Opinion ID: 2632694
Heading Depth: 1
Heading Rank: 5

Heading: quality is entitled to recover under a theory of unjust enrichment

Text: This Court has recognized situations in which relief to a party to an illegal contract is warranted to avoid unduly harsh results. In such instances, the Court has awarded damages based on the rationale that, although illegal contracts are unenforceable as a matter of public policy, circumstances arise where denying a party relief would frustrate the public interest more than leaving the parties where they lie. This Court has stated that, [b]arring the strict application of the illegality doctrine, the central focus must be whether the ends of the law will be furthered or defeated by granting the relief requested. Trees, 138 Idaho at 9, 56 P.3d at 771. The Court has recognized an exception to the unenforceability of an illegal contract where the parties are not in pari delicto, granting relief to the innocent party. McShane v. Quillin, 47 Idaho 542, 277 P. 554, 559 (1929). In addition, this Court has recognized specific exceptions where fraud, undue influence, or duress are present, Trees, 138 Idaho at 10, 56 P.3d at 772; where the plaintiff is innocent and the agreement does not violate a statute, Williams v. Cont'l Life & Acc. Co., 100 Idaho 71, 73, 593 P.2d 708, 710 (1979); and, in the case of a void insurance contract, where unenforceability would defeat the purpose for which a statute has been enacted. Martinez v. Idaho Counties Reciprocal Mgmt. Program, 134 Idaho 247, 252-53, 999 P.2d 902, 907-08 (2000). In McFall v. Arkoosh, 37 Idaho 243, 215 P. 978, 979 (1923) (quoting 6 Ruling Case Law 829, § 220) the Court articulated the public policy interest that may motivate the award of damages to a party to an illegal contract. The Court stated that: Public policy, it must be borne in mind, lies at the basis of the law in regard to illegal contracts, and the rule is adopted, not for the benefit of the parties, but of the public. It is evident, therefore, that cases may arise even under contracts of this character, in which the public interests will be better promoted by granting than by denying relief, and in such the general rule must yield to this policy. Hence, even between parties in pari delicto, relief will sometimes be granted if public policy demands it. The circumstances of this case do not squarely fit within one of the specific exceptions described above. The State is not a party to this case and has not sought to deny Pac-West payment for employing a non-licensed subcontractor. Denying Quality any recovery for the work it performed on the BRMC project, while Pac-West retains the benefit of Quality's work (and has been paid by the hospital owners for its work), is a harsh result, particularly where the public entity has not sought any remedy for the breach of the public policy set forth in I.C. § 54-1901(a). Courts in other jurisdictions are divided between those that permit an unlicensed contractor to pursue a claim for restitution, and those that strictly adhere to the principle that the court will leave the parties to an illegal contract where it finds them, denying any form of recovery. 66 Am.Jur.2d Restitution and Implied Contracts § 66 (1973); Francis M. Dougherty, Annotation, Failure of Building and Construction Artisan or Contractor to Procure Business or Occupational License as Affecting Enforceability of Contract or Right of Recovery for Work Done-Modern Cases, 44 A.L.R.4th 271, 332-37 (1986). For example, the Maryland Court of Appeals refused to award damages to an unlicensed contractor because to permit a recovery on a quantum meruit would defeat and nullify the statute. Harry Berenter, Inc. v. Berman, 258 Md. 290, 296, 265 A.2d 759, 763 (1970). That court recognized that the result permitted the recipient of the work to retain the benefit without having to pay for it, but because the statute was designed to protect the public the court would not give any recovery to a party that violated it. Id. The Maryland court focused on the effect on the public interest, rather than on the defendant's retention of a benefit. On the other hand, the Supreme Court of Tennessee held that an unlicensed contractor was able to sue a licensed contractor for which it had performed work under a quantum meruit theory. Gene Taylor & Sons Plumbing Co., Inc. v. Corondolet Realty Trust, 611 S.W.2d 572, 576 (1981). The court reasoned that since the statute making the contract illegal was designed to protect the public, [t]he policies that bar recovery against a member of the general public do not apply in suits against licensed professionals in the same business. Id. at 575-76. See also 66 Am.Jur.2d Restitution and Implied Contracts § 66 (1973 & Supp.1996) for additional cases illustrating the split among jurisdictions between those allowing recovery and those denying recovery under similar facts. Though some courts do not differentiate between the measure of recovery under unjust enrichment and quantum meruit, this Court has carefully done so. 66 Am.Jur.2d Restitution and Implied Contracts § 66 (1973 & Supp.1996). In Peavey v. Pellandini, 97 Idaho 655, 658, 551 P.2d 610, 613 (1976), this Court stated that quantum meruit is the appropriate recovery under a contract implied in fact. A contract implied in fact exists where there is no express agreement but the parties' conduct evidences an agreement. Id. (quoting Continental Forest Prod., Inc. v. Chandler Supply Co., 95 Idaho 739, 518 P.2d 1201 (1974)). Unjust enrichment, or restitution, is the measure of recovery under a contract implied in law. Id. A contract implied in law, or quasi-contract, is not a contract at all, but an obligation imposed by law for the purpose of bringing about justice and equity without reference to the intent of the agreement of the parties, and, in some cases, in spite of an agreement between the parties. Id. Recovery under a quantum meruit theory is measured by the reasonable value of the services rendered or of goods received, regardless of whether the defendant was enriched. Erickson v. Flynn, 138 Idaho 430, 434-35, 64 P.3d 959, 963-64 (Ct.App.2002). Recovery under an unjust enrichment theory, on the other hand, is limited to the amount by which the defendant was unjustly enriched. Id. at 434, 64 P.3d at 963. Here, the contract between Quality and Pac-West was express, but failed because of illegality. Any recover by Quality is limited to restitution, and Quality must prove that Pac-West was unjustly enriched. The district court awarded Quality damages based on breach of contract. Thus, Quality not only recovered the value of the work it performed, but it also recovered its profit on that work. As this Court indicated in Quiring v. Quiring , a party to an illegal contract cannot ask the Court to have his illegal objects carried out. 130 Idaho at 568, 944 P.2d at 703. If Quality is entitled to its lost profits for the work it performed on the BRMC project, the illegal agreement is in effect enforced. Any damages Quality recovers are in the form of restitution, limiting its recovery to the amount by which Pac-West was unjustly enriched. This may inure to the benefit of Pac-West, but that result cannot be avoided if the public policy behind the unenforceability of illegal contracts is to be preserved. Pac-West argues that Quality failed to prove the elements of unjust enrichment and should be denied relief. In Blaser v. Cameron , the Court of Appeals indicated that a party seeking recovery under an unjust enrichment theory must present evidence not only of the value of the services it rendered, but also the amount of the benefit which, if retained by the [defendant], would result in their unjust enrichment. 121 Idaho 1012, 1017, 829 P.2d 1361, 1366 (Ct.App.1991). The Court of Appeals affirmed the district court's finding that the plaintiff failed to establish a claim for unjust enrichment because it did not present evidence of the amount by which the defendant was unjustly enriched. Id. In this case Quality calculated its damages by subtracting from its total bid price the value of the work it was not permitted to complete. The damage figure it arrived at, $52,416.96, represents the value of the work it had performed plus the profit related to that work. That award is vacated and the case remanded for a determination of the recovery, if any, to which Quality is entitled under the theory of unjust enrichment. The district court should make its determination based on the evidence presented at trial that has taken place without the further presentation of evidence. Whether there is an adequate record for Quality to meet its burden of proving unjust enrichment to Pac-West is for the district court to determine.