Arizona Court of Appeals Division One holds that a party is not precluded from seeking equitable relief as an alternative to the contract defenses of recoupment and offset.

Plaintiff, who owned a successful fruit stand, brought suit against a borrower for failing to repay over $400,000 in loans.  The borrower asserted the affirmative defenses of recoupment and offset, claiming that she had provided labor and products from her bakery to the lender’s fruit stand that had substantially repaid the loan.  She also brought a counterclaim for unjust enrichment arising from the value of the goods and services the lender received.

The parties agreed that their contract claims would be adjudicated at a jury trial and that the equitable claim would be decided by the court after the jury returned its verdict.  Acknowledging that the jury’s decision in the contract claim might be dispositive of the equitable claim, the court ordered the jury to answer a special interrogatory, asking it whether it had “give[n] credit to Defendant” for the value of products and labor provided by her to the Plaintiff.

The jury found for the lender on the contract claim, awarding her damages slightly less than $400,000, and responded “no” to the special interrogatory.  The court held additional proceedings and found for borrower on her unjust enrichment claim, awarding her $280,000.

On appeal, lender argued that the court’s finding for the borrower on her unjust enrichment claim was inconsistent with the jury’s verdict.  The Court of Appeals disagreed.  One possible interpretation of the jury’s verdict was that it had held that lender was not entitled to an offset because the value of the goods and services provided by borrower was outweighed by the loan from the lender.  But another possible interpretation, the Court of Appeals held, was that the jury found that borrower should not receive credit for the value of goods and services provided because that exchange was not contemplated in the original contract.  In that case, equitable relief would be appropriate to make the borrower whole for her loss.

In so holding, the Court of Appeals rejected the argument that, because the jury’s verdict clearly indicated that a contract existed between the parties, the borrower was not entitled to any equitable relief at all.  The Court found that the jury apparently accepted that a contract existed, but rejected the claim that the value of the goods and services provided by borrower was governed by that contract, and so the judge properly awarded equitable relief as to that particular transaction.

Judge Jones delivered the opinion, in which Judges Swann and Thumma joined.