Recently, the Massachusetts Supreme Judicial Court (“SJC”) issued a decision in G4S Technology LLC v. Mass. Tech. Park Corp., SJC-12397, regarding the forfeiture rule for construction project contractor disputes.
Previously, the trial court in G4S entered summary judgment in favor of the defendant, dismissing G4S’s breach of contract claim based on G4S’s intentional breaches of contract and its failure to strictly and completely perform all of the contracts terms. The trial court similarly dismissed G4S’s claim for damages under the theory of quantum meruit (which is an equity theory demanding the fair value of services performed or work completed), holding that an intentional violation of a contract was inconsistent with the good faith requirements of such theory. On direct appeal, the SJC considered whether Massachusetts should adopt an alternative standard to the forfeiture rule.
The SJC’s decision declines to extend the alternative standard, known as the “materiality rule,” argued by G4S in place of the Massachusetts forfeiture rule. The SJC reaffirms that complete and strict performance of the contract terms is required to recover on the contract itself. However, it further clarifies that the “complete and strict performance requirements” relate “only to the design and construction work itself” and “ordinary principles, including the traditional Massachusetts materiality rule, apply for breaches of other provisions.” The construction contract between G4S and Mass. Tech. Park was for the design and construction of a fiber networking system, meaning the contractual violations committed by G4S (submission of false certifications and withholding payment to subcontractors) do not concern that actual design or construction of the project and must be analyzed under the materiality standard, not complete and strict performance. Under this standard, the SJC still held G4S’s actions to be a material breach of the contract, stating that “paying subcontractors on time was an essential and inducing feature” between Mass. Tech. Park and G4S and “intentional misrepresentations to the government for financial gain are significant breaches of contact in and of themselves.”
With regard to quantum meruit claims, the SJC’s decision in G4S affirms that proof of substantial performance and good faith by the party seeking recovery is still necessary but overrules an older line of cases and holds “good faith now applies to the contract as a whole,” and “the intentional commission of breaches of individual contract provisions must be considered in the over-all context.” A simple standard cannot be applied to determine a ruling in equity; numerous factors must be analyzed to “balance the equities and produce a just result.” Such factors include the value of the uncompensated work, the damage caused by the breach, the total performance of both parties, and the balancing of equities to accomplish a just result. The SJC remanded G4S to the trial court for a determination of disputed facts and application of the clarified standard for quantum meruit recovery in construction disputes.