By Alexander Nirenstein, Nirenstein & Garnice PLLC

The Court of Appeals this week in Stewart v. Sterling dealt with the issue of a married couple who formed a business, borrowed money from the wife’s relative for start-up costs, and were later divorced with the husband being awarded the company and without those monies being repaid at the time the divorce was finalized.

Ultimately, the relative sued the ex-husband claiming breach of contract, breach of covenant of good faith and fair dealing and unjust enrichment. The ex-husband defended the lawsuit claiming that there was never any agreement to repay the money. At trial, judgment for the full amount borrowed, with interest at the statutory rate and attorney’s fees and costs was entered in favor of the relative.

The Court of Appeals affirmed the trial court’s ruling finding that no enforceable contract existed because it was only an “oral debt not evidenced by a contract in writing” existed. Nevertheless, the Court held that the trial court properly found that the claim for unjust enrichment was appropriate.

In Arizona, in order to establish a claim of unjust enrichment, a party must show: (1) an enrichment; (2) an impoverishment; (3) a connection between the enrichment and the impoverishment; (4) the absence of justification for the enrichment and the impoverishment; and (5) the absence of a legal remedy.

These factors were proved by the relative, including, “absence of legal remedy” since there existed no enforceable contract between the parties. As a result, timing as to when the law suit was filed became critical because of statute of limitations concerns (three and/or four years). In this case, the “discovery rule” applied, which indicates that a “cause of action does not accrue until the plaintiff knows or with reasonable diligence should know that facts underlying the cause.”

The trial court’s application of the date when the cause of action accrued in this case was the date of the entry of the Decree of Dissolution of Marriage, “the time [the relative] should have know that the ex-husband was responsible for repayment of the loan and that payment would not be made.”