Lead Opinion
Wе granted certiorari to review the court of appeals’ ruling in DCB Construction Co., Inc. v. Central City Development Co.,
I.
Central City Development Company (CCDC) is the owner of an historic commercial building in Central City, Colorado. In January of 1992, CCDC entered into a five-year lease
The lease between CCDC and Tenant provided that Tenant would pay all costs associated with remodeling regardless of the amount, and would indemnify CCDC against any liens or claims arising out of the work. The Tenant was to post a notice on the premises informing architects, draftsmen, planners, contractors or subcontractors, and suppliers of labor or material and equipment that the property would not be subject to a lien for the improvements. The Tenant did in fact post the notice, which stated in pertinent part:
[CCDC] shall not be liable for any erection, construction, alteration, removal, addition, repair, or other improvement, and the owner’s interest in the above described property shall not be subject to a hen for any erection, construction, alteration, removal, addition, repair, or other improvement to [the leased premises].
(Emphasis in original.) DCB does not dispute that it was aware of the notice, and it
Under its contract with Tenant, DCB completed significant improvements to the interi- or of the building, including constructing a foundation retaining wall and a steel frame with flooring. DCB installed carpentry framing, roof joists, stairs, a fire sprinkler system, electrical wiring, plumbing, heating, ventilation, and air conditioning. A representative of CCDC was present on the premises fairly regularly during the construction; however, CCDC did not communicate with or direct DCB regarding the work. In November of 1992, DCB stopped work on the building because of Tenant’s failure to pay. In all, DCB submitted bills to Tenant totaling $371,245, of which amount Tenant paid $76,-515.
Tenant also defaulted under its lease agreement, and stopped paying rent in December of 1992. Tenant paid a total of $427,-500 to CCDC during the term of the lease ($50,000 of which was later dispersed to subcontractors). After Tenant vacated the premises, CCDC placed a “For Rent” sign on the building, but, as of the date of the trial, had received no inquiries about purchasing or leasing the building.
In the wаke of these defaults, the subcontractors and DCB filed claims against Tenant and CCDC, and CCDC pursued Tenant for eviction. The three cases were consolidated in the trial court. CCDC obtained an eviction order against Tenant dated February 12, 1993. DCB obtained a judgment against Tenant for $332,026.35, but Tenant was insolvent. The various claims of the subcontractors were dismissed after a settlement was reached.
The only remaining claims were DCB’s claim against CCDC for unjust enrichment, and CCDC’s counterclaims against DCB for negligent misrepresentation and fraudulent misrepresentation. DCB claimed that principles of unjust enrichment required CCDC to compensate DCB, because CCDC had received the benefit of the property improvement. CCDC, in turn, claimed that DCB had either negligently or fraudulently misrepresented the estimated amount necessary to complete its work on the premises.
After a bench trial, the trial court ruled against CCDC on its misrepresentation claims, finding a “total failure of proof of fraudulent conduct or negligent misrepresentation” by DCB. The court then ruled in favor of DCB on its claim of unjust enrichment. The court entered judgment against CCDC in the amount Tenant owed DCB plus interest and costs for a total of $333,191.
CCDC appealed both of the trial court’s rulings. The court of appeals affirmed the trial court’s ruling that DCB had not made a negligent or fraudulent misrepresentation to CCDC, but reversed the judgment for unjust enrichment. The court of appeals held that under the facts of this case, where there was no mistake, fraud, duress, or other improper conduct by CCDC, any enrichment of CCDC by DCB was not unjust.
II.
DCB’s claim of unjust enrichment is a legal claim in quasi-contract for money damages based upon principles of restitution. See 1 George E. Palmer, The Law of Restitution §§ 1.1, 1.2 (1978). The Restatement of Restitution § 1 states “[a] person who has been unjustly enriched at the expense of
When restitution is the primary basis of a claim, as opposed to a remedy for bargains gone awry, it invokes what has been called a “contract impliеd in law.” See Joseph M. Perillo, Restitution in a Contractual Context, 73 Colum. L.Rev. 1208, 1212-13 (1973) (noting the fundamental dichotomy between “quasi-contract as a source of primary rights versus quasi-contract as a remedy”); see also Ninth Dist. Prod. Credit Ass’n v. Ed Duggan, Inc.,
The unjust enrichment claim in the context of a contract implied in law does not depend in any way upon a promise or privity between the parties. See Wistrand v. Leach Realty Co.,
The elements of the claim are based upon the principles stated in the Restatement of Restitution § 1, and we have previously expressed these elements as follows:
(1) that a benefit was conferred on the defendant by the plaintiff, (2) that the benefit was appreciated by the defendant, and
(3) that the benefit was accepted by the defendant under such circumstances that it would be inequitable for it to be retained without payment of its value.
Cablevision of Breckenridge, Inc. v. Tannhauser Condominium Ass’n,
This articulation of the test has spawned some confusion. For example, the second prong of this test calls for the defendant to “appreciate” the benefit. Courts using tests with similar language frequently analyze “appreciation” as knowledge or acquiescence. See e.g., Thompson v. Welles,
The third prong of this test requires defendant to “accept” the benefit. This requirement is rarely meaningful because in many cases the defendant is unаble to stop plaintiff from conferring the benefit at issue and/or cannot return it. Compare, Jordan v. Lone Pines, Ltd.,
Because experience has demonstrated some flaws in the old test, we now clarify and restate the test for recovery under a theory of unjust enrichment as: (1) at plaintiffs expense (2) defendant received a benefit (3) under circumstances that would make it unjust for defendant to retain the benefit with
III.
Considering the first prong of the test, in this case there is no question that any benefit CCDC received came at DCB’s expense. DCB performed construction work • on CCDC’s building over a period of approximately six months, and Tenant paid DCB for only a fraction of the work.
The second prong examines whether defendant was benefited or enriched. The trial court specifically found, based on the expert evidence submitted, that the building is now worth more than it was before DCB’s work. In its order, the trial court rejected the argument that under Frank M. Hall & Co. v. Southwest Properties Venture,
The Hall case does not contain a definition of the word “appreciated.” The Court can assume that one of the meanings of appreciated must be that the owner received a benefit, however, since this building has not yet been leased, CCDC argues that the test set forth in the Hall case has not been met. The Court specifically finds that the word “appreciated” cannot mean that the property has to have been leased or sold before a judgment based on unjust enrichment can enter.... I find that CCDC has appreciated the benefit because the building is now more valuable than it would be without [the improvements made by DCB].
As we noted above, the term “appreciation” requires the court to determine whether defendant received a benefit. Evidence that the building has been sold or released, depending upon the terms and circumstances, might support the conclusion that defendant indeed received a benefit. However, the absence of a sale or re-lease does not definitively prove the converse.
The trial court’s finding that the building is now worth more after the remodeling than before is sufficient to show that CCDC benefited.
IV.
The third prong of the test requires consideration of whether it would be unjust to allow CCDC to retain the benefit conferred without paying its value. The notion of what is or is not “unjust” is an inherently malleable and unpredictable standard. Because tenants frequently contract for improvements to leased property, the law must be sufficiently predictable so that the appropriate parties can adequately calculate and make adjustments for the risks they face. Landlords need to know, with some degree of certainty, what behavior and circumstances will subject them to these claims; and contractors likewise should be able to make risk-adjusted pricing decisions and implement appropriate payment-protection provisions. Thus, we think it is important to articulate a general rule, applicable in this context, that provides more stability and predictability than an ad hoc review. Compare S & M Rotogravure Serv., Inc. v. Baer,
With this principle in mind, we begin our analysis with two basic propositions. First, there is the general rule that when an individual who is not the owner orders improvements on the owner’s land and then fails to pay the contractor or supplier, “the owner is not liable to the contractor or supplier unless he agreed to pay them.” 3 Dan B. Dobbs, The Law of Remedies § 12.20(3) at 473 (2d ed.1993); see also Brannan Sand & Gravel Co. v. Santa Fe Land & Improvement Co.,
The rule seeks to protect personal autonomy and rights of choice. See generally Dobbs, supra § 12.20(3) at 472. Ordinarily, an owner should not be forced into “legal relations with someone other than the contract partner he ha[s] chosen.”
Second, the Restatement of Restitution § 110 provides that “[a] person who has conferred a benefit upon another as the performance of a contract with a third person is not entitled to restitution from the other merely because of the failure of performance by the third person.” Restatement of Restitution § 110 (1937) (emphasis added).
Application of these principles to this case suggests that CCDC should not be held liable for the improvements ordered by Tenant. CCDC did not agree to pay for the improvements, and should not be forced into a quasi-eontractual relationship with DCB. It is not enough that CCDC owns the improved building and that Tenant breached its contract to pay for those improvements. There must be more. It is unjust for a contractor to bear the loss of a debt unpaid. However, it is not necessarily just or right to impose that debt upon the owner of the property merely to rectify the first injustice. If that were so, anyone benefiting from another’s services could be hable for those services. We all enjoy the protection that we are generally not hable for services or goods for which we did not contract. The courts should be slow to impose obligations in the absence of a contract; slow to impose the debts of one party upon another.
Hence an injustice that warrants the court’s imposition of the remedy of restitution must rest not only in the loss to the contractor, but also in the conduct of the owner. The Restatement of Restitution sets forth several general doctrines, such as fraud, mistake, coercion, and request, that are instructive in defining the notion of injustice. Although this list does not exhaust the potential sources of injustice, it provides a framework with which to begin analysis of unjust enrichment claims.
Some of these doctrines lend themselves to application within the context оf nonbar-gained benefits.
In the instant case, we do not have allegations that fit neatly into the applicable “injustice” categories suggested by the Restatement. However, the general theme of these doctrines sheds light on the concept of unjust enrichment in the landlord/tenant/contractor context. The principle that defines and connects these examples is that “injustice” involves some form of improper conduct by the party to be charged.
DCB cites Hall and contends that the nature of CCDC’s involvement in the enterprise is sufficient to render its retention of the benefit unjust. In Hall, the court of appeals held that a contractor could recover in unjust enrichment from a landlord where:
[t]he landlord not only gave its permission for the work but took an active role in its completion. Indeed, the lease required that the improvements be made, and provided that they would revert to the landlord upon termination of the lease. They were made according to the landlord’s specifications, and were inspected and aрproved by it.
Hall,
We hold that these facts alone would not render CCDC’s retention of the benefit unjust. A landlord will virtually always retain the right to give or withhold permission for work to be done on its premises. As owner of the premises, the landlord is generally required to apply for and execute building permits or other necessary documents. The landlord has a strong and legitimate interest in pre-approving and monitoring any significant construction. Similarly, the landlord’s participation in creating and/or apprоving specifications is a natural product of its interest in the property and is a matter of concern solely between the landlord and the tenant.
We do not find it unjust for a landlord to be closely involved in an enterprise for which it has contracted and given consideration to another. We thus disapprove that portion of Hall that would allow an unjust enrichment claim based solely upon the landlord’s involvement. If we were to approve this formula for evaluating injustice, we would adopt a rule that essentially makes the landlord an insurer of the risk assumed by contractors in extending credit to tenants. See Dawson, supra at 1448 (noting policy problems with restitution claims in this context and asking, “[i]f it can be shown that the third party has received an uncompеnsated gain, is he to be made, to the extent of the gain, an insurer of the return promised by the defaulting promi-sor?”).
Rather, we hold that injustice in this context requires some type of improper, deceitful, or misleading conduct by the landlord. This is in harmony with our decision in Ninth District Production Credit Assoc. v. Ed Duggan, Inc.,
In Duggan, a secured creditor profited from an unsecured creditor’s provision of goods that enhanced the value of the collateral. The court held that the secured creditor’s “active role in creating a perception that the [goods] would be paid for” along with other factors, such as a memo indicating that the secured creditor would approve and pay for purchases from the unsecured creditor, created circumstances that would allow a jury to find unjust enrichment. Duggan,
Here, there is no evidence that CCDC improperly created the impression that either CCDC or Tenant would pay for the work being done. In fact, CCDC posted a notice that not only informed DCB that it would not be subject to mechanics’ liens, but also explicitly disclaimed any type of liability for the work. A notice alone might not suffice to absolve a landlord from liability if the landlord had otherwise engaged in improper conduct that negated the effect of a notice. However, here CCDC did not engage in any type of improper, deceitful, or misleading conduct. Absent such conduct, we do not find that CCDC’s retention of any benefit received is unjust.
V.
In order for a tenant’s contractor to attach liability upon an оwner of property under an unjust enrichment claim, the contractor must be able to show that the landlord has engaged in some form of improper, deceitful, or misleading conduct. CCDC did not mislead DCB in any way, thus CCDC was not unjustly enriched by DCB’s performance of its contract with Tenant. Accordingly^ we affirm the judgment of the court of appeals.
Notes
. The parties actually signed two five-year leases, one covering the first floor and another covering the second floor. The pertinent terms of the two ■ leases are identical, and for simplicity of reference, we refer herein to these leases as one lease.
. Although section 38-22-105 allows owners to protect their interest in land from liens by рosting proper notice, such notice does not automatically foreclose all liability. By statute and case law, contractors and others may still pursue any other available remedies, such as breach of contract or unjust enrichment. See § 38-22-124, 10 C.R.S. (1998); Frank M. Hall & Co. v. Southwest Properties Venture,
. Whether this is an appropriate measure of damages is an issue that is not before us, and, particularly in light of our decision to reverse the judgment on substantive grounds, we decline to address damages.
.DCB asserts that the court of appeals ruled as a matter of law that no unjust enrichment claim could lie where a landlord has received improvements from a tenant’s contractor. We do not agree with this characterization of the court of appeаls’ ruling. The opinion states that “given the undisputed factual circumstances summarized above, a claim for unjust enrichment will not lie, as a matter of law.” DCB Constr.,
. See Restatement of Restitution § 1 & cmt. a (1937); Candace S. Kovacic, A Proposal to Simplify Quantum Meruit Litigation, 35 Am. U.L.Rev. 547, 554-560 (1986)(tracing the history of the claim and noting that courts have occasionally added extra, often inappropriate, elements).
. The court of appeals was skeptical about whether CCDC had been enriched since the construction work was "simply part of the consideration that the lessee agreed to provide to the lessor in return for the creation of a leasehold in the property by the lessor.” DCB Constr.,
. John P. Dawson, The Self-Serving Intermeddler, 87 Harv. L.Rev. 1409, 1444 (1974). In the analogous context of mechanics’ liens, Dawson notes that where a lease authorizes but does not require a lessee to make an improvement, most courts deny a lien on the owner’s interest, regardless of whether the improvements were knowingly permitted or specifically approved by the lessor. See id. at 1454.
. Other doctrinal approaches defeat the notion of a contract implied in law. For example, the court of appeals in this case referred to the lack of a "request from the party to be chаrged.” DCB Constr.,
It is also doubtful that the doctrine of mistake would apply in this third-party context since such mistake, whether unilateral or not, is not likely to have been connected in any manner to the landlord.
. See Dawson, supra at 1447-48 (noting that because an owner has contracted with a tenant or general contractor for specific improvements, thе owner's "knowledge that the work is being done or his constant presence at the building site adds nothing to the grounds for restitution as these elements might in another context”).
DCB also argues that it is important that CCDC knew of and acquiesced in the renovation and "never objected to anything that DCB was doing.” As discussed above, CCDC’s "acceptance” of the work carries no significance in this context where the work was an expected result of its lease with Tenant. CCDC could not be expected to object to or attempt to stop work which was clearly anticipated and bargained for with another.
Dissenting Opinion
dissenting.
In reversing the trial court’s determination that the landlord in this case was unjustly enriched by the work of the general contractor, the majоrity creates a new requirement for a claim of unjust enrichment in this context. Specifically, the majority holds that the plaintiff in this case is not entitled to recovery because it failed to establish wrongful conduct by the defendant. See maj. op. at 122. Because the majority’s holding is contrary to existing Colorado law regarding unjust enrichment and the change in the law which it adopts is unwise, I respectfully dissent.
I.
In January of 1992, Central City Development Company (CCDC) entered into a five-year lease, see maj. op. at 117 n. 1, with Santa Barbara Capital, Inc. (Tenant). See id. at 117. The lease provided that the Tenant could only use the building for limited stakes gambling, that the Tenant would pay all costs associated with remodeling, and that CCDC had the right to approve all plans аnd specifications for remodeling. See id. at 117. The lease also required that the Tenant was supposed to obtain a completion bond equal in the amount to the estimated cost of the proposed alterations and additions. At the end of the lease, the improvements were to become the property of CCDC.
The Tenant originally hired a contractor, which it terminated in June. The Tenant then entered into a contract with DCB Construction Co., Inc. (DCB) for significant work on the interior of the building. See id. Additionally, CCDC was aware of the plans and signed building permit applications required by the city for the work to begin. As required by the lease, the Tenant posted a
DCB completed significant improvements to the interior of the building, including excavating the ground floor; building a foundation and a structural steel frame; and installing carpentry framing, roof joists, stairs, a fire sprinkler system, electrical wiring, plumbing, heating, ventilation, and air conditioning. See maj. op. at 118. DCB ceased work in November 1992 because the Tenant failed to pay DCB’s submitted bills of $371,-245. The Tenant eventually paid only $76,-515. DCB sued CCDC for its unrecovered costs under a claim of unjust enrichment.
Testimony at the trial showed that DCB’s improvements substantially contributed to the building’s value and that CCDC would eventually recover that value in its casino property. Based on testimony at the trial, the trial court entered judgment in favor of DCB in the amount of $331,191, which included the amount not paid by the Tenant plus interest and costs.
II.
As noted by the majority, the notice under section 38-22-105(2) is not at issue here because such notice does not preclude claims of unjust enrichment. See maj. op. at 118 n. 2; § 38-22-124, 10 C.R.S. (1998). The doctrine оf unjust enrichment does not depend on any contract, but rather, on “the need to avoid unjust enrichment of the defendant notwithstanding the absence of an actual agreement to pay for the benefit conferred.” Cablevision of Breckenridge, Inc. v. Tannhauser Condominium Ass’n,
(1) that a benefit was conferred on the defendant by the plaintiff; (2) that the benefit was appreciated by the defendant; and (3) that the benefit was accepted by the defendant under such circumstances that it would be inequitable for it to be retained without payment of its value.
Id. at 1096-97.
The majority reformulates “the test for recovery under a theory of unjust enrichment as (1) at plaintiffs expеnse (2) defendant received a benefit (3) under circumstances that would make it unjust for defendant to retain the benefit without paying.” Maj. op. at 120. The majority then finds that DCB satisfied steps one and two, see id. at 120, but as a matter of law, did not satisfy step three based on the facts of this case, see id. at 123.
The reformulating of the test is not particularly significant except that the majority creates a new requirement in its analysis of step three, stating that in this case, “the contractor must be able to show that the landlord has engaged in some form of improper, deceitful, or misleading conduct.” Id. While I agree that improper, deceitful, or misleading conduct could prove a claim of unjust enrichment, I do not believe that such conduct must exist for such a claim tо prevail. By putting this restriction on the unjust enrichment test, the majority sharply narrows the claim’s scope. In my view, imposition of a wrongful conduct requirement is improper. There are many situations which fall short of wrongful conduct but are so unjust that the claim should lie.
The majority relies on the Restatement of Restitution (1937); Ninth District Production Credit Ass’n v. Ed Duggan, Inc.,
The majority acknowledges that circumstances other than improper conduct could prove unjust enrichment. See maj. op. at 121. The Restatement states:
A person who without mistake, coercion or request has unconditionally conferred a benefit upon another is not entitled to restitution, except where the benefit was conferred under circumstances making such action necessary for the protection of the interests of the other or of third persons.
Restatement of Restitution § 112 (1937). The Restatement itself acknowledges that there are numerous ways for a claimant to prove unjust enrichment (e.g., mistake, coercion, request).
The conclusion that wrongful conduct by the owner is not the sine qua non for recovery in this case is consistent with Duggan. There we held that the trial court improperly instructed the jury and should have informed the jury:
It is not inequitable for a secured creditor to retain a benefit conferred by an unsecured creditor without compensating the unsecured creditor if the secured creditor does not initiate or еncourage the transaction between the unsecured creditor and the debtor by which that benefit is conferred.
Duggan,
Furthermore, while several out-of-state cases have required some deceitful conduct by the landlord in cases involving restitution claims, see maj. op. at 122-123, several other courts, including our own court of appeals, have not. See Frank M. Hall & Co. v. Southwest Properties Venture,
Contrary to the majority, I would not adopt a per se rule that requires some type of wrongful conduct in order for DCB to recover.
III.
Even if we were to rely only on the Restatement of Restitution, as does most of the majority’s opinion, the facts here support a finding of unjust enrichment because there is evidence that CCDC requested that DCB make improvements. See Restatement of Restitution § 112 (listing “request” as an exception supporting restitution). CCDC’s request can be inferred from the lease provisions that required the Tenant to remodel the building as a casino because the lease explicitly limited the building’s use to only limited stakes gambling. The lease provided that CCDC retain all of the improvements at the expiration of the lease. Moreover, CCDC retained the right specifically to approve the improvements, and in fact did sign the relevant building permits and actively monitored the work throughout. Finally, the trial court found that DCB knew of an arrangement between CCDC and the Tenant to provide payment to the contractors.
In its opinion, the majority relies on two general propositions of law: (1) an owner is not personally liable for improvements made to his property without his assent and (2) “[a] person who has conferred a benefit upon another as the performance of a contract with a third person is not entitled to restitution from the other merely because of the failure of performance by the third person .” Maj. op. at 121-122 (citations omitted). Here, neither principle is applicable because CCDC clearly knew of and assisted in obtaining the improvements. CCDC could have forced the Tenant to provide a bond adequately covering the construction costs as stated in the lease, but failed to do so. Rather, CCDC allowed the Tenant to proceed with the improvements with an escrow account lacking adequate funds to cover the costs of the construction.
IV.
For the foregoing reasons, CCDC was not simply a bystander which should be allowed to keep all of the improvements done by DCB without paying for them. I would follow the court of appeals’ holding in Hall and would allow the trial court’s ruling to stand. See Hall,
I am authorized to say that JUSTICE SCOTT joins in this dissent.
. In a footnote, the majority suggests that if the tenant agrees to make improvements, the landlord is not unjustly enriched because the improvements are part of the consideration the tenant agreed to provide. See maj. op. at 120 n. 6. However, the lease between CCDC and Tenant was terminated before all of the agreed consideration was given by both parties. As Dobbs states:
In the landlord’s case, the landlord agrees to lease the land for a term for specified rent plus a residual interest in whatever improvements the tenant makes or is obliged to make. If the tenant gives up the premises before the term is up and the landlord accepts them, then to the extent that the landlord has premises valued in excess of the present value of the remaining rental due, he may be unjustly enriched.
Dan B. Dobbs, Law of Remedies i 12.20(3), at 474 n.25 (2d ed.1993). Consistent with my view, Dobbs does not mention that wrongful conduct is