Nogales Service Center v. Atlantic Richfield Co.
613 P.2d 293, 126 Ariz. 133, 1980 Ariz. App. LEXIS 480 (1980)
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Rule of Law:
A party cannot recover under a theory of restitution for improvements made to its own property in reliance on an unenforceable oral agreement unless the other party has been unjustly enriched by receiving a direct, tangible economic or legal benefit from those improvements.
Facts:
- Albert Cafone and Angus McKenzie formed Nogales Service Center (NSC) to build and operate a truck stop facility in Nogales, Arizona.
- NSC partnered with Atlantic Richfield Company (ARCO), which loaned NSC $300,000 for construction and entered into a 15-year fuel products agreement with NSC.
- After struggling financially, NSC's new principal, William Terpenning, met with Joe Tucker, an ARCO manager.
- Terpenning alleged that Tucker orally promised that if NSC constructed a motel and restaurant, ARCO would provide an additional loan, a fuel discount, and keep NSC's prices 'competitive'.
- In reliance on Tucker's alleged promise, Terpenning used personal and borrowed funds to construct the motel and restaurant on NSC's property.
- ARCO provided an additional $100,000 loan but did not grant the fuel discount or make NSC's prices competitive.
- NSC subsequently defaulted on both the original and the new loans from ARCO.
Procedural Posture:
- Atlantic Richfield Company (ARCO) brought a foreclosure action against Nogales Service Center (NSC) in the trial court and prevailed.
- NSC filed a counterclaim in the same action against ARCO for breach of an alleged oral contract.
- In the trial on the counterclaim, NSC was designated the plaintiff and ARCO the defendant.
- The jury returned a verdict in favor of ARCO on NSC's counterclaim.
- NSC, as appellant, appealed the judgment to the intermediate court of appeals, with ARCO as the appellee.
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Issue:
Is a party entitled to restitution for improvements made to its own property in reliance on an unenforceable oral agreement, when the other party does not receive an exclusive or tangible economic benefit from those improvements?
Opinions:
Majority - Howard, Judge.
No. A party is not entitled to restitution for improvements made to its own property unless the other party has received an actual or legal benefit. For a party to recover under the theory of restitution, the other party must have been unjustly enriched by receiving a benefit. A benefit can be 'actual,' meaning a tangible economic gain, or 'legal,' meaning a bargained-for service. In this case, ARCO received no such benefit. The motel and restaurant were built on NSC's property and belonged entirely to NSC. ARCO had no right to use the facilities apart from that granted to the general public and received no tangible economic gain from their construction. Because the improvements belonged to NSC and ARCO was not unjustly enriched, NSC has no remedy by way of restitution. The court also found no error in the trial court's refusal to give a jury instruction on inherent agency power, as the appellant failed to properly object, thereby waiving the issue on appeal.
Analysis:
This case clarifies the limits of the restitution remedy, particularly for unenforceable contracts under the Statute of Frauds. The decision establishes that merely inducing another party to make improvements on their own property, even if it might indirectly benefit the inducing party, does not constitute a direct 'benefit' sufficient for an unjust enrichment claim. This places the risk on the party acting in reliance on an oral promise to either ensure the promise is legally enforceable or to secure a more direct benefit for the other party. The ruling reinforces that restitution is designed to prevent unjust enrichment, not to compensate for reliance losses where no tangible benefit has been conferred on the defendant.
