San Diego Business Contracts and Unjust Enrichment
There is a legal doctrine here in California called “unjust enrichment.” This is a cause of action that can be brought in a San Diego court where the plaintiff — the person suing — claims that he or she has incurred some sort of loss in a business transaction even though there is no valid and/or enforceable contract. This may seem like a strange idea since business transactions should be and usually are conducted via contracts. Hopefully, the contracts are in writing, but as we have discussed on this website, in California, oral contracts can be binding and enforceable, too.
So, how would a person or business be able to sue without a contract existing? The most common circumstance is when one or both parties think a contract has been formed, but for factual or legal reasons, the contract was not validly formed. Under those circumstances, a court might hold that the contract is not valid. Without the concept of unjust enrichment, one party might have no ability to obtain relief. The other common circumstance in which unjust enrichment is sought is when the plaintiff alleges that the otherwise-valid contract was obtained via fraud. If the fraud is proven, then the contract is no longer valid so there can be no breach of contract damages. In that kind of case, unjust enrichment is awarded.
Under California law, unjust enrichment is used to allow the parties to obtain restitution and to return them to their original economic positions. As an example, assume that your business sends payment of $10,000 for a truckload of machine parts, thinking that you have a contract with a supplier. The supplier, however, claims that no agreement was ever reached to provide machine parts. The supplier keeps your money. You are not able to sue for breach of contract since there was no contract formed. However, it would be unjust for the supplier to keep your $10,000. They would be “unjustly enriched.” To show unjust enrichment, California courts require proof of two elements:
- Receipt by one party of a benefit to which they are not entitled from the other party
- Unjust or unfair retention of that benefit
In our example, the “benefit” is the $10,000 payment. It is, of course, unjust and unfair for the supplier to keep the benefit since they did not send any machine parts.
As noted, claims with respect to unjust enrichment are about restitution. In our example, the restitution is obtaining the payment received. But, restitution can also be made in terms of physical things or real property. If the example were reversed and the supplier sent a truckload of machine parts, restitution would be an order from the court requiring the return of the machine parts.
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For more information, call attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard may be reached at (858) 483-9200 or contact him via email. Mr. Leonard has been named a “Rising Star” four years running by SuperLawyers.com and “Best of the Bar” by the San Diego Business Journal. Mr. Leonard’s law practice is focused on business, transactional, and corporate matters and he proudly provide legal services to business owners in San Diego and the surrounding communities. Like us on Facebook.