Eker Bros. Inc. v. Rehders

Citation263 P.3d 319,150 N.M. 542,2011 -NMCA- 092
Decision Date02 August 2011
Docket NumberNo. 29,839.,29,839.
PartiesEKER BROTHERS, INC., Plaintiff–Counterdefendant/Appellant,v.John G. REHDERS, General Contractor, Inc., Defendant–Counterclaimant/Appellee.
CourtCourt of Appeals of New Mexico

OPINION TEXT STARTS HERE

Sommer, Udall, Sutin, Hardwick, & Hyatt, PA, Kurt A. Sommer, Candice Lee, Santa Fe, NM, for Appellant.

McClaugherty & Silver, P.C., Tamara R. Safarik, Joe L. McClaugherty, Santa Fe, NM, for Appellee.

OPINION

BUSTAMANTE, Judge.

{1} Eker Brothers, Inc. (Subcontractor) sued John G. Rehders, General Contractor, Inc. (General) seeking payment for work Subcontractor had performed. The district court found that Subcontractor was owed $74,964.05 and that General had incurred $42,448.20 in damages, but that Subcontractor's “claims [were] barred by its willful, material[,] and anticipatory breach of the parties' contract.” The court awarded General $42,448.29.1 We conclude that the district court erred by not offsetting General's damages against the benefit General received from Subcontractor's unpaid work, and reverse.

I. BACKGROUND

{2} Subcontractor submitted a bid to General to perform site and concrete work necessary to construct an elementary school for the Archdiocese of Santa Fe. After Subcontractor agreed to reduce the site work bid by $100,000, General verbally accepted the bid and work began on the project. General paid Subcontractor's first invoice, covering work from July 1 to July 31, in full. Subcontractor continued work through August, and on September 2, Subcontractor tendered an invoice for $126,358.95 covering work performed between August 1 and August 31.

{3} On September 8, Subcontractor ceased all work on the project. Four days later, on September 12, General offered to pay $58,947.95 for the work Subcontractor had performed. Subcontractor did not accept this payment. On September 14, Subcontractor submitted an invoice for the work it had performed from August 1 to September 7 in the amount of $122,099.45. General did not pay this invoice and this lawsuit followed.

{4} The district court concluded that the value of the work performed by Subcontractor between August 1 and September 7 and invoiced on September 14 was $74,964.05. To arrive at this number, the court began with the $122,099.45 from Subcontractor's September 14 invoice. The court then subtracted (1) $28,900 for grading work that had not actually been performed; (2) $7656 for curbs that were of poor quality; (3) $3,036.90 to cover General's cost to remove the defective curbs; (4) $5,512.50 for General's cost to re-stake an area that had been impacted by Subcontractor's departure; and (5) $2030 to cover half of the cost of fixing footings that had been damaged due to rain.

{5} The district court next turned to General's damages. It found that General had “incurred [an extra] $50,194.45 in additional expenses due to [Subcontractor's] failure to complete the concrete work.” It also found that General had mitigated its damages by completing the site work for $7,746.25 less than it would have paid Subcontractor. Subtracting the savings from the additional costs, the district court concluded that General's damages were $42,448.20. The district court did not offset the amount owed to Subcontractor against the damages, but instead entered judgment against Subcontractor for the full amount of the damages.

II. DISCUSSION

{6} Subcontractor contends that the district court's decision that his claims were “barred by its willful, material[,] and anticipatory breach” was error as a matter of law, and that [d]espite its breach, [it] was entitled to restitution for the value of the benefits its performance conferred.” Subcontractor argues that New Mexico follows Restatement (Second) of Contracts § 374 (1981), which allows a breaching party to obtain restitution for benefits conferred in excess of damages. As we understand it, General's response is that the $74,964.05 of unpaid work performed by Subcontractor did not constitute a benefit to General and therefore should not be offset against General's damages. General also argues that its damages exceeded any benefit. Subcontractor has also made a substantial evidence argument, which we do not address because we agree with Subcontractor's legal argument.

A. The Nature of Restitution

{7} Both parties have framed the issue of whether restitution must be awarded here as if it were equitable in nature, deriving from unjust enrichment. The district court denied Subcontractor's request for equitable relief in the form of restitution for unjust enrichment. That does not, however, end our analysis. To the extent that the requested restitution refers to an offset of compensatory damages by the amount of any benefit conferred, it is a legal issue which we review de novo. See Primetime Hospitality, Inc. v. City of Albuquerque, 2009–NMSC–011, ¶ 10, 146 N.M. 1, 206 P.3d 112. As an initial matter, we must determine whether the damages question at issue here is legal or equitable in order to select the appropriate standard of review.

{8} Traditionally, restitution is thought of as an equitable remedy. See, e.g., Arena Res., Inc. v. OBO, Inc., 2010–NMCA–061, ¶ 15, 148 N.M. 483, 238 P.3d 357. However, in the context of offsetting compensatory damages, at least one court has found that restitution is a legal remedy. See Ducolon Mech., Inc. v. Shinstine/Forness, Inc., 77 Wash.App. 707, 893 P.2d 1127, 1129 (1995). A popular treatise notes that [t]he remedy of restitution, ... [cannot] properly be described as either ‘legal’ or ‘equitable’ in any narrowly restricted signification of those terms.” 12 Arthur Linton Corbin, Corbin on Contracts § 1103, at 10 (interim ed.2002). Our Supreme Court has also noted the dual nature of restitution. See C.R. Anthony Co. v. Loretto Mall Partners, 112 N.M. 504, 512 n. 10, 817 P.2d 238, 246 n. 10 (1991). As Corbin observes, modern restitution is a mixture whose rules “are the rules of equity wherever they differ from those of the common law. See Corbin on Contracts, supra, § 1103, at 5 (emphasis added).

{9} Nevertheless, equity may still intervene, as it apparently did here. See Builders Contract Interiors, Inc. v. Hi–Lo Indus., Inc., 2006–NMCA–053, ¶ 8, 139 N.M. 508, 134 P.3d 795. The district court ruled that Subcontractor was barred from recovering, effectively working a forfeiture on Subcontractor for the value of its work from August 1 to September 7. Our Supreme Court has observed that “a forfeiture declaration is essentially an equitable remedy.” Cortez v. Cortez, 2009–NMSC–008, ¶ 25, 145 N.M. 642, 203 P.3d 857 (alteration omitted) (internal quotation marks omitted). “The question of whether, on a particular set of facts, the district court is permitted to exercise its equitable powers is a question of law, while the issue of how the district court uses its equitable powers to provide an appropriate remedy is reviewed only for abuse of discretion.” United Props. Ltd. v. Walgreen Props., Inc., 2003–NMCA–140, ¶ 7, 134 N.M. 725, 82 P.3d 535.

B. Our Case Law About Compensatory Damages and Restitution

{10} We begin our discussion with the question of damages. As we have noted, this is a legal question, and will determine the outcome unless equity intervenes. Subcontractor contends that in Famiglietta v. Ivie–Miller Enters., Inc., 1998–NMCA–155, 126 N.M. 69, 966 P.2d 777, we recognized Restatement Section 374 and that, while not citing to it, we implicitly followed it in Tyner v. DiPaolo, 76 N.M. 483, 484, 416 P.2d 150, 151 (1966). General cautions us that Tyner “should not be misread” as having adopted the Restatement's rule. We begin by examining these two cases.

{11} In Famiglietta, two sellers sold a tortilla chip distributorship to a buyer in return for a series of installment payments. 1998–NMCA–155, ¶ 1, 126 N.M. 69, 966 P.2d 777. As a condition of the contract, one of the sellers agreed to remain employed by the distributorship for five years. Id. ¶ 2. The seller quit after eighteen months, and the buyer stopped making installment payments. Id. ¶¶ 2, 9. The sellers sued for the remaining installment payments. Id. ¶ 9. The district court, finding that the seller's breach was not material, awarded the payments to the sellers. Id. ¶ 10. On appeal, this Court noted that if the seller had “committed a material breach of the contract which remained uncured, [the b]uyer was not required to perform its remaining obligations under the contract.”Id. ¶ 14. We applied a five-factor test for materiality and concluded that the district court erred in its determination that the breach was not material. Id. ¶ 24. Accordingly, we held that the district court's ruling that the buyer was obligated to make the remaining payments was wrong. Id.

{12} Although Famiglietta mentioned Section 374 of the Restatement, it did not apply or adopt it. The focus of Famiglietta was the introduction of a framework for analyzing whether a breach of contract is material. See 1998–NMCA–155, ¶¶ 17–24, 126 N.M. 69, 966 P.2d 777. Famiglietta's brief discussion of the consequences of material breach simply confirmed that the non-breaching party is relieved of its remaining obligations. See id. ¶¶ 14, 24. Furthermore, Famiglietta is limited by its unique facts: buyer had attempted to return the business to the seller, who refused, forcing buyer to sell the business in order to mitigate his damages. See id. ¶ 21. Therefore, Famiglietta provides little in the way of useful guidance to us in this case.

{13} In Tyner, a subcontractor wrongfully breached his contract with a prime contractor when he stopped working on the contract. 76 N.M. at 484, 416 P.2d at 151. The subcontractor sued for the value of “work performed and materials supplied,” and the prime contractor counterclaimed for money he had spent above what he would have spent had the subcontractor completed the contract. Id. The subcontractor had not been paid for $4,055.77 of work, and it cost the prime contractor...

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