Sound Advice From Experienced Counsel
Getting paid can sometimes be a challenge for construction subcontractors and suppliers, despite the availability of such remedies as liens and payment bond claims (more on these remedies in subsequent posts). One theory pursued with mixed results is a claim for unjust enrichment.
Unjust enrichment is an equitable doctrine that allows for recovery when a party has unjustly retained “money or benefits which in justice and equity belong to another.” McCreary v Shields, 333 Mich 290, 294; 52 NW2d 853 (1952). The elements of such a claim are: “(1) the receipt of a benefit by the defendant from the plaintiff and (2) an inequity resulting to the plaintiff because of the retention of the benefit by the defendant.” Morris Pumps v Centerline Piping, Inc., 273 Mich App 187, 195; 729 NW2d 898 (2006). If a plaintiff can establish these elements, “the law will imply a contract in order to prevent unjust enrichment.” Belle Isle Grill Corp v Detroit, 256 Mich App 463, 478; 666 NW2d 271 (2003). An unjust enrichment claim is often included as an alternative claim against a party with whom the claimant had a contract, in case the contract is deemed invalid. (A related theory called quantum meruit is the more appropriate claim in such circumstances.) However, an unjust enrichment claim can provide a means of reaching a defendant with whom the subcontractor or supplier had no contract or direct relationship.
The Morris Pumps case is illustrative. In that case, material suppliers were not paid by a subcontract that went out of business and abandoned the project. The general contractor replaced the subcontractor and the replacement sub used the suppliers’ materials. Neither the replacement sub nor the GC paid the suppliers for the materials, and so the suppliers sued both the original defunct subcontractor for breach of contract and the GC for unjust enrichment. The court first rejected the GC’s defense that the suppliers could not sue for unjust enrichment because there were express contracts between the suppliers and the original subcontractor. The court found that because there was no contract between the same parties, the suppliers were not precluded from proceeding against the GC. The court, while noting that not all enrichment is necessarily unjust, in this instance it was. Key was the fact that the GC was responsible for overseeing the defaulting subcontractor and then its replacement, and thus was not only aware of, but was necessarily directly involved in the decision to use and retain the materials without paying the suppliers. The GC was not an innocent party, and thus was liable.
In a recent Court of Appeals case, Arlington Transit Mix, Inc v MGA Homes, Inc, Case No. 295530 (2012), a material supplier sought to apply the unjust enrichment theory against a foreclosing mortgage lender. The court rejected the claim, distinguishing the case from Morris Pumps. In Arlington, the court noted that there was no evidence that the mortgage lender was an active participant in the decision to use the materials, or even that the materials were used after the foreclosure occurred, approximately a year after the materials were furnished. The lender did not have control or responsibility for completing the project. The court concluded that while the lender may have received a benefit to some degree, the benefit was not unjust. Quoting Morris Pumps, the Arlington court noted that “in general, [a] third party in not unjustly enriched when it receives a benefit from a contract between two other parties, where the party benefited has not requested the benefit or misled the other parties.”
Unjust enrichment is a useful tool for an unpaid subcontractor or supplier, but it requires more than just identifying a solvent party that ultimately benefited from the materials or work.