## Facts

- A prime contractor (Algernon Blair, Inc.) held a federal contract to construct a naval hospital and subcontracted steel erection work to Coastal Steel Erectors, Inc.
- Coastal performed part of the subcontract and furnished equipment, including cranes, to handle and place steel.
- Blair refused to pay for crane use, despite a contractual obligation to do so.
- Coastal ceased performance after completing about 28% of the work, asserting Blair’s nonpayment was a material breach.
- Blair completed the project using another subcontractor.
- Coastal, suing in the name of the United States under the Miller Act against Blair and Blair’s surety, sought payment for the value of labor and equipment already furnished.

## Issues

1. Whether a subcontractor that justifiably stops work because of the prime contractor’s material breach may recover in quantum meruit for the reasonable value of labor and equipment furnished.
2. Whether such quantum meruit recovery must be reduced by the amount of loss the subcontractor would have incurred had it completed performance under the contract.

## Decision

- The Fourth Circuit reversed the judgment for defendants and remanded.
- The court held Coastal could elect restitution and recover in quantum meruit the reasonable value of labor and equipment it furnished.
- The court held the recovery is not diminished by any loss Coastal would have incurred had it completed the subcontract.

## Legal Principles

- After a material breach by the other party, the nonbreaching party may elect restitution (quantum meruit) instead of suing for expectation damages under the contract.
- In quantum meruit, the measure of recovery is the reasonable value of the performance or benefit conferred on the defendant, not the plaintiff’s anticipated net profit (or loss) under the contract.
- A breaching party may not retain benefits of partial performance without paying their reasonable value merely because the nonbreaching party’s full performance would have been unprofitable.
- In Miller Act payment-bond litigation, a subcontractor may seek restitutionary recovery for labor and materials (including equipment furnished) supplied to the federal project when performance ends due to the contractor’s breach.

## Conclusion

The Fourth Circuit held that a subcontractor who justifiably terminates performance due to a prime contractor’s material breach may recover, under the Miller Act, the reasonable value of labor and equipment provided in quantum meruit, without reduction for the loss the subcontractor would have sustained upon full contractual performance.


United States ex rel. Coastal Steel Erectors, Inc. v. Algernon Blair, Inc., 479 F.2d 638 (4th Cir. 1973)