A homeowner met with several general contractors regarding significant renovations. After discussions with one contractor, the contractor sent a letter offering to perform the renovation for $10,000. The homeowner replied that he would pay $8,500 and that he would not pay more. The contractor began preparations and started acquiring materials. One week later, the contractor realized a $1,600 cost overrun due to the homeowner's exacting aesthetic. The homeowner refused to pay more, and the contractor discontinued work. Who has the better claim?

• A. The homeowner, because the homeowner's offer was effectively accepted by commencement of performance.
• B. The contractor, because he started work and incurred costs.
• C. The homeowner, because there was no written agreement.
• D. The contractor, because costs increased.

Answer: (D)

The key idea is that a counteroffer ends the original offer, and there isn’t a binding contract yet. Here, the homeowner’s reply to pay only $8,500 and nothing more is a counteroffer, not an acceptance. So there isn’t a contract to be performed at the original price. However, once the contractor begins work and incurs costs because the homeowner’s demands drive the project, the contractor can recover those costs that were reasonably necessary to perform the work and that were caused by the homeowner’s changes, through a restitution/restitutionary theory (quantum meruit) when there’s no enforceable contract or when the owner benefits from work without paying for it.

In this scenario, the contractor incurred a $1,600 overrun due to the homeowner’s exacting aesthetic. The homeowner refused to pay more, so the contractor should be compensated for the incremental cost that resulted from the homeowner’s direction. That makes the contractor’s claim stronger for recovering those increased costs.

The other options fail for these reasons: starting performance does not automatically bind the homeowner to the original price because the initial response was a counteroffer; lack of a written agreement does not, by itself, create or destroy a contract, and the issue is the unjust enrichment from the extra costs, not merely the absence of a writing.