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‘Freedom of contract’ has its limits

Generally speaking, public policy favors the right of two or more people to enter into an agreement for whatever purpose they agree upon. In legal terms, this policy is called “the freedom of contract.”

But the freedom of contract is not without limit. Take for example a recent Idaho Supreme Court case dealing with a contract between an out-of-state architect and a Wood River Valley condominium developer.

In Farrell v. Whitman, first addressed by the Idaho Supreme Court in 2009 and again in January of this year, the court refused to uphold a contract between Damien Farrell, a Michigan-licensed architect, and Kent Whiteman, the principal of Whitehorse Properties, LLC, regarding architectural services provided by Farrell for a condominium project Whiteman was developing in Ketchum.  (As a side note, it is probably safe to assume from the facts of the case that the two parties may now be properly classified as “former friends.”)

The fatal flaw in their agreement? Farrell was not a licensed architect in Idaho for much of the time he was rendering the disputed services, in violation of Section 54-301, Idaho Code.

As the Court stated in its 2009 opinion, “We are not persuaded by Farrell’s arguments. Farrell admittedly performed some architectural services in Idaho before he was licensed. Although courts should interpret statutes narrowly when applying the doctrine of illegality, the district court went too far in interpreting the statute to merely require architects to be licensed at “critical times.”

This language does not appear anywhere in the statute, and no case law supporting this interpretation was offered. The statute reads “any person practicing or offering to practice architecture … in the state of Idaho, shall … be licensed.” I.C. § 54-301. This unambiguously requires anyone who practices any architecture in Idaho to be licensed as required by the statute. Because Farrell was not licensed to practice architecture in Idaho until February 17, 2004, the architectural services he rendered before then were done pursuant to an illegal contract.”

Pines Grazing Ass’n, Inc. v. Flying Joseph Ranch, LLC, decided in November of last year, provides yet another example of the unenforceability of an illegal contract. In that case, Pines Grazing had offered to sell certain real property in the Pahsimeroi Valley to Flying Joseph Ranch, including a parcel to which Pines Grazing had apparently lost the title in the early 1940s due to a Lemhi County property tax lien.

When the parcel came up for public auction, Pines Grazing representatives attended the auction to purchase the parcel so that the association could then fulfill its commitment to sell the parcel to Flying Joseph. Flying Joseph, however, also had a representative at the sale, presumably because it hoped to buy the parcel outright instead of paying Pines Grazing a potentially inflated price over the auction price. Prior to the start of the auction, Pines Grazing orally agreed not to bid, so as not to artificially drive the price of the parcel up. In return, Flying Joseph offered to pay Pines Grazing $20,000.00. When it came time for Flying Joseph to pay up on the no-bid agreement, however, the parties’ deal went south and ended up in court.

Because the court held that the oral no-bid agreement constituted illegal bid rigging under state and federal law, the Court refused to enforce the agreement.

So, what’s the bottom line? A deal’s a deal unless its purpose is to circumvent or violate the law. So, don’t go there in the first place because, if you do, you won’t find a sympathetic ear in court if the deal falls apart.

Molly O’Leary represents business and telecommunications clients throughout Idaho, and is a managing member of Richardson & O’Leary, PLLC, in Boise (www.richardsonandoleary.com). In addition, Ms. O’Leary serves as a commissioner on the Idaho State Bar Board of Commissioners, and on the statewide advisory council for the Idaho Small Business Development Center. You may follow her on Twitter: @BizCounselor.

About Molly O'Leary