Unjust Enrichment and Contract Disputes

Many small businesses operate on estimates and unwritten handshake agreements. We know this to be an efficient way of doing business when things go well. No lawyers are running up bills by dickering over terms and wasting time. However, I am often presented with potential legal disputes that could have been avoided by lawyer involvement. Work is performed and benefits are conferred, but the amount of the bill is surprising to the payor because the “estimate” was not the same as the final bill. The payor often believes the lack of a clear written contract is an advantage. Business owners often argue that they did not sign anything and do not owe the bill. They argue it was only an estimate, or I didn’t agree to that. That analysis may wrong in many circumstances under the equitable legal doctrine of “unjust enrichment”.

A recent Ozaukee court case, Demopoulos v. Ripon Truck Repair & Equip. LLC (1), discusses fundamental contract formation issues and unjust enrichment. If you are curious about the enforcement of a handshake deal or estimate dispute, I am happy to help. A simple demand letter based on law and cases discussed here may assist you in collecting unpaid bills.

The “Estimate” Dispute

The Plaintiff, Demopoulos, uses a large truck(3) to haul grain to several thousand head of cattle. Ripon Truck manufactures truck parts and maintains and repairs large trucks. Demopoulos approached Ripon Truck about making repairs to an older truck using spare parts from another truck. Ripon Truck’s owner provided an initial estimate of $22,500. Demopoulos paid $5,000 down. Ripon Truck’s owner testified that the trucks were “a mess”. He allegedly told Demopoulos he needed a much closer look before he could know the full extent of repairs. He allegedly explained that costs could exceed the estimate. The project turned out to be much more difficult than expected. Demopoulos’ final bill was $41,289.25. He paid the entire balance under protest so that he could retrieve his truck.

Demopoulos filed a lawsuit two years later, alleging breach of contract and unjust enrichment for the additional charges. He testified he understood the $22,500 estimate to be a firm price. He argued that he never was advised about overages or contacted in advance for approval.

Contract Formation and Unjust Enrichment

In evaluating a breach of contract claim, a court must determine whether a valid contract exists; whether a party has violated its terms; and, whether any such violation is material such that it has resulted in damages. Litigation often considers whether a contract has been formed and what the terms of the contract are. A contract must be “definite and certain” as to its basic terms and requirements to be enforceable. An oral contract is enforceable, but written contracts have many advantages. Creating an enforceable agreement is usually predicated on the language used in the contract and the expressed intentions of the parties. It is not enough that the parties think that they have made a contract; they must have expressed their intentions in a manner that is capable of understanding.

The court evaluated whether an “estimate” should be construed as a binding agreement. Demopoulos wanted the “estimate” to be the entirety of the binding contract. Ripon Truck argued there was no contract. This may seem odd at first blush. This case flips the norm because Demopoulos actually paid the higher price and then sued for damages to recover overpayment. 

The trial court heard conflicting testimony from Ripon Truck’s owner and Demopoulos regarding whether the “Estimate” was a contract, i.e. whether it was “definite and certain”. It is challenging for a court to find a contract when a document is titled “Estimate” and hears conflicting testimony as to its definitiveness and certainty. The court believed it to be a ‘working document’ instead of a definite and certain contract.

Unjust Enrichment: Payment Owed Without a Contract

Under Wisconsin law, an unjust enrichment claim requires proof of three elements:

  1. a benefit conferred; 
  2. an appreciation of the benefit; and 
  3. an acceptance and retention of the benefit under circumstances such that it would be inequitable to retain the benefit without payment. 

Unjust enrichment does not apply where the parties have entered a contract. The trial court has immense discretion to use this equitable doctrine, and it is quite difficult to overturn on appeal. In short, if one receives a benefit and accepts and retains that benefit, a court has room to do what it feels is right.

Here, the court found that Ripon Truck “did what they said they would to” and made the truck operable, which required extensive time and money. The court found Demopoulos’ “passive demeanor” important in accepting the benefit. It was skeptical of Demopoulos paying the bill, taking possession of the truck, purportedly using it for at least two years, and then filing a lawsuit two years later. Demopoulos’ claims were dismissed.

Delaying Litigation, Controlling Written Communications, and Evidence

The last line of the appellate court’s analysis is instructive: “The trial court, acting as finder of fact, found [Ripon Truck’s owner] to be the more credible witness and questioned Demopoulos’ two-year wait to complain by filing a lawsuit.” Demopoulos may have maintained the moral high ground, and in turn swayed this court, if it had acted quickly. Demopoulos was clearly acting reasonable when it paid the high bill to swiftly gain access to his truck. However, there does not appear to be a correlating emergent business reason for him to wait two years to file a lawsuit to protect his rights. 

The evidence appears to have come down to one piece of paper, an “Estimate”, and oral testimony. The court did not comment on any other written evidence, such as emails or letters. I recommend all businesspeople to follow up verbal conversations with emails or other writings to confirm any verbal agreements. Had Demopoulos wrote Ripon an email confirming the price as firm and that he would not pay more than what was quoted, I suspect he would have won this case. Ripon Truck would have been put on notice that it would assume the risk of any overages. It also could have turned down the job. The same may have happened if Demopoulos had issued a letter disputing the amount owed and reserving his legal rights immediately after making payment and taking possession of his truck.  

Impact of Unjust Enrichment in Contract Disputes

For business owners involved in any exchange of goods and services, the absence of a written contract may increase risks. You may believe the lack of a written contract is to your advantage, that your “… but there was no contract” argument is helpful to you, but a court may use equitable remedies like unjust enrichment to make things right. Demopoulos may have rightfully been surprised by a $41,000 bill when he expected a $22,000 bill. However, it appears that his mis-steps and delays ultimately cost him. If you are concerned that you may be a party to an informal agreement that may lead to a legal dispute, please consider contacting me to discuss.

(1) Demopoulos v. Ripon Truck Repair & Equip. LLC (Wis. App. 2020)

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