DCB Construction Co., Inc. v. Central City Development Co
In DCB Construction Co., Inc. v. Central City Development Co., 965 P.2d 115 (Colo. 1998) Construction, an owner leased a building to a tenant for use as a gambling hall and authorized the tenant to make improvements as long as the owner approved all plans and retained the improvements upon lease termination. Id. at 117, 122. The tenant hired a contractor to make improvements, and the owner approved the plans. Id. at 117. The contractor did not place a lien on the premises. Id. at 117-18.
The contractor and its subcontractors made significant improvements to the tenant's premises, but the tenant failed to pay for most of the work, defaulted on the lease, and vacated the building. Id. The contractor and subcontractors sued the owner for unjust enrichment. Id. at 118. After the owner and subcontractors settled, the matter proceeded to a bench trial, and the court found in favor of the contractor, awarding the contractor damages for monies unpaid by the tenant. Id.
The court of appeals reversed, and the Colorado Supreme Court affirmed that decision. Id. When considering whether it would be unjust for the owner to retain the benefit of the contractor's work without paying for it, the supreme court initially cited the general rule that when a non-owner contracts for improvements to the owner's property and then fails to pay, "'the owner is not liable to the contractor or supplier unless he agreed to pay them.'" Id. at 121 (quoting 3 Dan B. Dobbs, The Law of Remedies, 12.20(3) at 473 (2d ed. 1993)). This rule protects rights of choice and recognizes that ordinarily, an owner should not be effectively forced into a legal relationship with a third party. Id.
The court then noted that Restatement of Restitution ("Restatement") 110 (1937) provides, "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." DCB Constr., 965 P.2d at 121. Relying on the general rule and Restatement 110, the court reasoned that the owner could not be held liable for the tenant's improvements merely because it owned the property and the contractor was treated unjustly by the tenant. Id.
According to the court, "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." Id.
The court concluded that "injustice" necessarily contemplates "some form of improper conduct by the party to be charged" restitution. Id. at 121-22. Consequently, the court held that "for a tenant's contractor to attach liability upon an owner 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." Id. at 123.
Otherwise, the court reasoned, a landlord would be cast in the role as an insurer for any tenant who contracts for improvements to the leasehold. Id. at 122.
The court decided the building owner's active role in construction of the improvements and its contractual right to retain the improvements did not make its retention of those improvements without payment to the contractor unjust. Id. at 123.