Construction jobs involve numerous contractual relationships between and among general contractors, suppliers, architects, and subcontractors (to name a few of the relationships). In most cases, aside from exceptions such as mechanic’s liens, the concept of contractual privity keeps those “lower” on the contractual chain from jumping over the party with whom that company has a contract (for instance a supplier contract with a subcontractor) and suing a different party (for instance the general contractor). Recently the Virginia Supreme Court (over a lengthy dissent) provided a limited exception to this general rule in the context of unjust enrichment and joint check agreements.
In James G. Davis Construction Corporation v. FTJ, Inc. f/k/a Ciesco, Inc., the Court found that under the facts of the case, FTJ, the supplier to a subcontractor of Davis Construction could recover against Davis Construction using a theory of unjust enrichment. The general facts are as follows:
Davis Construction contracted with H&2 Drywall Contractors to assist with a residential condominium project. H&2 agreed to purchase materials from FTJ and to pay FTJ for materials delivered. Davis Construction and H&2 entered into a joint check agreement specifying a method for how FTJ would be paid for the materials it shipped to the job. FTJ ultimately shipped $252,062 in materials for which it was not paid due to H&2’s financial difficulties. Representatives of Davis Construction provided assurances of payment for materials to FTJ despite the lack of a contract between FTJ and Davis Construction and FTJ continued to supply materials based on these assurances. Davis Construction ultimately used those materials to complete the project. FTJ sued Davis Construction and H&2 alleging breach of contract and unjust enrichment. FTJ obtained a default judgment against H&2. After a trial, the Arlington County Circuit Court granted judgment for FTJ against Davis Construction based on the unjust enrichment claim.
Without going into the full reasoning laid out by Justice McCullough, and over a strongly worded dissent, the majority of the Virginia Supreme Court held: the Supreme Court affirmed, holding (1) the joint check agreement did not foreclose relief; (2) Davis Construction was not being compelled to pay twice for the materials, and (3) FTJ was permitted to obtain relief for Davis Construction’s unjust enrichment.
Before suppliers and their counsel decide that all joint check agreements open the door to unjust enrichment claims of this sort, note that the Court took great pains to limit this opinion to the facts of the particular joint check agreement and other facts of the case before it. Further, the dissent makes a good case that absent strict privity application on construction projects the supremacy of written contractual relationships that grant certainty would be upset. Because of the limiting language and the strong dissent, I am not at all confident that the case will be anything but an outlier without a general application. To determine if your particular situation would allow for an unjust enrichment claim of this sort, be sure to consult an experienced Virginia construction lawyer.
The majority opinion is close to 17 pages long and the dissent just as long so I recommend the case to your reading. Both the majority and the dissent contain great discussions of the law of unjust enrichment and cite good arguments for their respective positions.
If you have a subscription, Virginia Lawyers Weekly has its summary of the case here.
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