## Facts

- M.L.W. Construction Corporation developed a condominium project and obtained a $5,850,000 construction loan from HNC Mortgage and Realty Investors secured by a construction mortgage.
- Myers-Macomber Engineers contracted with M.L.W. to perform site-preparation work and related engineering services.
- Myers-Macomber completed its work but was not paid $11,298.98 owed under its contract with M.L.W.
- After HNC advanced about $2,900,000, M.L.W. defaulted under the mortgage.
- Under a mortgage provision, HNC took control of the project as a mortgagee in possession, later foreclosed, and purchased the incomplete development at sheriff’s sale.
- HNC then completed the project using a contractor it hired; the record showed no express agreement by HNC to pay M.L.W.’s contractor debts and no evidence that HNC realized a profit.
- Myers-Macomber sued M.L.W. for breach of contract (uncontested) and sued HNC on an unjust enrichment theory based on the site work incorporated into the project.
- A jury returned a verdict against HNC for $11,000; the trial court denied HNC’s post-trial motions and entered judgment on the verdict.

## Issues

1. Whether a mortgagee in possession must use undisbursed mortgage funds to satisfy the mortgagor’s unpaid job-related debts to third parties.
2. Whether the mortgagee in possession becomes a quasi-trustee for unpaid contractors and professionals.
3. Whether a construction lender that takes possession, forecloses, and buys the property can be liable to an unpaid contractor under unjust enrichment absent proof of net profit or an undertaking to assume the contractor’s debt.

## Decision

- The Superior Court reversed the judgment against HNC and entered judgment in HNC’s favor.
- The court rejected the trial court’s view that a mortgagee in possession is a quasi-trustee obligated to pay the mortgagor’s outstanding job-related debts from undisbursed loan proceeds.
- The court held the record did not support unjust enrichment liability against HNC.

## Legal Principles

- A mortgagee in possession is a mortgagee who takes possession with the mortgagor’s consent (often pursuant to the mortgage) to protect and preserve its security interest; possession does not waive foreclosure rights.
- Absent an express agreement or statutory duty, a mortgagee in possession does not assume a fiduciary or quasi-trustee obligation to satisfy the mortgagor’s debts to contractors or professionals from undisbursed loan funds.
- Unjust enrichment requires (1) enrichment to the defendant, (2) corresponding deprivation to the plaintiff, and (3) circumstances making retention of the benefit unjust; incidental benefit to a lender from enforcing mortgage rights is insufficient without proof of unjust retention (including evidence supporting a non-speculative enrichment).

## Conclusion

The court held that a construction lender’s status as mortgagee in possession does not, by itself, impose a duty to pay the developer’s unpaid contractors from remaining loan funds, and that unjust enrichment did not apply where the lender acted within its mortgage rights and the record did not show an unjust, profit-based benefit.


Myers-Macomber Eng'rs v. M.L.W. Constr. Corp., 414 A.2d 357 (Pa. Super. Ct. 1979)