Murdock-Bryant Const., Inc. v. Pearson

• Court: Arizona Supreme Court
• Writing for the Court: FELDMAN; HOLOHAN
• Citation: Murdock-Bryant Const., Inc. v. Pearson, 703 P.2d 1197, 146 Ariz. 48 (Ariz. 1985)
• Decision Date: 01 July 1985
• Docket Number: MURDOCK-BRYANT,No. 17633-PR,17633-PR
• Parties: CONSTRUCTION, INC., an Arizona corporation; and Sentry Indemnity Company, a foreign corporation, Plaintiffs-Appellees, v. Taylor PEARSON, dba Taylor Pearson Construction Company; Robert Wilbur individually and jointly; University Industries, individually and jointly; and Insurance Company of North America a corporation, Defendants-Appellants.

Page 1197

703 P.2d 1197

146 Ariz. 48

MURDOCK-BRYANT CONSTRUCTION, INC., an Arizona corporation; and Sentry Indemnity Company, a foreign corporation, Plaintiffs-Appellees, v. Taylor PEARSON, dba Taylor Pearson Construction Company; Robert Wilbur individually and jointly; University Industries, individually and jointly; and Insurance Company of North America a corporation, Defendants-Appellants.

No. 17633-PR.

Supreme Court of Arizona, In Banc.

July 1, 1985.

Jennings, Kepner & Haug by William F. Haug, Michael J. Raymond, Phoenix, and Tolley, Fisher & Verwys by Peter R. Tolley, Grand Rapids, Mich., and Mangum, Wall, Stoops & Warden by Daniel J. Stoops, Flagstaff, for Murdock-Bryant/Sentry Indem.

Meyer, Vucichevich & Cimala by Ronald H. Cimala, George R. Ferrin, Phoenix, for Taylor Pearson/Insurance Co. of North America.

Black, Robertshaw & Copple by Richard A. Black, Phoenix, for Wilbur/University Industries.

FELDMAN, Justice.

Murdock-Bryant Construction, Inc. (Murdock), a subcontractor, brought an action seeking recovery for fraud, breach of contract, and restitution against the prime contractor, Taylor Pearson, dba Taylor Pearson Construction Co. (Pearson). Murdock also joined Robert Wilbur and University Industries, Inc. (UI) as defendants, alleging they were joint venturers with Pearson. All defendants counterclaimed, seeking damages from Murdock for breach of contract.

The case was tried to a jury on the equitable theory of restitution. The jury found for Murdock and against all the defendants, returning a verdict for $392,000. Deeming the verdict advisory only, ¹ the trial judge recomputed damages, ruled on various post-trial motions, and entered judgment against all defendants, awarding Murdock damages of $273,000 plus attorney's fees and denying all relief on defendants' counterclaims. All defendants appealed. In a thorough opinion, 146 Ariz. 57, 703 P.2d 1206, the court of appeals reviewed the facts, defined the standard of appellate review, and held that Murdock had established its claim, that the evidence supported the damages awarded, and that attorney's fees were properly granted by the trial judge. The opinion of the court of appeals on each of these points is approved. However, the court also held that the evidence was insufficient to support any judgment against Wilbur and UI. Since the legal issues with respect to this holding are matters of first impression in this state, we granted review. We have jurisdiction under Ariz. Const. art. 6, § 5(3) and Rule 23(c), Ariz.R.Civ.App.P., 17A A.R.S.

The precise issue presented is whether defendant may be held liable on a quantum meruit theory to make restitution for benefits received when defendant was neither a party to the contract under which plaintiff rendered services nor a party responsible for the wrong which permitted plaintiff to rescind the contract and seek restitution.

FACTS

The facts are fully set out in the opinion of the court of appeals and need not be repeated here. Although the case took three months to try and was fraught with considerable factual controversy, the facts relating to the narrow issue upon which we have taken review are not in dispute. So far as necessary to understand the issue before us, the facts are as follows:

Pearson had entered into an agreement with a landowner to construct a shopping center in Flagstaff. A great deal of excavation and site preparation on the property was necessary and required the blasting of a large quantity of rock. Pearson approached Murdock, asking it to bid on a subcontract for the site work. Murdock decided not to bid on the job because it did not have time to estimate the quantities of rock to be blasted. A Pearson employee then provided Murdock with figures regarding the quantity of rock to be blasted. According to the version of the facts accepted by the trial jury and the trial judge, the figures given Murdock were erroneous. Instead of blasting 34,000 cubic yards of rock, which was the figure upon which Murdock relied in making its bid, Murdock had to blast a total of over 52,000 cubic yards.

The misrepresentations with regard to the quantity of rock to be blasted were made prior to July 27, 1977. The contract between Pearson and Murdock was made on July 27. In August of 1977 Pearson formed a joint venture with Wilbur ² for performance of Pearson's contract to develop and construct the shopping center. In November Murdock discovered that its blasting operation had exceeded by 18,000 yards the estimate provided by the Pearson employee. Additional blasting would be required to complete the subcontract. On November 14, 1977 Murdock asked Pearson for assurance that it would be paid for blasting the excess rock. When Pearson refused, Murdock left the job and filed the legal action. At trial Murdock elected to rescind the contract and recover in equity. The trial court entered judgment for restitution against all defendants.

In reversing the judgment against Wilbur and UI, the court of appeals held "as a matter of law, that no joint venture existed on ... the date of the misrepresentation." (P. 1213) The court also held that the evidence did not support the theory that Wilbur and UI had become liable by ratifying the misrepresentation. Pointing out that liability through ratification must be supported by evidence that the defendant has "full" and "actual" knowledge of the misrepresentation, the court held the record insufficient to establish that Wilbur and UI had the requisite knowledge to adopt or ratify the unauthorized representations made to Murdock by Pearson employees before the formation of the joint venture. The court thus concluded that Wilbur and UI "are not liable for the ... misrepresentation of Taylor Pearson, and that their motions for directed verdicts should have been granted by the trial court." ³ (Id. at 1213.) We agree with the court of appeals' conclusions regarding the ultimate facts. The record does establish that the joint venture was formed after the misrepresentation. Also, the evidence fails to establish that those misrepresentations were later ratified by Wilbur and UI. Thus, it follows that the latter were not "liable for the ... misrepresentation of Taylor Pearson." (Id.)

THE NATURE OF THE CLAIM FOR RESTITUTION

We start with the premise that Wilbur and UI are neither liable nor responsible for the tort of fraud nor for any misrepresentation by Pearson. They neither made, authorized, nor ratified any misrepresentation. Nor are they liable for breach of contract, since they neither made, authorized, nor ratified the contract between Murdock and Pearson. In addition, Murdock waived all contract claims. Thus, the judgment against Wilbur and UI cannot be supported on either tort or contract theory. In fact, that judgment was not based on either theory but, instead, on the theory of quantum meruit--restitution made for benefits received. We must determine, therefore, whether a party which has not participated in the tort that caused the damage to the plaintiffs and has breached no contractual obligations to the plaintiff may, nevertheless, be held liable to the plaintiff on the theory of quantum meruit.

Restitution began as an ancient remedy to enforce contractual rights which could not be enforced in common law courts due to lack of formality of the contract. D. Dobbs, Remedies § 4.2 at 233 (1973). Various forms of action evolved to permit recovery of goods or money on contracts implied in fact--that is, those which the law implied from the conduct of the party rather than from any explicit words. Id. at 234. Eventually, restitution theory permitted an action to be brought where there was no contract at all, "neither expressed nor implied in fact." Id. at 235. The purpose of such an action was to prevent unjust enrichment of the defendant, and one of the explicit forms of action recognized for that purpose was the so-called quantum meruit action. ⁴ Id. at 235-37.

Thus, quantum meruit was the common law count or form of action which allowed recovery where the plaintiff had performed services for the defendant, whether the services were provided at the defendant's request, on a theory of implied-in-fact contract, or without the defendant's request but benefiting him in some way. D. Dobbs, supra, § 4.2 at 237. The recovery allowed for services which had not been requested by defendant was based upon quasi-contract, and theoretically had as its "central core" the "principle against unjust enrichment." Id. at 236. This principle has been adopted by the American Law Institute, which has stated: "A person who has been unjustly enriched at the expense of another is required to make restitution to the other." Restatement of Restitution § 1.

These concepts are a part of Arizona jurisprudence. We have held a defendant liable, on the theory of restitution, for benefits resulting from unauthorized use of plaintiff's property. Artukovich & Sons v. Reliance Truck Co., 126 Ariz. 246, 614 P.2d 327 (1980). We allowed recovery even though plaintiff had suffered no damage, because defendant had been unjustly enriched by receiving the benefits flowing from the use of plaintiff's property and it would have been "inequitable" to have allowed defendant to retain such benefits without compensating plaintiff. Id. at 248, 614 P.2d at 329. Our court of appeals subsequently held that a former wife who had provided the funds necessary for her husband's medical education was entitled, upon divorce, to restitution in quantum meruit to prevent the husband's unjust enrichment resulting from obtaining his education with funds received through his wife's efforts. Noting that the availability of restitutionary relief is not dependent upon the existence of a valid contract between the parties, the court stated:

In order to be granted restitution, [plaintiff] must demonstrate that [defendant] received a benefit, that by receipt of that benefit [defendant] was unjustly enriched at ...