Idaho Lumber, Inc. v. Buck

710 P.2d 647, 109 Idaho 737, 1985 Ida. App. LEXIS 783

• Court: Idaho Court of Appeals
• Decided: December 3, 1985
• Docket: 14155
• Status: Published

Opinions

BURNETT, Judge,

dissenting.

The majority opinion reflects an investment of much time and effort. Nevertheless, I am constrained to disagree with it. The majority, declining to follow recent Idaho decisions, ascribes a narrow meaning to the Idaho lien statute and shuts the door against the contractor’s lien asserted in this case. Ironically, the majority then opens a back door to recovery by stretching the doctrine of unjust enrichment beyond the limits established by sound legal authority. I respectfully dissent.

I

It is important to remember what is really at stake here. A landlord and a tenant executed a lease providing for an old funeral home to be remodeled into a restaurant. Based upon an estimate by the contractor, the landlord and tenant contemplated an expenditure of about $40,000. The tenant and contractor, without full knowledge or any participation by the landlord, later incurred cost overruns inflating the total bill to $106,000. The tenant paid $66,000 of this sum before receiving a discharge in bankruptcy. The contractor now seeks to collect the remainder from the landlord. He asserts a lien against the property and, in the alternative, he seeks restitution for the landlord’s allegedly unjust enrichment.

This dual theory of recovery embodies an assumption — implicitly adopted by the majority today — that if recovery on a lien is unavailable, then the claimant may resort to some other “equitable” remedy. The assumption fails to recognize that the lien law itself is a codified creature of equity. It provides an exception to the common law rule that if one improves land under contract with a third party other than the landowner, he may recover only from the third party. The equitable footings of; the lien law have been noted in one of the earliest texts on the subject:

The general principle upon which all mechanic’s-lien laws are based is, that they are remedial in their nature, intended to aid contractors, material-men, mechanics, and laborers to secure the just or contract price for materials furnished, money expended, labor furnished or done upon property, on the theory that the material used in or labor expended upon the specific property has enhanced its value, and that it is equitable that the material-man should follow his material into the building of which it has become a component part, or that the laborer should pursue the result of his toil, in order to secure his just compensation; and because the building is the result of such labor done and material furnished, that it is not just that the owner should succeed to that labor and material without compensating the persons furnishing such labor or material. [Emphasis added.]

5. BLOOM, A TREATISE ON THE LAW OF MECHANICS’ LIENS AND BUILDING CONTRACTS 7-9 (1910) (footnotes deleted).

Because lien laws are grounded in equity, we should treat with caution any suggestion that unjust enrichment will occur when an applicable lien law does not provide compensation. Such a suggestion may reflect an overly restrictive interpretation of the lien law, or an overly expansive view of unjust enrichment, or both. In the present case, as I explain below, the majority opinion demonstrates both.

II

The majority creates a rigid dichotomy between landlords who request improvements to be constructed on their properties and landlords who merely have knowledge of, or acquiesce in, such improvements. The majority recognizes no other category. Consequently, the majority finds it difficult to categorize this case. Here, the landlord did not directly request the contractor to construct improvements on his property. Neither did he merely know of, or acquiesce in, the improvements. Rather, he affirmatively consented to the improvements and authorized their construction by signing a lease that provided for the tenant to create a “first quality restaurant.” The majority, imprisoned by its own dichotomy, analogizes this case to one where the landlord merely knows of, or acquiesces in, the improvements. The majority then holds that Idaho’s lien law does not apply to such a case but that the landlord must pay restitution for unjust enrichment.

A

I will turn in a moment to the question whether the majority properly has categorized this case. But even if the categorization were correct, the majority’s conclusion regarding unjust enrichment would not follow. It is well settled in equity that a landowner who incidentally benefits from improvements constructed, or ordered to be constructed, by a third party is not required to pay restitution.⁶ The governing principle is set forth in the RESTATEMENT OF RESTITUTION § 110 (1937):

A person who has conferred a benefit upon another as the performance of a contract with a third person is not entitled to restitution from the other merely because of the failure of performance by the third person.

A distinguished author on restitution has amplified this principle:

Where a plaintiff in the performance of his own duty incidentally confers a benefit on the defendant, it is usually held that restitution is not available. Thus, where one in possession of land hires the plaintiff to put an improvement on it, the fact that this inures to the benefit of the owner does not create liability to make restitution.

Wade, Restitution for Benefits Conferred without Request, 19 VAND.L.REY. 1183, 1204 (1966) (footnote deleted).

In some jurisdictions, a carefully limited exception to this general principle has evolved. Restitution may be allowed when the interests of the landowner and of the occupant “are closely intermingled and the benefits of the transactions are by prearrangement to be shared between them.” Puttkammer v. Minth, 83 Wis.2d 686, 266 N.W.2d 361 (1978). The Puttkammer court cited cases where the landowner and the occupant were mother and son, jointly engaged in developing a subdivision; where the landowner and occupant were husband and wife, each having a joint interest in the property; and where the landowner and occupant were lessor and lessee, the lessor having approved all plans for the improvements and having made all payments directly to the contractor from his own bank account. Absent such a special relationship, the Puttkammer court held that no restitution was due to “one who did the work, and produced an incidental gain to the owner, by merely performing his contract with another and [who] is now dissatisfied because the return promised under the contract is not forthcoming.” 266 N.W.2d at 365.

The majority today, ruling that there should be restitution for unjust enrichment in this case, relies heavily upon Paschall’s, Inc. v. Dozier, 219 Tenn. 45, 407 S.W.2d 150 (1966). However, a careful reading of that decision discloses that it invoked the same narrow exception discussed in Puttkammer. In Paschall’s a contractor furnished materials and labor for construction of a bathroom addition to the landowner’s house. The work was requested by the owner’s son and daughter, who shared the premises with the owner. In allowing restitution to the contractor, the Paschall’s court cited cases from other jurisdictions involving similar special relationships between landlords and occupants — e.g., husband and wife, parent and child, or siblings. 407 S.W.2d at 155. The Paschall’s court recognized that in the absence of exceptional circumstances, no restitution would be required.⁷

The instant case involves no such special relationship. The landlord and the tenant were unrelated to each other. They did not prearrange to share the benefits of the contractor’s work. Rather, the tenant was given a purchase option by which he could retain all of the improvements. If the option were not exercised, the improvements would devolve to the landlord. Finally, the tenant made all payments to the contractor; no funds or bank accounts of the landlord were utilized. Consequently, it is clear that the present case, even if it truly were one in which the landlord had knowledge of, and acquiesced in, the improvements, would present no occasion to compel restitution by the landlord. By ordering such restitution, while at the same time likening this ..case to one in which the landlord merely knew of, or acquiesced in, the improvements to his property, the majority ushers in a brave new world of restitution — a world where rules governing landlord liability are swallowed up by a broadened concept of unjust enrichment.⁸

B

I suggest a different analysis. This case need not, and should not, be analogized to one in which the landlord merely has knowledge of, or acquiesces in, the improvements to his property. As noted earlier, the landlord here affirmatively consented to such improvements by executing a lease that expressly authorized them. In my view, this crucial fact invokes application of the Idaho lien law. In Bunt v. Roberts, 76 Idaho 158, 161, 279 P.2d 629, 630 (1955), our Supreme Court said:

A tenant or lessee is not generally considered the agent of the lessor within the interpretation of the mechanics’ lien law merely by virtue of the relationship of landlord and tenant, and a tenant or lessee cannot subject the interest of his landlord to a mechanic’s lien by reason of the tenant’s contract with a materialman or laborer, unless the owner does some act in ratification of, or consent to the work done and the furnishing of the material or labor.

The majority today launches a curious attack upon Bunt. The majority notes that other references to "consent” cannot be found in the handful of prior Idaho cases construing the lien statute, I.C. § 45-501. But is this a sufficient reason to condemn Bunt? I think not. Language carefully chosen by our Supreme Court should not be disregarded merely because it goes beyond that found in earlier cases. Rather, the question is whether such language can be integrated into a coherent statement of the law. We recently provided such a statement in Christensen v. Idaho Land Developers, Inc., 104 Idaho 458, 459, 660 P.2d 70, 71 (Ct.App.1983):

As a general principle, a tenant is not the “agent” of the landlord, for the purpose of § 45-501, merely by virtue of a lessor-lessee relationship. See generally Anno., 74 A.L.R.3d 330, 334-43 (1976). However, this principle has two closely related corollaries in Idaho. First, a landlord’s interest in real property may be subjected to a lien, for work performed by agreement with the tenant, if the lease specifically requires the tenant to see that the work is done. E.g., Gem State Lumber Co. v. Union Grain & Elevator Co., 47 Idaho 747, 278 P. 775 (1929). Second, the landlord’s interest may be subjected to a lien if he requests the work to be done. Parker v. Northwestern Investment Co., 44 Idaho 68, 255 P. 307 (1927). The latter corollary applies to any case where the landlord has done “some act in ratification of, or consent to[,] the work done and the furnishing of material and labor.” Bunt v. Roberts, 76 Idaho 158, 161, 279 P.2d 629, 630 (1955).

The majority challenges this formulation by noting that I.C. § 45-501 establishes a lien “for the work or labor done ... or materials furnished, whether done or furnished at the instance of the owner of the building ... or his agent.” (Emphasis supplied.) Citing a Colorado case decided four decades before Bunt, the majority states that the word “instance” means “request”. The majority concludes that “mere consent or acquiescence of the owner that the work be done is not sufficient to give rise to a lien.”

However, nowhere does Bunt speak of “mere consent” or suggest that “consent” is something passive, akin to acquiescence. Rather, as interpreted in Christensen, Bunt refers to ratification or consent in an active sense. It envisions “some act” of the landowner.⁹ Bunt comports with common sense by saying that if the landowner, by his own act, consents to or ratifies the construction of improvements on his property, then the labor or materials may be deemed to have been furnished at his “instance”.¹⁰

I submit that Bunt is sound when applied to this case. Indeed, the parties themselves contemplated the possibility that a lien would be filed on the property. In the paragraph of the lease where the creation of a “first quality restaurant” is mentioned, the next sentence (deleted from the majority’s quotation of this paragraph) goes on to say:

The Lessee shall indemnify the Lessor against any mechanic’s or materialman’s or other lien arising out of the making of any alteration, repair, addition, or improvement by the Lessee, and shall hold the Lessor harmless of any such liens or claims, including reasonable attorney’s fees and costs that may be incurred in removing any such liens.

It is undisputed that the underlying purpose of the lease was to provide a means for the tenant to take possession of the premises and to create a restaurant. The tenant was not interested in the property for any other purpose. Thus, although the lease did not command the improvements to be made, the creation of a restaurant was for all practical purposes the heart of the lease.

The Utah Supreme Court recently encountered a similar situation in Interiors Contracting Inc. v. Navalco, 648 P.2d 1382 (Utah 1982). The lien law of that state, like I.C. § 45-501, provides for imposition of a lien for labor and materials furnished at the “instance” of the owner or his agent. In Navalco an owner of commercial property leased it to a party who subleased it. The original lease did not contemplate any specific improvements to the property. However, the sublease allegedly provided for the tenant to remodel the premises as a restaurant. A contractor furnished labor and materials for the project, but was not fully paid. The contractor filed a lien against the reversionary interests of the sublessor and the landowner. The Utah Supreme Court dealt separately with each of these interests. The Court observed that the landowner was a “remote lessor” and that its lease with the sublessor “did not contemplate that the premises were to be used as a restaurant.” 648 P.2d at 1390. The Court further said — as noted by the majority in today’s opinion — that the landowner merely knew of, and acquiesced in, the remodeling project. Accordingly, the court held that the landowner’s reversionary interest was not subject to a lien.

However, in another section of the opinion, not mentioned by the majority today, the Utah Supreme Court dealt differently with the reversionary leasehold interest of the sublessor. The Court, overturning a summary judgment for the sublessor, held that if the facts ultimately showed that the property had been subleased in contemplation of creating a restaurant, and such improvements had been authorized in the sublease itself, then the sublessor impliedly may have made the tenant his agent, “at least to some extent, within the contemplation of the mechanics’ lien statute.” 648 P.2d at 1387. The Court, quoting from Utley v. Wear, 333 S.W.2d 787, 793 (Mo.Ct.App.1960), said:

In determining whether an agency should be implied the courts have often, perhaps of necessity, gone beyond the agreement and into the whole circumstances of the letting in order to find the answer. * * * [Wjhere the premises are let for a specific purpose and where the nature of the premises is such that the purpose cannot be accomplished except by the making of substantial improvements to the freehold, then the tenant is, by implication, required to make such improvements. He has no other option, and hence he is the landlord’s (implied) agent to the extent of subjecting the property to a lien, this upon the theory that the landlord contemplated the necessity and required that such necessity be met.

Navalco, 648 P.2d at 1387 (emphasis original).

In Anderson v. Sokolik, 88 So.2d 511 (Fla.1956), the Florida Supreme Court announced a similar ruling. Applying a statute providing for liens upon improvements made “in accordance with” a contract between the landlord and tenant, the Florida Court held that a lien would be imposed upon improvements authorized, albeit not required, by a lease if the improvements were the “pith of the lease.” 88 So.2d at 514-15.

Of course, Bunt speaks of “consent” while Navalco and Anderson speak of “implied agency.” But the result is the same. When a landlord leases his property to a tenant in contemplation that certain improvements will be made, and those improvements explicitly are authorized (although not mandated) by the lease, then the lessor’s reversionary interest is subject to a lien for the labor and materials furnished. By ruling otherwise, the majority today unduly narrows the scope of Idaho’s lien law and sets the stage for its overly broad treatment of restitution as a standby remedy.

C

Because I would hold the landlord’s reversionary interest subject to a lien, I am obliged to define the scope of the lien. When a lien is imposed upon a theory of “consent,” the lien embraces expenditures within the ambit of the landlord’s consent. Thus, in Hankinson v. Vantine, 152 N.Y. 20, 46 N.E. 292 (1897), the New York Court of Appeals, construing a statute that provided for a lien when the landlord “requests or consents to” the improvements, has held that a landlord could not be deemed to have consented to improvements beyond the scope of the authorized project and beyond the landlord’s knowledge. By a parity of reasoning, the Michigan Supreme Court has held that when a lien is imposed upon a theory of implied agency, the scope of the lien is subject to limits upon the tenant’s authority, as delineated in the lease. Rowen & Blair Electric Co. v. Flushing Operating Corp., 399 Mich. 593, 250 N.W.2d 481 (1977).

Here, the landlord consented to, or impliedly made the tenant his. agent for, the construction of a “first quality restaurant.” No dollar figure is set forth in the lease. However, as noted earlier, the landlord and tenant mutually envisioned an expenditure of approximately $40,000. The cost overruns, raising the ultimate figure to $106,-000, evidently occurred for two reasons. First, the tenant and the contractor later discovered that the project as originally envisioned would require modifications to comply with municipal code requirements. Second, the tenant, on his own initiative, made various changes in the project without consulting the landlord. In my view, the landlord’s consent, or the tenant’s implied agency, would include those modifications needed to complete the project in conformity with the municipal codes. However, neither the consent nor the implied agency could be said to embrace changes later made by the tenant on his own initiative.

The district judge made no finding — indeed, under his view of the case he had no occasion to determine — the relative proportions of the cost overruns attributable to code requirements and to the tenant’s modifications. The record reveals no obvious answer to this question. Accordingly, it is an appropriate subject for remand to the district court. Pope v. Intermountain Gas Co., 103 Idaho 217, 646 P.2d 988 (1982). I would direct the district court to impose a lien upon the property for the amount (if any) by which the reasonable value of labor and materials for the original project and for code-required modifications exceeds the sum of $66,000 already received by the contractor. The remainder, consisting of labor and materials requested by the tenant without knowledge or participation of the landlord, would be excluded from the lien.

This result, I submit, not only would represent a proper application of the Idaho lien law but also would alleviate the problems associated with any separate equitable recovery. No equitable principle requires the landlord to pay for the portion of the cost overruns upon which the tenant and the contractor independently agreed without the landlord’s full knowledge or his participation. Most importantly, this result would avoid the improper narrowing of the lien law, and the undue broadening of the doctrine of unjust enrichment, found in the majority opinion today.

6 . An incidental benefit conferred in a three-party arrangement must be distinguished from a direct benefit conferred in a two-party relationship between landlord and tenant. In the latter situation, a landlord may be required to pay restitution for improvements made by the tenant himself, with the landlord’s knowledge and acquiescence. E.g., Hertz v. Fiscus, 98 Idaho 456, 567 P.2d 1 (1977); Haskin v. Glass, 102 Idaho 785, 640 P.2d 1186 (Ct.App.1982).

7 . Some portions of the Paschall’s opinion, including passages quoted by the majority, reflect confusion between restitution for unjust enrichment and compensation based upon quantum meruit. The Paschall’s court said, "Actions brought upon theories of unjust enrichment, quasi contract, contracts implied in law, and quantum meruit are essentially the same.” 407 S.W.2d at 154. However, our Supreme Court has recognized the difference between unjust enrichment and quantum meruit. See Peavey v. Pellandini, 97 Idaho 655, 551 P.2d 610 (1976). The Paschall’s decision twice has been cited by our Supreme Court — both times with apparent disapproval. See Dale’s Service Co. v. Jones, 96 Idaho 662, 666 n. 9, 534 P.2d 1102, 1106 n. 9 (1975), questioned on other grounds, Peavey v. Pellandini, supra; Smith v. Sherwood & Roberts, Spokane, Inc., 92 Idaho 248, 255 n. 25, 441 P.2d 158, 165 n. 25 (1968).

8 . By allowing recovery for unjust enrichment, when such recovery would not otherwise be available under Idaho's lien law, the majority also invites two collateral consequences. First, it subjects the landlord to liability upon a judgment in personam rather than upon the judgment in rem that would be entered upon a lien. A judgment of restitution is a personal charge to be paid entirely by the judgment debtor. However, a judgment on a contractor’s lien is a charge only against the subject property, to the extent of its value. Pierson v. Sewell, 97 Idaho 38, 539 P.2d 590 (1975). Second, the amount of restitution for unjust enrichment may be either less than or greater than the actual cost or reasonable value of the labor and materials provided. The majority opinion, at its note 5, supra, states that the reasonable value of the labor and materials represents a ceiling upon restitution. However, no authority is cited for that proposition. The doctrine of unjust enrichment is intended to compel a defendant to disgorge benefits that it would be inequitable for him to retain. The amount of such benefits may or may not, upon a given set of facts, be equal to or less than the labor and services provided. See generally D. DOBBS, HANDBOOK ON THE LAW OF REMEDIES §§ 4.1 and 4.5 (1973).

9 . In its quotation from Bunt, the majority changes the word “consent” to "consent[s]”. This change is convenient to the majority’s apparent view that the words "some act” refer only to ratification and not to consent, thus inferentially reducing consent to a passive phenomenon. Concededly, the change brings the quoted language into closer conformity with a passage from American Jurisprudence. But it alters the syntax of the quoted sentence and creates grammatical problems. I think our reading of Bunt in Christensen is less strained and more faithful to the language actually chosen by the Supreme Court.

10 . The majority does not reject Bunt in its entirety. The following excerpt is quoted by the majority with approval:

The estate or property of a lessor is not subject to a mechanic’s lien for improvements contracted for by his lessee unless the lessor has made him his agent or otherwise conferred the requisite authority on him, or ratified his acts, or is estopped to deny the validity of the lien. [Citations omitted.]

76 Idaho at 161, 279 P.2d at 630 (emphasis added). Even if Bunt were limited to this language, I would submit that the landlord "conferred the requisite authority" upon the tenant in the present case.