Trees v. Kersey

• Decision Date: 12 September 2002
• Docket Number: No. 24657.,24657.
• Citation: 56 P.3d 765,138 Idaho 3
• Parties: Ronald TREES and Pam Trees, husband and wife, d/b/a United Structures, Plaintiffs-Respondents, v. Robert KERSEY and Vicki Kersey, husband and wife, d/b/a Best Contracting, Defendants-Appellants.
• Court: Idaho Supreme Court

56 P.3d 765

138 Idaho 3

Ronald TREES and Pam Trees, husband and wife, d/b/a United Structures, Plaintiffs-Respondents, v. Robert KERSEY and Vicki Kersey, husband and wife, d/b/a Best Contracting, Defendants-Appellants.

No. 24657.

Supreme Court of Idaho, Boise, April 2002 Term.

September 12, 2002.

Rehearing Denied October 28, 2002.

Moffatt, Thomas, Barrett, Rock & Fields, Boise, for appellants. Larry C. Hunter and Charles C. Gill argued.

Clark & Feeney, Lewiston, for respondents. Paul T. Clark argued.

SCHROEDER, Justice.

This case involves a joint venture agreement between Ronald and Pam Trees ("Treeses"), doing business as United Structures, and Robert and Vicki Kersey ("Kerseys"), doing business as Best Contracting and Best Plumbing, in which the Kerseys would bid projects jointly with the Treeses under the Kerseys' name, pursuant to an oral agreement to divide all profits equally. The Treeses filed suit alleging, inter alia, breach of the agreement and fraud. Following a court trial, the Trees were awarded damages, punitive damages, costs and fees. The Kerseys appeal this decision.

I. FACTUAL AND PROCEDURAL BACKGROUND

The Treeses were engaged in business as general contractors, but lost their public works license and their bonding capacity. The Kerseys were also engaged in business as general contractors. Sometime in 1987-1988, Ronald Trees approached Robert Kersey about bidding a public works project involving the remodel of a city-owned building in Lewiston, Idaho, known as the Bell Building. Trees informed Kersey that he could not bid for the project because he had lost his bonding capacity. The parties entered into an agreement which provided that the Kerseys would bid on the project in their name, procure the bond, insurance, and pay the bills, and Trees would be responsible for everything else, including acting as the general contractor on the job. The parties agreed to split the profits on a fifty-fifty basis. The Bell building project was completed sometime in 1988 or 1989, and the Kerseys paid the Trees their share of the profits.

The parties then bid for other projects, ultimately performing thirty-five to fifty jobs under the same arrangement. These projects consisted of public works projects requiring bonding, as well as other jobs that did not require bonding. The bids were prepared by the Kerseys and the Treeses and submitted under the name Best Contracting. The parties never discussed the terms of their agreement as it pertained to these subsequent projects. The Kerseys continued to procure the bond and insurance and pay the bills, and the Trees continued to perform as the general contractor and became responsible for framing, finishing work, carpentry work and some concrete work. The profits continued to be shared on a fifty-fifty basis, with the exception that the Kerseys were entitled to their bid price for any plumbing and mechanical work they performed on these jobs. During the course of the parties' agreement each also worked on jobs independently for which they did not share profits.

According to the Treeses, prior to 1995 the parties never discussed how costs were to be expensed on a particular job or whether the Treeses were entitled to an accounting. For a period of six years, the parties operated under a course of dealings whereby the Kerseys would provide the Treeses with a rough accounting for each job. These rough accountings sometimes included estimated costs rather than actual costs. The Kerseys would sometimes pay the Treeses fifty percent of the profits as calculated in the rough accountings.

In June 1995, the Treeses requested an accounting for two ongoing jobs: The University of Idaho elevator job and the University of Idaho food court job. The Kerseys refused the request. The Treeses filed a complaint against the Kerseys alleging that a joint venture agreement was formed by the parties, that the Treeses had performed all the conditions required by the agreement, and that the Kerseys repudiated the agreement and refused to give a final accounting as required. The Treeses also requested an order terminating the venture. The Treeses subsequently amended the complaint to include claims for actual and constructive fraud, alleging that the Kerseys stood in a position of trust and confidence and failed to disclose or share the profits of the joint venture equally pursuant to the agreement. The Treeses also alleged that the Kerseys misrepresented the financial affairs of the joint venture, when they had a duty to speak and engaged in self-dealing by failing to disclose and divide the profits of the joint venture constituting a breach of a fiduciary duty owed to business partners.

Following a bench trial the district judge found that the parties entered into a joint venture agreement, the Kerseys had breached the terms of the joint venture agreement, the Kerseys had committed actual and constructive fraud, and had breached fiduciary duties owed to the Treeses. The district judge awarded the Treeses $332,049.66 in actual damages and $150,000 in punitive damages, as well as costs and fees.

II. STANDARD OF REVIEW

On appeal this Court does not set aside findings of fact, unless they are clearly erroneous. I.R.C.P. 52(a); Carney v. Heinson, 133 Idaho 275, 281, 985 P.2d 1137, 1143 (1999); Marshall v. Blair, 130 Idaho 675, 679, 946 P.2d 975, 979 (1997). If a district judge's findings of fact are supported by substantial and competent, although conflicting, evidence, this Court will not disturb those findings. Carney, 133 Idaho at 281, 985 P.2d at 1143; Marshall, 130 Idaho at 679, 946 P.2d at 979. This Court gives due regard to the district judge's special opportunity to judge the credibility of witnesses who personally appeared before the judge. Id. The Court will not substitute its view of the facts for the view of the district judge. Id. However, unlike the Court's review of the district judge's findings of fact, the Court exercises free review over the district judge's conclusions of law. Id.

III. THE NATURE OF THE AGREEMENT AND THE REMEDY FOR FRAUD

1. The district court erred in enforcing an illegal agreement.

The parties did not argue the illegality of the agreement until this appeal. The illegality of a contract, however, can be raised at any stage in litigation. The Court has the duty to raise the issue of illegality sua sponte. Morrison v. Young, 136 Idaho 316, 318, 32 P.3d 1116, 1118 (2001)

; Quiring v. Quiring, 130 Idaho 560, 566, 944 P.2d 695, 701 (1997). Whether a contract is illegal is a question of law for the court to determine from all the facts and circumstances of each case. Morrison, 136 Idaho at 318,

32 P.3d at 1118; Quiring, 130 Idaho at 566,

944 P.2d at 701 (citing Stearns v. Williams, 72 Idaho 276, 283, 240 P.2d 833, 840 (1952)). An illegal contract is one that rests on illegal consideration consisting of any act or forbearance which is contrary to law or public policy. Quiring, 130 Idaho at 566,

944 P.2d at 701 (citations omitted). The general rule is that a contract prohibited by law is illegal and unenforceable. Id.; Williams v. Cont'l Life & Acc. Co., 100 Idaho 71, 73, 593 P.2d 708, 710 (1979); Whitney v. Cont'l Life and Acc. Co., 89 Idaho 96, 105, 403 P.2d 573, 579 (1965). A contract "which is made for the purpose of furthering any matter or thing prohibited by statute . . . is void." Kunz v. Lobo Lodge, Inc., 133 Idaho 608, 611, 990 P.2d 1219, 1222 (Ct.App.1999) (quoting Porter v. Canyon County Farmers' Mut. Fire Ins. Co., 45 Idaho 522, 525, 263 P. 632, 633 (1928)). This rule applies on the ground of public policy to every contract which is founded on a transaction prohibited by statute. Id. (citing Porter, 45 Idaho at 525, 263 P. 632, 633 (1928) (citations omitted)). The Idaho Court of Appeals has suggested that "where a statute intends to prohibit an act, it must be held that its violation is illegal, without regard to the reason of the inhibition . . . or to the ignorance of the parties as to the prohibiting statute." Id. (quoting 17A Am.Jur.2d Contracts § 251 (1991)).

Idaho's Public Works Contractors License Act ("PWCLA") (I.C. § 54-1901 et seq.) makes it unlawful for any individual or joint venture to engage in the business or act as a public works contractor¹ in the state of Idaho without a public works license. Idaho Code § 54-1902 provides:

It shall be unlawful for any person to engage in the business or act in the capacity of a public works contractor within this state without first obtaining and having a license therefor, as herein provided, unless such person is particularly exempted as provided in this act, or for any public works contractor to subcontract in excess of eighty percent (80%) of the work under any contract to be performed by him as such public works contractor according to the contract prices therein set forth, unless otherwise provided in the specifications of such contracts. Nor shall a public works contractor accept a bid from any person who at the time does not possess the appropriate license for the project involved. Nor shall a public works contractor accept bids to sublet any part of any contract for specialty construction from a specialty contractor who at that time does not possess the appropriate license in accordance with this act; provided, however, that no contractor shall be required to have a license under this act in order to submit a bid or proposal for contracts for public works financed in whole or in part by federal aid funds, but at or prior to the award and execution of any such contract by the state of Idaho, or any other contracting authority mentioned in this act, the successful bidder shall secure a license as provided in this act.

I.C. § 54-1902 (1982).² This statute is applicable to joint ventures as the term "person" is defined to include "any individual, firm, copartnership,³ corporation, association or other organization, or any combination thereof acting as a unit." I.C. §...