Wilson v. Kealakekua Ranch, Ltd.

• Decision Date: 22 June 1976
• Docket Number: No. 5611,5611
• Citation: 57 Haw. 124,551 P.2d 525
• Parties: Ben Lee WILSON, Plaintiff-Appellant, v. KEALAKEKUA RANCH, LTD. and Gentry Hawaii, Defendants-Appellees.
• Court: Hawaii Supreme Court

Page 525

551 P.2d 525

57 Haw. 124

Ben Lee WILSON, Plaintiff-Appellant, v. KEALAKEKUA RANCH, LTD. and Gentry Hawaii, Defendants-Appellees.

No. 5611.

Supreme Court of Hawai'i.

June 22, 1976.

Syllabus by the Court

1. When an affirmative defense is tried by the implied consent of the parties, it shall be treated as if raised in the pleadings. H.R.C.P. Rule 15(b).

2. It is far from correct to say that an illegal bargain is necessarily 'void,' or that the law will grant no remedy and will always leave the parties to such a bargain where it finds them. Before granting or refusing a remedy, the courts have considered the seriousness of the offense, the extent of public harm that may be involved, and the moral quality of the conduct of the parties in light of the prevailing mores and standards of the community.

3. If neither the consideration for a promise nor the performance of a promise in an illegal bargain involves serious moral turpitude, and the bargain is not prohibited by statute, recovery may be allowed of anything that has been transferred under the bargain, or its fair value, if necessary to prevent a harsh forfeiture.

4. Where a statute is silent with respect to the enforceability of a contract whose performance is malum prohibitum, the legislature could not have intended unenforceability where a forfeiture, wholly out of proportion to the requirements of public policy or appropriate individual punishment, would result and redound solely to the benefit of the defendant.

Tom C. Leuteneker, Carlsmith, Carlsmith, Wichman & Case, Hilo, for plaintiff-appellant.

Lincoln J. Ishida, Kaito & Ishida, Henry N. Kitamura, Honolulu, for defendant-appellee Gentry-Hawaii.

Before RICHARDSON, C. J., and KOBAYASHI, OGATA, MENOR and KIDWELL, JJ.

RICHARDSON, Chief Justice.

This appeal arises from a contract action brought by plaintiff-appellant Ben Lee Wilson (hereinafter, Wilson) against defendant-appellees Kealakekua Ranch, Ltd. and Gentry Hawaii (hereinafter, Gentry) for architectural and engineering services rendered from February, 1972 through May, 1972 for the Kealakekua Ranch Center Project. Wilson claims that $33,994.36 is due him for services provided. Jurywaived trial commenced on June 13, 1973.

On direct examination, Wilson testified that he was licensed to practice architecture in this State. On cross-examination, however, after challenge by opposing counsel, Wilson admitted that he was not a registered architect at the time he rendered architectural services for Gentry, as his license had lapsed on April 30, 1971 for failure to pay the renewal fee for the succeeding period.

After Wilson rested, Gentry, citing HRS § 464-2, 464-9, 464-11, and 464-14, moved to dismiss the complaint on the ground of illegality in that Wilson was not a duly licensed architect at the time he rendered services for Gentry. Plaintiff argues that the affirmative defense of illegality was not available to Gentry since its failure to plead illegality in its answer effected a waiver of that defense.

The trial judge granted the motion to dismiss, having concluded that the contract between Wilson and Gentry was null and void because of Wilson's noncompliance with HRS § 464-2. ¹

On appeal, Wilson contends that the trial judge erred by (1) considering the affirmative defense of illegality and (2) concluding that the contract was null and void because of Wilson's noncompliance with HRS § 464-2.

I

The defendant did not plead illegality as an affirmative defense in its answer but raised it at trial on a motion to dismiss after the plaintiff had presented and closed his case. Wilson argues that the failure to plead the defense effected a waiver. H.R.C.P. Rule 8(c) provides that in 'pleading to a preceding pleading, a party shall set forth affirmatively . . . illegality . . . and any other matter constituting an avoidance or affirmative defense.' Rule 15(b), H.R.C.P., states, however, that:

'When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure so to amend does not affect the result of the trial of these issues. . . .

In Godoy v. Hawaii County, 44 Haw. 312, 321-2, 354 P.2d 78, 83 (1960), this court said that:

'The effect of this provision (Rule 15(b)) is stated in Moore, Federal Practice, 2d Ed.Vol. 2, p. 1696 note 30, as follows: 'Failure to plead an affirmative defense is immaterial if evidence of the defense is introduced and not objected to for failure to plead it, and no suprise is claimed.' The statement is, as a general proposition, borne out by the authorities.' (Citations omitted).

Professors Wright and Miller concur, stating, 'if evidence relating to an unpleaded affirmative defense is introduced without objection, Rule 15(b) requires the issue to be treated as if it actually had been raised by the pleading.' 6 Wright and Miller, Federal Practice and Procedure § 1492 at 457 (1971).

The record indicates that evidence relating to the illegality defense was introduced without objection at trial. In fact, it was Wilson who at the very outset of the trial gave direct testimony that he was licensed in Hawaii. On cross-examination, Wilson responded to questions about licensure and testified that he was not licensed, without objection from his counsel.

We think the failure to object to the introduction of evidence respecting illegality triggers the operation of H.R.C.P. Rule 15(b) which mandates that when an affirmative defense is tried by the implied consent of the parties, it shall be treated as if raised in the pleadings. We find, therefore, no waiver by Gentry of the illegality defense for failure to plead it in Gentry's answer.

II

The trial judge found the contract illegal and therefore null and void. However, Professor Corbin takes the following view:

'It is far from correct to say that an illegal bargain is necessarily 'void,' or that the law will grant no remedy and will always leave the parties to such a bargain where it finds them. . . . Before granting or refusing a remedy, the courts have always considered the degree by the offense, the extent of public harm that may be involved, and the moral quality of the conduct of the parties in the light of the prevailing mores and standards of the community.' 6A Corbin on Contracts § 1534 p. 816 (1962).

The Restatement of Contracts, § 600, likewise indicates that under certain circumstances an illegal contract may be enforced by the courts:

'If neither the consideration for a promise nor the performance of the promise in an illegal bargain involves serious moral turpitude, and the bargain is not prohibited by statute, it is enforceable unless the plaintiff's case requires proof of facts showing the illegality, or they are pleaded by the defendant, and even in that event recovery may be allowed of anything that has been transferred under the bargain, or its fair value, if necessary to prevent a harsh forfeiture.' (p. 1115) (emphasis added).

Where, as here, the statute provides a criminal sanction but is silent as to whether its violation will deprive the parties of their right to sue on the contract, the courts have distinguished between statutes for revenue and statutes for protection of the public against incompetence and fraud. Su Ping Ying v. Parke, 4 Haw. 9 (1877); Bankruptcy of Daniels, 8 Haw. 746 (1892); Garvin v. Gordon, 36 N.M. 304, 14 P.2d 264 (1932). If the purpose of the statute is for the collection of revenue, the express statutory penalties are held to be exclusive and contracts made without a license are not thereby rendered unenforceable. On the other hand, if the statute is for the protection of the public against fraud and incompetence, it is more likely that the statute breaker will be denied the enforcement of his bargain. However, as Corbin, supra, points out:

(E)ven in these cases enforcement of the wrongdoer's bargains is not always denied him. The statute may be clearly for protection against fraud and incompetence; but in very many cases the statute breaker is neither fraudulent nor incompetent. He may have rendered excellent service or delivered goods of the highest quality, his non-compliance with the statute seems nearly harmless, and the real defrauder seems to be the defendant who is enriching himself at the plaintiff's expense. Although many courts years for a mechanically applicable rule, they have not made one in the present instance. Justice requires that the penalty should fit the crime; and justice and sound policy do not always require the enforcement of licensing statutes by large forfeitures going not to the state but to repudiating defendants.

It must be remembered that in most cases the statute itself does not require these forfeitures. It fixes its own penalties, usually fine or imprisonment of minor character with a degree of discretion in the court. The added pemalty of non-enforceability of bargains is a judicial creation. In most cases, it is wise to apply it; but when it causes great and disproportionate hardship its application may be avoided. . . . 6A Corbin on Contracts § 1512, pp. 712-714 (1962).

Thus in John E. Rosasco Creameries v. Cohen, 276 N.Y. 274, 11 N.E.2d 908 (1937), where the primary purpose of the statute requiring milk dealers to be licensed was to protect the public, the court held that the contract of an unlicensed milk dealer was enforceable, stating:

'Illegal contracts are generally unenforcible (sec). Where contracts which violate statutory provisions are merely malum prohibitum, the general rule does not always apply. If the statute does not provide expressly that its violation will deprive the parties of their right to sue on the contract, and the denial of relief is...