Pepi Corporation v. Brett Galliford D/B/A Green Electronics

Opinion issued February 8, 2007

In The

Court of Appeals

For The

First District of Texas

NO. 01-05-00788-CV

PEPI CORPORATION, Appellant

V.

BRETT GALLIFORD, D/B/A GREEN ELECTRONICS, Appellee

On Appeal from the County Civil Court at Law No. 1

Harris County, Texas

Trial Court Cause No. 803458

O P I N I O N

Brett Galliford, appellee, performed work as a subcontractor on property

owned by Pepi Corporation, appellant. Galliford brought suit against Pepi Corp.

arguing that Galliford failed to receive payment from the contractor and Pepi Corp.

allegedly assured Galliford that he would be paid. After holding a bench trial, the

trial court found Pepi Corp. liable under quantum meruit.

In five points of error, Pepi Corp. argues that the trial court erred by ruling in

favor of Galliford because (1) Galliford's claim of quantum meruit is barred by the

statute of limitations; (2) the existence of a contract between Galliford and the

contractor bars recovery under quantum meruit; (3) the evidence is legally insufficient

to establish a claim of unjust enrichment; (4) the evidence is legally insufficient to

establish a claim of quantum meruit; and (5) the evidence is legally insufficient to

support a finding of damages.

We reverse and render.

Background

In 1999, Pepi Corp. hired a contractor to construct a restaurant on property it

owned. The contractor, in turn, hired Galliford to perform electrical work on the

building. Galliford submitted invoices to the contractor, but did not receive any

payment. Galliford then contacted Pepi Corp., and allegedly spoke with Albert Pepi,

the president of Pepi Corp. Galliford testified that during multiple conversations with

Albert, he told Galliford, "I'll make sure you get paid." Almost two years after

Galliford's completion of the electrical work, the contractor filed for bankruptcy

protection. When Pepi Corp. refused to pay Galliford directly, Galliford brought suit.

Statute of Limitations

In the first point of error, Pepi Corp. argues that Galliford's claims are barred

by a two-year statute of limitations. In order to decide this point of error, we must

determine the type of claim that Galliford brought and decide whether a two or four-year statute of limitations applies to the claim brought.

A. Standard of Review

Both parties agree that Galliford's cause of action accrued in January of 2000.

When the date of accrual of the cause of action is not disputed, the trial court may

decide whether the plaintiff's claims are barred by limitations as a matter of law.

Intermedics, Inc. v. Grady , 683 S.W.2d 842, 845 (Tex. App.--Houston [1st Dist.]

1984, writ ref'd n.r.e.). We review a trial court's conclusions of law de novo. BMC

Software Belg., N.V. v. Marchand , 83 S.W.3d 789, 794 (Tex. 2002). The trial court

did not file findings of fact or conclusions of law. However, the judgment for

Galliford carries an implied finding that Galliford's claim was not barred by

limitations. See id. at 795 .

B. Type of Claim

Before deciding whether the trial court erred in finding as a matter of law that

Galliford's claims were not barred by the statute of limitations, we first clarify the

type of claim that Galliford brought. Galliford's petition states "Plaintiff seeks to

recover damages from [Defendant] in quantum meruit. Plaintiff would show that the

Defendant has unjustly enriched itself to Plaintiff's damage." The pleading states that

Galliford seeks recovery in quantum meruit.

Unjust enrichment is an independent cause of action. See HECI Exploration

Co. v. Neel , 982 S.W.2d 881, 891 (Tex. 1998). However, a claim that the opposing

party is unjustly enriched by retaining the benefits of services rendered by the

plaintiff can also be the basis for a quantum meruit cause of action, rather than a

separate claim in itself. See Vortt Exploration Co., Inc. v. Chevron U.S.A., Inc. , 787

S.W.2d 942, 944 (Tex. 1990) (recognizing recovery when non-payment for services

rendered would result in unjust enrichment to party benefitted).

To recover in quantum meruit, the plaintiff must prove (1) that valuable

services were rendered or materials were furnished, (2) for the person sought to be

charged, (3) which services and materials were accepted by the person sought to be

charged, used and enjoyed by him, (4) under such circumstances as reasonably

notified the person sought to be charged that the plaintiff, in performing such

services, was expecting to be paid by the person sought to be charged. Id .

Galliford's pleading addresses the first three elements by including statements that

he had provided goods, materials, and services which were retained by Pepi Corp. for

the improvement of property owned by Pepi Corp. Galliford also states in his

pleading that Pepi Corp. repeatedly assured him that he would be paid, and the work

was done "at the insistence and request" of Pepi Corp. These statements show that

Galliford intended to plead and prove the fourth element of a quantum meruit claim.

Other than the statement that Pepi Corp. had "unjustly enriched itself,"

Galliford's pleading makes no specific reference to any proof of a separate unjust

enrichment cause of action. The language used in the pleading indicates that

Galliford's claim against Pepi Corp. is a quantum meruit claim founded on unjust

enrichment, rather than an independent cause of action for unjust enrichment.

C. Statute of Limitations

The Supreme Court of Texas has stated that a two-year statute of limitations

applies to unjust enrichment claims. See Wagner & Brown, Ltd. v. Horwood , 58

S.W.3d 732, 737 (Tex. 2001); HECI , 982 S.W.2d at 885 . Appellant argues that the

two-year statute of limitations applies whether the claim is for unjust enrichment or

quantum meruit. We disagree.

An attempt to recover the value of materials and services rendered and

accepted in quantum meruit is "a species of a suit for debt." Mann v. Jack Roach

Bissonnet, Inc. , 623 S.W.2d 716, 718 (Tex. Civ. App.--Houston [1st Dist.] 1981, no

writ). Prior to 1985, the limitations statutes for debt actions were codified in Texas

Civil Practices and Remedies Code articles 5526 and 5527. (1) Before amendment in

1979, Article 5526 stated that a two-year statute applied to actions for certain debts

and did not specify whether such debt was evidenced by a writing. (2) The pre-1979

version of article 5527 limited debt actions grounded upon any contract in writing

to a four-year statute of limitations. (3) However, in 1979, article 5527 was amended

and later recodified in Texas Civil Practices and Remedies Code section 16.004.

Tex. Civ. Prac. & Rem. Code Ann. § 16.004 (Vernon 2002). Section 16.004 states

that actions in debt are governed by a four-year statute and makes no reference to a

requirement that the debt must be evidenced by a written contract. Id ; see also

Livingston Ford Mercury, Inc. v. Haley , 997 S.W.2d 425, 428 (Tex. App.--Beaumont

1999, no pet.) (comparing pre-1979 art. 5527 language to section 16.004). Therefore,

the four-year statute of limitations in section 16.004 applies to debt actions, whether

or not the debt is evidenced by a written contract. See Tex. Civ. Prac. & Rem. Code

Ann. § 16.004 (Vernon 2002).

Appellant cites Johns v. Ram-Forwarding from this Court for the proposition

that a two-year statute should govern quantum meruit claims. Johns v. Ram-Forwarding, Inc. , 29 S.W.3d 635, 638 (Tex. App.--Houston [1st Dist.] 2000, no

pet.). In Johns , we overruled an appellant's claim that the trial court erred in limiting

his quantum meruit claim to two years. Id . However the statement in Johns refers

to the appellant's argument against the application of a two-year statute of limitations,

which appellant had not raised in the trial court. Id . Therefore, we held that appellant

had not preserved error regarding the issue and did not reach whether the statute for

quantum meruit was two or four years. Id .

Appellant also cites Williams v. Roberts as authority for his assertion that a

two-year statute applies to quantum meruit claims. 621 S.W.2d 427 (Tex. App.--San

Antonio 1981, no writ). In Williams , the court held that a quantum meruit claim,

which otherwise would have been barred by either a two-year or four-year statute,

was not barred by limitations because it arose from the same transaction as the

original petition, which had been filed early enough to satisfy both statutes. Id. at

429 . The court mentions a two-year statute of limitations only in reference to the

cross-appellant's argument. Id . at 428. Similar to this Court in Johns , the San

Antonio court in Williams did not reach whether the claim stated in the amended

petition was governed by a two- or four-year statute of limitations. See id . at 429.

This Court has recently recognized that the four-year statute of limitations is

applicable to quantum meruit claims. See C.M. Asfahl Agency v. Tensor, Inc. , 135

S.W.3d 768 , 778 n.7 (Tex. App.--Houston [1st Dist.] 2004, no pet.). Other courts

of appeals have also applied a four-year statute of limitations to quantum meruit

claims. See Frazier v. Havens , 102 S.W.3d 406, 410-11 (Tex. App.--Houston [14th

Dist.] 2003, no pet.) (recognizing that four year statute applied to quantum meruit, but

holding that overpayments made more than four years prior to filing of counterclaim

were not barred because they arose from same transaction as original claim); Rainbow

Group, Ltd. v. Johnson , No. 03-00-00559-CV, 2002 WL 1991141 , at *4 (Tex.

App.--Austin Aug. 30, 2002, pet. denied) (not designated for publication). The

language of section 16.004 of the Texas Civil Practices and Remedies Code and the

weight of authority in the courts of appeal show that quantum meruit claims should

be governed by a four-year statute of limitations.

The parties agree that the services Galliford claims were provided to and

retained by Pepi Corp. were completed in January of 2000. Galliford filed the lawsuit

on October 17, 2003. Accordingly, we hold that Galliford's quantum meruit claim

is not barred by the four-year statute of limitations.

We overrule appellant's first point of error.

Contract as Bar to Recovery Under Quantum Meruit

In its second point of error, Pepi Corp. argues that the trial court erred by ruling

in favor of Galliford because an express contract bars recovery under quantum meruit.

Galliford entered into a contract with the contractor for the work performed on

the property owned by Pepi Corp. (4) As a general rule, the presence of an express

contract bars recovery under quantum meruit. In re Kellogg Brown & Root, Inc. , 166

S.W.3d 732, 740 (Tex. 2005); Inglish v. Prudential Ins. Co. of Am. , 928 S.W.2d 702,

706 (Tex. App.--Houston [1st Dist.] 1996, writ denied). This rule not only applies

when a plaintiff is seeking to recover in quantum meruit from the party with whom

he expressly contracted, but also when a plaintiff is seeking to recover "from a third

party foreign to the original but who benefitted from its performance." Hester v.

Friedkin Cos., Inc. , 132 S.W.3d 100, 106 (Tex. App.--Houston [14th Dist.] 2004,

pet. denied) (quoting Iron Mountain Bison Ranch Inc. v. Easley Trailer Mfg., Inc. , 42

S.W.3d 149, 160 (Tex. App.-Amarillo 2000, no pet.)). A plaintiff seeking to recover

the reasonable value of services rendered or materials supplied is precluded from

recovering in quantum meruit if there is an express contract that covers those services

or materials and if no exception to the general rule applies. Id. (citing W & W Oil Co.

v. Capps , 784 S.W.2d 536, 537-38 (Tex. App.--Tyler 1990, no writ) (holding that

construction company, who was unaware of farm-out agreement and who furnished

goods and services to farmee, was precluded from recovering value of goods and

services against farmor in quantum meruit, even though farmor made verbal promises

to pay for completed work, because subject matter was covered by valid express

contract (farm-out agreement)) and Morales v. Dalworth Oil Co., Inc. , 698 S.W.2d

772, 774-76 (Tex. App.--Fort Worth 1985, writ ref'd n.r.e.) (explaining that implied

contract cannot exist where subject matter is covered by valid express contract and

holding that valid express contract between gasoline equipment installer and land

lessees precluded installer's recovery against lessor in quantum meruit because the

subject matter of claim, the equipment, was covered by installer's contract with

lessees)).

The Texas Supreme Court has recognized three exceptions to the general rule

that an express contract bars recovery under quantum meruit. "First, recovery in

quantum meruit is allowed when a plaintiff has partially performed an express

contract but, because of the defendant's breach, the plaintiff is prevented from

completing the contract." Truly v. Austin , 744 S.W.2d 934, 936 (Tex. 1988). This

exception is not available because Galliford has fully completed the contract and

because Pepi Corp. is not the breaching party.

Second, "[r]ecovery in quantum meruit is sometimes permitted when a plaintiff

partially performs an express contract that is unilateral in nature." Id. at 937 . The

present contract is bilateral; thus, this exception cannot apply to Galliford.

Third, a breaching plaintiff in a construction contract can recover the

reasonable value of services less any damages suffered by the defendant if the

defendant accepts and retains "the benefits arising as a direct result of the [plaintiff's]

partial performance." Id. This exception is not available because Galliford did not

breach.

Substantial performance is a condition precedent to recovery under an express

contract. Murray v. Crest Const., Inc. , 900 S.W.2d 342, 345 (Tex. 1995). Each of

the exceptions listed above relates to an inability to recover under contract because

of a failure of this condition precedent--either because of a breach preventing

completion of the condition precedent or because of a lack of any legal obligation that

creates the condition precedent. It is undisputed that Galliford completed the

electrical work under the contract, and, thus, Galliford fulfilled his condition

precedent. Therefore, recovery under a breach-of-contract claim is available, and

recovery under quantum meruit is precluded.

The dissent acknowledges that, under the rule in Crest Construction, Inc. , a

party may not recover under quantum meruit when there is an express contract

covering the services or materials furnished. The dissent also acknowledges that to

fall under the exception for construction contracts and to recover in quantum meruit,

the plaintiff must have failed to complete the work under the contract. Nevertheless,

the dissent contends that, because Galliford completed his work on the project based

on Albert Pepi's promise to pay him, "equity supports Galliford's recovery against

Pepi in quantum meruit." Moreover, the dissent asserts that Galliford completed his

work "only because Pepi assured him" that he would be paid.

Galliford testified, however, that he continued his work because he expected

to be paid by either the contractor or Pepi and that he never terminated his agreement

with the contractor. Moreover, although Galliford began calling Albert Pepi

regarding the dispute over payment in late 1999, Galliford did not apparently look to

Pepi for payment for the completed electrical work until some time later. To the

contrary, upon the completion of the work under the contract in January 2000,

Galliford sent the last invoice to the contractor at the end of January, continued to

correspond with the contractor regarding payment during the Spring of 2000, and,

finally, filed a lien against the contractor in March of 2000. Thus, it appears that both

parties considered the contract between Galliford and the contractor to be valid and

in effect at the time of Galliford's completion of his work under the contract.

As explained above, absent an applicable exception, the general rule is that the

presence of an express contract bars recovery under quantum meruit. In the instant

case none of the exceptions apply, there was an express contract, and Galliford fully

performed his duties under that contract. Therefore we hold that the trial court erred

by entering judgment in favor of Galliford premised on quantum meruit.

We sustain Pepi Corp.'s second point of error. (5)

Conclusion

We reverse the judgment of the trial court and render judgment that Galliford

take nothing.

Laura Carter Higley

Justice

Panel consists of Justices Jennings, Hanks, Higley.

Justice Jennings, dissenting.

1.

See Act of May 27, 1979, 66th Leg., R.S., ch. 716, 1979 Tex. Gen. Laws 1768 - 69, repealed by Act of May 17, 1985, 69th Leg., ch. 959, 1985 Tex. Gen. Laws 3242 -322).

2.

See Act approved Feb. 5, 1841, 5th Cong., R.S. § 2, 2 H.P.N. Gammel, The Laws of Texas 1822-1897, at 627 (Austin, Gammel Book Co. 1898), amended by Act of May 27, 1979, 66th Leg., R.S., ch. 716, 1979 Tex. Gen. Laws 1768 - 69.

3.

Id .

4. On the one hand, Galliford disputes that there was a contract, while on the other, he

argues that he "did have an 'agreement' with the General Contractor to provide

services, goods, and materials for the improvement, benefit and use of Appellant's

property and was expecting recompense from the General Contractor." This meets

the definition of a contract. See Hutchings v. Slemons , 141 Tex. 448, 452 , 174

S.W.2d 487, 489 (1943).

5. Because our ruling on this point of error disposes of all remaining issues in this

appeal, we do not reach Pepi Corp.'s remaining points of error.