Jack Nelson Jones Professional Association

January 4-10, 2016

Derrick v. Derrick, 2015 Ark. App. 696 (December 9, 2015)

This appeal comes from the Sebastian County Circuit Court, Honorable Stephen Tabor presiding. This case concerns an unjust enrichment claim for improvements made to property.

Juanita Derrick deeded property in Greenwood, Arkansas to her three grandchildren, leaving herself a life estate. Sarah and John Jones, two of Juanita’s three grandchildren, received the whole property as tenants in common after the third grandchild had deeded her portion to them. Bob Derrick, Juanita’s son and Sarah and John’s uncle, is a doctor who had been living overseas. He returned to Greenwood and built a house for his mother on the property. At the time he built the house, he knew that his mother had only a life estate in the property and that Sarah and John owned title. The parties had multiple conversations before construction began on the house, and Sarah and John offered for Bob to sign a “Ground Lease for Life” at a lawyer’s office, but that lease was never signed. The lease would have given Bob a life estate in the property. After one year, construction on the house was complete, and Bob had spent around $600,000 on a 5000-square-foot house, which increased the value of the property from $180,000 to $495,000. He asserted that he was never told not to construct the home, the construction was visible to anyone, and all the parties knew of the construction. Bob filed a complaint in the circuit court alleging that he had built the house with the expectation that he would be compensated. He claimed that Sarah and John were unjustly enriched through his efforts and his funds and asked for restitution. The trial court found that Sarah and John had not received the benefit of the improvements; that Sarah and John had not taken any action to create an expectation from Bob that he might be compensated; that all the parties knew of the improvements, but Sarah and John did not know of an expectation that Bob would be reimbursed, especially considering the hostility among them; and finally, that Bob was not entitled to damages. The trial court denied Bob’s unjust-enrichment claim and Bob appealed.

On appeal, the Court explained that unjust enrichment requires a party to have received something of value to which he is not entitled and which he must restore. There also must be some operative act, intent, or situation to make the enrichment unjust and compensable. One who is free from fault cannot be held to be unjustly enriched merely because he has chosen to exercise a legal or contractual right. It is an equitable principle invoked to render a situation fair under the circumstances. Bob contended that he spent over $600,000 in improvements. He claimed that those improvements increased the value of the property by about $300,000. Bob claimed that the trial court’s finding that Sarah and John have not yet received the benefit of the improvements ignored that title was held in their names. Thus, he asserted that everyone connected to the property would have benefited from the improvements. On the contrary, Sarah and John contended that Bob did not prove that they had received any benefit. Sarah testified that the improvements to the property caused her to pay higher property taxes. Bob was receiving the benefit, along with Juanita, because he and Juanita were living on the property.

Bob argued that, because Sarah and John offered to give him a leasehold interest for life without payment of rent before the construction, they created an expectation for Bob to be reimbursed. Even though the lease was not executed, it showed that everyone knew he was entitled to compensation for his improvements. Sarah and John argued that they did nothing to create such an expectation; noting that they never signed the lease and did not visit the property during the construction. They maintained that the surrounding circumstances of the parties’ hostility and a lack of action by Sarah and John would not create a reasonable expectation in Bob for compensation. Bob noted, however, that no one told him to stop building; and argued that one cannot sit and watch silently and then assert a privilege that would cut against the effort that had been made. Sarah and John responded that they had no duty to tell Bob to stop construction. They did not go to the house during construction; and they had a remainder interest, subject to Juanita’s life estate. Thus, they did not have a duty or a right to stop him during Juanita’s lifetime. Sarah and John contended that their hostile relationship with Bob revealed Bob’s unreasonableness and their own lack of awareness. The hostility decreased the chances that they were aware of Bob’s expectation; thus, they claim that hostility was therefore a proper consideration. Sarah and John maintained that they were not aware of Bob’s expectations for compensation, and the trial court was correct in holding that the evidence did not establish their knowledge. Had Bob signed the lease, Sarah and John would have been aware of his expectation. However, there was no lease, and they gave Bob no consent for the construction. The Court of Appeals found the trial court’s determination that they had no knowledge of any expectation for compensation by Bob was not clearly erroneous.

Finally, Bob argued the trial court relied on inapplicable case law because the trial court relied on Child v. Adams, which involved a breach of contract for sale of real property. Sarah and John, however, argued the case also relied on the principles of unjust enrichment and equity. They contended Bob was seeking reimbursement for expenditures made without their consent; and that he should not be entitled to restitution because the improvements were made without mistake, coercion, request, or consent. Sarah and John claimed that Bob assumed the risks and barred himself from recovery under the theory of unjust enrichment. The Court noted that life tenants ordinarily are not compensated by remaindermen when they make permanent improvements to the estate. Thus, the Court stated, it logically flows that when a third party makes improvements at the request of a life tenant, with full knowledge of the ownership interests and without any agreement from the remaindermen, that third party cannot recover from the remaindermen either. Accordingly, the Court of Appeals found the trial court’s determination that restitution was not warranted was not clearly erroneous. Affirmed.