Breach of Contract – Unjust Enrichment Claims

Author: LegalEase Solutions

QUESTIONS PRESENTED

  1. Is Unjust Enrichment still a valid claim under California law?
  2. Can the Defendant terminate the contract even if the Plaintiff did not timely perform all duties under the contract, including when there was a “time of the essence” clause?

SHORT ANSWERS

  1. Yes, unjust enrichment is still a valid claim under California law. Though there is a division of opinion among California courts[1] whether unjust enrichment is a valid claim, the courts consider unjust enrichment as synonymous with restitution[2] and allow the claim in the instances where the contract is procured by fraud or is unenforceable or ineffective for some reason.[3] Therefore, the Plaintiff may raise unjust enrichment as a restitution claim under California law.
  1. The courts have held that a defendant’s ‘tacit approval’ of delayed installments extinguishes defendant’s right to terminate the contract.[4] If the defendant has accepted the installments paid after the dates on which they became due, the courts consider the time of essence clause to be waived.[5] Therefore, the Plaintiff may oppose the breach of contract or termination action brought by the Defendant on the ground that they accepted the late payments made by the Plaintiff, which amounts to waiver.RESEARCH FINDINGS
  1. Unjust enrichment

“‘The theory of unjust enrichment requires one who acquires a benefit which may not justly be retained, to return either the thing or its equivalent to the aggrieved party so as not to be unjustly enriched.’” Prakashpalan v. Engstrom, Lipscomb and Lack (2014) 223 Cal.App.4th 1105, 1132 [167 Cal.Rptr.3d 832, 855], as modified on denial of reh’g (Feb. 27, 2014) (quoting Otworth v. Southern Pac. Transportation Co. (1985) 166 Cal.App.3d 452, 460 [212 Cal.Rptr. 743].

“The elements of an unjust enrichment claim are the ‘receipt of a benefit and [the] unjust retention of the benefit at the expense of another.’” Peterson v. Cellco Partnership (2008) 164 Cal.App.4th 1583, 1593 [80 Cal.Rptr.3d 316, 323] (quoting Lectrodryer v. SeoulBank (2000) 77 Cal.App.4th 723, 726 [91 Cal.Rptr.2d 881]. “A person is enriched if the person receives a benefit at another’s expense.” First Nationwide Savings v. Perry (1992) 11 Cal.App.4th 1657, 1662 [15 Cal.Rptr.2d 173, 176] (citing Rest., Restitution, supra, § 1, com. a.). “A benefit is conferred not only where one adds to the property of another, but also where one saves the other from expense or loss.” California Federal Bank v. Matreyek (1992) 8 Cal.App.4th 125, 131 [10 Cal.Rptr.2d 58, 61].

“Ordinarily, a plaintiff must show that a benefit was conferred on the defendant through mistake, fraud, coercion, or request.” CRV Imperial-Worthington, LP v. Gemini Ins. Co. (S.D. Cal. 2010) 770 F.Supp.2d 1074, 1078 (citing Nibbi Bros., Inc. v. Home Fed. Sav. & Loan Ass’n, 205 Cal.App.3d 1415, 1422, 253 Cal.Rptr. 289 (1988).

Division of opinion on unjust enrichment as a valid claim

“[T]here is a division in the law” on the question whether unjust enrichment is a valid claim in California. Mohebbi v. Khazen (N.D. Cal. 2014) 50 F.Supp.3d 1234, 1260.

In one line of cases, the courts have held that “there is no cause of action in California for unjust enrichment.” Melchior v. New Line Productions, Inc. (2003) 106 Cal.App.4th 779, 793 [131 Cal.Rptr.2d 347, 357]. This same line has held that “California does not recognize a stand-alone cause of action for unjust enrichment: ‘[u]njust enrichment is not a cause of action, just a restitution claim.’” Low v. LinkedIn Corp. (N.D. Cal. 2012) 900 F.Supp.2d 1010, 1031 (quoting Hill v. Roll Intern. Corp. (2011) 195 Cal.App.4th 1295, 1307 [128 Cal.Rptr.3d 109, 118].

However, there is an alternate option to take the place of strict unjust enrichment claims. California courts “have frequently construed causes of action labeled ‘unjust enrichment’ as a ‘quasi-contract claim seeking restitution.’” Mohebbi, supra, 50 F.Supp.3d at 1260 (quoting Rutherford Holdings, LLC v. Plaza Del Rey, (2014) 223 Cal.App.4th 221, 231 [166 Cal.Rptr.3d 864]. The appellate court has also held that “[u]njust enrichment is synonymous with restitution.” Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1370 [108 Cal.Rptr.3d 682, 699] (citing Dinosaur Development, Inc. v. White (1989) 216 Cal.App.3d 1310, 1314 [265 Cal.Rptr. 525].

As an example of this modification to the claim of unjust enrichment, the facts and holding of Rutherford may be examined. Pursuant to the purchase agreement for a mobile home park, Rutherford delivered a $3 million deposit to PDR. The agreement provided the amount as nonrefundable unless PDR materially breached the purchase agreement or failed or refused to close. The closing date came and went and neither party performed. PDR never tendered the deed to Rutherford, and Rutherford never tendered the full purchase price to PDR. Rutherford sued to recover the deposit under various theories of recovery. Rutherford, supra, 223 Cal.App.4th at 225. The fourth cause of action was labeled as “one for unjust enrichment.” Id. at 231.

The court observed that they will “construe the cause of action as a quasi-contract claim seeking restitution.” Id. The court further held that “restitution may be awarded in lieu of breach of contract damages when the parties had an express contract, but it was procured by fraud or is unenforceable or ineffective for some reason.” Id. (internal quotations omitted). The court found that “Rutherford is not in breach because PDR did not tender the deed.” Id., at 232. The court concluded that “Rutherford adequately alleged a reasonable interpretation of the purchase agreement under which section 1.2 is void to the extent it permits PDR to retain the deposit when Rutherford has not breached, and that PDR has been unjustly enriched by retaining the deposit.” Id. Therefore, the court held that “the trial court erred in sustaining the demurrer as to the claim for restitution based on unjust enrichment” and remanded the case to the superior court. Id., at 232.

Mohebbi is another case where the court examined the division of opinion among California courts on unjust enrichment and highlighted the requirements for such a claim. In Mohebbi, Plaintiff alleged that, in exchange for Defendants’ assistance in applying for a federal EB–5 immigration visa, he invested over $1 million in a partnership. But the Defendants fraudulently induced this investment and failed to comply with their obligations pursuant to the contract. The Plaintiff sought rescission of the agreement, damages, including punitive damages, and attorneys’ fees. Mohebbi, supra, 50 F.Supp.3d at 1240. “Plaintiff’s twentieth cause of action is for unjust enrichment.” Id. at 1260.

Recognizing the division of law on unjust enrichment, the court observed that “[r]egardless of label, California courts have found that equitable claims sounding in quasi-contract, such as a claim for unjust enrichment, are recognized under California law.” Id. Further, the court was “persuaded that a claim for unjust enrichment can lie under California law as ‘the result of a failure to make restitution under circumstances where it is equitable to do so.’” Id. (quoting Lauriedale Assoc., Ltd. v. Wilson, 7 Cal.App.4th 1439, 1448, 9 Cal.Rptr.2d 774 (1992)). The court held that “Plaintiff must still plead sufficient facts to state a claim for restitution …” Id. The court found that the “Plaintiff has not alleged any facts as to how these monies have been misappropriated, with which funds they have been commingled, or how the funds have been inappropriately disbursed.” Id., at 1261. Therefore, the court granted “Defendants’ Motion to Dismiss with regard to Plaintiff’s twentieth cause of action, and grant[ed] Plaintiff leave to amend.” Id.

In the instant case, the Plaintiff, though behind schedule, had paid the full installments to the Defendant. The Defendant accepted the payment and later threatened the Plaintiff with termination of the contract. Thus, the Defendant is in receipt of a benefit and has unjustly retained that benefit. Therefore, the Plaintiff may raise restitution claim, which is synonymous with unjust enrichment in California. However, the Plaintiff must plead sufficient facts to claim unjust enrichment.

Unjust enrichment claim in express contracts

“As a matter of law, an unjust enrichment claim does not lie where the parties have an enforceable express contract.” Durell, supra, 183 Cal.App.4th at 1370. “However, ‘restitution may be awarded in lieu of breach of contract damages when the parties had an express contract, but it was procured by fraud or is unenforceable or ineffective for some reason.’” Rutherford Holdings, supra, 223 Cal.App.4th at 231 (quoting McBride v. Boughton (2004) 123 Cal.App.4th 379, 387 [20 Cal.Rptr.3d 115]. “Thus, a party to an express contract can assert a claim for restitution based on unjust enrichment by ‘alleg[ing in that cause of action] that the express contract is void or was rescinded.’” Rutherford Holdings, supra, 223 Cal.App.4th at 231 (quoting Lance Camper Manufacturing Corp. v. Republic Indemnity Co. (1996) 44 Cal.App.4th 194, 203 [51 Cal.Rptr.2d 622, 628]).

Further, “‘[u]njust enrichment is a ‘general principle, underlying various legal doctrines and remedies,’ rather than a remedy itself.’” Rosal v. First Federal Bank of California (N.D. Cal. 2009) 671 F.Supp.2d 1111, 1133 (quoting Melchior v. New Line Productions, Inc. (2003) 106 Cal.App.4th 779, 793 [131 Cal.Rptr.2d 347, 357]. “Unlike a claim for damages based on breach of a legal duty, [Plaintiff’s] unjust enrichment claim is grounded in equitable principles of restitution.” Hirsch v. Bank of America (2003) 107 Cal.App.4th 708, 721 [132 Cal.Rptr.2d 220, 229]. “[R]elief is available under this theory upon a determination that under the circumstances and as between the two individuals, it is unjust for the person receiving the benefit to retain it.” Id., 107 Cal.App.4th 708 at 722. Therefore, Plaintiff must “plead sufficient facts to state a claim for restitution.” Mohebbi, supra, 50 F.Supp.3d at 1260.

The Rosal court has summarized the grounds for restitution as follows:

Under an unjust enrichment theory, restitution may be awarded either (1) in lieu of breach of contract damages, where an asserted contract is found to be unenforceable or ineffective, or (2) where the defendant obtained a benefit from the plaintiff by fraud, duress, conversion, or similar conduct, but the plaintiff has chosen not to sue in tort.

Rosal, supra, 671 F.Supp.2d at 1133.

In the instant case, the defendant has accepted the installments paid by the Plaintiff. Thus, the Defendant has received a benefit from the Plaintiff and unjustly retained it. Thereafter, the Defendant threatened the Plaintiff with termination of the contract. Therefore, Plaintiff may claim restitution, which is synonymous with unjust enrichment in the instances of express contracts.

  1. Right to terminate the contract when Plaintiff made full payments, though behind the schedule and there was a “time of the essence” clause

 “California courts generally do strictly enforce time deadlines in [sales] contracts, permitting the seller to cancel after the time specified where time is specifically made of the essence unless there has been a waiver or potential forfeiture.” Galdjie v. Darwish (2003) 113 Cal.App.4th 1331, 1341 [7 Cal.Rptr.3d 178, 186], as modified on denial of reh’g (Dec. 23, 2003). However, “[l]ike any other contractual terms, timeliness provisions are subject to waiver by the party for whose benefit they are made.” Id., 113 Cal.App.4th at 1339 (citing 1 Witkin, Summary of Cal. Law (9th ed. 1987) Contra acts, § 767, p. 694).

Galdjie court cites an example where the seller’s tacit approval to delay the installment was held to extinguish the right to terminate the contract, where time was of essence:

In Williams Plumbing Co. v. Sinsley (1975) 53 Cal.App.3d 1027, 126 Cal.Rptr. 345 …   the contract called for payment in three installments, and time was specifically said to be of the essence. Shortly before the second installment was due, the parties discussed the buyer’s proposal to obtain a loan and pay the remaining price that month rather than when the third installment was due. The day after the second installment was due, however, the seller threatened to call the deal off and keep the first installment. The buyer paid the second installment immediately and filed an action for specific performance. The appellate court concluded that the seller’s ‘tacit approval’ of the buyer’s proposal to delay the second installment but pay the entire purchase price through a loan meant that there was no right to terminate the contract and that buyer was entitled to specific performance.

Galdjie, supra, 113 Cal.App.4th at 1339, as modified on denial of reh’g (Dec. 23, 2003) (quoting Williams, supra, at pp. 1032–1034 [126 Cal.Rptr. 345].

Gonzales v. Hirose (1948) 33 Cal.2d 213, 216 [200 P.2d 793, 795] is another example where Plaintiff’s right to forfeiture was denied on account of accepting late payments made by the defendant:

In the agreement [between the defendant and the Plaintiff] it was provided that time was of the essence, that default in payment would give the bank the option to declare a forfeiture of the defendant’s rights and all interest in the land, and that a waiver of one restriction or condition should not be construed as a waiver of any succeeding breach or other provision of the agreement. Unquestionably the defendant defaulted. However, subsequent to the defaults the record shows a course of conduct by the bank which, during the years 1943 and 1944, credited payments on account of interest and principal without regard to the time factors … [The court held] that since the time and the forfeiture clauses had been waived the defendant was entitled to a definite seasonable notice from the plaintiff of the reestablishment of those conditions with reasonable opportunity for compliance before the plaintiff could declare a forfeiture.

Id., 33 Cal.2d at 216-17.

Thus, “[w]here a specified time for performance has been waived by a party, ‘he must, in order to put the other in default, not only give notice that strict compliance will thereafter be required but must allow the other party a reasonable time within which to perform.’”  Kossler v. Palm Springs Developments, Ltd. (1980) 101 Cal.App.3d 88, 99 [161 Cal.Rptr. 423, 431] (quoting Lifton v. Harshman (1947) 80 Cal.App.2d 422, 433 [182 P.2d 222, 229] disapproved on other grounds by Pao Ch’en Lee v. Gregoriou (1958) 50 Cal.2d 502 [326 P.2d 135]).

In the instant case, the Plaintiff may claim waiver, whereby the defendant had accepted the belated installment payments made by the Plaintiff. The defendant who has accepted the late payments may not be allowed to turn back and terminate the contract.

CONCLUSION

Though there is a division of opinion among California courts on the validity of unjust enrichment claims, it is settled law that restitution is synonymous with unjust enrichment. Therefore, the Plaintiff may raise the claim of unjust enrichment against the Defendant, who has accepted the installments paid by the Plaintiff. Further, the courts consider time of essence clause waived if the defendant accepts the belated payments made by the Plaintiff. A defendant who has accepted the late payments may not have a right to terminate the contract.

[1] Mohebbi v. Khazen (N.D. Cal. 2014) 50 F.Supp.3d 1234, 1260

[2] Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1370 [108 Cal.Rptr.3d 682, 699]

[3] Rutherford Holdings, LLC v. Plaza Del Rey, (2014) 223 Cal.App.4th 221, 231 [166 Cal.Rptr.3d 864]

[4] Galdjie v. Darwish (2003) 113 Cal.App.4th 1331, 1339 [7 Cal.Rptr.3d 178, 186], as modified on denial of reh’g (Dec. 23, 2003).

[5] Id.