Atlantic Coast Builders & Contractors, LLC v. Lewis

Chief Justice TOAL.

I concur in the result reached by Justice Hearn for the majority on the issue of the security deposit, and dissent from her majority on the issue of improvement costs. I take issue with the disposal of this case on issue preservation grounds. For reasons set forth below, I do not believe the “two-issue” rule precludes this Court from deciding whether the master-in-equity’s award of improvement costs was valid. Additionally, I join Justice Hearn in disagreeing with Justice Pleicones’s position that although Atlantic requested the return of the security deposit in its complaint and Lewis denied liability for returning it in her answer, the security deposit issue was nevertheless a “new issue” when Atlantic submitted its 59(e), SCRCP, motion. On the merits, I would vacate and dismiss this case on the ground that the lease agreement was an illegal contract.

In my opinion, an over-zealous application of appellate preservation rules denigrates the primary purpose of the judiciary, which is to serve the citizens and the business community of this state by settling disputes and promoting justice. To be clear, I do not discount the importance of our *333 issue preservation rules. As an appellate court, we sit to review decisions of lower courts for error. As such, “it is axiomatic that an issue cannot be raised for the first time on appeal.” Wilder Corp. v. Wilke, 330 S.C. 71, 76 , 497 S.E.2d 731, 733 (1998). However, I do not believe it is our place to scour the records before us for the purpose of avoiding issues or, even worse, to play a “gotcha” game with attorneys by showcasing their alleged mistakes, at the expense of their clients. This practice ignores the fact that behind every party name on a caption is a life-blood litigant or criminal defendant that depends on the court system to protect their economic and liberty interests. In light of my view, I believe that where the question of preservation is subject to multiple interpretations, any doubt should be resolved in favor of preservation. When the opposing party does not raise a preservation issue on appeal, courts are not precluded from finding the issue unpreserved if the error is clear. However, the silence of an adversary should serve as an indicator to the court of the obscurity of the purported procedural flaw.

The majority determined not to reach the merits of Lewis’s first issue on appeal by invoking the “two-issue” rule. The master found Atlantic proved its claims of unjust enrichment, negligent misrepresentation, and breach of contract. However, the master based the award of $6,660.79 only on Atlantic’s actual pecuniary loss, which is the appropriate measure of damages for negligent misrepresentation and breach of contract. See Quail Hill, LLC v. Cty. of Richland, 387 S.C. 223, 240, 692 S.E.2d 499, 508 (2010) (plaintiff must prove amount of pecuniary loss suffered as result of negligent misrepresentation); Bensch v. Davidson, 354 S.C. 173, 178 , 580 S.E.2d 128, 130 (2003) (measure of damages for breach of contract is loss actually suffered by contractee as a result of breach). The proper measure of damages for an unjust enrichment claim is the amount of increase in the fair market value of the subject property due to the improvements made by the plaintiff. See Stringer Oil Co., Inc. v. Bobo, 320 S.C. 369, 372-73 , 465 S.E.2d 366, 368-69 (Ct.App.1995) (finding the appropriate measure of owner’s unjust enrichment was value of improvements to owner rather than the cost to the person producing the result). Thus, the focus of an unjust enrichment award is on the amount the owner is enriched, not the amount of actual *334 loss to the plaintiff. The record contains no evidence that the value of the subject property increased as a result of improvements made by Atlantic, and the master based damages only on the improvement costs expended by Atlantic. Lewis broadly requested both the court of appeals and this Court to reverse the master’s award of damages. Therefore, it was unnecessary for Lewis to argue unjust enrichment on appeal because it had no bearing on the award of damages that Lewis prayed to have reversed. The “two-issue” rule was spotted by neither the court of appeals nor Atlantic. In my opinion, the existence of this preservation bar is questionable, and I elect to resolve that question in favor of preservation.

On the merits, I believe the court of appeals erred in affirming the master’s award of damages for Atlantic. In my opinion, this lease was an illegal contract and, therefore, void and wholly unenforceable. As such, the parties were not entitled to relief under any legal theory, and in my opinion, the Court is constrained to leave the parties as we found them.

The lease agreed to by Lewis and Atlantic was entitled “Commercial Lease.” The second clause of the lease states: “Lessee shall use and occupy the premises for Building and Constr. Office. The premises shall be used for no other purpose. Lessor represents that the premises may lawfully be used for such a purpose.” In fact, the premises was not zoned for use as a commercial office, and therefore, the lease had no lawful purpose. It is no excuse the parties were unaware of the applicable zoning laws because “citizens are presumed to know the law and are charged with exercising ‘reasonable care to protect their interests.’ ” Ahrens v. S.C. Ret. Sys., 392 S.C. 340 , 709 S.E.2d 54, 61 (2011) (quoting Morgan v. S.C. Budget & Control Bd., 377 S.C. 313, 320 , 659 S.E.2d 263, 267 (Ct.App.2008)); see also Quail Hill, LLC v. Cty. of Richland, 387 S.C. 223, 241 , 692 S.E.2d 499, 509 (2010) (party not justified in relying on an incorrect statement from a zoning official because party could have referenced the Official Zoning Map to ascertain the correct zoning classification).

It is a well-settled principle of contract law that “a contract to do an act which is prohibited by statute, or which is contrary to public policy, is void, and cannot be enforced in a court of justice.” McConnell v. Kitchens, 20 S.C. 430, 437-38 *335 (1884); see also Pendarvis v. Berry, 214 S.C. 363, 369 , 52 S.E.2d 705, 707 (1949) (“ ‘Men may enter into any agreements they please and, as between themselves, may either respect or disregard them. When, however, they are submitted to the courts for adjudication, they must be tested and governed by the law.’ ”) (quoting Gilliland v. Phillips, 1 S.C. 152 (1869)). This Court has never addressed the validity of a lease whose sole purpose is contrary to local zoning regulations. However, I believe where the only contemplated use of a lease is for a purpose prohibited by the applicable zoning regulations, the lease is illegal and wholly unenforceable. See Cent. States Health & Life Co. of Omaha v. Miracle Hills Ltd. P’ship, 235 Neb. 592 , 456 N.W.2d 474 (1990) (holding that when a lease restricts the use of a premises to a single purpose that is prohibited by zoning regulations, that lease is unenforceable and relieves the parties of all obligations thereunder). As such, the parties must be left as the court found them. See 17A C.J.S Contracts § 362 (2011) (“As a general rule, both at law and in equity, a court will not aid either party to an illegal contract ... but leaves the parties where it finds them.”).

Justice Hearn’s majority opinion would have us interpret and enforce the lease simply because neither party argued the lease agreement was illegal. Under this theory, courts would be hamstrung to interpret contracts that are wholly illegal simply because the parties who seek relief under the contract do not suggest its illegality. Our jurisprudence supports that a court’s authority to declare a contract void ab initio is impervious to our issue preservation rules:

The authorities from the earliest time to the present unanimously hold that no court will lend its assistance in any way towards carrying out the terms of an illegal contract. In case any action is brought which it is necessary to prove the illegal contract in order to maintain the action, courts will not enforce it, nor will they enforce any alleged rights directly springing from such contract.

Jackson v. Bi-Lo Stores, Inc., 313 S.C. 272, 276 , 437 S.E.2d 168, 170 (Ct.App.1993) (quoting McMullen v. Hoffman, 174 U.S. 639, 654 , 19 S.Ct. 839 , 43 L.Ed. 1117 (1899) (emphasis in original)). In Ward v. West Oil Co., Inc., 387 S.C. 268 , 692 S.E.2d 516 , this Court specifically noted that issue preservation rules were “inapplicable as the Court will not ‘lend its assistance to carry out the terms of a contract that violates *336 statutory law or public policy.’ ” Id. at 274 , 692 S.E.2d at 519. The Court then cited a number of other authorities that support the proposition that a court may void a contract as unenforceable regardless of whether the issue of the contract’s legality was developed in lower courts. Id. at 274-75, 692 S.E.2d at 520 (citing Hyta v. Finley, 137 Idaho 755 , 53 P.3d 338 , 340—41 (2002) (holding that an appellate court could sua sponte raise issue of whether an underlying contract was illegal); Parente v. Pirozzoli, 87 Conn.App. 235 , 866 A.2d 629, 635 (2005) (“ ‘It is generally true that illegality of a contract, if of a serious nature, need not be pleaded, as a court will generally of its own motion take notice of anything contrary to public policy if it appears from the pleadings or in evidence, and the plaintiff will be denied relief, for to hold otherwise would be to enforce inappropriately an illegal agreement.’ ”) (internal quotations omitted)). As it relates to issue preservation, courts of this state should operate as well-behaved children, but only when spoken to by well-behaved litigants. In this case, I do not believe the court can enforce, and thereby condone, a contract whose sole purpose is illegal.

The refusal of the courts to entertain litigation based upon an illegal contract can, at times, lead to inequitable results. However, as stated by Lord Mansfield in the landmark case of Holman v. Johnson, the illegality doctrine

is founded in general principles of policy, which the defendant has the advantage of, contrary to the real justice, as between him and the plaintiff, by accident, if I may so say. The principle of public policy is this; ex dolo malo non oritur action (an action does not arise from a fraud). No Court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act.... It is upon that ground the Court goes; not for the sake of the defendant, but because they will not lend their aid to such a plaintiff. So if the plaintiff and defendant were to change sides, and the defendant was to bring his action against the plaintiff, the latter would then have the advantage of it; for where both are equally in fault, potior est conditio defendentis (stronger is the condition of the defendant, than that of the plaintiff).

Holman (1775) 98 Eng. Rep. 1120, 1121.

Accordingly, in my opinion, Atlantic is not entitled to recover damages in tort, contract, or in equity; and similarly, Lewis *337 cannot recover her counterclaim for attorney’s fees and other associated costs. Leaving the parties as they were when litigation ensued, I would not compel Lewis to reimburse Atlantic for its improvement costs or return the security deposit. I would vacate and dismiss.