## Facts

- A hospital construction project was owned by North Carolina Baptist Hospitals, Inc. and built under a prime contract with C.J. Kern Contractors, Inc. as general contractor.
- Elec-Trol, Inc. entered into a subcontract with Kern to perform electrical work.
- The prime contract’s General and Supplementary Conditions were incorporated by reference into the subcontract.
- The contract documents included a change-adjustment provision stating that if the owner and contractor could not agree on the amount of an adjustment to the contract sum, the amount “shall be determined by the Architect.”
- Elec-Trol performed alleged change-order/extra work and sought additional compensation beyond the subcontract price.
- The architect refused to approve (or did not approve) the amount of additional compensation Elec-Trol claimed.
- Elec-Trol sued Kern for the extra compensation and also asserted recovery based on the reasonable value of the work (quantum meruit).
- The trial court granted summary judgment for Kern and for the hospital on Kern’s related third-party claim; Elec-Trol appealed.

## Issues

1. Whether a contract clause requiring the architect to determine the amount of a change-order adjustment makes the architect’s determination a binding condition precedent to recovery absent fraud, bad faith, or gross mistake.
2. Whether a subcontractor may recover in quantum meruit for extra work when an express contract governs additional compensation and assigns its determination to the architect.

## Decision

- The Court of Appeals affirmed summary judgment for Kern and the hospital.
- The court held the architect-determination clause was a binding condition precedent to recovery for additional costs.
- In the absence of allegations or proof of fraud, bad faith, or gross mistake implying bad faith or failure to exercise honest judgment, the architect’s determination (or failure to award the claimed amount) was conclusive.
- The court held quantum meruit was unavailable because an express contract controlled the subject of additional compensation.

## Legal Principles

- When construction contract documents provide that a third party (such as an architect) must determine the amount or sufficiency of work or a payment adjustment, that determination functions as a condition precedent to recovery.
- A third-party determination required by contract is binding and conclusive absent fraud or gross mistake that necessarily implies bad faith or failure to exercise honest judgment.
- Contract terms incorporated by reference bind the subcontractor to the same claim-determination procedure specified in the prime contract.
- An express contract governing compensation for extra work precludes implied-contract remedies, including quantum meruit, for the same subject matter.

## Conclusion

The court enforced the contract’s procedure requiring the architect to determine change-order compensation as a condition precedent and rejected quantum meruit because the parties’ express agreement controlled claims for additional costs, leaving no triable issue without evidence of fraud, bad faith, or gross mistake by the architect.


Elec-Trol, Inc. v. C.J. Kern Contractors, Inc., 54 N.C. App. 626, 284 S.E.2d 119 (N.C. Ct. App. 1981)