Unjust Enrichment
The unjust enrichment claim is one of the most important tools in a contractor’s or supplier’s toolbox when trying to get paid on a project. Even after the deadline to record a mechanic’s lien has passed, and even if there is no contract (written or verbal), a contractor or supplier can still seek compensation through this equitable claim.
What is unjust enrichment?
Unjust enrichment is a quasi-contractual, equitable remedy designed to undo a benefit conferred on one party at the unfair expense of another. In English: the claim requires a party who has received a benefit to pay for it where fairness so requires. To prevail on an unjust enrichment claim, a claimant must prove that (1) the defendant received a benefit (2) at the plaintiff’s expense (3) under circumstances that would make it unjust for the defendant to retain the benefit without commensurate compensation.
In the construction context, if a contractor or supplier provided a benefit (work or materials) at its expense (which is always the case) to an owner or a general contractor and did not receive payment, they are entitled to payment if they can demonstrate that it would be “unjust” for the general contractor or owner to retain that benefit without providing payment. This is a pretty straightforward claim where the contractor or supplier intended to provide a benefit to the owner or general contractor directly. And it makes sense. If you did work but for some reason the contract falls apart (e.g., the terms were too indefinite), you should be paid for that work by the person/entity who benefitted.
However, it is more complicated if a subcontractor or supplier is seeking recovery from a property owner or a general contractor on an unjust enrichment theory where a third party failed to provide payment as required. A common context is when a subcontractor seeks payment from the owner because the GC collapsed (a common occurrence during the great recession). In that situation, the claimant must establish some basis for finding injustice beyond the simple facts that (1) the owner or contractor benefitted from service the subcontractor provided, and (2) the subcontractor or supplier was not paid for its work. See Redd Iron, Inc. v. Int’l Sales and Services Corp., 200 P.3d 1133 (Colo. App. 2008). There has to be something more.
In one example, where a subcontractor was concerned about the solvency of a general contractor and the owner suggested it would ensure payment if the general contractor folded, the court held that it would be unjust for the owner to receive the benefit of the construction services without providing payment. The court entered judgment against the owner in favor of the subcontractor.
When is unjust enrichment unavailable?
First, unjust enrichment is not available if you have a contract. The whole purpose of this claim is to provide compensation when there is no contract. If the parties reached an agreement regarding compensation for work or supplies, unjust enrichment is not available. There are two exceptions: (1) the express contract fails or is rescinded, or (2) the claim covers matters that are outside of or arose after the contract. A good discussion of this issue can be found in the Supreme Court’s decision Pulte Home Corporation, Inc. v. Countryside Community Ass’n, Inc., 382 P.3d 821 (Colo. 2016).
Additionally, unjust enrichment is not available if the contract is determined to be unenforceable due to illegality. For example, if a contractor performs work without a license or without pulling a permit, a court might find that the contract was unenforceable. In that situation, a party cannot bring a claim for unjust enrichment.
How do you calculate damages?
To determine damages in an unjust enrichment claim, the court has to determine the value of the benefit conferred. Because it is an equitable claim, there is no right to a jury. A judge decides the amount of the award. “That amount is often, but not always, coextensive with the other party’s loss.” In other words, the value can be calculated as the cost or value of the work. But it is not always that simple. Where there are multiple ways to calculate the award, the judge gets to pick the method of calculation. Typically the court will look at cost documentation such as bids, invoices, and job costs. But these can be challenged. While a contractor or supplier is certainly entitled to overhead and profit, if the court finds the margin to be exorbitant the judge may not award the full amount. In cases of sufficient value, experts are often brought in to provide opinions regarding the value of the work performed.
What is the statute of limitations?
There is no statute of limitations, technically. Unjust enrichment is what is known as an equitable claim. Statutes of limitations only apply to legal claims, such as breach of contract. But there is a limitation on the time within which you can bring the claim through a defense known as laches. Laches is defined as “unreasonable delay in making an assertion or claim, such as asserting a right, claiming a privilege, or making an application for redress, which may result in refusal.” In English, this means that a court could deny a claim if there is “unreasonable delay.” What constitutes “unreasonable delay” varies with the circumstances. Often, however, courts look to comparable statutes of limitations for guidance. The statute of limitations for breach of contract is three years. The statute of limitations to collect a liquidated debt is six years. Accordingly, creative arguments can allow parties to seek compensation long after the work was performed. As always when dealing with a time limitation, there is no penalty for filing early.