Construction Law Insights

James G. Davis Constr. Corp. v. FFTJ, Inc., 841 S.E.2d 642 (Va. May 14, 2020)

On February 19, 2016, James G. Davis Construction Corporation (“Davis”), the general contractor, and H&2 Drywall Contractors (“H&2”) entered into a $1,269,396 subcontract with 10% retainage for H&2 to complete the drywall and metal framing for the project. H&2 entered into a Credit Application and Agreement with FTJ, Inc. f/k/a Ciesco Inc. (“FTJ”) for the purchase of materials. Renan Buendia, principal of H&2, personally guaranteed to pay FTJ any amounts owed by H&2. Davis, H&2, and FTJ entered into a joint check agreement, whereby: (i) FTJ would send invoices to Davis and H&2; (ii) Davis would write joint checks payable to H&2 and FTJ and deliver the checks to H&2; and (iii) H&2 would endorse the check and turn it over to FTJ.

However, Davis was only required to pay H&2 and FTJ by joint check to the extent Davis actually owed H&2. FTJ began shipping materials in July 2016. Payment was due within 60 days of the invoice date. When FTJ began experiencing delays, it contacted Davis.

By March 22, 2017, Davis concluded that H&2 would not be able to pay its suppliers. Between January 10 and March 22, FTJ made deliveries, but neither H&2 nor Davis paid for those materials. On March 21, 2017, Davis issued a “notice to cure” to H&2, who responded by stating it could not provide the required personnel and that Davis should hire another subcontractor. On March 22, 2017, Davis informed FTJ that there were problems between Davis and H&2 and asked FTJ to not ship any more materials on the joint check account. Davis assured FTJ that there were ample funds to pay FTJ. On March 23, 2017, Davis added FTJ to its account system.

On March 24, 2017, Davis terminated H&2, having paid H&2 $969,779.70 or $299,616.30 less than the revised contract price. On March 28, 2017, Davis hired another subcontractor and paid that subcontractor $260,007.00 to complete the job. Around April 6, 2017, Davis requested FTJ’s January 2017 invoices, which FTJ provided the next day. On April 10, 2017, FTJ requested a status update on Davis’ outstanding payments and Davis responded that a $160,670.05 payment was being processed. On April 12, 2017, FTJ again called Davis about the invoices and Davis told FTJ that the $160,670.05 payment was being processed. On April 21, 2017, Davis called FTJ and told FTJ that, because of the problems with H&2, the money that Davis had planned to use to pay FTJ was being used to complete the project and offered to settle FTJ’s invoices for $58,000.00. FTJ filed an amended complaint against Davis, H&2, and Buendia alleging breach of contract and unjust enrichment. Following a bench trial, the court found in favor of FTJ on its unjust enrichment claim against Davis.

In a 4-3 split opinion, the Supreme Court of Virginia affirmed the trial court’s decision. Unjust enrichment effects a contract implied in law requiring one who accepts and receives goods, services, or money from another to make reasonable compensation for those services. Unjust enrichment claims are governed by a three-part test: (1) the plaintiff conferred a benefit on the defendant; (2) the defendant knew of the benefit and should reasonably have expected to repay the plaintiff; and (3) the defendant accepted or retained the benefit. A variety of limiting principles restrict the reach of this doctrine. The existence of an express contract covering the same subject matter of the parties’ dispute precludes a claim for unjust enrichment. However, an express contract does not foreclose a claim for unjust enrichment when that claim falls outside the plain terns of the agreement. Although the joint check agreement may have been an express contract, it expressly stated that it did not create any contractual relationship between Davis and FTJ. Moreover, Davis’s repeated direct dealings with FTJ and repeated assurances FTJ received from Davis prompted FTJ to continue shipping supplies with the expectation that Davis would pay for those supplies.

Another limiting principle is that unjust enrichment claims will be denied when an owner or general contractor has previously paid for the goods or services in question, i.e. an owner or general contractor should not have to pay twice for the same supplies or services. In that case, there is no enrichment, much less unjust enrichment. Davis never paid anyone for the supplies FTJ supplied and delivered to the job and that Davis used in the project. Also, absent those materials, Davis would have had to obtain them elsewhere and pay for them. With respect to whether Davis reasonably expected to pay for the supplies and FTJ reasonably expected to be paid, the Court held the trial court’s award on the unjust enrichment claim was not plainly wrong because a factfinder could plausibly conclude that Davis expected to pay for the materials based on Davis’ course of conduct with FTJ (ex. starting the process of paying FTJ and Davis’ repeated and direct interactions with FTJ assuring FTJ that it would be paid) and FTJ expected to be paid for the materials it was encouraged to ship.

Before concluding, the Court emphasized the limited scope of its decision. “In ordinary circumstances, a supplier of labor or materials to a subcontractor will not be able to obtain a judgment against an owner or general contractor. Moreover, where a contract actually governs the relationship of the parties, it will foreclose relief under an unjust enrichment theory.”

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