Background
Elite Flooring Installations served as a drywall subcontractor on three apartment construction projects in North Dakota and Minnesota. Elite engaged Juan Gonzalez to handle drywall, painting, taping, and texturing work, and Gonzalez in turn brought in Lepird Drywall to assist with priming, texturing, and painting. In late September 2023, Gonzalez abandoned all three job sites without completing punch list and patchwork obligations, leaving unfinished work behind and cutting off all contact with Elite and Lepird.
After Gonzalez’s departure, Lepird’s principal contacted Elite’s owner, Andy Rahman, to discuss the unfinished work. Lepird testified the two reached an oral agreement: Lepird would complete the remaining punch list items and patchwork in exchange for payment from the projects’ retainage fees and supplemental compensation for change orders. Rahman denied any such agreement, maintaining that Gonzalez had told him Lepird would simply finish out Gonzalez’s obligations. Lepird completed the work across all three sites and invoiced Elite for $44,975; Elite paid nothing. Lepird sued for breach of the oral contract, and Elite counterclaimed for conversion, alleging Lepird had wrongfully removed approximately $20,000 worth of paint and supplies from the job sites.
Following a bench trial, the Cass County District Court found an enforceable oral contract existed, awarded Lepird $44,975 in damages, and dismissed Elite’s conversion counterclaim with prejudice. The court also concluded that, even absent an oral contract, Lepird would have been entitled to recovery under unjust enrichment. Elite appealed both rulings.
The Court’s Holding
The North Dakota Supreme Court affirmed on both issues, applying the clearly erroneous standard to the district court’s factual findings. On the oral contract claim, the court found ample evidentiary support for the trial court’s credibility determination: Lepird’s direct testimony of an agreement with Rahman was corroborated by Rahman’s post-abandonment communications with Lepird, his visits to the project sites, his direction of Lepird’s order of work, and the general contractors’ independent steps to reserve funds ensuring Lepird would be paid. The court also noted that verbal subcontract arrangements were standard industry practice acknowledged by both parties based on their prior dealings. The absence of invoices addressed directly to Elite did not undermine the finding, as the trial court credited Lepird’s explanation that billing was redirected after Elite refused to pay.
On the conversion counterclaim, the court upheld dismissal because Elite failed to prove the claim by a preponderance of the evidence. Rahman’s testimony about the alleged value of the missing materials was vague and unsupported by any documentary evidence—no invoices, no inventory records, and no specifics as to which sites the items came from or when they disappeared. Lepird acknowledged removing a limited quantity of leftover paint from one site at Gonzalez’s direction and testified that Elite had never requested return of any materials and could do so at any time. The court rejected Elite’s argument that a formal demand would have been futile, finding no evidentiary basis for that conclusion.
Because the breach-of-contract award was affirmed, the court declined to address Elite’s arguments concerning the district court’s alternative unjust enrichment ruling or Lepird’s complaint amendments, rendering those issues moot.
Key Takeaways
- An oral subcontract formed after a lower-tier subcontractor abandons a project can be enforceable where direct communications, site visits, direction of work, and consistent industry custom support a finding of mutual assent — even without written invoices addressed to the contracting party.
- Credibility determinations and the weighing of conflicting testimony at a bench trial are virtually unreviewable on appeal under the clearly erroneous standard; an appellate court will not substitute its judgment for the trial court’s assessment of witness credibility.
- A conversion counterclaim fails where the claimant presents only vague, unsubstantiated testimony about the value and identity of allegedly taken property, without documentary support and without ever requesting return of the items.
- The “demand would be futile” exception to the demand-for-return requirement in conversion cases requires affirmative evidentiary support — a bare assertion of futility is insufficient when the opposing party testified it was willing to return the property.
Why It Matters
This decision reinforces that verbal agreements are legally enforceable in the construction industry when the surrounding circumstances — industry custom, course of dealing, and corroborating conduct — support a finding of mutual assent. For subcontractors stepping in to finish abandoned work, the case offers assurance that a direct oral understanding with the hiring party, confirmed by that party’s subsequent conduct, can support a damages award even when the paper trail is imperfect.
For contractors asserting conversion claims over job-site materials, the ruling is a cautionary reminder that specificity is essential. Courts will not award damages for allegedly converted property when the claimant cannot substantiate ownership, quantity, condition, or value with credible evidence — and where the opposing party’s willingness to return the items goes uncontested by any demand for their return.