Sub-subcontractor Recovers From General Contractor Under Implied Contract/Unjust Enrichment Theory

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C. Szabo Contracting v. Lorig Construction, 2014 IL App (2d) 131328’s plaintiff  sub-subcontractor (it contracted with a subcontractor, tried to use unjust enrichment to recover against a twice-removed general contractor on a highway construction job.

The plaintiff installed underground pipes under a subcontract.  When the subcontractor didn’t pay, the Plaintiff sued the general contractor to recover over $200K worth of work under a breach of an implied contract theory.

The general contractor defended on the basis that there was no contractual relationship between it and plaintiff and that plaintiff’s sole remedy was against the subcontractor.

After a bench trial, the trial court entered judgment for the plaintiff for over $200,000 and the general contractor appealed.

Held: Affirmed

Reasons:  Siding with the plaintiff, the Court discussed the rules that govern whether and when a party can sue another for damages where there is no express contract between them:

–  Unjust enrichment is not a standalone cause of action but a remedy based on quasi-contract or contract implied-in-law

–  A contract implied-in-law is one in which there is no express contract but the court imposes a duty to prevent unjustness;

–  A plaintiff must show he furnished valuable services or materials and the defendant received them under circumstances making it unfair for the defendant to retain the benefits;

–  Normally an express contract will preclude quasi-contractual recovery.  So, if A has a contract with B, and B breaches, A can’t then sue C.  A can only look to B for recovery – even if C benefits from A’s services;

–  Simply because a third party benefits from a plaintiff’s work isn’t enough to make that third party responsible to the plaintiff;

–  In the construction context, where a contract is placed by an owner under a general contractor who has power to employ whom it wishes, the owner is justified in presuming that the work is being done for the contractor and not the owner;

–  The policy reasons that underlie the rule that only a party to a contract can sue and be sued for its breach is to avoid double-recovery for a plaintiff or forcing a non-party into a “forced exchange” (i.e. where a third party is paying for something it never received)

–   A plaintiff can sue a non-party to a contract in situations where the non-party entices or encourages a plaintiff to perform;

(¶¶ 25-41).

Finding for the plaintiff, the Second District ruled that principles of fairness weighed in favor of allowing recovery from the general contractor even though there was no contractual relationship between it and plaintiff.

The record showed that plaintiff and defendant had multiple oral and written conversations before, during and after completion of the job.  The plaintiff sent correspondence to the defendant concerning the scope of the project and invoices after the piping work was finished.  This evidence supported plaintiff’s theory that the defendant actively encouraged the plaintiff’s work.

The Court also noted that the general contractor received over $200K worth of plaintiff’s piping work for which it didn’t pay and was fully paid over $40M by the project owner.  (¶¶ 16, 42).

In addition, the Court found that there was no risk of double-recovery for the plaintiff since it was proceeding against the general contractor alone (not the subcontractor) and there was no risk of double liability for the defendant since it wasn’t being sued by the subcontractor who hired the plaintiff.  Combined, these factors created a climate that justified the defendant general contractor paying the plaintiff for its project pipe-installation work.

Afterwords:

The case presents a good example of a court refusing to rigidly follow strict rules of privity of contract and quasi-contract recovery in favor of a more relaxed, fact-specific standard.  The fact that the defendant was paid $40M and was refusing to pay $200K worth of piping work figured prominently in the Court’s decision.

Going forward, if an owner or contractor receives the benefit of what it contracted for, is fully paid and there’s evidence that the owner (or general contractor) communicated directly with the performing subcontractor (or sub-subcontractor) during the course of the subcontractor’s work, a strong argument can be made that a sub or sub-subcontractor can recover under an implied contract theory.

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PaulP

Litigation attorney at Bielski Chapman, Ltd. representing businesses and individuals in business litigation, post-judgment enforcement, collections and real estate litigation.