General contractor liable for subcontractor’s unpaid bills

The trial court correctly ruled that a general contractor was liable under the doctrine of unjust enrichment for construction materials a subcontractor received from a supplier.

Overview

Davis, the general contractor for a condominium project, hired H&2 as the drywall subcontractor. H&2 was to furnish labor, materials, supervision and equipment. Davis was to pay H&2 $1.2 million.

H&2 contracted with Ciesco (now FTJ, Inc.) to purchase materials. Buendia, H&2’s principle, provided a personal guarantee.

Davis and H&2 entered a joint check agreement. The agreement specified “a method for how Ciesco would be paid for the materials it shipped to the job. Ciesco would send its invoices to Davis and H&2. Davis would pay via a joint check made payable to both H&2 and Ciesco and deliver the check to H&2. H&2 would then endorse the check and turn it over to Ciesco to apply against the invoices for the project.

“The joint check agreement specifies that ‘DAVIS will only make payments [to H&2] and [Ciesco] by joint check to the extent that DAVIS actually owes money to [H&2] on the Project.’

“Joint checking agreements are common in the construction industry. A joint checking agreement facilitates payment to a supplier, by providing a greater assurance to the supplier that it will be paid. With a joint check, the subcontractor cannot abscond with money owed to the supplier.”

After a few months, Ciesco began experiencing payment delays and contacted Davis. Davis assured Ciesco payment was forthcoming. These assurances resulted in continued shipments of materials to H&2 even though the account was past due.

Davis learned that H&2 was experiencing difficulty in meeting its payroll and concluding that H&2 would be unable to pay its suppliers.

Mahoney, Davis’ project manager, informed Finley, a Ciesco official, about H&2’s difficulties and asked to stop shipments on the joint check account. The two discussed payment of Ciesco’s invoices. Davis was provided copies of outstanding invoices and assured Ciesco that a $160,000 payment was being processed.

In the meantime, Davis terminated H&2 and paid it $969,000, somewhat less than the $1.2 million for the drywall work. Davis then paid another subcontractor $260,000 to finish the job.

Ciesco asked Davis about payment. Davis responded that because of the problems with H&2, the money intended for Ciesco was instead used to finish the project. Davis offered to settle all remaining invoices for $58,000.

“Davis never ordered materials directly from Ciesco. Ciesco shipped $252,062.18 in materials for which it was not paid, either by H&2, Buendia, or Davis. Davis used these materials to complete the project. Ciesco invoiced Davis for the materials, and its prices were reasonable. Mahoney agreed that if Davis had not used those supplies, it would have had to pay the new subcontractor or supplier for those materials.”

Ciesco sued. The trial court ruled for Ciesco on its unjust enrichment claim against Davis and also ruled that the joint check agreement was not a binding contract.

Joint check agreement

Davis argues on appeal that the joint check agreement is a contract, which bars any quasi-contractual relief. “We have stated that ‘[t]he existence of an express contract covering the same subject matter of the parties’ dispute precludes a claim for unjust enrichment.’”

However, “unjust enrichment is not precluded where ‘a valuable performance has been rendered under a contract that is invalid, or subject to avoidance, or otherwise ineffective to regulate the parties’ obligations.’ …

“For purposes of this opinion, we will assume, without deciding, that this particular joint check agreement is supported by consideration. That, however, does not end the inquiry.

“By its plain terms, the joint check agreement states that its ‘sole purpose … is to assist Subcontractor in making payment to Supplier of invoices on sales of all materials furnished by Supplier to Subcontractor for use in connection with the Project.’ …

“The expressly limited contract here does not foreclose a claim for unjust enrichment when that claim falls outside of the plain terms of the agreement. Moreover, as Ciesco notes, the joint check agreement did not ‘preclude the parties from creating further or other expectations about payment through their actions and communications.’ …

“Davis’s repeated direct dealings with Ciesco and the repeated assurances it received from Davis, prompted Ciesco to continue shipping supplies with the expectation that Davis would pay for those supplies.”

No double payment

“Courts have denied unjust enrichment claims when an owner or general contractor has previously paid for the goods or services in question. …

“Relying on this principle, Davis argues that it had to pay more than originally projected to finish the job, so it was not unjustly enriched.

“We find this argument unpersuasive. In this instance, it is the payment for specific supplies that is at issue, not the overall cost of the project. The evidence from Davis’s own project manager established that Davis did not pay anyone for the supplies Ciesco delivered to the job site and that it used those supplies. …

“Davis is not being forced to pay twice for supplies provided by Ciesco. It is being asked to pay once.”

Pay and be paid

The elements of an unjust enrichment claim are “(1) the plaintiff conferred a benefit on the defendant; (2) the defendant knew of the benefit and should reasonably have expected to repay the plaintiff; and (3) the defendant accepted or retained the benefit without paying for its value.”

Davis points to the joint check agreement to argue that it had no expectation that it would pay for the materials. “[H]owever, Davis repeatedly responded directly to Ciesco’s inquiries about late invoices and provided assurances that Ciesco would receive payment. …

“The factfinder could plausibly conclude that Davis expected to pay for the materials based on Davis’ course of conduct with Ciesco, and that Ciesco expected to be paid for materials it was encouraged to ship. Based on these facts, we cannot say that the trial court’s award on the unjust enrichment claim was ‘plainly wrong or without evidence to support it.’”

James G. Davis Construction v. FTJ, Inc., F/K/A Ciesco, Inc. Alexander v. Cobb, Record No. 190345 (McCullough) May 14, 2020, Arlington Cir. Ct. (DiMatteo). Stephen Murray Seeger, Alexandra Elena Busch for appellant, Rodney Scott Caulkins, Greta Petrova  Iliev for appellee. VLW 020-6-034, 35 pp.