#46:  Destruction of Work Prior to Completion

A contractor builds 90% of a building; it is destroyed by fire before he can finish. A subcontractor constructs 90% of a road; it gets washed out by a 100-year storm before the owner accepts it. Nobody has insurance. No contractual provision allocates the risk of loss. Who will bear that risk? Does the contractor have to start over on his own dime, or does the owner have to pay for the work performed? The answer may surprise you.
In Anderson v. Shattuck, 76 N.H. 240, 242 (1911), the plaintiff contractors “had already performed a substantial part of the work they contracted to do, when the fire destroyed the buildings.” Even though they weren't entitled to be paid under their contract (because they hadn't performed it), the Court found that “the labor and materials actually furnished by the plaintiffs were attached to the defendant's real estate as the work progressed and constituted a benefit to the defendant for which the plaintiffs are entitled to recover.” That was true even though “[t]here has been no breach of the express contract by the defendant, and neither party is in fault for the fire which put an end to the contract and caused the situation now existing between the parties. But justice does not require that they should remain in that situation, or that the contractors should be remediless, merely because they cannot maintain an action against the defendant upon the contract.” Invoking a legal doctrine called quantum meruit (literally “the amount deserved”), the Court awarded “an apportionment of so much of the agreed compensation to the contractor as he has earned in what he has done; he recovers such part of the entire amount as is equal to the part he has performed of the whole contract.” Id. at 243.
The owner in Anderson had obtained fire insurance, and the question arose as to whether the contractors were entitled to be paid from the insurance proceeds. The Court ruled that they were entitled. What if there had been no insurance? For all that appears in the case, the principle of quantum meruit still applies. This suggests that it is the owner, not the contractor, who bears the risk of loss to partially completed work where “neither party is at fault” for the loss.
Some courts distinguish contracts for improvements to an existing structure, whose destruction made completion of the contract for improvements impossible, and construction of a building from the ground up. A New Jersey case, Matthews Construction Company v. Brady, 140 A. 433, 434 (N.J. 1928), is typical:
"(b) Where under a contract for alterations and additions to an existing building performance depends on the continued existence of the structure, a condition is implied that impossibility of complete performance arising from its destruction without fault of the parties will absolve them from further liability, with the exception that the owner remains liable and the builder may recover for the value of the work done and materials delivered and accepted prior to such destruction. [citations omitted]
"(c) There is a distinction as to continuing liability under a building contract involving the erection of a new structure on land of the owner and that which relates to the making of additions and alterations to an existing building [the continuance of which is necessary to complete the contract] in the event of destruction without fault before completion. In the former case the builder remains liable for failure to complete, while in the latter both parties are relieved and the contract is at an end in that respect. [citations omitted]"
Thus far, New Hampshire has not adopted this distinction. Until it does, the rule seems to be that in the absence of a contract providing for a different rule, the risk of loss from unpreventable acts of God is on the owner, who must pay for construction he won't get to enjoy.
Original Article