United States: Contractor Can Recover On The Basis Of Unjust Enrichment If There Is No Express Contract

As published in the Fall 2009 issue of Construction Focus, a publication of Schottenstein Zox & Dunn Co., LPA

In many construction cases, the suing party is seeking recovery under either a breach of contract action or under an unjust enrichment (quantum meruit) claim, or both. The courts have held, however, that if there is an express contract between the parties, there can be no unjust enrichment claim. The elements of an unjust enrichment claim are (1) a benefit has been conferred by a plaintiff upon a defendant; (2) the defendant had knowledge of the benefit; and (3) the defendant retained the benefit under circumstances where it would be unjust to do so without payment. While a party may not recover for the same services under both a contractual claim and a claim for unjust enrichment, a party can seek recovery under both theories and recover under an unjust enrichment theory if the contractual claim fails.

Company D, the developer of a number of single family lots, had discussed with a Company CM the possibility of serving as the construction manager for the project. Company CM estimated the cost of the total development work to be $3.2 million. There apparently was never a formal contract between D and CM. The CM had sent Company D two letters in March 2004 basically confirming preliminary work in order to start the project and obtain a building permit. A year later, Company D and the owner agreed to terminate the lot purchase agreement because Company D was unable to obtain the rezoning necessary to allow the contemplated development. Company CM sent the developer an invoice in the amount of $28,000 for construction management services to date.

Company CM sued Company D for quantum meruit when Company D refused to pay for Company CM's services. Company D argued that it and Company CM had contractually agreed upon CM's specific compensation and that the CM could not recover under the contract because a condition precedent in the contract failed. Company D also argued that CM could not recover on its quantum meruit claim because Company D maintained that the above referenced letters constituted an express contract.

On the other hand, CM argued there was never an express contract for construction management services, but at most, there was a quasi-contractual relationship entitling the CM to equitable relief.

The trial court decided that the March 2004 letter constituted an express contract which required: (1) CM to prepare preliminary budgets and perform investigative work for D for free; (2) CM would charge D only for costs incurred by CM in performing the preliminary work; (3) CM to perform these services for D in consideration for being named construction manager; and (4) CM's being named construction manager dependent upon the condition of the project being determined feasible. In the trial court's view, Company D established that the project was deemed not feasible when the city never agreed to rezone the project area. According to the trial court, CM could not recover under a contract theory because any contractual obligation terminated after the condition precedent of feasibility failed.

The CM appealed and the Court of Appeals reversed the trial court's decision. The Court of Appeals first concluded that the March 2004 letter from the CM did not constitute an express agreement. The CM had quoted three different estimates and two different contingency fees over the course of the exchange of the two letters. The correspondence did not contain start and end dates for CM's performance and there was no written contract for the construction manager services.

Because there was no express contract between the CM and Company D, the CM could proceed with its claim for unjust enrichment. The CM performed various services that conferred a benefit on Company D and that Company D retained. The case was sent back to the trial court to determine the extent of CM's unjust enrichment claim.

Building Industry Consultants, Inc. v. 3M Parkway, Inc. (April 27, 2009), 182 Ohio App. 3d 39, 2009-Ohio-1910.

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