happen (which
jurisdiction, but if you don't know, just the place and country),
when, etc. Or am I completely off-base (it is rather late) and this is
an assignment, not a "real" problem?

---

Clarification of Question by another-ga on 31 May 2004 09:52 PDT

Hi PoliticalGuru,

This is all the information I have....

Assume the case is taking place in The United States and occuring
today.  State unknown, however I need to consider all possibilities.

This is not a real case....but I need to determine how a real court
"could" rule the case.

I am looking for a 3 to 4 page well thought out analysis of what the
court could do, should be considering, and views that could be
interpreted either way.

Since the additional payment was agreed to, this is an amendment to
the original contract, therefore Priceright is entitled to $50,000 in
additional payment. There could however be exceptions, such as
priceright has a reputation for asking for more money to complete
jobs. Priceright lied significantly about the additional cost caused
by the shale. Priceright knew about the shale and premeditated asking
for more money using the shale as an excuse. Intimidation was
envolved, such as the job would be abandoned by Priceright unless the
price increase was approved.The person who agreed to the additional
$50,000 was not authorised by Grandscale, or said person denighs that
they agreed on behalf of Grandscale. Bribes were given and accepted.
Clauses in the original contract, and the amendment, if the latter was
done in deyail and in writing. Local precidents establihed in similar
cases. Other contractors bid about the same dollars on the job, but
Priceright got the job because they promised there would be no cost
over runs.
 There are lots of possibilities for exceptions, IMHO.   Neil

A key fact is needed: when you say that Grandscale ?agreed? to
Priceright's demand for compensation, how exactly did they agree? 
Ninety-nine percent of construction contracts contain provisions
dealing with change orders (which is nothing more than an amendment to
the original scope of performance and price), and the general rule is
that change orders must be in writing signed by authorized
representatives of both parties.  In other words, if Priceright's
construction superintendent spoke to Grandscale's receptionist on the
phone and the receptionist (who has no signature authority) said,
"Sure, go ahead," then Priceright may have problems collecting if the
original contract requires a written, authorized change order.

Two legal theories may change that result:  even assuming the change
was not authorized, Priceright can bring a claim under a doctrine
known as quantum meruit.  It is an equitable theory that holds that
even if a formal contract (here, change order) does not exist between
the parties, if Priceright performed in reasonable reliance on
Grandscale's permission (even if not authorized), then Priceright
should be paid the reasonable value of the service rendered because if
not, then Grandscale will be unjustly enriched to the tune of $50,000.

The second theory that Priceright may rely upon is that of apparent
authority.  If the Grandscale receptionist (in my hypothetical)
represented to Priceright that he or she was in fact authorized to
bind the company contractually and if Priceright's reliance on that
representation was reasonable, then the Grandscale receptionist had
"apparent authority," and Priceright may be entitled to rely on that
to form a binding contract (change order).

Thus, we have at least two independent theories under which Priceright
may sue and win even absent a signed change order: quantum meruit and
apparent authority.  If, on the other hand, the ?agreement? referenced
in your fact pattern was an actual, written, authorized change order,
the Priceright should win in any event.