Opinion ID: 1201899
Heading Depth: 2
Heading Rank: 3

Heading: consequences of illegal contract zoning

Text: If we assume the correctness of the trial court's finding of fact that the Village agreed in the 1983 Agreement to rezone the Dacys' property, this case involves a form of unilateral contract zoning: The Village promised to rezone Tract A-A in return for the Dacys' conveyance of property that the Village needed for the highway right of way. Under the principles set out above, this contract is unenforceable because the Village attempted to commit itself to specific zoning action without following the required statutory procedures. The trial court concluded that the contract between the Village and the Dacys was illegal and that [i]llegal contracts are void ab initio and the court must leave the parties as it finds them. It therefore concluded that it could award no damages to the Dacys. In its letter decision to the parties, the court stated that any remedy, whether equitable or legal, is foreclosed as to an illegal contract. While we affirm the trial court's denial of relief to the Dacys, we explain our reasoning in some detail so as to clarify the legal rules regarding the availability of relief to a party to an illegal contract. The trial court was correct in stating that damages are unavailable as relief to a party to an illegal contract. See Restatement (Second) of Contracts § 346(1) (1979) [hereinafter Restatement ] (The injured party has a right to damages for any breach by a party against whom the contract is enforceable ... .) (emphasis added). Additionally, neither specific performance nor an injunction will be granted to a party to an illegal contract. See id. § 365 (specific performance and injunction are unavailable if act that would be compelled is contrary to public policy). Although the foregoing remedies are unavailable, it is not accurate to say that any remedy ... is foreclosed as to an illegal contract. As Corbin states, A party who has rendered part or all of the bargained-for-exchange, or has otherwise materially changed his position in reliance on the return promise in an `illegal' bargain, has often seemed to deserve and has often been given a restitutionary remedy. 6A Corbin, supra, § 1534, at 818. Restitution, in the context of contract law, is a remedy that restores to a contracting party any benefit that he or she has conferred on the other party through part performance or reliance. Restatement, supra, §§ 344(c), 370. Restitution may be in the form of the specific restoration of land or chattels, the repayment of money, or the payment of the reasonable value in money of services rendered. 6A Corbin, supra, § 1535, at 821. In the present case, restitution to the Dacys, if granted, would probably take the form of a payment to them of the value of the land they conveyed to the Village, less the proceeds of Tract A-A when they sold it in 1986. [4] (The court could not order the Village to return the land to the Dacys since it presumably has already been used by the Village for the highway right of way.) The circumstances in which restitution will be awarded to a party to an illegal contract cannot be easily defined or categorized. Id. § 1534, at 818-19. The Restatement says that restitution is generally unavailable to a party who has rendered performance in return for a promise that is unenforceable unless denial of restitution would cause disproportionate forfeiture. Restatement, supra, § 197. Whether the forfeiture is disproportionate depends on the extent of the denial of compensation compared to the gravity of the public interest involved and the extent to which the contract contravenes public policy. Id. comment b. Additionally, Corbin identifies the following factors (which we assume to be a nonexclusive list) as influencing whether a court will grant restitution: The degree of criminality involved in the illegal contract, the comparative innocence or guilt of the parties, the extent of public harm involved, the moral quality of the parties' conduct and the severity of the penalty or forfeiture that will result from denial of relief. 6A Corbin, supra, § 1534, at 818. We do not believe that denying restitution in this case will cause a disproportionate forfeiture. Several factors support this conclusion. First, we have serious doubts that the Village even made a promise to rezone. As stated above, the only evidence to support such a promise was the omission of paragraphs A(2) and A(11) of the restrictive covenants from the agreement and the deed. The omission of these paragraphs allowed subdivision and possible multi-family use of Tract A-A and unlimited removal of trees and earth on the land. We see nothing in the deletion of these covenants that gave rise to an implied promise by the Village to rezone the property. In deleting these covenants from the agreement and deed, the Village authorized the present resubdivision of Tract A-A and possible future use of the property for multi-family housing, but we cannot see that it promised to rezone the property. [5] A second factor influencing our decision is our belief that the Dacys bear some responsibility for their loss because they failed to protect themselves against the risk of a decline in the market for R-2 property. By entering into the agreement with the Village without demanding a time deadline for the rezoning, the Dacys assumed the risk that the Village would not promptly rezone and that the market in Ruidoso for R-2 property would drop. The Dacys could have expressly provided in the agreement that their transfer of land to the Village would not be effective unless and until the Village rezoned Tract A-A or unless the Village rezoned Tract A-A by a specified date. In that way, had the Village failed to comply with those terms, the Dacys would not have suffered any harm. By failing so to protect themselves, the Dacys undertook the risk that the market for R-2 property would collapse and that they would lose money on the deal. A final factor causing us to believe that the Dacys have not suffered a disproportionate forfeiture lies in the at least arguable unreasonableness of their reliance on the Village's purported promise to rezone Tract A-A. As mentioned previously, the Dacys have argued on appeal that the Village should be estopped to assert the invalidity of the claimed agreement to rezone. The estoppel asserted is equitable estoppel, based on cases such as Albuquerque Nat'l Bank v. Albuquerque Ranch Estates, Inc., 99 N.M. 95, 101, 654 P.2d 548, 554 (1982). It is clear, however, that this form of estoppel, like other forms, [6] requires the party asserting it to have reasonably relied on the other party's promise or representation. See, e.g., id. The reasonableness of the Dacys' reliance on the Village's implied promise to rezone  in a contract covering in considerable detail other aspects of the parties' transaction  is questionable to say the least. We do not hold that the Dacys' reliance on the Village's putative promise to rezone was unreasonable as a matter of law; nor do we hold, as a matter of law, that the Village did not in fact make such a promise; nor do we hold  again, as a matter of law  that the Dacys assumed the risk that the real estate market in Ruidoso would collapse during 1985. We hold only that, as a matter of law, the Village's promise to rezone, if made, was unenforceable and that in the circumstances of this case denying restitution to the Dacys does not result in a disproportionate forfeiture. The trial court's judgment is therefore affirmed. IT IS SO ORDERED. RANSOM, C.J., and BACA, J., concur.