Examples of Unjust Enrichment

It is a general principle of contract law that a successful claimant in a breach of contract case is entitled to be put back in the same position it would have held had the breach not occurred. Unjust enrichment is:

a benefit by chance, mistake or another’s misfortune for which the one enriched has not paid or worked and morally and ethically should not keep. If the money or property received rightly should have been delivered or belonged to another, then the party enriched must make restitution to the rightful owner. Usually, a court will order such restitution if a lawsuit is brought by the party who should have the money or property.¹

Under an unjust enrichment claim, the defendant (owner) unjustly receives and retains something of value at the plaintiff’s (contractor’s) expense. Unjust enrichment precedes restitution, which is the restoration of the contractor and owner to a just and equitable state. Unjust enrichment is the act or state of imbalance or inequity, and restitution is the return to equity.

This is the first blog post in a three-part series on unjust enrichment claims in construction contracts. This post explores examples of unjust enrichment, and the second post discusses recovery for unjust enrichment in “express contracts,” quasi-contracts, or contracts implied in law. The third post focuses on obstacles to recovery for unjust enrichment and conclusions.

An example of an unjust enrichment claim could occur if an owner is in possession of a substantially complete mineral processing plant, and under a time and materials contract, the contractor has incurred significant increased costs for changes in its scope of work, including a significant increase in plant capacity. The owner has not paid any of the contractor’s change order claims for additional costs because the owner believes they are unreasonable. Litigation to resolve the dispute has occurred. The situation may be inequitable, and the court may apply what amounts to a quantum meruit approach to determine the damages to be awarded to the contractor. In these circumstances, the court may disregard the specific terms of the contract and look to the value of the work performed.²

When unjust enrichment occurs in commercial transactions, restitution can be achieved simply by returning the purchased goods. For example, if the recipient of a shipment of lumber does not pay for the lumber, restitution is simply to return the lumber. In general, restitution cannot be achieved in the construction industry simply by returning materials or items to the contractor if the items have been installed or work performed. The disassembly of a process plant will not give a contractor restitution. Instead, the contractor must seek to recover the reasonable value of the work performed as determined through the dispute resolution process defined in the contract.

Unjust enrichment is determined by three conditions:

• The contractor provides materials or services of value to the owner.
• The materials or services received from the contractor benefit or enrich the owner.
• There is reasonable expectation of compensation for the services or materials provided by the contractor.

The following contractor’s claim against a city is another example illustrating unjust enrichment. The city asked the contractor to submit a proposal for performing street repair work. Unknown to the contractor, the city had failed to properly advertise for bids. The city accepted and approved the contractor’s proposal, and a contract was executed.

The contractor had only received a single partial payment for its completed work when the city denied further payment. The denial of payment was based on the contract being illegal due to the city’s improper bidding procedure.

The contractor sued for full payment for the work performed. The court determined that the contractor was unaware of the unfulfilled bidding requirements of the state statute and that the contractor believed a valid contract existed. The court affirmed that the contractor had the right to be paid the full amount of the services rendered under the theory of unjust enrichment.³

The requirements justifying this claim due to unjust enrichment are:

• The contractor provided street repair services to the city.
• Such services enriched the city.
• The contractor had reasonable expectation that payment would be made for such services.

The fact that the contractor was not at fault and did not participate in the improper actions of the city is also important. For instance, if the city and contractor had consulted one another on the need to fulfill requirements on advertisement of bids, then the contractor could be perceived as being involved in the decision-making process. If the contractor had actively or knowingly contributed to the error, restitution may not have resulted.

In another example, an owner may have terminated a contract before completion and may be found to be in breach of contract, but at the same time, it could be shown that the contractor would have suffered a substantial loss if it would have completed the contract. Following strict application of the principle of contract damages, there would in these circumstances be no loss to the contractor. Frequently, however, particularly in international disputes that go before arbitrators, the contractual damages rules are set aside, and an approach founded more on equity, rather than contract, is applied. The rationale is that to follow the strict contractual route would leave the owner enjoying what is sometimes referred to as an unjust enrichment.

¹     “unjust enrichment,” Law.com, ALM Media Properties, LLC, 2024. https://dictionary.law.com/default.aspx?selected=2197#:~:text=a%20benefit%20by%20chance%2C%20mistake,restitution%20to%20the%20rightful%20owner.

²    Restatement (Second) of Contracts § 344 (c) and comment a; c. McCormick, Damages § 164, at 642 (1935); United States ex rel. Bldg. Rental Corp. v. Western Casualty & Sur. Co., 498 F.2d 335, 338 (9th Cir. 1974); B.C. Richter Contracting Co. v. Continental Casualty Co., 230 Cal. App. 2d 491, 499-500, 41 Cal. Rptr. 98, 104 (1964).

³    Construction Law Claims & Liability, Remedies and Damages § 15.6A (CR.7/87), 1987.

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