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The Difference Between A ‘Debt’ And ‘Quantum Meruit’

Quantum Meruit

What is a ‘debt’?

There is no “hard and fast” rule or a statutory definition of what constitutes a debt as its meaning varies according to the type of transaction and the circumstances in which it is used. Debt has been interpreted to bear its ordinary technical meaning as something recoverable by an action for debt which must be ascertained or capable of being ascertained: Ogden’s Ltd v Weinberg (1906) 95 LT 567 per Lord Davey. Legally speaking, a ‘debt’ can be described as any obligation by contract, express or implied, which may be released by money through the voluntary action of the party bound. In its more general sense, it is defined to be that which is due from one person to another, whether money, goods, or services; that which one person is bound to pay or perform to another. Importantly, whether a claim or demand is a debt or not is not determined by a reference to the time of payment. A sum of money which is certainly and in all events payable is a debt, regardless of whether it be payable now or in the future.

When does a debt arise?

Most debts arise from simple contracts. They include fixed term loans (such as personal loans), credit card contracts, home loans and contracts for the purchase of goods such as hire-purchase agreements. A contract is a legally enforceable promise or agreement between two or more parties. A contract can be enforced by one person if the other person does not do what they promised. For example, a person may have ‘breached’ the contract if he or she does not fulfil the terms of the contract. The other person could bring a claim for money or a debt arising from the breach.

 

 

Quantum Meruit in Debt Collection

The expression quantum meruit means “the amount he deserves” or “what the job is worth”. Essentially, quantum meruit is an action for payment of the reasonable value of the service performed and the material supplied. It is used in various circumstances where the court awards a money payment that is not determined. Generally, a contract has a clause that determines your work’s value. However, there are circumstances when instead you will be eligible to receive a ‘reasonable sum’. Particularly, in the case of construction, sometimes the work performed is not specifically mentioned in the terms of the contract. Put in the converse, a claim on a quantum meruit cannot be raised if there is an existing contract between the parties to pay an agreed sum.

When can a claim on a quantum meruit arise?

A quantum meruit claim may apply in the following situations:

  • The contract does not include a price for the work performed.
  • The initial work does not include the work you have performed.
  • The contract no longer exists because it has been frustrated, made void, or is otherwise unenforceable.
  • Either party has terminated the contract, however, some work that is compensable has already been performed.
  • If you perform the work under a heads of agreement rather than a contract.

For a recent discussion of the availability of quantum meruit claim following repudiation of a building contract, see Mann v Paterson Constructions Pty Ltd [2019] HCA 32.

 

 

KEY TAKEAWAYS

  • A debt is a liquidated amount that is owed by the debtor to the creditor usually under a simple contract whether or not such obligation has been reduced to judgment.
  • A debt is a fixed and certain obligation to pay money or some other valuable things, either in the present or in the future.
  • Quantum meruitrefers to an equitable claim for restitution to recover a reasonable sum for work done and materials supplied in the absence of an express promise to pay.
  • Quantum meruit can arise in certain circumstances: where there is a contract but no price has been fixed by that contract; quasi-contract, such as work carried out prior to contractual terms being settled, work done outside the scope of a contract; and, importantly, work under a void, unenforceable, or terminated contract.

 

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