Summary
holding that a landlord could keep the improvements a tenant's contractor made to leased premises because the tenant defaulted on its lease and the contractor never had any reason to expect that the landlord would pay the contractor, and noting that to successfully show that the circumstances were unjust, “the facts must also demonstrate an injustice such as fraud or coercion. At a minimum, there must be some type of improper, misleading, or deceitful conduct”
Summary of this case from Abercrombie v. Aetna Health, Inc.Opinion
No. 96SC745
September 14, 1998
Appeal from the District Court, City and County of Denver.
JUDGMENT AFFIRMED
Pearson Milligan Horowitz, P.C., Robert Horowitz, Jo Lauren Seavy, Denver, Colorado, Attorneys for Petitioner.
Phillip C. Gans, P.C., Phillip C. Gans, Denver, Colorado, Attorneys for Respondent.
We granted certiorari in this case to review the court of appeals' ruling in R.A.S. Builders, Inc. v. Euclid Commonwealth Associates, No. 95CA1395 (Colo.App. Aug. 29, 1996) (not selected for publication). The issue on review is identical to that presented in DCB Construction Co., Inc. v. Central City Development Co., No. 96SC672 (Colo. Sept. 14, 1998), and involves whether a contractor that improved leased property under a contract with the tenant can recover from the owner of the property for unjust enrichment when the tenant fails to pay the contractor. As we held in DCB Construction, any enrichment of the owner will not be unjust unless the owner engaged in some type of improper, deceitful, or misleading conduct. Although the owner in this case had agreed, under certain conditions, to pay the tenant $60,000 toward remodeling, the owner did not in any way mislead or deceive the contractor. Accordingly, we affirm the court of appeals' ruling that this contractor may not recover from the owner.
I.
Euclid Commonwealth Associates (Euclid) is the owner of a shopping center located on East Hampden Avenue in Aurora. Euclid retained Sevo Miller, Inc. to manage the property. In January of 1994, Euclid leased the property to Child Care Centers of North America, Inc. d/b/a Kid's Place (Child Care Centers). The lease was for a term of seven years and provided for graduated rental payments beginning at zero for the first three months and increasing incrementally to $2,567.50 per month. Under the terms of the lease, Child Care Centers was responsible for all interior tenant finish construction, and Euclid had the right to approve the plans and specifications for such construction. Paragraph 3.6 of the lease specified that all interior construction would be done at Child Care Centers' sole cost and expense, and that Child Care Centers would be "wholly responsible to all contractors, subcontractors, laborers and materialmen." Child Care Centers agreed to ensure that no liens attached to the property and agreed to, and did, post a notice that the property would not be subject to any liens.
Euclid agreed to pay $60,000 to Child Care Centers to defray the cost of the construction if (1) the work was substantially completed; (2) Child Care Centers delivered to Euclid all lien waivers for work performed; and (3) the appropriate agency had issued a certificate of occupancy.
Child Care Centers subsequently entered into a contract with R.A.S. Builders, Inc. (R.A.S.) for tenant finish construction. The contract price was $101,840 plus any change orders. Within a couple of months, Child Care Centers began to experience financial difficulties. It defaulted on the lease and never paid any rent to Euclid. It also failed to pay R.A.S. for the work performed, and by September of 1994 had filed for bankruptcy protection. R.A.S. eventually filed suit against Sevo Miller, Euclid, and two of the principals of Child Care Centers. The only claim with which we are concerned here is R.A.S.'s claim of unjust enrichment against Euclid, the owner of the shopping center.
The parties offer somewhat differing versions and characterizations of the facts leading up to this suit, however the trial court made findings of fact on all pertinent issues. The record supports these findings, and thus we accept them for purposes of our review. See First Interstate Bank v. Tanktech, Inc., 864 P.2d 116, 122 (Colo. 1993)("We defer to findings of fact by the trial court unless clearly erroneous and not supported by the record.").
When negotiating the tenant finish construction contract, Child Care Centers informed R.A.S. of the $60,000 allowance from Euclid. Concerned about Child Care Centers' finances, David LaVoy and Mike Brown from R.A.S. telephoned Ira Schwartz, a representative of Sevo Miller, the property manager. The trial court found that during that brief conversation, Schwartz confirmed to LaVoy and Brown that the lease between Child Care Centers and Euclid did contain a provision for Euclid to contribute $60,000 to Child Care Centers for tenant finish construction under certain conditions. The court found that Schwartz did not relate the details of the conditions, but that LaVoy and Brown both had sufficient experience in the construction industry to know generally what these conditions were. The court also found that Schwartz told LaVoy and Brown that Euclid was satisfied that Child Care Centers would be able to perform under the lease, but that if R.A.S. required further confirmation with respect to the tenant finish contract, R.A.S. would have to "do [its] own homework."
R.A.S. began the construction in May of 1994, but various delays caused the work to extend beyond the original completion date. The trial court found the delays to be the usual ones associated with construction contracts. On August 1, 1994, Child Care Centers issued a stop work order to R.A.S. directing R.A.S. to cease construction activity immediately. The letter asserted that delays in the project would cause Child Care Centers to miss the new enrollment period for the fall, 1994 school year and would result in a $40,000 loss to Child Care Centers.
R.A.S. notified Child Care Centers that it could be finished with the work by August 15, and, without response or objection from Child Care Centers, continued to work until that date. The court found that R.A.S. continued to work in order to forestall anticipated legal problems implied in the letter from Child Care Centers.
The court found that as of August 1, R.A.S. had completed sixty percent of the work, and by August 15, eighty percent of the work. The court also found that R.A.S.'s failure to complete the entire project was attributable in part to the fact that Child Care Centers had not provided certain necessary appliances for installation.
The court held that under the circumstances, Euclid received a benefit from R.A.S. because the construction improved the premises. The court further held that it would be unjust for Euclid to retain the benefit conferred by R.A.S. without payment of its value. The court found that the total contract price, including change orders, amounted to $106,695. Noting that Euclid did not realize its expectation under the lease because Child Care Centers paid no rent, the court determined that an equitable award to R.A.S. would be eighty percent of the $60,000 allowance Euclid had promised to pay Child Care Centers.
Euclid appealed, and the court of appeals reversed, holding that there were no special and unique circumstances that would create an such an injustice as to merit restitution. See R.A.S. Builders, No. 95CA1395, slip op. at 4. We agree.
II.
In DCB Construction, we clarified that the elements of an unjust enrichment claim are: (1) at plaintiff's expense (2) defendant received a benefit (3) under circumstances that would make it unjust for defendant to retain the benefit without paying. See DCB Constr., No. 96SC672, slip op. at 10.
Here, the work performed on Euclid's property was clearly at R.A.S.'s expense. R.A.S. completed eighty percent of the work on a $106,695 project and was not paid. With respect to the second prong of the test, the trial court found, and the record supports, that R.A.S.'s improvements enhanced the value of Euclid's property. The trial court noted that Euclid's representative conceded at trial that the improvements had value to Euclid.
Therefore, the dispute centers on the third prong of the test. In DCB Construction, we held that it is not enough that a tenant breached its contract to pay a contractor and that the landlord owns the property improved by the construction. See DCB Constr., No. 96SC672, slip op. at 14 (citing Restatement of Restitution 110). Instead we concluded that the facts must also demonstrate an injustice such as fraud or coercion. See generally Restatement of Restitution (1937). At a minimum, there must be some type of improper, misleading, or deceitful conduct by the owner. Otherwise, we adhere to the general rule that an owner is not liable for improvements made to his property for which he did not agree to pay. See DCB Constr., No. 96SC672, slip op. at 13. As we noted, this rule protects the right to be free of liability for the contractual obligations of another. See id. at 13-14.
Here, although Euclid contracted to pay Child Care Centers $60,000 toward tenant finish if Child Care Centers had met the required conditions and not defaulted under the lease, the terms of that contract were not met. Child Care Centers did not fulfill the conditions precedent necessary for payment under the lease, and thus Euclid was not required to tender payment. Euclid, through its agent Sevo Miller, never promised to pay or even implied that it would pay R.A.S. directly for any of its work. According to the trial court's findings of fact about the telephone conversation between Schwartz, LaVoy, and Brown, Schwartz simply confirmed the terms of the lease with Child Care Centers. Schwartz told LaVoy and Brown that Euclid was required to pay $60,000 to Child Care Centers under certain conditions. This statement did not mislead or deceive R.A.S. in any way; it was a fact. Schwartz did not attempt to urge R.A.S. to rely on this payment in making a determination about the creditworthiness of Child Care Centers. To the contrary, Schwartz advised R.A.S. to conduct its own investigation of Child Care Centers to evaluate any risk.
The record reflects that there was some discussion about whether Euclid would issue a joint check to both Child Care Centers and R.A.S. upon completion of the work. However, Schwartz testified that he told LaVoy and Brown that he would have to consult the owner because he did not have authority to agree on the owner's behalf to issue a joint check.
Under these circumstances, we find that Euclid, through its agent Sevo Miller, did not engage in any improper, misleading, or deceitful conduct. Absent any of these conditions, we find that any enrichment of Euclid by virtue of R.A.S. performing its contract with Child Care Centers was not unjust.
Accordingly, we affirm the decision of the court of appeals.
CHIEF JUSTICE MULLARKEY dissents and JUSTICE SCOTT joins in the dissent.