In construction, typically, the property owner contracts with a prime contractor. That prime contractor then contracts with subcontractors and/or suppliers. Then, those subcontractors might contract with their own subs and suppliers. If any of the parties go unpaid, legal claims will be available – even between parties where a direct contract isn’t present.
We know that filing a mechanics lien could allow a claimant to demand payment against the property owner and others above you in the chain without privity of contract. But what if you don’t have a lien claim? You may be able to lean on unjust enrichment.
What is Unjust Enrichment
Unjust enrichment is a lofty legal concept that Wikipedia defines as:
“In contract law, unjust enrichment occurs when one person is enriched at the expense of another in circumstances that the law sees as unjust. Where an individual is unjustly enriched, the law imposes an obligation upon the recipient to make restitution, subject to defenses such as change of position. Liability for an unjust (or unjustified) enrichment arises irrespective of wrongdoing on the part of the recipient.”
Let’s decode the legal hieroglyphics into English.
In fewer words: One party is enriched at the expense of another party in circumstances that the law deems unfair. In construction, unjust enrichment is often utilized by unpaid subcontractors and suppliers who claim the property owner has benefitted from their work. All work and no pay.
How to Make a Claim Under Unjust Enrichment
Unlike, say, a mechanics lien, an unjust enrichment claim requires legal action. Yep, that means litigation (well, at least the threat of it).
Anyway, for those who want to bring a claim, the elements for unjust enrichment vary from state-to-state. But they’re generally very similar. As an example, in Arizona, the law tells us that there are five elements to unjust enrichment:
- An enrichment
- An impoverishment
- A connection between the enrichment and the impoverishment
- The absence of justification for the enrichment and impoverishment
- The absence of a remedy provided by Law
You’ll notice that a direct contract isn’t required. Unlike a breach of contract claim, unjust enrichment claims don’t require a direct contract between the claimant and the defendant. This offers an opportunity to recover from parties beyond merely the nonpaying party – kind of like a mechanics lien.
Anyway, it’s the 5th requirement above that makes the theory of unjust enrichment unavailable in most states. Even if the alternative remedy doesn’t have great odds, as long as some other legal remedy it exists, unjust enrichment is out.
An Unjust Enrichment Example
There are state-by-state exceptions that go directly against the required elements for unjust enrichment. For example, sticking with Arizona, in the case of Wang Elec., Inc. v. Smoke Tree Resort, LLC the courts say:
“Payment is sought from the owner under a theory of unjust enrichment. These cases fall into two categories: ones in which the owner has fully paid the general contractor and ones in which the owner has not fully paid the general contractor. Our courts have held that recovery under a theory of unjust enrichment is not available in the former category, because the owner is not unjustly enriched if it fully paid its obligation. But when the owner has failed to fully pay its obligation, our courts have held that recovery for unjust enrichment is available because permitting the owner to retain the benefit without fully paying for it would be unjust.”
That court went on to say that there are even exceptions to the exception. This illustrates the confusing nature of pursuing a claim on the theory of unjust enrichment.
Unjust enrichment is a pretty common legal tool, and it can be a useful one when you’re trying to recover from someone you didn’t contract with. However, it should be a last resort. In construction, more direct routes to payment are available such as mechanics lien claims, prompt payment claims, and even a suit for breach of contract. Even more direct, though, is stopping problems before they even begin – and the best way to do that is to establish a collaborative payment chain.