Pennsylvania Superior Court Clarifies Criteria for Unjust Enrichment Recovery by Subcontractor

Northeast Fence & Iron Works, Inc. v. Murphy Quigley Co.
933 A.2d 664, 2007 Pa. Super. LEXIS 3092 (Pa. Super. Ct. Sept. 18, 2007)

The Pennsylvania Superior Court held that a subcontractor could recover on a theory of unjust enrichment against a contractor where the subcontractor proved that it performed work for which it was not paid and that this work satisfied the contractor’s obligations to a third party. The Subcontractor was not required to prove payment to the Contractor by the Owner.

The case arose out of a contract between Murphy Quigley Co. (the “Contractor”) and the Bucks County Correctional Facility for the modifications to perimeter security through the installation of perimeter fencing, creation of seven fence-enclosed recreational yards, demolition work, and the upgrading of some aspects of the existing security system (the “Contract”). The perimeter fencing and the enclosed recreational yards comprised a significant amount of the Project. The Contract was valued at $713,000. The Contractor originally entered into a subcontract with Eagle Fence for the fencing work. Eagle Fence, however, left the worksite after approximately ten to fifteen percent of the work was complete, apparently due to nonpayment. The Contractor obtained estimates to complete Eagle Fence’s work for both completion and repair of some of Eagle Fence’s work. Northeast Fence & Iron Works (the “Subcontractor”) was contacted to obtain a quote and was hired to complete the Project.

The Contractor and Subcontractor agreed that the perimeter fencing work would be completed for a lump sum of $26,500. The parties differed, however, as to the agreed price for the installation of the fencing surrounding the recreational yards. The Contractor’s project manager testified that the proposal for the seven recreational yards was $3,500 per day for two iron workers, two laborers, and two trucks, with four to five days estimated per yard. Although the project manager believed the estimate was excessive, the project manager testified that he accepted it as the maximum for each yard would be only $17,500 and overall $122,500. The project manager testified that the subcontract would be limited to $149,000 for the perimeter fencing and recreational yards.

The owner of the Subcontractor testified that the contract was an emergency contract due to Eagle Fence’s abandonment. The owner testified that when he visited the Project site, it was in disarray and muddy, therefore preventing him from determining the exact amount of work needed to complete the recreational yards. He testified that he presented a $3,500 per diem proposal with no maximum and that this proposal was accepted by the Contractor.

The trial court concluded that based upon the discrepancy over the contract pricing for the recreational yards, there was no meeting of the minds and thus no contract. The trial court did, however, find for the Subcontractor on an unjust enrichment cause of action and awarded the Subcontractor $114,264.06 in damages.

The Subcontractor presented evidence of $134,428.30 of outstanding invoices and testimony that the Contractor’s project manager promised to pay the Subcontractor and never raised any issues about the quality of work or the credentials of the Subcontractor’s workers. The Contractor offered competing evidence that some of the invoices were not paid because the Subcontractor was using nonunion workers in violation of the Contractor’s contract with the prison. The Contractor also offered evidence that it had to expend $26,220 to correct defective work and $52,014.22 to complete the job after the Subcontractor left. The trial court did not accept the Contractor’s evidence citing that the defenses “appeared to be created solely for litigation.” The trial court calculated the value of the Subcontractor’s unpaid work at $114,246.06, which represented $134,428.30, the amount owed on the invoices, less fifteen percent that Eagle Fence had performed on the Project.

The Contractor then filed an appeal before the Superior Court arguing that the Subcontractor did not plead “quantum meruit” and thus could not recover under that theory. The Superior Court held that the Subcontractor pled “unjust enrichment,” which is a synonym for quantum meruit and thus rejected the Contractor’s appeal on this grounds.

The Contractor also appealed its denial of a request for judgment notwithstanding the verdict. The Superior Court first held that the Subcontractor properly asserted a cause of action for unjust enrichment as there was no express contract between the parties because there was a dispute over the contract price, an essential term of the contract. Citing several prior Pennsylvania appellate cases, the Contractor attempted to maintain on appeal that the Subcontractor was required not just to produce invoices to show the value of the work, but rather to show that the Contractor was paid by the landowner for the work.

The Contractor relied on D.A. Hill Co. v. Clevetrust Realty Investors, 524 Pa. 425 (1990). In D.A. Hill, unpaid subcontractors instituted an unjust enrichment cause of action against a lender claiming that the lender should pay them for work performed and invoiced, but not paid by the owner. The lender defended on the grounds that it had not been enriched as it had paid the developer various amounts. The Supreme Court held that the invoices did not establish the value of the benefit conferred to the lender as the subcontractors failed to prove that the value of the improved property at the time of foreclosure exceeded amounts already advanced by the lender on the construction loan. In another case Meehan v. Cheltenham Township, 410 Pa. 446 (1963), the Supreme Court similarly declined to award under a theory of unjust enrichment to a subcontractor finding that the subcontractor had failed to prove that the benefit that it provided exceeded the cost to the township of maintaining the project (in this case, roads). The Court stressed that there was no evidence that the township had misled the subcontractor into making the improvements. Finally in Ravin, Inc. v. First City Co., 692 A.2d 577 (Pa. Super. Ct. 1997), the Superior Court prevented a plaintiff from recovering against a building owner where the owner made no request for the plaintiff’s services and had not misled the plaintiff.

The Superior Court found that the trial court appropriately awarded the Subcontractor recovery under a theory of unjust enrichment. The Superior Court stressed that unlike the landowners or lender in D.A. Hill, Meehan, or Ravin, the Contractor was the general contractor for the construction project. Thus, the Subcontractor’s work “clearly benefited” the Contractor as it satisfied the Contractor’s contractual obligations to the prison. The Superior Court held that the Subcontractor did not need to prove that the Contractor was paid by the prison as the benefit to the Contractor was the aforementioned satisfaction of its contractual obligations. The Superior Court noted that while the Subcontractor could not recover its labor and costs against the landowner, it was not precluded under D.A. Hill from recovering for unjust enrichment against the general contractor.

The Superior Court thus affirmed the judgment of the trial court finding for the Subcontractor on the theory of unjust enrichment.

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