Flooring Systems, Inc. v. Radisson Group, Inc.
772 P.2d 578, 31 Ariz. Adv. Rep. 9, 160 Ariz. 224 (1989)
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Rule of Law:
An owner may be unjustly enriched by a subcontractor's work, even in the presence of a contract between the subcontractor and a general contractor, if the subcontractor did not intend to provide the work gratuitously, the owner withheld final payment from the general contractor based on the subcontractor not being paid, and allowing the owner to retain the benefit without compensation would be unjust.
Facts:
- In July 1985, CSA, acting as Radisson's agent, invited Flooring Systems, Inc. (Flooring) to bid on carpeting work for the Scottsdale Radisson Resort.
- In August 1985, Flooring submitted a bid, which CSA accepted.
- In October 1985, Radisson chose Five Star Services, Inc. as the general contractor for the renovations and executed a general contract with Five Star.
- Five Star subsequently entered into a subcontract agreement with Flooring for the same carpeting work.
- Flooring completed its carpeting work under the subcontract.
- Five Star failed to pay Flooring the full amount due under the subcontract.
- Because Five Star defaulted on its payment to Flooring, Radisson withheld approximately $25,000 due under its general contract with Five Star, as permitted by a clause allowing it to withhold final payment until all known indebtedness was satisfied.
Procedural Posture:
- Flooring Systems, Inc. sued Radisson Group, Inc., CSA, Inc., and Five Star Services, Inc. in the trial court (the court of first instance) for breach of contract and unjust enrichment.
- Five Star Services, Inc. filed for bankruptcy and was subsequently dismissed as a party from the lawsuit.
- Radisson Group, Inc. and CSA, Inc. moved for summary judgment against Flooring Systems, Inc. in the trial court.
- The trial court granted summary judgment against Flooring Systems, Inc. on all claims.
- Flooring Systems, Inc. appealed the trial court's grant of summary judgment to the Arizona Court of Appeals (Flooring Systems, Inc. v. Radisson Group, Inc., 158 Ariz. 111, 761 P.2d 733 (App.1988)).
- The Arizona Court of Appeals affirmed the trial court's summary judgment in favor of Radisson Group, Inc. and CSA, Inc., including its finding that a novation had occurred and rejecting the unjust enrichment claim.
- Flooring Systems, Inc. then petitioned the Supreme Court of Arizona for review, arguing errors regarding novation, reliance on common industry practice, and the rejection of its unjust enrichment claim; the Supreme Court granted review on the unjust enrichment issue only.
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Issue:
Does a general contractor's failure to pay a subcontractor automatically preclude the subcontractor from recovering from the owner on a claim of unjust enrichment, when the owner has withheld funds from the general contractor due to the subcontractor's non-payment?
Opinions:
Majority - Corcoran, Justice
No, a general contractor's failure to pay a subcontractor does not automatically preclude the subcontractor from recovering from the owner on an unjust enrichment claim, especially when the owner has withheld funds from the general contractor based on the subcontractor's non-payment. The Court applied its analysis from Murdock-Bryant Constr., Inc. v. Pearson, noting that a party may be liable for restitution for benefits received even without a direct contract, as long as the services were not intended to be gratuitous or officious. Flooring's contract with Five Star evidenced its expectation of compensation. The Court distinguished prior cases, Stratton and Advance Leasing, where the owners had fully paid the general contractors and thus were not unjustly enriched. In this case, Radisson withheld payment from Five Star specifically because Flooring had not been paid, demonstrating Radisson's awareness of the non-payment and its retention of the benefit of Flooring's work. The Court concluded that under these circumstances, allowing Radisson and CSA to retain the full benefit of Flooring's work without compensating Flooring would be unjust. Therefore, summary judgment in favor of Radisson and CSA on the unjust enrichment claim was improper.
Analysis:
This case significantly clarifies the application of unjust enrichment in the construction industry, particularly regarding subcontractors’ rights against property owners. It limits the broad interpretation of prior precedent that often barred subcontractors from recovering directly from owners due to existing contracts with general contractors. By focusing on whether the owner has retained a tangible benefit without full payment to the general contractor for the subcontractor's work, the court provides a crucial avenue for subcontractors to pursue quasi-contractual remedies when a general contractor defaults. This decision ensures that owners cannot unjustly retain the benefit of completed work while withholding funds intended for that work, thus offering greater protection to subcontractors in complex contractual arrangements.
