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Vol. 2001-9 | September, 2001

When May Subcontractor Collect from the City?

The City of Cleveland awarded airport runway renovation work to Anthony Allega Cement Contractors, Inc. (“Allega”) as the General Contractor for the project. The G.R. Osterland Co. (“Osterland”) was subsequently subcontracted, by Allega, to install the sub-base for the runway. After the work was completed, the City refused to pay, claiming that the “…plans and specifications did not call for installation of thesub-base”. Osterland filed a mechanics’ lien against the City’s airport property for the $180,099.08 it claimed was owed.

In an attempt to be paid for the work, Allega assigned its right to collect from the City to Osterland, conditioned upon the subcontractor’s release of the lien. Osterland then filed a Complaint in the Common Pleas Court of Cuyahoga County, alleging that the City breached its contract with Allega and that the City was, thereby, unjustly enriched.

In the Trial Court, the City of Cleveland successfully argued that Allega’s rights to payment could not be assigned to Osterland because both City ordinances and the contract between the City and Allega required prior approval of the Board of Control before any assignment. The Trial Court dismissed Osterland’s complaint for failure to state a claim.

On appeal, Osterland argued that it was in “privity of contract” with the city (the required contractual relationship between contracting parties) with respect to “…job plans and specifications.” (The City had changed the plans and specifications after Osterland had performed the work.) The Court of Appeals stated that the general rule of law is:”…absent an agreement otherwise, there is no privity of contract between a property owner and subcontractor.” Similarly, the property owner is “liable to a general contractor for discrepancies in the plans and specifications.” Because Osterland could not establish that the “plans and specifications created a contractual relationship between the property owner and the subcontractor”, the Court of Appeals affirmed the Trial Court’s decision, denying payment.

The Court of Appeals also held that Osterland could not recover from the City of Cleveland under the doctrine of unjust enrichment because, “…the doctrine of unjust enrichment does not apply to a municipal corporation.” (Emphasis added). Further, the Court ruled that the subcontractor can collect from the property owner “…only if the contractor is unavailable for judgment and the contractor is unable to pursue the owner.” G.R. Osterland Co. v. Cleveland (2000), 140 Ohio App.3d 574, decided 11/20/2000.

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Author: J. NORMAN STARK is an Attorney-at-Law, a Registered Architect, (AIA, NCARB) Registered Landscape Architect, Interior Designer, Planner and Senior Appraiser (ASA), admitted to practice law before the Bar of Ohio, the US District Courts, Ohio and Illinois (Central Dist.), the US Court of Appeals, and the United States Supreme Court. He has had experience in business, Construction, Real Property, Litigation and Construction-Legal Project and Crisis Management.