Hard Hat Case Notes

AuthorBy Christopher M. Burke and Lauren P. McLaughlin
Published in
The Construction Lawyer
, Volume 41, Number 3. © 2021 American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not
be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
Unexecuted Contract Held
to Be Express and Binding
Between Owner and
In 2012, the owner of a hotel in
Spearsh, South Dakota, sought
to renovate his property and con-
vert the hotel from one brand
to another brand. The owner,
Khan Comfort, LLC (Khan),
approached J. Clancy, Inc.
(Clancy), a construction company
with whom Khan had previously
worked on other projects, about
the potential renovation work.
In March 2012, the parties cre-
ated a document that listed the
specic works that Clancy would
undertake as part of the hotel
renovation; the document included a price of $191,258.11
for the works, but that price excluded the labor/installation
costs. Khan signed the document, but Clancy did not. Addi-
tionally, Khan did not make the required 50 percent deposit
contemplated by the document, nor did Clancy actually
commence any of the work items contained in the document.
In May 2012, however, Khan made a payment of
$20,000 to Clancy in connection with a phase of the work
that Clancy had begun performing. At the same time that
Clancy was performing this work, Clancy prepared what it
referred to as a “standard proposal” for the entirety of the
work to be performed, listing both the labor and materi-
als and associated costs for the overall project scope. This
new document included the scopes of work from the previ-
ous March document, added new scopes, and included an
adjusted price of $308,922.28 for the complete project (and
this time included the labor/installation costs).
On September 5, 2012, Clancy sent the standard proposal
document to Khan, which Khan signed. Clancy did not sign
the document. Khan also immediately made a 50 percent
down payment as required by the Clancy standard proposal,
and Clancy began work on September 6, 2012. Over the
next several months, Clancy submitted several invoices to
Khan, and the parties also agreed on a number of change
orders in connection with the scope of work to be performed.
Aside from the initial down payment from Khan to Clancy
on September 5, 2012, Khan did not make any further pay-
ments to Clancy until December 12, 2012, when Khan paid
an additional $70,000 to Clancy.
Clancy left the construction site in February 2013. Prior
to leaving the site, Clancy and Khan walked through the site
to determine if additional work still needed to be completed,
and Khan did not voice dissatisfaction with the work. Khan,
however, refused to make any additional payments to Clancy,
stating later that portions of the work remained incom-
plete. Clancy led two mechanics’ liens against Khan for
unpaid labor and materials costs. Clancy also led a com-
plaint against Khan in South Dakota Circuit Court alleging,
among other things, breach of contract and unjust enrich-
ment. Khan itself asserted several counterclaims, including
breach of contract and overpayment.
The trial court held that neither the March 2012 nor the
September 2012 documents met the criteria for an express
contract; instead, the trial court held that the parties had an
implied-in-fact contract. The trial court went on to review
each of the invoices submitted by Clancy under this implied-
in-fact contract theory and ruled that the amount paid by
Khan to Clancy actually exceeded the value of the work in
place. Accordingly, the trial court awarded Khan recovery
on some of its overpayment claim.
The South Dakota Supreme Court took the case up on
appeal. The rst issue the court addressed was the nature
of the contract between Khan and Clancy. The court dis-
agreed with the trial court and held that the parties had an
express contract, not an implied-in-fact contract. In reach-
ing its conclusion, the court reviewed the essential elements
of any contract: (i) the capability of the parties to enter a
contract, (ii) the parties’ consent, (iii) a lawful object or pur-
pose, and (iv) consideration. The court cited South Dakota
Codied Law, which provided that “an express contract is
one, the terms of which are stated in words. An implied con-
tract is one, the existence and term of which are manifested
by conduct.” The court further explained that the words in
an express contract could be oral or written.
In the case of Khan/Clancy, the court held that the par-
ties did, in fact, have an express contract pursuant to the
September 2012 “standard proposal” that was signed by
Khan and against which the original 50 percent down pay-
ment was made. The court noted that Khan struggled to
fully articulate its position at the trial court level as to pre
cisely why the signed proposal did not serve as a contract
against which the parties’ rights would be measured. More-
over, the court held that “Khan’s signature on the September
document and his payment by wire constitutes an absolute
and unqualied acceptance of the terms of the document.”
The court also noted that Clancy continued to invoice Khan
consistent with the September document and that Khan
(albeit belatedly) issued additional payments to Clancy.
With the issue of an express contract resolved, the court
remanded the parties’ dispute back to the trial court to deter-
mine which party, if any, could be found in breach of the
express contract. The court noted that the September doc-
ument/express contract required that Khan make periodic
Christoph er M. Burke
Lauren P. McLaughlin
By Christopher M. Burke and Lauren P. McLaughlin

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