Court Case Information

Subcontractor Rights to be Paid on New Home Contract

 Eischen Cabinet Company vs. New Tradition Homes

This opinion will be unpublished andmay not be cited except as provided byMinn. Stat. § 480A.08, subd. 3 (2004). STATE OF MINNESOTAIN COURT OF APPEALSA06-220 Eischen Cabinet Company,Appellant, vs. New Tradition Homes, Inc., et al.,Defendants, Robert Allen Juve, et al.,Respondents. Filed ­­­December 12, 2006AffirmedDietzen, Judge Hennepin County District CourtFile No. 27-CV-04-9528George L. May, Terence G. O’Brien, May & O’Brien Law Offices, 204 Sibley Street, Suite 202, Hastings, MN 55033 (for appellant) C. Scott Massie, 300 Anchor Bank Building, 1055 East Wayzata Boulevard, Wayzata, MN 55391 (for respondents)             Considered and decided by Kalitowski, Presiding Judge; Dietzen, Judge; and Huspeni, Judge.*  U N P U B L I S H E D   O P I N I O N Appellant challenges the district court’s order granting summary judgment and dismissing its claims, arguing that genuine issues of material fact exist regarding its breach-of-contract claim and unjust-enrichment claims that preclude summary judgment. Because we conclude that there are no genuine issues of material fact that preclude summary  judgment and the district court did not err in applying the law, we affirm.FACTSRespondents Robert Juve and Mary Graves-Juve (the Juves) are the purchasers of a residential home located in Minnetrista.  The owner-builder of the home was New Tradition Homes (NTH).  Appellant Eischen Cabinet Company (Eischen) was a subcontractor that constructed the cabinets for the home.In March 2003, the Juves executed an agreement to purchase the home from NTH for $1,115,000, including an earnest money down payment of $125,000.  At that time, construction of the home was not completed.  The purchase agreement provided, inter alia, “home to be finished as per blueprints/listing agreement and specifications and allowances discussions [sic] . . at building site.”  It further provided, “Note: earnest money check of $125,000 may be cashed and used by New Tradition Homes prior to close date for construction costs.”Initially, NTH began construction of the home in February 2002.  After NTH obtained construction financing from Construction Mortgage Investors Co. (CMIC), it entered into contracts with a number of subcontractors to perform work on the home, including Eischen.  Eischen provided a bid to NTH for construction of the upstairs cabinets, and in September 2002, Eischen entered into a written agreement with NTH to provide the cabinets.  NTH later defaulted on its construction loan, and CMIC foreclosed.  In January 2003, CMIC was the successful bidder on the property at the sheriff’s sale.  The redemption period was due to expire in July 2003.  In April 2003, the Juves learned from their realtor that the property was the subject of a foreclosure proceeding, but they decided to proceed with the purchase of the home.  The Juves provided NTH with their specifications for completion of the home, which resulted in several change orders.  Although a number of change orders were signed by NTH and the Juves, no change orders involving Eischen were signed by the Juves.  Instead, NTH and Eischen entered into a second contract in which Eischen agreed to construct cabinets for the basement portion of the home and make changes to its previous cabinet work.  Shortly thereafter, NTH’s president brought Mary Graves-Juve to Eischen’s office briefly.  Graves-Juve asked a few questions about the cabinets that were being built, but there were no discussions of the second contract between Eischen and NTH or the financial aspects of that transaction.The closing date was scheduled for late May, but was delayed and rescheduled several times.  Two final attempts to close in early July failed because the title company objected to the mortgage foreclosure and the existence of the mechanics’ liens.  On July 8, 2003, the Juves purchased an assignment of the sheriff’s certificate of sale from CMIC and paid two mechanics’ lien claimants who had filed notices of intent to redeem from the mortgage.  Although several other subcontractors, including Eischen, had filed mechanics’ liens against the property, none of them had filed the statutorily required notice of intent to redeem from the mortgagee.  The Juves offered to settle those claims for half of their value.  All but Eischen settled.In November 2004, Eischen brought this action to foreclose on its mechanic’s lien against NTH, the Juves, and the Juves’ mortgage company, Wells Fargo.  Eischen also alleged, inter alia, breach of contract and unjust enrichment.  The district court granted summary judgment in favor of Wells Fargo and dismissed Eischen’s mechanic’s lien claim against the property for failure to timely file the statutorily required notice of intent to redeem.  Eischen has not appealed those rulings.  The district court also granted summary judgment in favor of the Juves and dismissed Eischen’s breach-of-contract and unjust-enrichment claims.[1] 

This appeal follows.

D E C I S I O NI.            Eischen argues that genuine issues of material fact exist regarding its breach-of-contract claim that preclude summary judgment.  A motion for summary judgment must be granted when “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that either party is entitled to a judgment as a matter of law.”  Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993).  On appeal from summary judgment, this court determines whether there are any genuine issues of material fact and whether the district court erred in applying the law.  N. States Power Co. v. Minn. Metro. Council, 684 N.W.2d 485, 491 (Minn. 2004).  We view the evidence in the light most favorable to the party against whom summary judgment was granted.  Hickman v. SAFECO Ins. Co. of Am., 695 N.W.2d 365, 369 (Minn. 2005).  To survive summary judgment, a party need not show substantial evidence; it needs only to produce sufficient evidence to permit reasonable persons to draw different conclusions.  Schroeder v. St. Louis County, 708 N.W.2d 497, 507 (Minn. 2006).  
A.        Agency RelationshipIn support of its breach-of-contract claim, Eischen argues that the Juves authorized NTH to act as their agent regarding the completion of construction of the home.  An agency relationship is a fiduciary relationship whereby a principal is bound by an agent’s actions, provided they are within the scope of his or her authority.  Fingerhut Mfg. Co. v. Mack Trucks, Inc., 267 Minn. 201, 204, 125 N.W.2d 734, 737 (1964) (citation omitted).  An agency relationship may be created by express language or by conduct, and it need not be in writing.  PMH Properties v. Nichols, 263 N.W.2d 799, 803 (1978); Darian v. McGrath, 215 Minn. 389, 393, 10 N.W.2d 403, 405 (1943).  But there is no agency without persuasive evidence to establish the elements of an agency relationship, which are: (1) a manifestation of mutual consent between a principal and an agent such that the agent will act on the principal’s behalf; and (2) the right of control by the principal over the agent.  A. Gay Jenson Farms Co. v. Cargill, Inc., 309 N.W.2d 285, 290 (Minn. 1981); Jurek v. Thompson, 308 Minn. 191, 197, 241 N.W.2d 788, 791 (1976).Eischen relies heavily on language in the purchase agreement that states, “home to be finished as per blueprints/listing agreement and specifications and allowances discussions [sic] . . . at building site” and “Note: earnest money check of $125,000 may be cashed and used by New Tradition Homes prior to close date for construction costs.”  But the purchase agreement only requires NTH to finish the home.  Eischen is unable to point to any language in the purchase agreement that authorizes NTH to act as the Juves’ agent to enter into contracts on their behalf or to bind them to pay subcontractors to complete the home.  If there is no explicit agency agreement, an agency relationship may be proven by circumstantial evidence that shows a course of dealing between the two parties.  A. Gay Jenson Farms, 309 N.W.2d at 290.  But “the principal must be shown to have consented to the agency since one cannot be the agent of another except by consent of the latter.”  Id.  Eischen is unable to point to any specific conversations or other circumstances showing consent to enter into an agency agreement on the part of the Juves or NTH.  Further, the course of dealing between the Juves and NTH merely consisted of a husband and wife trying to purchase a completed home.Eischen next argues that the Juves had a right to control NTH because they requested certain specifications for the cabinets, such as design and color.   Control is a critical element in an agency relationship.  Jurek, 308 Minn. at 198, 241 N.W.2d at 791.  An agency relationship results if, but only if, there is an understanding between the parties that an agent is subject to the continuous direction of a principal.  Id. at 199, 241 N.W.2d at 791.  Here, NTH had complete control over the manner in which it chose to complete the home and which subcontractors it hired to do the work.  And NTH had control over the methods for completing the work and the distribution of the earnest money “for construction costs.”  Additionally, the second written contract between Eischen and NTH makes no reference to the Juves.  Eischen communicated directly with the Juves regarding the new cabinet work only once, but Eischen and NTH had already entered into the second contract, and Eischen’s president indicated that the brief meeting with Mary Graves-Juve had no impact on the contract with NTH.  On this record, Eischen is unable to identify any language in the written agreements or conduct of the parties showing a manifestation of consent between the Juves and NTH to enter into an agency relationship or that NTH was subject to the specific control of the Juves over the manner in which it chose to complete the home or the subcontractors it hired.  Thus, Eischen has failed to present genuine issues of material facts regarding the existence of an agency relationship.
B.        Implied Contract
Eischen next argues that the handwritten language in the purchase agreement created an implied contractual relationship in which NTH acted as an agent for the Juves.  Whether a contract exists is generally an issue for the factfinder.  Morrisette v. Harrison Int’l Corp., 486 N.W.2d 424, 427 (Minn. 1992).  But summary judgment is proper when “the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party.”  DLH, Inc. v. Russ, 566 N.W.2d 60, 69 (Minn. 1997) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 1356 (1986)).  “A contract implied in fact is in all respects a true contract.  It requires a meeting of the minds the same as an express contract.”  Roberge v. Cambridge Coop. Creamery, 248 Minn. 184, 188, 79 N.W.2d 142, 145-46 (1956) (citations omitted).  This meeting of the minds, or mutual assent, may be manifested in writing, oral communications, or the conduct of the parties.  Id. at 189, 79 N.W.2d at 146.  It may be partly expressed in words and partly implied in fact from acts and circumstances.  Idsee also Cederstrand v. Lutheran Bhd., 263 Minn. 520, 532, 117 N.W.2d 213, 221 (1962) (stating that contract formation depends on objective conduct of the parties and not subjective intent).It is “generally recognized that, other than the statutory right to a mechanics lien or other special statutory remedies, subcontractors . . . have no right to a personal judgment against the owner where there is no contractual relation between them.”  Lundstrom Const. Co. v. Dygert, 254 Minn. 224, 232, 94 N.W.2d 527, 533 (1959); see also Skjod v. Hofstede, 402 N.W.2d 839, 840 (Minn. App. 1987) (holding subcontractor had no remedy absent contract or mechanic’s lien).Here, there was no written contract between Eischen and the Juves, and Eischen failed to follow the statutory requirements necessary to perfect its mechanic’s lien against the Juves.  Eischen is also unable to point to any specific conversations or circumstances showing a mutual assent to enter into an agency agreement on the part of the Juves and NTH.  On this record, Eischen has not presented sufficient evidence to create genuine issues of material fact that an implied contract existed between the Juves and NTH.II.   Eischen argues that genuine issues of material fact and questions of law exist regarding its claim that it was a third-party beneficiary of the purchase agreement between the Juves and NTH.  A third-party beneficiary “may sue on a contract made for his direct benefit.”  Buchman Plumbing Co., Inc. v. Regents of the Univ. of Minn., 298 Minn. 328, 333, 215 N.W.2d 479, 483 (1974).  But a third-party beneficiary can enforce a contract only if it satisfies either the duty-owed test or the intent-to-benefit test.  Cretex Companies, Inc. v. Construction Leaders, Inc., 342 N.W.2d 135, 139 (Minn. 1984).  “If a beneficiary does not meet either of these tests, it is an incidental beneficiary and has no right to enforce the contract.”  Hickman, 695 N.W.2d at 370 (citing Cretex, 342 N.W.2d at 139).
A.        Intent-to-Benefit TestEischen argues that it was an intended beneficiary of the purchase agreement between the Juves and NTH under the intent-to-benefit test.  That test is satisfied if the contract expresses some intent by the parties to benefit a third party through contractual performance.  Twin City Const. Co. of Fargo, N.D. v. ITT Indus. Credit Co.,  358 N.W.2d 716, 718 (Minn. App. 1984).  “The pertinent inquiry is ‘to whom is performance to be rendered?’” Id. (quoting Buchman, 298 Minn. at 335, 215 N.W.2d at 484).  If, by the terms of the contract, performance is to be directly rendered to a third party, the third party is an intended beneficiary.  Buchman, 298 Minn. at 335, 215 N.W.2d at 484.  Otherwise, if performance is to be directly rendered to one of the parties to the contract, a third party who may be incidentally benefited has no right of action under the contract.  Id.Here, Eischen argues that because the Juves paid $125,000 in earnest money to NTH “for construction costs,” they intended to benefit Eischen.  But Eischen fails to present any evidence that the Juves intended to directly benefit Eischen under the purchase agreement.  Although the purchase agreement provided that the earnest money check for $125,000 could be used by NTH “for construction costs,” it did not establish a contractual obligation for NTH to specifically pay Eischen.  Further, NTH could finish the home using whatever methods or subcontractors it chose, and it was free to distribute the earnest money as it saw fit.  On this record, the Juves’ contractual performance, i.e., payment for a finished home, was directly rendered to NTH and not Eischen.  Therefore, we conclude that Eischen is merely an incidental beneficiary to the purchase agreement.
B.        Duty-Owed Test  Eischen contends that the $125,000 paid “for construction costs” created a duty in the Juves to pay Eischen.  The duty-owed test is satisfied when one party’s performance under the contract will satisfy the other party’s debt or obligation to a third party.  Cretex, 342 N.W.2d at 138; Twin City, 358 N.W.2d at 718.  Essentially, a third-party beneficiary acquires the right to enforce a promise that was made for its benefit and that it otherwise would not be able to enforce.  Buchman, 298 Minn. at 335, 215 N.W.2d at 484.  Eischen argues that the Juves assumed a duty to pay Eischen as a third-party beneficiary when they signed the purchase agreement and advanced $125,000 “for construction costs.”  But the purchase agreement was not made for the benefit of Eischen, it was made for the benefit of NTH.  The purchase agreement obligated the Juves to pay NTH for a completed home.  Further, the $125,000 in earnest money was paid to NTH, and it could use that money to complete the construction of the home as it saw fit.  More importantly, NTH and Eischen had a separate contract that obligated NTH, not the Juves, to pay Eischen for the additional cabinet work.  Thus, the Juves did not assume a duty to discharge NTH’s debt on that contract.  See Cretex, 342 N.W.2d at 138-39 (holding that where a subcontractor has its own separate contract with a general contractor, the parties to a surety bond had no legal responsibility to pay the subcontractors as third-party beneficiaries because the bond was intended to benefit only the parties thereto).  On this record, we conclude that Eischen was not a third-party beneficiary to the purchase agreement under the duty-owed test.
C.        Contract DefensesThe Juves argue that even if Eischen could satisfy one of the third-party beneficiary tests, it would still be subject to a breach-of-contract defense.  A third-party beneficiary is generally subject to the same defenses as the parties to the contract itself.  Hansen v. Proctor, 246 Minn. 67, 71-72, 74 N.W.2d 281, 284 (1955).  A breach of contract occurs when a party totally or partially fails to perform its obligations under the contract.  Associated Cinemas of America v. World Amusement Co., 201 Minn. 94, 99 276 N.W.2d 7, 10 (1937).  As a general rule, a breach of a contract by one party excuses performance by the other.  Id. Here, NTH breached the purchase agreement by failing to deliver marketable title before closing, and the Juves were excused from performance on the purchase agreement.  Therefore, even if we assume that Eischen was a third-party beneficiary, we conclude that the Juves were excused, as a matter of law, from performance with regard to Eischen.III.Eischen argues that it is entitled to equitable relief under its unjust enrichment claim.  The Juves argue that Eischen has not satisfied the elements of unjust enrichment. Absent a contractual relationship, subcontractors generally have no right of recovery against a homeowner except under the equitable theory of unjust enrichment.  Lundstrom, 254 Minn. at 232, 94 N.W.2d at 533.  To prove unjust enrichment, a claimant must show that a party has knowingly received something of value, that the party is not entitled to the benefit, and that the party received the benefit under circumstances that would make it unjust to permit retention.  Ylijarvi v. Brockphaler, 213 Minn. 385, 393, 7 N.W.2d 314, 319 (1942); Southtown Plumbing, Inc. v. Har-Ned Lumber Co., Inc., 493 N.W.2d 137, 140 (Minn. App. 1992).  To prove unjust enrichment, a claimant must show “that a party was unjustly enriched in the sense that the term ‘unjustly’ could mean illegally or unlawfully.”  ServiceMaster of St. Cloud v. GAB Bus. Servs., Inc., 544 N.W.2d 302, 306 (Minn. 1996).  But an unjust enrichment claim does not lie “simply because one party benefits from the efforts or obligations of others.”  Id.  Further, a party may not seek an equitable remedy when there is an adequate remedy at law.  Id. at 305. Eischen argues that because it was not paid for most of its work on the home, the Juves received a benefit, or windfall.  But Eischen had a statutory legal remedy against the Juves in the form of a mechanic’s lien, and it failed to perfect that lien.[2]  This failure precludes equitable relief.  See, e.g., ServiceMaster, 544 N.W.2d at 306 (reversing the grant of equitable relief to a contractor against a property owner where the contractor failed to perfect a mechanic’s lien against a property owner).  Eischen also had legal remedies available against NTH in the form of mechanic’s lien or breach of contract.  It agreed to settle those claims.  Because Eischen had adequate remedies available at law, its unjust enrichment claim lacks legal merit.But even assuming Eischen’s claim was not barred as a matter of law, there are no material facts that support it.  Although the Juves may have incidentally benefited from Eischen’s work under its contract with NTH, there is nothing in the record to suggest that the Juves acted illegally, unlawfully, or unjustly.  In fact, the Juves offered to pay for a portion of the subcontractors’ claims against NTH, even though they were not legally required to do so, and Eischen declined.  On this record, we conclude that summary judgment was properly granted on Eischen’s unjust-enrichment claim against the Juves.            Affirmed.     

* Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.[1]Eischen has settled its claims against New Tradition.[2]The mechanic’s lien statute requires strict compliance, and it is intended to protect landowners from unwittingly subjecting themselves to lien claims.  Emison v. J. Paul Sterns Co., 488 N.W.2d 336, 338 (Minn. App. 1992) (citations omitted).