230 Minn. 246 (1950)

SPIESS v. BRANDT

Supreme Court of Minnesota.

February 17, 1950.

Fryberger, Fulton & Boyle and Doherty, Rumble, Butler & Mitchell, for appellants.

James J. Courtney & Son, for respondents.

MATSON, JUSTICE.

Defendants appeal from an order denying a new trial in an action for the rescission, because of fraudulent representations, of a contract for the purchase of defendants' summer resort.

Defendants, father and son, in 1940 acquired Jameson's Wilderness Resort located 18 miles north of Hovland, Minnesota, on Lake McFarland. They continued to own and operate the resort until it was sold to plaintiffs by contract for deed December 17, 1947, for $95,000, with a down payment of $10,000 and with the principal balance of $85,000 payable as follows: $20,000 on or before February 15, 1948; $15,000 on or before April 15, 1948; $2,500 on or before July 15, 1948; $2,500 on or before October 1, 1948, and $2,500 on or before July 15 and October 1 of each year thereafter until paid in full. The contract provided that all sums paid prior to a default should be retained by the vendors as liquidated damages. Plaintiffs made the down payment of $10,000 and the $20,000 due February 15, 1948, but thereafter found themselves unable to pay the April 15 installment, with the exception of $6,000, which was not paid until May 28, 1948. The court found — and this finding is sustained by the evidence — that the $6,000 was paid after defendants had agreed that they would not then foreclose but would give plaintiffs a reasonable time to raise additional funds through the sale of an equity in a home owned by one of the plaintiffs. Ten days later, on June 7, 1948, defendants served on plaintiffs a notice of cancellation of the contract. Shortly thereafter plaintiffs, who had not at any time theretofore been represented by counsel, consulted an attorney at law. About June 19, 1948, plaintiffs brought an action to rescind the contract on the ground of fraud and misrepresentation and to restrain defendants pendente lite from further cancellation proceedings. In open court, plaintiffs made a tender of a deed and other instruments necessary for a retransfer of the real and personal property, which tender was refused by defendants.

In addition to a finding that defendants had fraudulently concealed the fact that they had lost money each year, the trial court specifically found that during the negotiations and talks had between the parties prior to entering into the contract for deed defendants represented to plaintiffs:

(1) That defendants were making good money out of the resort;

(2) That plaintiffs could make good money out of it; and

(3) That plaintiffs could make all future payments on the contract out of the profits.

There are further findings that said representations:

(1) Were known by defendants to be untrue when they were made;

(2) Were made by defendants for the purpose of deceiving and inducing plaintiffs to enter into the contract for the purchase of the property at a price clearly in excess of its real value;

(3) Were relied upon by plaintiffs; and

(4) Were material and were an inducing factor causing plaintiffs to enter into the contract.

The trial court also found that defendants at all times knew that plaintiffs were young and inexperienced; that they had no property; that they wished to acquire this property as a means of livelihood; and that, in order to make future payments on the contract, they would have to make them out of the profits from the resort business. Pursuant to its findings, the court ordered judgment for rescission of the contract and for a return to plaintiffs of the $36,000 which they had paid, with interest. Defendants then moved for amended findings or a new trial, and, upon denial thereof, we have this appeal.

1-2. We need consider only the first representation, namely, that defendants represented to plaintiffs that they were making good money out of the resort business. If the court's finding thereon is supported by the evidence, its order denying a new trial must be sustained, and it will be wholly unnecessary to consider the validity or factual basis of the other two representations or of the finding that defendants, when there was a duty to disclose, fraudulently concealed the material fact that they had lost money each year. It is well established that:

"A person is liable for fraud if he makes a false representation of a past or existing material fact susceptible of knowledge, knowing it to be false, or as of his own knowledge without knowing whether it is true or false, with intention to induce the person to whom it is made to act in reliance upon it, or under such circumstances that such person is justified in acting in reliance upon it, and such person is thereby deceived and induced to act in reliance upon it, to his pecuniary damage." 3 Dunnell, Dig. § 3818. See, Gaetke v. Ebarr Co. Inc. 195 Minn. 393, 263 N.W. 448.

A false representation as to past or present income and profits is a false representation of a past or existing material fact within the meaning of the above rule. This is particularly true where he who makes the representations knows them to be false.^[2]

There is ample evidence — although it is conflicting — to sustain the findings that defendants did misrepresent the past income and profits of the resort. We have testimony, which the court could accept as true, that plaintiff Lowell Spiess, when a price of $100,000 was asked, specifically inquired of one of the defendants how long it would take to pay off that amount out of resort profits, and he was told that it could be paid off in five operating seasons. This answer obviously involved something more than a prediction of possible future earnings, in that it would have relation to defendants' past earning experience. Reasonably, there could be no basis for the answer other than that of defendants' past experience. This is corroborated by more specific testimony when Lowell, in response to his direct inquiry, was told that defendants in 1946 "took in" $25,400 with expenses of $6,000. This would indicate net earnings of $19,400 for 1946, which on a five-year basis would practically amount to the asking price of $100,000. One of the defendants admitted that he had stated that the gross income for 1947 was around $19,000. The undisputed facts are that defendants had lost money every year of their operation, inclusive of the years 1946 and 1947, which were generally conceded to have been the most prosperous years in the history of Minnesota's resort business. Defendants also told Lowell Spiess that they were making "good money," and the making of "good money" does not in any man's language — when addressed to persons seriously considering the purchase of a business — square with an undisputed record of substantial loss year after year. We are not here dealing with the mere puff talk of an enthusiastic salesman, but with a statement of facts by one who is possessed of the facts to one to whom the facts are not readily available.^[3]

3-4-5. Defendants' representations of making "good money" and of having taken in $25,400 in 1946 with expenses of $6,000 were made without qualification and were made as of the defendants' own knowledge. An unqualified affirmation amounts to an affirmation as of one's own knowledge. Schlechter v. Felton, 134 Minn. 143, 158 N.W. 813, L.R.A. 1917A, 556. Whether the representations were made innocently or knowingly, they would equally operate as a fraud upon plaintiffs when made unqualifiedly or as of defendants' own knowledge. A bad motive is not an essential element of fraud.^[4] In the instant case, aside from the unqualified representation by defendants of their own knowledge, we have the significant circumstances that on several occasions plaintiffs expressed a desire to see the books — although this is denied by defendants — and that they always received a reply that the books were being worked on and were not then available. In fact, the books were not made available until they were brought into court. The persistent withholding by vendors of the books of business operations, after the making of direct representations of expenses and profits to prospective purchasers who have expressed a desire to see the books, justifies an inference by the trier of fact that such vendors at all times knew their representations were false and that they were made with intent to conceal the truth.

6-7. The rule that "The recipient in a business transaction of a fraudulent misrepresentation is not justified in relying upon its truth if its falsity is obvious" (Restatement, Torts, § 541; 3 Dunnell, Dig. & Supp. § 3822) has no application here. The facts as to past profits were not obvious. In fact, it is the well-established rule that in a business transaction the recipient of a fraudulent misrepresentation of a material fact is justified in relying upon its truth, although he might have ascertained its falsity had he made an investigation. Restatement, Torts, § 540; 3 Dunnell, Dig. & Supp. § 3822. In the case at bar, we have the additional factors that defendants thwarted the efforts of plaintiffs to investigate, in that they withheld the books which were the only practical source of information for determining whether the resort had made money. Plaintiffs' attempt to make an investigation, and their subsequent conduct in proceeding with the transaction without having made it, was not a waiver of the right to rely upon defendants' representations. Schmeisser v. Albinson, 119 Minn. 428, 138 N.W. 775; 3 Dunnell, Dig. & Supp. § 3821; see, Restatement, Torts, § 547(2).

8-9. Not only did plaintiffs have the right to rely upon the truth of defendants' representations, but they did so in fact. It was both natural and reasonable for them to do so. At the time of the transaction, plaintiffs, Lowell and Maurice, who were brothers, were of the respective ages of 21 and 26 years, and they had not had any experience in operating resorts, either large or small. Lowell, the young brother, had operated a motion picture theater under the friendly tutelage of his father. Plaintiffs' visits to the resort, with some insignificant exceptions, were primarily recreational and did not give them a knowledge of the business. Defendants, on the other hand, were mature men of considerable experience in the resort as well as other business. Although the element of disparity in business experience is not of itself a sufficient ground for relief, nevertheless, the law does not ignore such disparity, especially where, as here, the inexperience of youth is coupled with an added factor of special trust and confidence growing out of a reasonable assumption by plaintiffs that a genuine and close friendship existed between them and defendants. See, Gable v. Niles Holding Co. 209 Minn. 445, 296 N.W. 525. On various occasions when plaintiffs visited the resort to enjoy the out of doors, defendants had exhibited many manifestations of friendship. In youth, every manifestation of friendship seems genuine and deserving of special trust and confidence. Disparity may under some circumstance be a factor of considerable importance when we keep in mind that the question is not whether the representation would deceive the average man. In rescission actions for fraud, the question is whether the representations were of such a character and were made under such circumstances that they were reasonably calculated to deceive, not the average man, but a person of the capacity and experience of the particular individual who was the recipient of the representations. Kempf v. Ranger, 132 Minn. 64, 155 N.W. 1059. We have the further circumstance that defendants, by their long and personal operation of the resort, together with their exclusive possession of the books, were possessed of all the facts. We need not labor the point of plaintiffs' reasonable reliance on the representations made, because where representations are made by a party who is presumed to know their truth, reliance thereon will be presumed. Anderson v. Donahue, 116 Minn. 380, 133 N.W. 975; 3 Dunnell, Dig. & Supp. § 3821. We have repeatedly held that one who deceives another to his prejudice ought not to be heard to say in defense that the other party was negligent in taking him at his word. Gaetke v. Ebarr Co. Inc. 195 Minn. 393, 263 N.W. 448; Kempf v. Ranger, supra; 3 Dunnell, Dig. & Supp. § 3822.

The materiality of defendants' representations is so obvious from what has already been said that no discussion thereof is needed.

There was no unreasonable delay after the discovery of the fraud before commencing an action for rescission. Plaintiffs, who had been denied access to the books, were not in a position to learn the facts until they had a reasonable opportunity to observe the resort under operative conditions. They had no opportunity to commence operations until the spring of 1948. The evidence fully justifies a finding that plaintiffs discovered the fraudulent representations within a reasonable time after they had the opportunity to do so. We attach no significance to the fact that the action for rescission was not commenced until shortly after defendants — contrary to their agreement with plaintiffs, as found by the trial court — commenced cancellation proceedings. No doubt the unwarranted cancellation properly made them more vigilant in discovering the true nature of the transaction.

10. Defendants contend that the trial court's decision does not conform to either the pleadings or the proof, in that it is based primarily on the finding that defendants, in violation of a duty to disclose, had fraudulently concealed that they had regularly lost money. It is unnecessary to consider this contention, in that the trial court's decision is sustained upon a different and wholly independent finding, namely, that defendants fraudulently represented to plaintiffs that they were making "good money." Where a trial court has made two or more independent findings of fact, and one of these findings of fact — the making of which has manifestly not been influenced or controlled by an error of law^[5] — is wholly sufficient of and by itself to sustain the trial court's decision, no consideration need be given to the other findings, and any error with respect to them is immaterial. Where a decision is correct, it need not be sustained for the same reason or for all the reasons relied upon by the trial court. Iowa Guarantee Mtg. Corp. v. Kingery, 181 Minn. 477, 233 N.W. 18; 1 Dunnell, Dig. & Supp. § 421; 3 Am. Jur., Appeal and Error, § 1008.

Much ado has been made about the finding that plaintiffs lost money on their operations of the resort in 1948. Although the evidence reasonably sustains the finding, it is of no material consequence, for two reasons. In the first place, we are not concerned in an action for rescission with a question of damages. Kirby v. Dean, 159 Minn. 451, 199 N.W. 174; Gaetke v. Ebarr Co. Inc. 195 Minn. 393, 263 N.W. 448. In the second place, if the particular finding was used for any purpose other than that of throwing some light upon the rental value of the premises, as indicated by the subject of the paragraph in which it is embodied in the findings, such other purpose obviously must have been limited to the function of corroborating the finding that defendants fraudulently represented that plaintiffs could make good money. Whether evidence of plaintiffs' failure to make money in 1948 should have been considered for such other purpose need not be determined, because, as already indicated, the trial court's decision is sustained solely on the ground that defendants fraudulently represented that they had made "good money," and not on the representation that plaintiffs could make good money. If it was error, it was error without prejudice.

11. Defendants assert that the trial court's finding that the improvements made to the resort premises by plaintiffs offset its rental value during the period of their occupancy is arbitrary and without support in the evidence. They alleged that the court failed to find the resort's fair rental value and that no proof was offered on the issue. Apparently defendants overlook the fact that, insofar as the defrauding parties are allowed any rental for the use of the premises in rescission for fraud proceedings, such allowance is made not by reason of any legal right, but purely as an equitable obligation of the parties each to the other to restore the status quo ante by each receiving substantially the property with which he parted without enjoying any unjust enrichment by retention of that of the other. It is simply a rule for meting out substantial justice, so that one may not enjoy unconscionable enrichment at the expense of another.^[6] As a measure for substantially restoring the parties to the status quo ante, we find no abuse of discretion in the determination that plaintiffs' improvements offset the rental value. Testimony was freely admitted showing that the premises were in a run-down condition when plaintiffs took possession and that approximately $2,000 was justifiably expended by plaintiffs for reasonably necessary improvements. On the other side of the evidentiary ledger, we have ample support for a finding that the rental value during plaintiffs' occupancy did not exceed the value of plaintiffs' improvements. In finding rental value, the court could reasonably take into consideration the significant evidence that the resort property had for seven years — even during the most prosperous years of Minnesota's resort history — yielded only a loss under defendants' experienced management. The court could also consider plaintiffs' testimony with respect to the 1948 operations. Plaintiffs, after justifiably paying themselves a reasonable salary (Clark v. Wells, 127 Minn. 353, 149 N.W. 547,L.R.A. 1916F, 476), sustained a loss. For comparative purposes, the court also had the benefit of testimony by other resort operators in the area, who described their operations and physical plants. If we keep in mind that the only purpose for ascertaining the resort's rental value was simply to mete out substantial justice, so that plaintiffs might not enjoy unconscionable enrichment at the expense of defendants, and if we further keep in mind that the resort under the status quo ante operations had regularly yielded defendants a substantial loss year after year, the court could reasonably find that upon the evidence as a whole its rental value did not exceed the value of plaintiffs' improvements. There can be no doubt, insofar as defendants are concerned, that they received thereby their full measure of equity, without any unjust enrichment of plaintiffs.

12. The evidence has been conflicting, but it is clear, in the light of the evidence as a whole, that the findings are sustained by a fair preponderance of the evidence. The rule requiring clear and convincing evidence to justify a rescission of a contract for fraud is merely a rule of caution against setting aside written instruments upon weak and inconclusive evidence. A fair preponderance of the evidence is sufficient. McCarty v. New York L. Ins. Co. 74 Minn. 530, 77 N.W. 426; 1 Dunnell, Dig. & Supp. § 1202.

The order of the trial court is affirmed.

Affirmed.

PETERSON, JUSTICE (dissenting).

While I concur in the views of the majority as to the rules of law stated in their opinion, I dissent upon the ground that, in any reasonable view of the facts, plaintiffs failed to prove a case of fraud.

The evidence conclusively shows that it became known that defendants were willing to sell the property in question for about $100,000. Plaintiffs were familiar with the property. They started negotiations to purchase it. Before defendants made any representations concerning the property, and consequently when plaintiffs were uninfluenced by any such representations, they made an offer to purchase for $90,000. After some negotiations, the parties agreed on $95,000 as the purchase price. The increase in the purchase price as a consequence of the negotiations was a little less than six percent of plaintiffs' offer before any representations had been made. A sale price increased, as a consequence of negotiations, such a slight amount above the buyers' offer, uninfluenced by any representations, cannot be said to be the result of fraud. As a practical proposition, the sale here was at plaintiffs' own price.

A painstaking reading of the record produces the conviction that the trial judge was influenced to find fraud because plaintiffs were young and inexperienced. Neither is a ground for finding fraud. While it is true that they were young, they were not inexperienced. As a consequence of experience, they had acquired unusual business acumen.

THOMAS GALLAGHER, JUSTICE (dissenting).

1. I concur in the dissent. The property was sold to plaintiffs for $95,000. There was substantial testimony, not seriously in dispute, that the reasonable value of the property was in excess of $100,000. In addition to the expert testimony on values submitted by the parties, the trial court, on its own initiative, called three neutral expert witnesses, owners and operators of similar resorts in the same general area, who were familiar with the property involved, to give their opinion as to its value. Their testimony thoroughly substantiated the opinions of defendants' experts as to value, and it clearly indicated that the property, if operated efficiently, was capable of producing a good net income. Under such circumstances, it would seem that there was no substantial evidence to sustain the trial court's finding that the property had been sold for more than its worth.

2. The evidence submitted in support of plaintiffs' allegations as to misrepresentation relative to earnings would hardly seem to sustain a finding of fraud. The statements claimed to have been made by defendants relative thereto to future prospects. Most of them were made prior to the time when either plaintiffs or defendants contemplated a sale of the property. The most that can be drawn therefrom was that defendants had at times stated that they were "making good money" or that they had a "darn good business."

Prior to the letter of September 26, 1947, in which plaintiff Maurice Spiess offered to purchase the property for $90,000 (some $5,000 less than the price finally agreed upon), he had had but one conversation with defendant William Brandt and no conversations whatever with defendant John Carlos Brandt. His talk with William Brandt was immediately after he and plaintiff Lowell Spiess had talked over the matter of a purchase. Nothing was said at that time by either of the Brandts as to earnings of the resort for the year 1946. The conversation reflected only the expectations of William Brandt as to future prospects, in the light of full resumption of auto transportation after the war.

3. A written instrument executed with due formality and known to be executed for the purpose of embodying the agreements of the parties should not be set aside on the ground of fraud unless the proof is clear and strong. First Nat. Bank v. Schroeder, 175 Minn. 341, 221 N.W. 62; 3 Dunnell, Dig. & Supp. § 3839. Opinions expressed as to future prospects of a particular business cannot be used as a basis for fraud. Eurich v. Bartlett, 151 Minn. 86, 186 N.W. 138. Representations made after a decision to purchase cannot be regarded as inducements toward making the purchase agreement, since there could have been no reliance thereon. Nilsen v. Farmers State Bank, 178 Minn. 574, 228 N.W. 152; Rien v. Cooper, 211 Minn. 517, 1 N.W. (2d) 847.

4. With reference to the claim now made that defendants suppressed or withheld facts relating to their past experiences in the operation of the property, it may be said that this ground was never alleged by plaintiffs as a basis for recovery. Plaintiffs did request defendants' books covering past operations. These were not supplied, and at this point there was nothing to prevent plaintiffs from refusing to proceed with the transaction.

5. The court placed much reliance on the ages of plaintiffs, their lack of experience, and the fact that they had not operated properties of this type. John Carlos Brandt, one of the defendants, at the time he purchased the resort was not much older than plaintiff Lowell Spiess when he originally purchased it. Both plaintiffs had had experience in the operation of other properties. Lowell owned an interest in and operated a theater, while Maurice owned real estate in Newport. Both of such properties were to be sold by plaintiffs so that the proceeds might be used as part of the purchase price herein. Their parents and older brother were interested in this transaction and counseled and advised them in connection therewith. The parties were at all times dealing at arm's length.

6. It is asserted that defendants sustained a loss during prior years. This may be largely explained by the extensive capital expenditures made by them in improving the resort. For example, in 1947, $14,231 was put back into the properties in improvements. This, in itself, would indicate that defendants were making "good money" in the business. Many of such improvements were not of a recurrent nature and could be depreciated over a number of years.

7. No allowance was made for the use and rental value of the property during plaintiffs' possession thereof. During 1948, they not only had their living provided, but they were also able to acquire an automobile, an airplane, and at least $1,630.54 in cash from their operation of the resort. The trial court found that the improvements made by them offset the rental value of the property. No finding was made as to fair rental value. The improvements consisted of repairs to motors, patching boats, and completing an apartment and kitchen. Plaintiffs actually received during the year 1948 $19,661.56 in their operation of the property. A gross income of this amount, with any kind of careful management, would yield a profit, and clearly establishes that the premises had a substantial rental value during the period of plaintiffs' occupancy thereof.

8. I cannot subscribe to the theory that this contract, made pursuant to an offer freely given, should be set aside on any of the grounds above outlined. If it may be thus rescinded, I fear that few contracts will withstand the onslaught of another business depression or the disappointment following an optimistic but inefficient purchaser's unsuccessful operation of property purchased.

[1] Reported in 41 N.W. (2d) 561.

[2] Forman v. Hamilburg, 300 Mass. 138, 14 N.E. (2d) 137; Powers v. Rittenberg, 270 Mass. 221, 169 N.E. 913; Stumpf v. Lawrence, 4 Cal. App. (2d) 373, 40 P. (2d) 920; Miller v. Frederick, 171 Wash. 452, 18 P. (2d) 40; J.C. Corbin Co. v. Preston, 109 Or. 230, 218 P. 917; 23 Am. Jur., Fraud and Deceit, §§ 20 and 68; 37 C.J.S., Fraud, § 3, p. 215; see, Restatement, Torts, § 525d; O'Neil v. Davidson, 149 Minn. 457, 184 N.W. 194.

[3] It has been held that, where the vendee after taking possession of a business at once experiences a business volume sharply below that represented to have been enjoyed by the vendor, an inference may be drawn that vendor's representation was false in that an established business will not at once seriously diminish without cause. Forman v. Hamilburg, 300 Mass. 138, 14 N.E. (2d) 137.

[4] Schlechter v. Felton, 134 Minn. 143, 158 N.W. 813, L.R.A. 1917A, 556; Bullitt v. Farrar, 42 Minn. 8, 43 N.W. 566, 6 L.R.A. 149, 18 A.S.R. 485; Hedin v. Minneapolis M. & S. Inst. 62 Minn. 146, 64 N.W. 158, 35 L.R.A. 417, 54 A.S.R. 628; 21 Minn. L. Rev. pp. 446 to 449; Restatement, Torts, § 526; 3 Dunnell, Dig. & Supp. § 3818.

[5] See, 3 Am. Jur., Appeal and Error, § 904.

[6] Hatch v. Kulick, 211 Minn. 309, 1 N.W. (2d) 359, and note 2 thereof; Scheer v. F.P. Harbaugh Co. 165 Minn. 54, 205 N.W. 626; Kirby v. Dean, 159 Minn. 451, 199 N.W. 174.

George E. Netter, Morris A. Marks and Milton Waxenfeld for appellants.

David Haar for respondent.

Chief Judge CONWAY and Judges DESMOND, DYE, FROESSEL and VAN VOORHIS concur with Judge BURKE; Judge FULD dissents in a separate opinion.

BURKE, J.

The plaintiff in its complaint alleges, insofar as its first cause of action is concerned, that it was induced to enter into a contract of sale of a lease of a building held by defendants because of oral representations, falsely made by the defendants, as to the operating expenses of the building and as to the profits to be derived from the investment. Plaintiff, affirming the contract, seeks damages for fraud.

At Special Term, the Supreme Court sustained a motion to dismiss the complaint. On appeal, the Appellate Division unanimously reversed the order granting the dismissal of the complaint. Thereafter the Appellate Division granted leave to appeal, certifying the following question: "Does the first cause of action in the complaint state facts sufficient to constitute a cause of action?"

The basic problem presented is whether the plaintiff can possibly establish from the facts alleged in the complaint (together with the contract which was annexed to the complaint) reliance upon the misrepresentations (Cohen v. Cohen, 1 A D 2d 586, affd. 3 N Y 2d 813).

We must, of course, accept as true plaintiff's statements that during the course of negotiations defendants misrepresented the operating expenses and profits. Such misrepresentations are undoubtedly material. However, the provisions of the written contract which directly contradict the allegations of oral representations are of equal importance in our task of reaching a decisive answer to the question posed in these cases.

The contract, annexed to and made a part of the complaint, contains the following language pertaining to the particular facts of representations: "The Purchaser has examined the premises agreed to be sold and is familiar with the physical condition thereof. The Seller has not made and does not make any representations as to the physical condition, rents, leases, expenses, operation or any other matter or thing affecting or related to the aforesaid premises, except as herein specifically set forth, and the Purchaser hereby expressly acknowledges that no such representations have been made, and the Purchaser further acknowledges that it has inspected the premises and agrees to take the premises `as is' * * * It is understood and agreed that all understandings and agreements heretofore had between the parties hereto are merged in this contract, which alone fully and completely expresses their agreement, and that the same is entered into after full investigation, neither party relying upon any statement or representation, not embodied in this contract, made by the other. The Purchaser has inspected the buildings standing on said premises and is thoroughly acquainted with their condition." (Emphasis supplied.)

Were we dealing solely with a general and vague merger clause, our task would be simple. A reiteration of the fundamental principle that a general merger clause is ineffective to exclude parol evidence to show fraud in inducing the contract would then be dispositive of the issue (Sabo v. Delman, 3 N Y 2d 155). To put it another way, where the complaint states a cause of action for fraud, the parol evidence rule is not a bar to showing the fraud — either in the inducement or in the execution — despite an omnibus statement that the written instrument embodies the whole agreement, or that no representations have been made. (Bridger v. Goldsmith, 143 N.Y. 424; Angerosa v. White Co., 248 App. Div. 425, affd. 275 N.Y. 524; Jackson v. State of New York, 210 App. Div. 115, affd. 241 N.Y. 563; 3 Williston, Contracts [Rev. ed.], § 811A.)

Here, however, plaintiff has in the plainest language announced and stipulated that it is not relying on any representations as to the very matter as to which it now claims it was defrauded. Such a specific disclaimer destroys the allegations in plaintiff's complaint that the agreement was executed in reliance upon these contrary oral representations (Cohen v. Cohen, supra). The Sabo case (supra) dealt with the usual merger clause. The present case, as the Cohen case, additionally, includes a disclaimer as to specific representations.

This specific disclaimer is one of the material distinctions between this case and Bridger v. Goldsmith (supra) and Crowell-Collier Pub. Co. v. Josefowitz (5 N Y 2d 998). In the Bridger case, the court considered the effect of a general disclaimer as to representations in a contract of sale, concluding that the insertion of such a clause at the insistence of the seller cannot be used as a shield to protect him from his fraud. Another material distinction is that nowhere in the contract in the Bridgercase is there a denial of reliance on representations, as there is here. Similarly, in Crowell-Collier Pub. Co. v. Josefowitz (supra), decided herewith, only a general merger clause was incorporated into the contract of sale. Moreover, the complaint there additionally alleged that further misrepresentations were made after the agreement had been signed, but while the contract was held in escrow and before it had been finally approved.

Consequently, this clause, which declares that the parties to the agreement do not rely on specific representations not embodied in the contract, excludes this case from the scope of the Jackson, Angerosa, Bridger and Crowell-Collier cases (supra). (See Foundation Co. v. State of New York, 233 N.Y. 177.)

The complaint here contains no allegations that the contract was not read by the purchaser. We can fairly conclude that plaintiff's officers read and understood the contract, and that they were aware of the provision by which they aver that plaintiff did not rely on such extra-contractual representations. It is not alleged that this provision was not understood, or that the provision itself was procured by fraud. It would be unrealistic to ascribe to plaintiff's officers such incompetence that they did not understand what they read and signed. (Cf. Ernst Iron Works v. Duralith Corp., 270 N.Y. 165, 171.) Although this court in the Ernst case discounted the merger clause as ineffective to preclude proof of fraud, it gave effect to the specific disclaimer of representation clause, holding that such a clause limited the authority of the agent, and hence, plaintiff had notice of his lack of authority. But the larger implication of the Ernst case is that, where a person has read and understood the disclaimer of representation clause, he is bound by it. The court rejected, as a matter of law, the allegation of plaintiffs "that they relied upon an oral statement made to them in direct contradiction of this provision of the contract." The presence of such a disclaimer clause "is inconsistent with the contention that plaintiff relied upon the misrepresentation and was led thereby to make the contract." (Kreshover v. Berger, 135 App. Div. 27, 28.)

It is not necessary to distinguish seriatim the cases in other jurisdictions as they are not, in the main, in point or, in a few instances, clash with the rule followed in the State of New York. The marshaling of phrases plucked from various opinions and references to generalizations, with which no one disagrees, cannot subvert the fundamental precept that the asserted reliance must be found to be justifiable under all the circumstances before a complaint can be found to state a cause of action in fraud. We must keep in mind that "opinions must be read in the setting of the particular cases and as the product of preoccupation with their special facts" (Freeman v. Hewit, 329 U. S. 249, 252). When the citations are read in the light of this caveat, we find that they are generally concerned with factual situations wherein the facts represented were matters peculiarly within the defendant's knowledge, as in the cases of Sabo v. Delman (supra) and Jackson v. State of New York (supra).

The general rule was enunciated by this court over a half a century ago in Schumaker v. Mather (133 N.Y. 590, 596) that "if the facts represented are not matters peculiarly within the party's knowledge, and the other party has the means available to him of knowing, by the exercise of ordinary intelligence, the truth or the real quality of the subject of the representation, he must make use of those means, or he will not be heard to complain that he was induced to enter into the transaction by misrepresentations. (Baily v. Merrell, Bulstrode's Rep. Part III, p. 94; Slaughter v. Gerson, 13 Wall. 383; Chrysler v. Canaday, 90 N.Y. 272.)"

Very recently this rule was approved as settled law by this court in the case of Sylvester v. Bernstein (283 App. Div. 333, affd. 307 N.Y. 778).

In this case, of course, the plaintiff made a representation in the contract that it was not relying on specific representations not embodied in the contract, while, it now asserts, it was in fact relying on such oral representations. Plaintiff admits then that it is guilty of deliberately misrepresenting to the seller its true intention. To condone this fraud would place the purchaser in a favored position. (Cf. Riggs v. Palmer, 115 N.Y. 506, 511, 512.) This is particularly so, where, as here, the purchaser confirms the contract, but seeks damages. If the plaintiff has made a bad bargain he cannot avoid it in this manner.

If the language here used is not sufficient to estop a party from claiming that he entered the contract because of fraudulent representations, then no language can accomplish that purpose. To hold otherwise would be to say that it is impossible for two businessmen dealing at arm's length to agree that the buyer is not buying in reliance on any representations of the seller as to a particular fact.

Accordingly, the order of the Appellate Division should be reversed and that of Special Term reinstated, without costs. The question certified should be answered in the negative.

FULD, J. (dissenting).

If a party has actually induced another to enter into a contract by means of fraud — and so the complaint before us alleges — I conceive that language may not be devised to shield him from the consequences of such fraud. The law does not temporize with trickery or duplicity, and this court, after having weighed the advantages of certainty in contractual relations against the harm and injustice which result from fraud, long ago unequivocally declared that "a party who has perpetrated a fraud upon his neighbor may [not] * * * contract with him in the very instrument by means of which it was perpetrated, for immunity against its consequences, close his mouth from complaining of it and bind him never to seek redress. Public policy and morality are both ignored if such an agreement can be given effect in a court of justice. The maxim that fraud vitiates every transaction would no longer be the rule but the exception." (Bridger v. Goldsmith, 143 N.Y. 424, 428.) It was a concern for similar considerations of policy which persuaded Massachusetts to repudiate the contrary rule which it had initially espoused. "The same public policy that in general sanctions the avoidance of a promise obtained by deceit", wrote that state's Supreme Judicial Court in Bates v. Southgate (308 Mass. 170, 182), "strikes down all attempts to circumvent that policy by means of contractual devices. In the realm of fact it is entirely possible for a party knowingly to agree that no representations have been made to him, while at the same time believing and relying upon representations which in fact have been made and in fact are false but for which he would not have made the agreement. To deny this possibility is to ignore the frequent instances in everyday experience where parties accept * * * and act upon agreements containing * * * exculpatory clauses in one form or another, but where they do so, nevertheless, in reliance upon the honesty of supposed friends, the plausible and disarming statements of salesmen, or the customary course of business. To refuse relief would result in opening the door to a multitude of frauds and in thwarting the general policy of the law."

It is impossible, on either principle or reasoning, to distinguish the present case from the many others which this court has decided. (See, e.g., Bridger v. Goldsmith, 143 N.Y. 424, 428, supra; Jackson v. State of New York, 210 App. Div. 115, affd. 241 N.Y. 563; Ernst Iron Works v. Duralith Corp., 270 N.Y. 165, 169; Angerosa v. White Co., 248 App. Div. 425, 431, affd. 275 N.Y. 524; Sabo v. Delman, 3 N Y 2d 155, 162; Crowell-Collier Pub. Co. v. Josefowitz, 5 N Y 2d 998, also decided today.) As far back as 1894, we decided, in the Bridger case (143 N.Y. 424, supra), that the plaintiff was not prevented from bringing an action for fraud, based on oral misrepresentations, even though the written contract provided that it was "understood and agreed" that the defendant seller had not made,

"for the purpose of inducing the sale * * * or the making of this agreement * * * any statements or representations * * * other than"

the single one therein set forth (pp. 426-427). And, just today, we are holding, in the Crowell-Collier Publishing case, that the plaintiffs were not barred from suing the defendants for fraud in inducing them to make the contract, despite its recital that

"This Agreement constitutes the entire understanding between the parties, [and] was not induced by any representations * * * not herein contained".

In addition, in Jackson v. State of New York (210 App. Div. 115, affd. 241 N.Y. 563,supra), the contract provided that

the contractor (plaintiff's predecessor in interest) agreed that he had satisfied himself by his own investigation regarding all the conditions of the work to be done and that his conclusion to enter into the contract was based solely upon such investigation and not upon any information or data imparted by the State.

It was held that even this explicit disavowal of reliance did not bar the plaintiff from recovery. In answering the argument that the provision prevented proof either of misrepresentation by the defendant or reliance on the part of the plaintiff, the Appellate Division, in an opinion approved by this court, wrote: "A party to a contract cannot, by misrepresentation of a material fact, induce the other party to the contract to enter into it to his damage and then protect himself from the legal effect of such misrepresentation by inserting in the contract a clause to the effect that he is not to be held liable for the misrepresentation which induced the other party to enter into the contract. The effect of misrepresentation and fraud cannot be thus easily avoided" (pp. 119-120).

Although the clause in the contract before us may be differently worded from those in the agreements involved in the other cases decided by this court, it undoubtedly reflects the same thought and meaning, and the reasoning and the principles which the court deemed controlling in those cases are likewise controlling in this one. Their application, it seems plain to me, compels the conclusion that the complaint herein should be sustained and the plaintiff accorded a trial of its allegations.

It is said, however, that the provision in this contract differs from those heretofore considered in that it embodies a specific and deliberate exclusion of a particular subject. The quick answer is that the clause now before us is not of such a sort. On the contrary, instead of being limited, it is all-embracing, encompassing every representation that a seller could possibly make about the property being sold and, instead of representing a special term of a bargain, is essentially "boiler plate." (See Contract of Sale, Standard N. Y. B. T. U. Form 8041; Bicks, Contracts for the Sale of Realty [1956 ed.], pp. 79-80, 94-95.) The more elaborate verbiage in the present contract cannot disguise the fact that the language which is said to immunize the defendants from their own fraud is no more specific than the general merger clause in Sabo v. Delman (3 N Y 2d 155, supra) and far less specific than the provision dealt with in the Jackson case (210 App. Div. 115, affd. 241 N.Y. 563,supra) or in Crowell-Collier.

In any event, though, I cannot believe that the outcome of a case such as this, in which the defendant is charged with fraud, should turn on the particular language employed in the contract. As Judge AUGUSTUS HAND, writing for the Federal Court of Appeals, observed, "the ingenuity of draftsmen is sure to keep pace with the demands of wrongdoers, and if a deliberate fraud may be shielded by a clause in a contract that the writing contains every representation made by way of inducement, or that utterances shown to be untrue were not an inducement to the agreement," a fraudulent seller would have a simple method of obtaining immunity for his misconduct. (Arnold v. National Aniline & Chem. Co., 20 F.2d 364, 369.)

The guiding rule — that fraud vitiates every agreement which it touches — has been well expressed not only by the courts of this state, but by courts throughout the country and by the House of Lords in England. And, in recognizing that the plaintiff may assert a cause of action in fraud, the courts have not differentiated between the type or form of exculpatory provision inserted in the contract. It matters not, the cases demonstrate, whether the clause simply recites that no representations have been made or more fully stipulates that the seller has not made any representations concerning certain enumerated subjects and that the purchaser has made his own investigation and has not relied upon any representation by the seller, not embodied in the writing. (See, e.g., Sabo v. Delman, 3 N Y 2d 155, 161-162, supra; Ernst Iron Works v. Duralith Corp., 270 N.Y. 165, 169, supra; Bridger v. Goldsmith, 143 N.Y. 424, 428, supra; Angerosa v. White Co., 248 App. Div. 425, 431, affd. 275 N.Y. 524, supra; Jackson v. State of New York, 210 App. Div. 115, affd. 241 N.Y. 563, supra; Pearson & Son v. Dublin Corp., [1907] A. C. 351, 353-354, 362; Arnold v. National Aniline & Chem. Co., 20 F.2d 364, 369, supra; Lutfy v. Roper & Sons Motor Co., 57 Ariz. 495, 506; Omar Oil Co. v. MacKenzie Oil Co., 33 Del. 259, 289-290; Jordan v. Nelson, 178 N. W. 544 [Iowa]; Bryant v. Troutman, 287 S. W. 2d 918, 921 [Ky.]; Bates v. Southgate, 308 Mass. 170, 182, supra; Ganley Bros. v. Butler Bros. Bldg. Co., 170 Minn. 373, 376-377; Brown v. Ohman, 42 So. 2d 209, 212-213 [Miss.]; Martin v. Harris, 121 Neb. 372; Blacknall v. Rowland, 108 N. C. 554, 557-558; Pennsylvania Turnpike Comm. v. Smith, 350 Pa. 355, 361-362; Dallas Farm Mach. Co. v. Reaves, 307 S. W. 2d 233, 239 [Texas]; Dieterich v. Rice, 115 Wash. 365; see, also, 3 Williston, Contracts [Rev. ed., 1936], §§ 811, 811A; Corbin, Contracts [1951], Vol. 3, § 578; Vol. 6, § 1516; Restatement of Contracts, § 573.)

In England, in the Pearson case ([1907] A. C. 351, supra), the contract to perform certain construction work provided that

the contractor "should satisfy himself" as to various specified items connected with the job and that the defendant corporation "did not hold itself responsible for the accuracy of [such] information" (p. 351).

After performing the contract, the plaintiffs brought a deceit action, claiming damages for false representations as to the very items concerning which they had agreed they would satisfy themselves. The House of Lords reversed the judgment directed for the defendants and held that the action could be maintained; the Lord Chancellor, after noting that "The contract contained clauses * * * to the effect that the contractors must not rely on any representation * * * but must ascertain and judge of the facts for themselves" (p. 353), went on to say (pp. 353-354):

"Now it seems clear that no one can escape liability for his own fraudulent statements by inserting in a contract a clause that the other party shall not rely upon them."

Lord Ashbourne, concurring with the Lord Chancellor, pointed out that the clause relied upon "might in some cases be part of a fraud, and might advance and disguise a fraud" (p. 360) and Lord Hereford, also concurring, declared (p. 362) that, if the "protecting clause" be inserted fraudulently,

"When the fraud succeeds, surely those who designed the fraudulent protection cannot take advantage of it. Such a clause would be good protection against any mistake or miscalculation, but fraud vitiates every contract and every clause in it."

In the Dieterich case (115 Wash. 365, supra), the contract contained the provision that

"The land is sold to [the plaintiff buyer] * * * with the understanding that he has personally and carefully inspected said premises, and is purchasing the same by said inspection and not from any other sayings or inducements by [the seller] * * * and there has been no other inducements other than recited herein".

Despite this explicit disclaimer of reliance and inducement, the Washington Supreme Court decided that the recital did not bar the plaintiff from showing "the fraudulent nature of the contract" (p. 373) and, in the course of its opinion, observed (p. 368) that the contention of the defendants to the contrary was "effectually answered by the court of appeals of New York, in the case of Bridger v. Goldsmith, 143 N.Y. 424".

In Martin v. Harris (121 Neb. 372, supra), the agreement recited:

"There have been no representations of the reasonable value of any of the properties herein described made by or to either party to this contract. Each party is relying upon his own judgment of such values after a personal inspection of the properties."

The plaintiff, alleging that the defendant fraudulently misrepresented the value of the property, sought damages. Again, despite the explicit statement that such a representation had not been made and the specific disavowal of reliance thereon, the court upheld the plaintiff's right to bring the action (p. 376).

In the Ganley case (170 Minn. 373, supra), too, the disclaimer was quite specific, reading in this way:

"The [plaintiff] contractor has examined the said contracts * * * and the specifications and plans forming a part thereof, and is familiar with the location of said work and the conditions under which the same must be performed * * * and is not relying upon any statement made by the company in respect thereto."

In deciding that a defendant could not protect himself against liability for fraud by such a provision or, indeed, by any language, the court wrote in no uncertain terms (p. 377):

"The law should not and does not permit a covenant of immunity to be drawn that will protect a person against his own fraud. Such is not enforceable because of public policy. Industrial & General Trust, Ltd. v. Tod, 180 N.Y. 215 * * *. Language is not strong enough to write such a contract. Fraud destroys all consent. It is the purpose of the law to shield only those whose armor embraces good faith. Theoretically, if there is no fraud the rule we announce is harmless. If there is fraud the rule we announce is wholesome. Whether the rule is effective depends upon the facts. Public interest supports our conclusion."

And, said the court, while the argument that a party should have the right "to let his work to a certain person because the other will therein agree that he relies and acts only upon his own knowledge and not upon the representations of his adversary", might on first thought seem plausible, it does not stand analysis. "It may be desirable in dealing with unscrupulous persons to have this clause as a shield against wrongful charges of fraud. But, if there is no fraud, that fact will be established on the trial. The merits of defendant's claim reach only the expense and annoyance of litigation. But every party should have his day in court. * * * We are unable to formulate a rule of law sustaining defendant's contention which would not at the same time give opportunities for the commission of fraud for which the wronged party would have no redress" (p. 376).

And in the Lutfy case (57 Ariz. 495, supra), the contract of sale contained as specific a disavowal of reliance upon a particular representation as could be written:

"It is understood and agreed that there is no representation or warranty that the `year model' of said property, as hereinbefore stated, correctly states the year in which said property was manufactured, but is merely used by the parties hereto for convenience in describing it. * * * Purchaser agrees that he has made an independent investigation of the property and has relied solely upon his own investigation with reference thereto in entering into this contract, and has placed no reliance and acted upon no representations or warranties upon the part of the Seller."

The plaintiff, suing for damages, alleged that the defendant had falsely represented the year model of the automobile which he purchased, and the high court of Arizona held that he could prove that such a representation had been made and that he had relied upon it, notwithstanding the contract's most explicit recital to the contrary (p. 506):

"If binding upon [plaintiff] appellant, it would protect appellee from the consequences of any fraudulent misrepresentations it might have made to appellant to induce him to sign the contract and, as we see it, any provision in a contract making it possible for a party thereto to free himself from the consequences of his own fraud in procuring its execution is invalid and necessarily constitutes no defense."

The cases cited — all upholding the sufficiency of a complaint based on fraud no matter how the exculpatory language in the contract is phrased — show how firmly established the rule is, and the passages quoted show how compelling are the reasons for the rule. Nor is their force or value weakened or impaired by the decisions upon which the court now appears to rely. Except for Cohen v. Cohen (3 N Y 2d 813), no one of them has anything to do with the adequacy of the complaint as a pleading; two are concerned with the proof adduced at the trial (Schumaker v. Mather, 133 N.Y. 590; Ernst Iron Works v. Duralith Corp., 270 N.Y. 165, supra), while the third deals with the subject of res judicata (Sylvester v. Bernstein, 283 App. Div. 333, affd. 307 N.Y. 778).

In the Ernst Iron Works case, the appeal was, as I have noted, taken after trial and was concerned with the proof and not, as is the present appeal, with the sufficiency of the complaint. The contract contained both a blanket merger clause and a recital that the defendant "makes no representation regarding previous sales" in Buffalo, where the plaintiff did business. Notwithstanding that provision, the plaintiff claimed that he had relied upon a representation by the defendant's salesman that the product had not been sold in that city, and testimony to that effect was received at the trial. The court did reverse the judgment for the plaintiff, but not on any theory that the specific disclaimer clause barred suit or that the evidence was inadmissible because of it. It was the court's conclusion, based on the evidence adduced at the trial, first, that the false representation attributed to the defendant had not been made (270 N. Y., at pp. 169-170); second, that, in any event, the defendant's salesman did not have authority to make such a representation and the plaintiff knew this (pp. 170-171); and, finally, that "it [was] clear [from the proof at the trial] that the plaintiff did not rely upon the statement" (pp. 171-172). And, most significantly, the court did not question the general principle but affirmed it, stating that "A rogue cannot protect himself from liability for his fraud by inserting a printed clause in his contract" (270 N. Y., at p. 169).

As to Cohen v. Cohen, I dissented from the decision there made and still consider it to have been wrongly decided. Constrained to accept it, I do so, but I cannot subscribe to extending its application beyond its own peculiar fact setting. A husband and wife had separated; there were bitter mutual recriminations followed by three separate lawsuits. The parties were ultimately reconciled and their lawyers drew a settlement agreement, which they executed, reciting that the husband had not made any representations "as to the continuation of the marital status". The wife sometime later brought another action, alleging that her husband had falsely represented that he "would effect a reconciliation with [her], return to live with her * * * permanently, and permanently resume their marital relationship". As is quite evident, the Cohen case is a most unusual one, not only because it involved an agreement designed to settle pending marital litigation, but because of the extraordinary and promissory nature of the misrepresentation alleged. Indeed, the only resemblance claimed for the cases — that is, for Cohen and the present one — is that in both there is a specific disclaimer by the plaintiff of the very representations charged against the defendant. However, as noted above (pp. 325-326), since the provision in the contract before us encompasses every representation which a seller of real estate could possibly have made, including those alleged, even the asserted similarity does not in fact exist.

Contrary to the intimation in the court's opinion (p. 323), the nonreliance clause cannot possibly operate as an estoppel against the plaintiff. Essentially equitable in nature, the principle of estoppel is to be invoked to prevent fraud and injustice, not to further them. The statement that the representations in question were not made was, according to the complaint, false to the defendant's knowledge. Surely, the perpetrator of a fraud cannot close the lips of his victim and deny him the right to state the facts as they actually exist. Indeed, the contention that a person, such as the defendant herein, could urge an estoppel was considered and emphatically disposed of in Bridger v. Goldsmith with this statement: "The question now is whether [the no-representation non-inducement clause] can be given the effect claimed for it by the learned counsel for the defendant, to preclude the plaintiff from alleging fraud in the sale and pursuing in the courts the remedies which the law gives in such cases. It cannot operate by way of estoppel for the obvious reason that the statements were false to the defendant's knowledge. He may, indeed, have relied upon its force and efficacy to protect him from the consequences of his own fraud, but he certainly could not have relied upon the truth of any statement in it. A mere device of the guilty party to a contract intended to shield himself from the results of his own fraud, practiced upon the other party, cannot well be elevated to the dignity and importance of an equitable estoppel" (143 N.Y. 424, 427-428, emphasis supplied; see, also, Angerosa v. White Co., 248 App. Div. 425, 433-434, affd. 275 N.Y. 524, supra).

The rule heretofore applied by this court presents no obstacle to honest business dealings, and dishonest transactions ought not to receive judicial protection. The clause in the contract before us may lend support to the defense and render the plaintiff's task of establishing its claim more difficult, but it should not be held to bar institution of an action for fraud. Whether the defendants made the statements attributed to them and, if they did, whether the plaintiff relied upon them, whether, in other words, the defendants were guilty of fraud, are questions of fact not capable of determination on the pleadings alone. The plaintiff is entitled to its day in court.

Order reversed, etc.

The cause was argued before HAMMOND, C.J., and HORNEY, OPPENHEIMER, BARNES and FINAN, JJ.

R. Lewis Bainder for appellant.

Morton L. Goldner, with whom was Ellis Peregoff on the brief, for appellees.

FINAN, J., delivered the opinion of the Court.

Appellant, Merit Music Service, Inc., is a Maryland corporation engaged in the business of leasing coin-operated vending and amusement machines in various locations in and around Baltimore City. Appellees, Sidney Sonneborn and Jennie Sonneborn, his wife, own and operate a tavern located on South Monroe Street in Baltimore and trade as Jen's Park Inn, hereinafter referred to as Jen's, at that location. Prior to August, 1962, appellees operated a similar business on Ridgely Street in Baltimore, which was closed during the latter part of July, 1962, due to urban renewal. For approximately five months appellees tried to find another location for their business and in November, 1962, the appellees were informed by a real estate agency that Jen's was for sale. In order to consummate the purchase of the new tavern, appellees approached the appellant for a loan of $1,500. Appellant had supplied amusement machines to appellees for a number of years at their former place of business and appellees owed appellant over $5,000 from their previous dealings.

Settlement for the purchase of the tavern took place on the evening of November 16, 1962, at Jen's. Present when settlement talks began were the seller, the appellees, Julius W. Lichter, appellees' attorney, and Lee Fine, a real estate agent for the seller. Shortly after settlement began Mr. Morris Silverberg, president of appellant, arrived. After discussions, which lasted almost half an hour, Silverberg agreed to loan appellees $1,500 provided that security was given for the loan; this much is not disputed. However the testimony is contradictory as regards the security discussed by the parties at the settlement. Mr. Lichter, appellees' attorney, testified that Silverberg requested that the appellees' prior indebtedness as well as the $1,500 loan be secured by the liquor license formerly located at appellees' previous place of business and that this was the only security agreement discussed or executed by the parties in his presence. Mr. Fine, the real estate agent and who is also an attorney, testified that in addition to the assignment of the liquor license Silverberg wanted additional security by way of a minimum guarantee from machines he was going to install in Jen's and that he believed appellees' attorney was present during this discussion. He further testified that he was not present when the contract embodying the minimum guarantee provision was signed. Mr. Silverberg, who is also a member of the Bar of Maryland but not a practicing attorney, corroborated the testimony of Fine and further testified that after he had given the Sonneborns his check for $1,500, he telephoned his son, David Silverberg, and told him to bring to Jen's a form contract relating to the leasing of amusement and vending machines from Merit to appellees. After his son arrived with the form agreement, Morris Silverberg testified that he inserted the minimum guarantee clauses^[1] in the blank spaces, after explaining them to the appellees, after which the contract was executed by the Sonneborns. It was also Silverberg's testimony that the terms of this agreement were discussed with Mr. Lichter prior to its formal execution; however, from the preponderance of the evidence, it would appear that Mr. Lichter was not present when the contract was executed. According to the testimony of appellee Jennie Sonneborn, Mr. Silverberg left after he had given the appellees his check for $1,500 and received the assignment of the liquor license; that was the only security arrangement discussed before his departure. She further testified that Silverberg returned alone to Jen's about midnight and "asked us [Sidney Sonneborn et ux.] to sign a paper he had in his handwriting in reference to the $1500. He said, `Just sign this.' We thought it was a note that he had loaned us the $1500." The appellees signed the contract without reading it and alleged that no copy of the agreement was left by Silverberg with them.

Immediately thereafter appellant installed one pinball machine and shortly thereafter a music box pursuant to the terms of the agreement. Within two weeks of the conception of the contract appellant learned that competitive equipment was installed in the appellees' premises in violation of the agreement. This violation was called to the Sonneborns' attention by letters dated December 8 an December 21, 1962. In March or April of 1963, the competitive bowling machine was removed and appellant installed its own, which according to Jennie Sonneborn was continually out of order.

Collections from the machines were started by the appellant on a weekly basis and for the first few weeks the proceeds were divided on a 50-50 basis — apparently to give the appellees an incentive. Thereafter the minimum guarantee clause was invoked and this is when controversy developed.

According to the testimony of Jennie Sonneborn the appellees were first told in the early part of 1963 that they were going to be held to a minimum guarantee and they objected. It was not until after they refused to sign collection slips, reflecting a division of the proceeds according to the minimum guarantee clause, that they allegedly became aware of the leasing contract. Periodic collections continued on a regular basis until June of 1963, after which only intermittent collections were made because, according to Mr. Silverberg, of appellees' interference.

On August 21, 1964, by letter of their counsel, the appellees ordered the appellant to remove its equipment from their premises. Two subsequent letters dated February 16, and March 30, 1965, ordered removal of the machines and as a result of this correspondence, counsel for the parties reached an agreement for the removal of appellant's equipment and disposition of the proceeds from a final collection to be made without prejudicing the rights of either party.

On July 6, 1965, Merit filed a bill of camplaint in the Circuit Court for Baltimore City alleging breach of paragraph g of the agreement of November 16, 1962, which reads as follows:

"During the term of this lease, or of any renewal thereof, no other electrical, manual, or mechanical coin operated equipment, machines or phonographs of any kind, nature or description shall be permitted on the premise, and in accordance with such provision the Proprietor agrees to permit no other party, parties, firm, corporation or even the Proprietor himself to install and operate any such machine or machines on the said premises during the term of this lease, or any renewal thereof. The Proprietor agrees for himself, his personal representatives, his heirs, successors and assigns, by reason of the aforementioned consideration passing to him, that a decree may be passed by any Court of Equity in which suit is brought for such purpose, enjoining him, his personal representatives, heir[s], successors and assigns from violating this covenant."

The relief prayed was an injunction restraining appellees "from permitting any electrical, * * * coin-operated equipment, machines, or phonographs of any nature or description of any operator or operators than" appellant on appellees' premises; an accounting and a monetary decree for damages. Appellees' answer denied the existence of a valid, legal and enforceable contract between the parties and in the alternative pleaded that, assuming a valid contract, the appellant breached the agreement by its failure to properly service the equipment and account for the proceeds derived therefrom as provided for in the contract. The Chancellor dismissed the bill of complaint finding that the appellees never agreed to a minimum guarantee; that the alleged contract was without consideration; that the agreement would be unconscionable if the minimum guarantee were to be enforced and the minimum guarantee clause constituted a material addition to the agreement by the appellant. From the Chancellor's order dismissing the bill of complaint, appellant has taken this appeal.

The Chancellor, sitting as a judge of the law as well as of the facts, found that the contract between the appellant and the appellees on its face was valid despite the apparent harshness of its terms, citing Stamatiades v. Merit Music, 210 Md. 597, 124 A.2d 829 (1956), a case in which the present appellant was involved in litigation regarding a contract similar to that in the case at bar.

The question now before us is whether or not the Chancellor was clearly in error (Rule 886 a) in his finding that the contract was materially altered by the appellant after its execution by the appellees. The Chancellor in his oral opinion stated: "I find as a fact that this contract was not the contract that the Sonneborns [appellees] agreed to; that the clause in dispute, namely the minimum guarantee clause, was not part of it [contract] at the time they signed it; that there has been a material addition made by the operator, [appellant] * * *."

This Court is of the opinion that the evidence in this case does not support the finding of the lower court.

There was no question in the Chancellor's mind that the appellees executed a contract, the court stating:

"I have no doubt they both signed it. Mrs. Sonneborn identifies her signature and admits it to be her signature. Mr. Sonneborn is not so sure, but I believe this is his signature. I have no difficulty over that."

The persons who should have been in the best position to give testimony as to whether or not the contract had been altered after its execution were the appellees, but they foreclosed themselves from giving trustworthy testimony on this all important issue because, by their own admission, neither of them read the contract prior to signing it nor, according to their testimony, did they retain a copy in their possession. Mrs. Sonneborn, when asked by counsel what she thought she was signing, testified: "I imagined it was a note." Both appellees readily admitted that they did not read the written document prepared for their signature.

The date of execution of the contract was November 16, 1962. It was not until March of 1963, that their attorney obtained a photostatic copy of it. After he explained the contract to them, both appellees stated they would never have signed a contract with such harsh terms. Mrs. Sonneborn perhaps best summed it up when replying to a question from appellant's trial attorney regarding her reactions when the contract was explained to them, stating: "When he said it was a seven year contract I said I would never sign a seven year contract under those terms, I would be foolish to sign a contract for $30 a week on a pinball machine and $12 on a music box. I didn't know what those machines would take in a week." Again, later in her testimony, she said: "I never signed a seven year contract calling for a minimum." But the fact remains she did sign a contract and furthermore, she left herself in such a position that she cannot actually say what was, or was not, in the contract for the simple reason that she did not read it, and the same applies to Mr. Sonneborn.

In the case of Rossi v. Douglas, 203 Md. 190, 100 A.2d 3 (1953) wherein this Court reversed a decree of the Chancellor granting an injunction to restrain the appellant from using certain land reserved to them pursuant to a reservation in a lease agreement; Chief Judge Sobeloff, speaking for the Court, said (p. 199, 100 A.2d 7):

"There is no claim here of fraud or duress or mutual mistake, and it is well established that in the absence of these features one having the capacity to understand a written document who reads it, or, without reading it or having it read to him, signs it, is bound by his signature. Spitze v. B. & O.R.R., 75 Md. 162, 23 A. 307; Columbia Paper Bag Co. v. Carr, 116 Md. 541, 82 A. 442; McGrath v. Peterson, 127 Md. 412, 96 A. 551; Western Maryland Dairy v. Brown, 169 Md. 257, 262, 181 A. 468, 471; Gardiner v. Gardiner, 200 Md. 233, 88 A.2d 481; Ray v. Eurice, supra; Williston, Contracts, sec. 90 A; Restatement of Contracts, sec. 70. Indeed Williston says that even if an illiterate executes a deed under a mistake as to its contents, he is bound both at law and in equity if he did not require it to be read to him or its object explained. This is everywhere the rule. Williston, Contracts, sec. 1577."

There is a qualification to the above mentioned rule which this Court recognized in Binder v. Benson, 225 Md. 456, 171 A.2d 248 (1961). Judge Hammond (present Chief Judge), speaking for the Court, said (p. 461, 171 A.2d 250):

"A qualification of the rule is that an apparent manifestation of assent will not operate to make a contract if the other party knows, or as a reasonable person should know, that the apparent acceptor does not intend what his words or other acts ostensibly indicate. Restatement, Contracts, Sec. 71(c); 3 Corbin, Contracts, Sec. 610; 17 C.J.S. Contracts, Sec. 143, p. 497; Frederich v. Union Electric Light & Power Co. (Mo.), 82 S.W.2d 79, 86; General Electric Supply Corp. v. Republic Construction Corp. (Ore.), 272 P.2d 201; Beatty v. Donahue (Ky.), 249 S.W.2d 33; Lange v. United States (C.C.A. 4th), 120 F.2d 886, 889."

However, there is nothing in the facts of this case to justify the application of this exception.

In the case before us there is no evidence of fraud; unless we accept the gratuitous assumption that the appellant altered the lease after its execution and to arrive at such a conclusion, one must engage in unwarranted speculation.

The agreement in question was a form type of contract, part pre-typed and part left in blank, to be filled in to suit the specific terms of a given situation. It was these terms filled in by Morris Silverberg in ink, in his handwriting, that has caused the controversy between the parties.

If Silverberg filled in the blank spaces of the contract with the very material provisions covering the duration of the contract and the minimum guarantees, after he had obtained the appellees' signatures, then the contract was null and void because there was no concursus ad idem concerning essential provisions of the contract. Robert Fraley v. Null, Inc., et al., 244 Md. 567, 224 A.2d 448 (1966).

Conversely, if the material provisions had been inserted in the blank spaces prior to the execution of the contract by the appellees, it was a valid contract for the law presumes that a person knows the contents of a document that he executes and undertstands at least the literal meaning of its terms. As was said by Judge Boyd in Smith v. Humphreys, 104 Md. 285, 290-91, 65 A. 57, 59 (1906):

"Any person who comes into a Court of equity admitting that he can read, and showing that he has average intelligence, but asking the aid of the Court because he did not read a paper involved in the controversy, and was thereby imposed on, should be required to establish a very clear case before receiving the assistance of the Court in getting rid of such document. It is getting to be too common to have parties ask Courts to do what they could have done themselves, if they had exercised ordinary prudence, or, to state it in another way, to ask Courts to undo what they have done by reason of their own negligence or carelessness."

Morris Silverberg testified in effect that all insertions had been made at the time of the execution of the contract by the appellees and that a copy of the contract was left with them:

Q. At the time of the execution, when the Sonneborns signed it was this the same kind of agreement?

A. Yes.

His testimony was corroborated by his son, David Silverberg:

Q. You witnessed the signatures?

A. That's right.

Q. Was it explained to them? What happened?

A. My father told them that he would write the minimum into the contract and I explained —

Mr. Peregoff: I didn't hear that.

A. My father told them as he was filling in the contract, explained the different terms and one of them was the minimum guarantee, and he explained it to them, then I took a piece of scrap paper from somewhere and I wrote it out, giving various examples; if there was $100 in the machine and if there was maybe $20 in the machine, how the money would be divided.

Q. When you had the discussion of a minimum guarantee were any amounts mentioned?

A. Yes.

Q. What were the amounts mentioned?

A. $30 on the pinball and $12 on the music box per week.

Q. Was that put in the contract?

A. Yes, it was.

The Chancellor also found the contract wanting in consideration. The appellees' counsel did not avail themselves of this argument in their brief and presentation to this Court; we find no merit in this defense. The contract clearly sets forth the loan of $1,500 from the appellant to the appellees as consideration and even though this loan is also evidenced by an interest bearing note, we feel that the making of this sum available to the appellees at a time when it was needed by them, an act which the appellant was under no obligation to perform, was a consideration sufficient to sustain the contract. In addition to the advance of the $1,500 there were other acts which the appellant was obliged to perform pursuant to the contract, such as providing, installing and servicing the machines. Stamatiades v. Merit Music, supra; Hendler Creamery Co. v. Lillich, 152 Md. 190, 136 A. 631 (1927).

The lower court was heavy in its censure, and rightfully so, of Morris Silverberg's conduct in bringing up the contract, discussing its terms and having it executed after Mr. Lichter, attorney for the appellees, had left Jen's. However, in the Court's opinion, this would not of itself have prevented a valid contract from being consummated. The lower court also scored Silverberg for violating Canon 9, entitled "Negotiations With Opposite Party," of The Canons of Professional Ethics,^[2] in that he failed to notify Mr. Lichter that he intended to discuss the terms of the proposed contract and thus afford him the opportunity to participate in the contract negotiations. This conduct prompted the Chancellor to state: "He negotiated a contract which I think under the circumstances becomes highly suspect." Had such facts been committed by a practicing attorney, we may well have concluded that the foundation had been laid from which a deliberate scheme of fraudulent conduct could be adduced. However, Morris Silverberg, although a member of the Bar, was not a practicing attorney and apparently had never represented himself to the public as a member of the Bar. Also he was legitimately present in his capacity as president of the appellant, one of the parties to the contract. Therefore, this Court does not feel that the discussion of the terms of the contract with the appellees, out of the presence of their attorney, was a deliberate artifice resorted to by Silverberg to deceive the appellees or to gain a better bargaining position. The lower court was also skeptical of the fact that a part of the written insertions, covering the minimum guarantee, was inserted in the wrong place in the contract — thus creating an ambiguity. This might well lend credence to the contention of the appellant that the insertions were made in the barroom prior to the execution of the contract and under noisy and argumentative conditions. If the insertions were made later, as the Chancellor believed, would it not have been more likely that greater pains would have been taken by the appellant in filling in the blank spaces when accomplished at his own leisure?

The lower court also found the contract to be "most unconscionable," yet, harsh as it is, this type of contract is not without precedent in the "pinball" trade. In Stamatiades, supra, the terms of the contract were almost identical with the contract in the case at bar, except that in Stamatiades the life of the contract was five years instead of seven and the amount of the guarantee was $70 per week instead of $42.

The parties to the contract in the case before us were not strangers to each other. Silverberg had loaned the Sonneborns money on other occasions. They had litigated against each other, they dealt at arms length and neither was prompted by altruism. Their association was sustained by business expediency — not by mutual respect; all the more compelling reasons why the appellees should have read the contract.

Our sympathy, as did that of the lower court, runs with the appellees, yet we must not fall prey to the old maxim: "Hard cases make bad law." It is equally true that: "Hard cases must not be allowed to make bad equity any more than bad law." Moore v. Pierson, 71 Am. Dec. 409, 417 (Iowa 1858).

We are of the opinion that the Chancellor was clearly erroneous in his finding of fact that the provisions concerning minimum guarantees were inserted by the appellants after the signing of the contract by the appellees and accordingly, we reverse his order dismissing the bill of complaint. We further remand the case to the lower court for the granting of injunctive relief consistent with this opinion and for the assessment of damages.

Order reversed and remanded for injunctive relief and assessment of damages, appellees to pay the costs.

[1] "1. The Operator agrees:

"a. To install at his expense for the effective period of this lease as hereinafter stated in each space or spaces mutually agreed upon in the main room of the Proprietor's premises, the following machines:

"One Pinball Amusement Machine (at a minimum guarantee of $30.00 per week to operator) plus licence taxes. One Music Machine (at a minimum guarantee to operator of $12.00 per week) plus licence taxes, hereinafter known as `Equipment.'"

* * *

"4. The Proprietor further agrees and guarantees that at no time shall the Operator's share be less than Forty Two Dollars ($42.00) per week, each and every week, and in the event that the proceeds to the Operator falls below the aforesaid amount, the Operator shall have the right to terminate this agreement, and all monies due him shall become payable to him immediately."

[2] "A lawyer should not in any way communicate upon the subject of controversy with a party represented by counsel; much less should he undertake to negotiate or compromise the matter with him, but should deal only with his counsel. It is incumbent upon the lawyer most particularly to avoid everything that may tend to mislead a party not represented by counsel, and he should not undertake to advise him as to the law."

Dunn, Porterfield, McDowell & Scholl, and Thomas E. Baddley, Jr., Birmingham, for appellant.

William J. Trussell and James L. Clark, Birmingham, for appellees.

BLOODWORTH, Justice.

This is an appeal from a summary judgment. The pleadings and depositions in support of the motion for summary judgment disclose that appellant-plaintiff Birmingham Television Corporation (bailor) stored for a consideration certain television equipment with appellees-defendants Harris Transfer Company, Harris Warehouse Company and Harris Transfer and Storage Company (bailees). On the reverse side of the warehouse receipts issued to appellant evidencing the bailment of this equipment there appeared the following:

PROPERTY WILL BE ACCEPTED BY THIS COMPANY FOR STORAGE ONLY UNDER THE FOLLOWING TERMS, CONDITIONS AND AGREEMENTS:

(A) All charges are due and payable before delivery or transfer of goods.

All property will be stored at owner's risk of loss from fire, water, leakage, vermin, rattage, breakage, shrinkage in weights, accidental or providential causes, strikes, riots or insurrections or from inherent qualities of the goods.

(B) And subject further to the following:

STANDARD CONTRACT TERMS AND CONDITIONS FOR MERCHANDISE WAREHOUSEMEN ACCEPTANCE—Sec. 1

(a) This contract and rate quotation including accessorial charges endorsed on or attached hereto must be accepted within 30 days from the proposal date by signature of depositor on the reverse side of this contract. In the absence of written acceptance, the act of tendering goods described herein for storage by warehouseman within 30 days, from the proposal date shall constitute such acceptance by depositor.

(b) In the event that goods tendered for storage do not conform to the description contained herein, or conforming goods are tendered for storage after 30 days from the proposal date without prior written acceptance by depositor as provided in paragraph (a) of this section, warehouseman may refuse to accept such goods for storage. If warehouseman accepts such goods for storage, depositor agrees to rates and charges as may be assigned and invoiced by warehouseman and to all terms of this contract.

(c) This contract is deemed cancelled should the described goods not be stored with warehouseman for any period exceeding 180 days.

SHIPPING—Sec. 2

Depositor agrees not to ship goods to warehouseman as the named consignee. If, in violation of this agreement, goods are shipped to warehouseman as named consignee, depositor agrees to notify carrier in writing prior to such shipment, with copy of such notice to the warehouseman, that warehouseman named as consignee is a warehouseman and has no beneficial title or interest in such property and depositor further agrees to indemnify and hold harmless warehouseman from any and all claims for unpaid transportation charges, including undercharges, demurrage, detention or charges of any nature, in connection with goods so shipped. Depositor further agrees that, if it fails to notify carrier as required by the next preceding sentence, warehouseman shall have the right to refuse such goods and shall not be liable or responsible for any loss, injury or damage of any nature to, or related to such goods. Depositor agrees that all promises contained in this section will be binding on depositor's heirs, successors and assigns.

TENDER FOR STORAGE—Sec. 3

All goods for storage shall be delivered at the warehouse properly marked and packed for handling. The depositor shall furnish at or prior to such delivery, a manifest showing marks, brands or sizes to be kept and accounted for separately, and the class of storage desired.

STORAGE PERIOD AND CHARGES—Sec. 4

(a) All goods are stored on a month to month basis. All charges for storage are per package or other agreed unit per month.

(b) A storage month shall extend from a date in one calendar month to, but not including, the same date of the next and all succeeding months, except as provided in paragraph (c) of this section. All storage charges are due and payable on the first day of the storage month.

(c) When mutually agreed by the warehouseman and the depositor a full month's storage charge will apply on all goods received between the first and the 15th, inclusive, of a calendar month; one-half month's storage charge will apply on all goods received between the 16th and last day, inclusive, of a calendar month, and a full month's storage charge will apply to all goods in storage on the first day of the next and succeeding calendar months. All storage charges are due and payable on the first day of storage for the initial month and thereafter on the first day of the calendar month.

TRANSFER, TERMINATION OF STORAGE, REMOVAL OF GOODS—Sec. 5

(a) Instructions to transfer goods on the books of the warehouseman are not effective until delivered to and accepted by warehouseman, and all charges up to the time transfer is made are chargeable to the depositor of record. If a transfer involves rehandling the goods, such will be subject to a charge. When goods in storage are transferred from one party to another through issuance of a new warehouse receipt, a new storage date is established on the date of transfer.

(b) The warehouseman reserves the right to move, at his expense, 14 days after notice is sent by certified or registered mail to the depositor of record or to the last known holder of the negotiable warehouse receipt, any goods in storage from the warehouse in which they may be stored to any other of his warehouses; but if such depositor or holder takes delivery of his goods in lieu of transfer, no storage charge shall be made for the current storage month. The warehouseman may, without notice, move goods within the warehouse in which they are stored.

(c) The warehouseman may, upon written notice to the depositor of record and any other person known by the warehouseman to claim an interest in the goods, require the removal of any goods by the end of the next succeeding storage month. Such notice shall be given to the last known place of business or abode of the person to be notified. If goods are not removed before the end of the next succeeding storage month, the warehouseman may sell them in accordance with applicable law.

(d) If warehouseman in good faith believes that the goods are about to deteriorate or decline in value to less than the amount of warehouseman's lien before the end of the next succeeding storage month, the warehouseman may specify in the notification any reasonable shorter time for removal of the goods and in case the goods are not removed, may sell them at public sale held one week after a single advertisement or posting as provided by law.

(e) If as a result of a quality or condition of the goods of which the warehouseman had no notice at the time of deposit the goods are a hazard to other property or to the warehouse or to persons, the warehouseman may sell the goods at public or private sale without advertisement on reasonable notification to all persons known to claim an interest in the goods. If the warehouseman, after a reasonable effort is unable to sell the goods he may dispose of them in any lawful manner and shall incur no liability by reason of such disposition.

HANDLING—Sec. 6

(a) The handling charge covers the ordinary labor involved in receiving goods at warehouse door, placing goods in storage, returning of goods to the warehouse door, and unless otherwise specified, includes the unloading of regular box cars at warehouse door. Handling charges are due and payable on receipt of goods.

(b) Labor for unloading goods from other than regular box cars at warehouse door, additional expenses incurred by the warehouseman in unloading damaged goods, and additional expenses in unloading cars not at warehouse door will be subject to charge.

(c) Labor and materials used in loading rail cars or other vehicles are chargeable to the depositor.

(d) When goods are ordered out in quantities less than in which received, the warehouseman may make an additional charge for each order or each item of an order.

(e) The warehouseman shall not be liable for demurrage, delays in unloading inbound cars, or delays in obtaining and loading cars for outbound shipment unless warehouseman, has failed to exercise reasonable care.

DELIVERY REQUIREMENTS—Sec. 7

(a) No goods shall be delivered or transferred except upon receipt by the warehouseman of complete instructions properly signed by the depositor. However, when no negotiable receipt is outstanding, goods may be delivered upon instructions by telephone in accordance with a prior written agreement, but the warehouseman shall not be responsible for loss or error occasioned thereby.

(b) When a negotiable receipt has been issued no goods covered by that receipt shall be delivered, or transferred on the books of the warehouseman, unless the receipt, properly indorsed, is surrendered for cancellation, or for indorsement of partial delivery thereon. If a negotiable receipt is lost or destroyed, delivery of goods may be made only upon order of a court of competent jurisdiction and the posting of security approved by the court as provided by law.

(c) When goods are ordered out a reasonable time shall be given the warehouseman to carry out instructions, and if he is unable because of acts of God, war, public enemies, seizure under legal process, strikes, lockouts, riots and civil commotions, or because of loss or destruction of goods for which warehouseman is not liable, or because of any other excuse provided by law, the warehouseman shall not be liable for failure to carry out such instructions and goods remaining in storage will continue to be subject to regular storage charges.

EXTRA SERVICES (SPECIAL SERVICES)—Sec. 8

(a) Warehouse labor required for services other than ordinary handling and storage will be charged to the depositor.

(b) Special services requested by depositor including but not limited to compiling of special stock statements; reporting marked weights, serial numbers or other data from packages; physical check of goods; and handling transit billing will be subject to a charge.

(c) Dunnage, bracing, packing materials or other special supplies, may be provided for the depositor at a charge in addition to the warehouseman's cost.

(d) By prior arrangement, goods may be received or delivered during other than usual business hours, subject to a charge.

(e) Communication expense including postage, teletype, telegram, or telephone, will be charged to the depositor at cost if such concern more than the normal inventory reporting or if, at the request of the depositor, communications are made by other than regular United States Mail.

BONDED STORAGE—Sec. 9

(a) A charge in addition to regular rates will be made for merchandise in bond.

(b) Where a warehouse receipt covers goods in U. S. Customs bond, such receipt shall be void upon the termination of the storage period fixed by law.

MINIMUM CHARGES—Sec. 10

(a) A minimum handling charge per lot and a minimum storage charge per lot per month will be made. When a warehouse receipt covers more than one lot or when a lot is in assortment, a minimum charge per mark, brand, or variety will be made.

(b) A minimum monthly charge to one account for storage and/or handling will be made. This charge will apply also to each account when one customer has several accounts, each requiring separate records and billing.

LIABILITY AND LIMITATION OF DAMAGES—Sec. 11

(A) THE WAREHOUSEMAN SHALL NOT BE LIABLE FOR ANY LOSS OR INJURY TO GOODS STORED HOWEVER CAUSED UNLESS SUCH LOSS OR INJURY RESULTED FROM THE FAILURE BY THE WAREHOUSEMAN TO EXERCISE SUCH CARE IN REGARD TO THEM AS A REASONABLY CAREFUL MAN WOULD EXERCISE UNDER LIKE CIRCUMSTANCES AND WAREHOUSEMAN IS NOT LIABLE FOR DAMAGES WHICH COULD NOT HAVE BEEN AVOIDED BY THE EXERCISE OF SUCH CARE.

(B) GOODS ARE NOT INSURED BY WAREHOUSEMAN AGAINST LOSS OR INJURY HOWEVER CAUSED.

(C) THE DEPOSITOR DECLARES THAT DAMAGES ARE LIMITED TO _______________________, PROVIDED, HOWEVER, THAT SUCH LIABILITY MAY AT THE TIME OF ACCEPTANCE OF THIS CONTRACT AS PROVIDED IN SECTION 1 BE INCREASED ON PART OR ALL OF THE GOODS HEREUNDER IN WHICH EVENT A MONTHLY CHARGE OF______________________WILL BE MADE IN ADDITION TO THE REGULAR MONTHLY STORAGE CHARGE.

NOTICE OF CLAIM AND FILING OF SUIT—Sec. 12

(a) Claims by the depositor and all other persons must be presented in writing to the warehouseman within a reasonable time, and in no event longer than either 60 days after delivery of the goods by the warehouseman or 60 days after depositor of record or the last known holder of a negotiable warehouse receipt is notified by the warehouseman that loss or injury to part or all of the goods has occurred, whichever time is shorter.

(b) No action may be maintained by the depositor or others against the warehouseman for loss or injury to the goods stored unless timely written claim has been given as provided in paragraph (a) of this section and unless such action is commenced either within nine months after date of delivery by warehouseman or within nine months after depositor of record or the last known holder of a negotiable warehouse receipt is notified that loss or injury to part or all of the goods has occurred, whichever time is shorter.

(c) When goods have not been delivered, notice may be given of known loss or injury to the goods by mailing of a registered or certified letter to the depositor of record or to the last known holder of a negotiable warehouse receipt. Time limitations for presentation of claim in writing and maintaining of action after notice begin on the date of mailing of such notice by warehouseman.

Additional Terms and Conditions Applicable to this Contract and Rate Quotation.

Nothing entered hereon shall be constructed to extend the warehouseman's liability beyond the standard of care specified in Section 11 above.

The sole issue on this appeal is whether or not the trial court was correct in granting a motion for summary judgment in favor of the appellees based upon the warehouse receipt provision limiting the time within which action may be maintained by the appellant against the appellees for damages to the bailed goods. We conclude that the trial court erred herein and reverse and remand.

It appears that on or about April 24, 1971, a water main at or near the appellees' warehouse burst, flooding the warehouse and damaging appellant's equipment. It is disputed precisely what date appellant was notified of the occurrence; however, a representative of appellant did come and inspect the damage within a week or ten days.

Almost a year later, on April 18, 1972, appellant filed suit against the defendants The Water Works, The Water Works Board, Harris Transfer Company, Harris Warehouse Company and Harris Transfer and Storage Company charging that through the defendants' joint and concurring negligence the stored equipment was damaged. Appellees-bailees filed a motion for summary judgment setting up a nine-month limitation as a bar to the action against them.^[1] (The nine-month limitation appears at the bottom of the copy hereinabove set forth under the heading "NOTICE OF CLAIM AND FILING OF SUIT—Sec. 12".) Motion for summary judgment was granted, whereupon appellant appealed. The Water Works is not a party to this appeal. The trial court directed the entry of final judgment as to appellees in accordance with Rule 54(b), Alabama Rules of Civil Procedure.

Appellant makes three arguments on this appeal: first, that the law permits warehousemen to limit time when suit may be brought on a bailment only by reasonable provisions and that reasonableness is a question of fact for the jury; second, that even if reasonableness is a question of law, nine months is unreasonable as a matter of law; and third, that the trial court erred in holding appellant to be bound by the nine-month limitation because there was no evidence that the provision was specifically called to appellant's attention, that appellant cannot be charged with knowledge of the contract terms, and consequently that there was no meeting of the minds on the bailment contract.

A motion for summary judgment may be granted only when there is no genuine issue as to any material fact, and the moving party is entitled to judgment as a matter of law. Rule 56 of the Alabama Rules of Civil Procedure; 6 Moore's Federal Practice, § 56.04(1) (2d ed., 1972); 10 Wright & Miller, Federal Practice and Procedure, § 2712 (1973).

As applied to the case at bar, we think there existed for the jury's determination a genuine issue of fact as to whether the conditions of bailment set forth on the reverse side of the warehouse receipt were accepted by the appellant-bailor so as to become part of the bailment contract.

The case of Kravitz v. Parking Service Co., 29 Ala.App. 523, 199 So. 727 (1940), cert. denied, 240 Ala. 467, 199 So. 731 (1941), involved a clause limiting a bailee's liability (found on the reverse side of a ticket given to the bailor identifying the bailed property). The Court of Appeals stated the law as follows:

"The parties to a bailment, however, may limit liability by special contract provided such diminishment of liability is not violative of law or public policy. 8 C.J.S. Bailments § 26c, pp. 264, 265.

"Such special provision in a contract of bailment limiting bailee's liability, to be effective, must be known to, or brought to the notice of, the bailor, and be assented to by him. 8 C.J.S. Bailments § 26c; p. 264, 6 Am.Jur. pp. 271, 272, Sec. 177. It is axiomatic that in bailments, as in other contracts, there must be a meeting of minds thereon and assent of both parties thereto; and a disclaimer of liability can only become effective if brought to the bailor's knowledge. 8 C.J.S. and 6 Am.Jur., supra; Beetson v. Hollywood Ath. Club, 109 Cal.App. 715, 293 P. 821; Galowitz v. Magner, 208 App.Div. 6, 203 N.Y.S. 421, 422.

"More specifically, to the case at bar, the rule of modern authorities is that the bailor is not chargeable with notice of special provisions diminishing liability of the bailee which appear upon something not apparently related to the bailment contract itself or given to the bailor ostensibly as a ticket of identification of the bailed property, unless called to his attention or known to him. 6 Am.Jur. pp. 274-5, Sections 178, 179. Accordingly when appellant-bailor delivered `possession, custody and control' of his automobile to appellee-bailee `for a reward'—i. e. compensation for its safe-keeping— there was imposed on appellee the duty to exercise reasonable care to protect the property and upon request, within the terms of the contract when the condition of the bailment shall have been terminated, to redeliver it to the appellant. For negligent breach of this duty there was consequent liability.

"The receipt by appellant of the `ticket' did not bind him to recitals of the disclaimer of liability on its reverse side unless known to him or brought to his notice or attention, thereby bringing such provision within and making it part of the terms of the bailment. Goldstein v. Harris, 24 Ala.App. 3, 130 So. 313, certiorari denied 221 Ala. 612, 130 So. 315; Marine Ins. Co., etc. v. Rehm, La.App., 177 So. 79; Beetson v. Hollywood Ath. Club, supra; Galowitz v. Magner, supra; 8 C.J.S. and 6 Am.Jur., supra." [Emphasis ours.]

Reviewing the facts in the instant case in light of the above stated principles, we find that a genuine issue of fact exists as to whether the terms on the reverse side of the warehouse receipt were accepted by the appellant-bailor and thereby became a part of the contract of bailment. Neither the motion for summary judgment nor appellees' pleas state whether the terms set forth on the reverse side of the warehouse receipt (which purport to materially modify both the common-law rights and obligations of bailor and bailee as well as the statutory provisions respecting limitation of actions) were called to the appellant's attention and were accepted by it.

Nor do we think that such knowledge on appellant's part can be presumed from the issuance of the warehouse receipt itself. The front of the warehouse receipt appears to be just that—a receipt identifying the bailed goods and listing charges— nothing more. No part of the contract appears on the face of the receipt. No notation appears on the face of the receipt advising the bailor to "see reverse side." Nothing on the face of the receipt in any way gives notice that the receipt is a contract of bailment which materially alters the rights of the parties.

Yet, we note that in the form for "Standard Contract Terms and Conditions for Merchandise Warehousemen, approved and promulgated by the American Warehousemen's Association," the contract terms commence on the face of the receipt, with a notation that the terms are "continued" on the reverse side and a place for a signature by the bailor showing acceptance of the terms. See U.L.A. UCC § 7-202 Form 3.

As was stated in 6 Am.Jur., p. 274, and quoted approvingly by the then Court of Appeals in Kravitz v. Parking Service Co., supra, 199 So. at p. 730:

"`In accordance with the foregoing principle, the general rule supported by the modern authorities appears to be that the bailor, unless his attention is called to the fact that such conditions are intended as a part of the contract, is not charged with notice, where he has no actual knowledge, of provisions limiting liability which appear upon something not apparently related to the contract itself, or given to the bailor ostensibly for some other purpose.There is authority which justifies the rule on the ground, among others, that the bailee, if he wishes to qualify his contract, should do so in an unmistakable manner, and it is not reasonably to be expected, nor is the bailor required to anticipate, that important terms of a contract will be found upon what is accepted merely as a means of identification or for some other purpose which to a reasonable man would not appear to be germane to the agreement itself.'" (Emphasis supplied by the Court of Appeals.)

We further note that appellant did not sign the purported contract of bailment on the reverse side of the warehouse receipt; nor is there anything in the record to reflect that appellant orally acknowledged and accepted these terms and conditions as being the contract of bailment.

Appellees argue that appellant's act of leaving the goods with the appellees constituted an acceptance of the terms on the reverse side of the warehouse receipt. Section 1(a) of the purported contract does provide that "the act of tendering goods described herein for storage by the warehouseman within 30 days from the proposal date shall constitute such acceptance by depositor."

While the acts of a party may under some circumstances be such as to constitute an acceptance of a contract, surely such could not be the case unless the acting party is shown to have had knowledge of the contract. Certainly, it would be unreasonable to interpret the act of tendering goods for bailment as an acceptance of specific contract terms where the bailor is not shown to have had knowledge or notice of the existence of said contract terms. 17 C.J.S. Contracts § 41g, pp. 672-3. In the usual circumstances, the tendering of goods creates only a common law bailment.

Looking to appellees' Plea Six in this cause, appellees aver that the delivery of the receipts containing the purported contract followed appellant's depositing the equipment for storage. An act which precedes notice of the contract (assuming only for purposes of argument such receipt did give appellant notice) cannot be reasonably interpreted as an acceptance of said contract. 17 C.J.S. Contracts § 41g, p. 674.

Nor can appellant's subsequent retention of the receipt be interpreted as an acceptance of the terms and conditions on the reverse side. Again, as the court stated in Kravitz v. Parking Service Co., at 199 So. 731, quoting with approval 8 C.J.S. Bailments § 26c, p. 266 ff.:

"`Where, however, the bailor receives and retains the ticket without knowing that it contained any special terms or conditions and without his attention being called to that fact, and on the assumption that the ticket was merely a token or means of identifying his property, the majority of cases hold that such retention of the ticket does not constitute an acceptance of the terms therein and so he is not bound by the provisions for limited liability, on the theory that the minds of the parties never met: hence, the special contract was never entered into. The mere fact that the bailor examined the ticket sufficiently to know that there was printed matter thereon, and had opportunity to examine it critically, and had capacity to understand the meaning of it still does not make him chargeable with notice of the special provisions therein, for he is under no legal duty to read such matter, since, as has been stated, the ticket is considered primarily as a token or means of identification which is to be surrendered when the property is redelivered.'"

It is thus that we hold only that, under the facts of this cause as they appear in the record at this early stage of the proceedings, we cannot say that as a matter of law appellant accepted the terms and conditions on the reverse side of the warehouse receipt as part of the contract of bailment. At the very least, it appears to be a question of fact for the jury as to whether or not appellant had actual notice, or under the circumstances should be charged with notice, of the terms and conditions on the reverse side of the warehouse receipt, most notably the requirement that suit be brought within nine months rather than the usual six years.

Having concluded that there exists at least one genuine issue of fact for the jury's determination, we find it unnecessary to consider the other issues argued on this appeal.

We, therefore, conclude that the trial court erred in granting the motion for summary judgment in favor of appellees Harris Transfer Company, Harris Warehouse Company and Harris Transfer & Storage Company and that the same is due to be reversed and remanded.

Reversed and remanded.

HEFLIN, C. J., and COLEMAN, McCALL and JONES, JJ., concur.

[1] The Water Works was charged with negligence in allowing the water main to break. The bailees were charged with negligence in failing to store the goods in a safe place, inter alia.

For the appellant there was a brief by Brenner & Brenner of Waukesha, and oral argument by Thomas S. Brenner.

For the respondent there was a brief and oral argument by Paul C. Konnor of Milwaukee.

A brief amicus curiae was filed by Wheeler, Van Sickle & Day and Roland B. Day, all of Madison, for the Wisconsin Automotive Trades Association.

WILKIE, J.

Three issues are presented on this appeal. They are:

1. Should an emancipated minor over the age of eighteen be legally responsible for his contracts?

2. Was the contract effectively disaffirmed?

3. Is the plaintiff liable in tort for misrepresentation?

Legal Responsibility of Emancipated Minor.

The law governing agreements made during infancy reaches back over many centuries.^[1] The general rule is that "... the contract of a minor, other than for necessaries, is either void or voidable at his option."^[2] The only other exceptions to the rule permitting disaffirmance are statutory^[3] or involve contracts which deal with duties imposed by law such as a contract of marriage or an agreement to support an illegitimate child.^[4] The general rule is not affected by the minor's status as emancipated or unemancipated.^[5]

Appellant does not advance any argument that would put this case within one of the exceptions to the general rule, but rather urges that this court, as a matter of public policy, adopt a rule that an emancipated minor over eighteen years of age be made legally responsible for his contracts.

The underpinnings of the general rule allowing the minor to disaffirm his contracts were undoubtedly the protection of the minor. It was thought that the minor was immature in both mind and experience and that, therefore, he should be protected from his own bad judgments as well as from adults who would take advantage of him.^[6] The doctrine of the voidability of minors' contracts often seems commendable and just. If the beans that the young naive Jack purchased from the crafty old man in the fairy tale "Jack and the Bean Stalk" had been worthless rather than magical, it would have been only fair to allow Jack to disaffirm the bargain and reclaim his cow. However, in today's modern and sophisticated society the "infancy doctrine" seems to lose some of its gloss.

Paradoxically, we declare the infant mature enough to shoulder arms in the military, but not mature enough to vote; mature enough to marry and be responsible for his torts and crimes, but not mature enough to assume the burden of his own contractual indiscretions. In Wisconsin, the infant is deemed mature enough to use a dangerous instrumentality—a motor vehicle—at sixteen, but not mature enough to purchase it without protection until he is twenty-one.

No one really questions that a line as to age must be drawn somewhere below which a legally defined minor must be able to disaffirm his contracts for nonnecessities. The law over the centuries has considered this age to be twenty-one. Legislatures in other states have lowered the age. We suggest that the appellant might better seek the change it proposes in the legislative halls rather than this court. A recent law review article in the Indiana Law Journal explores the problem of contractual disabilities of minors and points to three different legislative solutions leading to greater freedom to contract.^[7] The first approach is one gleaned from the statutes of California^[8] and New York,^[9] which would allow parties to submit a proposed contract to a court which would remove the infant's right of disaffirmance upon a finding that the particular contract is fair. This suggested approach appears to be extremely impractical in light of the expense and delay that would necessarily accompany the procedure. A second approach would be to establish a rebuttable presumption of incapacity to replace the strict rule. This alternative would be an open invitation to litigation. The third suggestion is a statutory procedure that would allow a minor to petition a court for the removal of disabilities. Under this procedure a minor would only have to go to court once, rather than once for each contract as in the first suggestion.

Undoubtedly, the infancy doctrine is an obstacle when a major purchase is involved. However, we believe that the reasons for allowing that obstacle to remain viable at this point outweigh those for casting it aside. Minors require some protection from the pitfalls of the marketplace. Reasonable minds will always differ on the extent of the protection that should be afforded. For this court to adopt a rule that the appellant suggests and remove the contractual disabilities from a minor simply because he becomes emancipated, which in most cases would be the result of marriage, would be to suggest that the married minor is somehow vested with more wisdom and maturity than his single counterpart. However, logic would not seem to dictate this result especially when today a youthful marriage is oftentimes indicative of a lack of wisdom and maturity.

Disaffirmance.

The appellant questions whether there has been an effective disaffirmance of the contract in this case.

Williston, while discussing how a minor may disaffirm a contract, states:

"Any act which clearly shows an intent to disaffirm a contract or sale is sufficient for the purpose. Thus a notice by the infant of his purpose to disaffirm ... a tender or even an offer to return the consideration or its proceeds to the vendor, ... is sufficient."^[10]

The testimony of Steven Kiefer and the letter from his attorney to the dealer clearly establish that there was an effective disaffirmance of the contract.

Misrepresentation.

Appellant's last argument is that the respondent should be held liable in tort for damages because he misrepresented his age. Appellant would use these damages as a set-off against the contract price sought to be reclaimed by respondent.

The 19th-century view was that a minor's lying about his age was inconsequential because a fraudulent representation of capacity was not the equivalent of actual capacity.^[11] This rule has been altered by time. There appear to be two possible methods that now can be employed to bind the defrauding minor: He may be estopped from denying his alleged majority, in which case the contract will be enforced or contract damages will be allowed; or he may be allowed to disaffirm his contract but be liable in tort for damages.^[12] Wisconsin follows the latter approach.

In Wisconsin Loan & Finance Corp. v. Goodnough,^[13] the defendant minor was a copartner in a business who had defaulted on a note given to the plaintiff in exchange for a loan. The defendant had secured the loan by fraudulently representing to the plaintiff that he was twenty-one years old. In adopting the tort theory and declining to adopt the estoppel theory, Mr. Chief Justice ROSENBERRY said:

"It is a matter of some importance, however, to determine whether an infant who secures benefits by misrepresenting his age to the person from whom he secured them is estopped to set up his infancy in order to defeat the contract or whether he becomes liable in an action for deceit for damages. In this case, if there is an estoppel which operates to prevent the defendant from repudiating the contract and he is liable upon it, the damages will be the full amount of the note plus interest and a reasonable attorney's fee. If he is held liable, on the other hand, in deceit, he will be liable only for the damages which the plaintiff sustained in this case, the amount of money the plaintiff parted with, which was $352 less the $25 repaid. There seems to be sound reason in the position of the English courts that to hold the contract enforceable by way of estoppel is to go contrary to the clearly declared policy of the law. But as was pointed out by the New Hampshire court, that objection lies no more for wrongs done by a minor by way of deceit than by way of slander or other torts. The contract is not enforced. He is held liable for deceit as he is for other torts such as slander, trover, and trespass.

"It is considered that the sounder rule is that which holds an infant under such circumstances liable in tort for damages."^[14]

Having established that there is a remedy against the defrauding minor, the question becomes whether the requisites for a tort action in misrepresentation are present in this case.

The trial produced conflicting testimony regarding whether Steven Kiefer had been asked his age or had replied that he was "twenty-one." Steven and his wife, Jacqueline, said "No," and Frank McHalsky, appellant's salesman, said "Yes." Confronted with this conflict, the question of credibility was for the trial court to decide, which it did by holding that Steven did not orally represent that he was "twenty-one." This finding is not contrary to the great weight and clear preponderance of the evidence and must be affirmed.

Even accepting the trial court's conclusion that Steven Kiefer had not orally represented his age to be over twenty-one, the appellant argues that there was still a misrepresentation. The "motor vehicle purchase contract" signed by Steven Kiefer contained the following language just above the purchaser's signature:

"I represent that I am 21 years of age or over and recognize that the dealer sells the above vehicle upon this representation."

Whether the inclusion of this sentence constitutes a misrepresentation depends on whether elements of the tort have been satisfied. They were not. In First Nat. Bank in Oshkosh v. Scieszinski^[15] it is said:

"A party alleging fraud has the burden of proving it by clear and convincing evidence. The elements of fraud are well established:

"`"To be actionable the false representation must consist, first of a statement of fact which is untrue; second, that it was made with intent to defraud and for the purpose of inducing the other party to act upon it; third, that he did in fact rely on it and was induced thereby to act, to his injury or damage."'"^[16]

No evidence was adduced to show that the plaintiff had an intent to defraud the dealer. To the contrary, it is at least arguable that the majority of minors are, as the plaintiff here might well have been, unaware of the legal consequences of their acts.

Without the element of scienter being satisfied, the plaintiff is not susceptible to an action in misrepresentation. Furthermore, the reliance mentioned in Scieszinski must be, as Prosser points out, "justifiable reliance."^[17] We fail to see how the dealer could be justified in the mere reliance on the fact that the plaintiff signed a contract containing a sentence that said he was twenty-one or over. The trial court observed that the plaintiff was sufficiently immature looking to arouse suspicion. The appellant never took any affirmative steps to determine whether the plaintiff was in fact over twenty-one. It never asked to see a draft card, identification card, or the most logical indicium of age under the circumstances, a driver's license. Therefore, because there was no intent to deceive, and no justifiable reliance, the appellant's action for misrepresentation must fail.

By the Court.— Judgment affirmed.

HALLOWS, C. J. (dissenting).

The majority opinion on the issue of whether an emancipated minor legally should be responsible for his contracts "doth protest too much." After giving very cogent reasons why the common-law rule should be abandoned, the opinion refrains from reshaping the rule to meet reality. Minors are emancipated by a valid marriage and also by entering military service. If they are mature enough to become parents and assume the responsibility of raising other minors and if they are mature enough to be drafted or volunteer to bear arms and sacrifice their life for their country, then they are mature enough to make binding contracts in the marketplace. The magical age limit of twenty-one years as an indication of contractual maturity no longer has a basis in fact or in public policy.

My second ground of the dissent is that an automobile to this respondent was a necessity and therefore the contract could not be disaffirmed. Here, we have a minor, aged twenty years and seven months, the father of a child, and working. While the record shows there is some public transportation to his present place of work, it also shows he borrowed his mother's car to go to and from work. Automobiles for parents under twenty-one years of age to go to and from work in our current society may well be a necessity and I think in this case the record shows it is. An automobile as a means of transportation to earn a living should not be considered a nonnecessity because the owner is five months too young. I would reverse.

NOTES

[1] 2 Williston, Contracts (3d ed.), p.2, sec. 223.

[2] Grauman, Marx & Cline Co. v. Krienitz (1910), 142 Wis. 556, 560, 126 N.W. 50.

[3] See for example, sec. 48.985 (1), Stats. (contracts for educational loans).

[4] 2 Williston, Contracts (3d ed.), p. 14, sec. 228.

[5] Schoenung v. Gallet (1931), 206 Wis. 52, 54, 238 N.W. 852.

[6] 30 Kan. City L. Rev. (1962), 230.

[7] 41 Ind. L. J. (1965-1966), 140.

[8] Cal. Civ. Code Annot., sec. 36.

[9] N. Y. Gen. Oblig. Law, p. 10, sec. 3-105 (McKinney 1964).

[10] 2 Williston, Contracts (3d ed.), p. 26, sec. 234.

[11] 1 Ga. L. Rev. (1967), 205, 236.

[12] Id.

[13] (1930), 201 Wis. 101, 228 N.W. 484.

[14] Id. at pages 108, 109.

[15] (1964), 25 Wis. 2d 569, 131 N.W.2d 308.

[16] Id. at pages 572, 573, and cases cited therein.

[17] Prosser, Law of Torts (3d ed.), p. 731, sec. 103.

For the petitioner there was a brief by Henry A. Tessmer, attorney, and Michael E. Geary, of counsel, both of Milwaukee, and oral argument by Michael E. Geary.

For the respondent there was a brief by Louis A. Maier, Jr., and Maier & Fitzpatrick, Ltd., of Milwaukee, and oral argument by Louis A. Maier, Jr.

Affirming 91 Wis.2d 847, 282 N.W.2d 638.

WILLIAM G. CALLOW, J.

On this review we must decide whether a minor who disaffirms a contract for the purchase of a vehicle which is not a necessity must make restitution to the vendor for damage sustained by the vehicle prior to the time the contract was disaffirmed. The court of appeals affirmed the judgment in part, reversed in part, and remanded the cause to the circuit court for Milwaukee County, the Honorable Robert J. Miech presiding.

I.

This matter was before the trial court upon stipulated facts. On or about July 13, 1973, James Halbman, Jr. (Halbman), a minor, entered into an agreement with Michael Lemke (Lemke) whereby Lemke agreed to sell Halbman a 1968 Oldsmobile for the sum of $1,250. Lemke was the manager of L & M Standard Station in Greenfield, Wisconsin, and Halbman was an employe at L & M. At the time the agreement was made Halbman paid Lemke $1,000 cash and took possession of the car. Arrangements were made for Halbman to pay $25 per week until the balance was paid, at which time title would be transferred. About five weeks after the purchase agreement, and after Halbman had paid a total of $1,100 of the purchase price, a connecting rod on the vehicle's engine broke. Lemke, while denying any obligation, offered to assist Halbman in installing a used engine in the vehicle if Halbman, at his expense, could secure one. Halbman declined the offer and in September took the vehicle to a garage where it was repaired at a cost of $637.40. Halbman did not pay the repair bill.

In October of 1973, Lemke endorsed the vehicle's title over to Halbman, although the full purchase price had not been paid by Halbman, in an effort to avoid any liability for the operation, maintenance, or use of the vehicle. On October 15, 1973, Halbman returned the title to Lemke by letter which disaffirmed the purchase contract and demanded the return of all money theretofore paid by Halbman. Lemke did not return the money paid by Halbman.

The repair bill remained unpaid, and the vehicle remained in the garage where the repairs had been made. In the spring of 1974, in satisfaction of a garageman's lien for the outstanding amount, the garage elected to remove the vehicle's engine and transmission and then towed the vehicle to the residence of James Halbman, Sr., the father of the plaintiff minor. Lemke was asked several times to remove the vehicle from the senior Halbman's home, but he declined to do so, claiming he was under no legal obligation to remove it. During the period when the vehicle was at the garage and then subsequently at the home of the plaintiff's father, it was subjected to vandalism, making it unsalvageable.

Halbman initiated this action seeking the return of the $1,100 he had paid toward the purchase of the vehicle, and Lemke counterclaimed for $150, the amount still owing on the contract. Based upon the uncontroverted facts, the trial court granted judgment in favor of Halbman, concluding that when a minor disaffirms a contract for the purchase of an item, he need only offer to return the property remaining in his hands without making restitution for any use or depreciation. In the order granting judgment, the trial court also allowed interest to the plaintiff dating from the disaffirmance of the contract. On postjudgment motions, the court amended its order for judgment to allow interest to the plaintiff from the date of the original order for judgment, July 26, 1978.

Lemke appealed to the court of appeals, and Halbman cross-appealed from the disallowance of prejudgment interest. The appellate court affirmed the trial court with respect to the question of restitution for depreciation, but reversed on the question of prejudgment interest, remanding the cause for reimposition of interest dating from the date of disaffirmance. The question of prejudgment interest is not before us on this review.

II.

The sole issue before us is whether a minor, having disaffirmed a contract for the purchase of an item which is not a necessity and having tendered the property back to the vendor, must make restitution to the vendor for damage to the property prior to the disaffirmance. Lemke argues that he should be entitled to recover for the damage to the vehicle up to the time of disaffirmance, which he claims equals the amount of the repair bill.

[1]

Neither party challenges the absolute right of a minor to disaffirm a contract for the purchase of items which are not necessities. That right, variously known as the doctrine of incapacity or the "infancy doctrine," is one of the oldest and most venerable of our common law traditions. See: Grauman, Marx & Cline Co. v. Krienitz, 142 Wis. 556, 560, 126 N.W. 50 (1910); 2 Williston, Contracts sec. 226 (3d ed. 1959); 42 Am. Jur.2d Infants sec. 84 (1969). Although the origins of the doctrine are somewhat obscure, it is generally recognized that its purpose is the protection of minors from foolishly squandering their wealth through improvident contracts with crafty adults who would take advantage of them in the marketplace. Kiefer v. Fred Howe Motors, Inc., 39 Wis. 2d 20, 24, 158 N.W.2d 288 (1968). Thus it is settled law in this state that a contract of a minor for items which are not necessities is void or voidable at the minor's option. Id. at 23; Schoenung v. Gallet,206 Wis. 52, 55, 238 N.W. 852 (1931); Grauman, Marx & Cline v. Krienitz, supra at 560-61; Thormaehlen v. Kaeppel, 86 Wis. 378, 380, 56 N.W. 1089 (1893).

[2, 3]

Once there has been a disaffirmance, however, as in this case between a minor vendee and an adult vendor, unresolved problems arise regarding the rights and responsibilities of the parties relative to the disposition of the consideration exchanged on the contract. As a general rule a minor who disaffirms a contract is entitled to recover all consideration he has conferred incident to the transaction. Schoenung v. Gallet, supra. In return the minor is expected to restore as much of the consideration as, at the time of disaffirmance, remains in the minor's possession. Thormaehlen v. Kaeppel, supra at 380; Grauman, Marx & Cline v. Krienitz, supra at 560-61. See also: Restatement of Restitution, sec. 62, comment b, (1937); Restatement (Second) of Contracts, sec. 18B, comment c, (Tent. Draft No. 1, 1964). The minor's right to disaffirm is not contingent upon the return of the property, however, as disaffirmance is permitted even where such return cannot be made. Olson v. Veum, 197 Wis. 342, 345, 222 N.W. 233 (1928). See also: Nelson v. Browning, 391 S.W.2d 873, 875-76 (Mo. 1965); Boudreaux v. State Farm Mutual Auto. Ins. Co., 385 So. 2d 480, 483 (La. App. 1980); Williston, supra,sec. 238, 39-41.

The return of property remaining in the hands of the minor is not the issue presented here. In this case we have a situation where the property cannot be returned to the vendor in its entirety because it has been damaged and therefore diminished in value, and the vendor seeks to recover the depreciation. Although this court has been cognizant of this issue on previous occasions, we have not heretofore resolved it. See: Schoenung v. Gallet, supra at 57-58; Wallace v. Newdale Furniture Co., 188 Wis. 205, 207-08, 205 N.W. 819 (1925).

The law regarding the rights and responsibilities of the parties relative to the consideration exchanged on a disaffirmed contract is characterized by confusion, inconsistency, and a general lack of uniformity as jurisdictions attempt to reach a fair application of the infancy doctrine in today's marketplace. See: Robert G. Edge, Voidability of Minors' Contracts: A Feudal Doctrine in a Modern Economy, 1 Ga. L. Rev. 205 (1967); Walter D. Navin, Jr., The Contracts of Minors Viewed from the Perspective of Fair Exchange, 50 N.C.L. Rev. 517 (1972); Note, Restitution in Minors' Contracts in California, 19 Hastings L. Rev. 1199 (1968); 52 Marq. L. Rev. 437 (1969). See also: John D. McCamus, Restitution of Benefits Conferred Under Minors' Contracts, 28 U.N.B.L.J. 89 (1979); Annot., Infant's Liability for Use or Depreciation of Subject Matter, in Action to Recover Purchase Price Upon His Disaffirmance of Contract to Purchase Goods, 12 A.L.R.3d 1174 (1967). That both parties rely on this court's decision in Olson v. Veum, supra, is symptomatic of the problem.

In Olson a minor, with his brother, an adult, purchased farm implements and materials, paying by signing notes payable at a future date. Prior to the maturity of the first note, the brothers ceased their joint farming business, and the minor abandoned his interest in the material purchased by leaving it with his brother. The vendor initiated an action against the minor to recover on the note, and the minor (who had by then reached majority) disaffirmed. The trial court ordered judgment for the plaintiff on the note, finding there had been insufficient disaffirmance to sustain the plea of infancy. This court reversed, holding that the contract of a minor for the purchase of items which are not necessities may be disaffirmed even when the minor cannot make restitution. Lemke calls our attention to the following language in that decision:

"To sustain the judgment below is to overlook the substantial distinction between a mere denial by an infant of contract liability where the other party is seeking to enforce it and those cases where he who was the minor not only disaffirms such contract but seeks the aid of the court to restore to him that with which he has parted at the making of the contract. In the one case he is using his infancy merely as a shield, in the other also as a sword." 197 Wis. at 344.

From this Lemke infers that when a minor, as a plaintiff, seeks to disaffirm a contract and recover his consideration, different rules should apply than if the minor is defending against an action on the contract by the other party. This theory is not without some support among scholars. See: Calamari and Perillo, The Law of Contracts, sec. 126, 207-09 (Hornbook Series 1970), treating separately the obligations of the infant as a plaintiff and the infant as a defendant.

Additionally, Lemke advances the thesis in the dissenting opinion by court of appeals Judge Cannon, arguing that a disaffirming minor's obligation to make restitution turns upon his ability to do so. For this proposition, the following language in Olson v. Veum, supra at 345, is cited:

"The authorities are clear that when it is shown, as it is here, that the infant cannot make restitution, then his absolute right to disaffirm is not to be questioned."

In this case Lemke argues that the Olson language excuses the minor only when restitution is not possible. Here Lemke holds Halbman's $1,100, and accordingly there is no question as to Halbman's ability to make restitution.

Halbman argues in response that, while the "sword-shield" dichotomy may apply where the minor has misrepresented his age to induce the contract, that did not occur here and he may avoid the contract without making restitution notwithstanding his ability to do so.

[4, 5]

The principal problem is the use of the word "restitution" in Olson. A minor, as we have stated, is under an enforceable duty to return to the vendor, upon disaffirmance, as much of the consideration as remains in his possession. When the contract is disaffirmed, title to that part of the purchased property which is retained by the minor revests in the vendor; it no longer belongs to the minor. See, e.g., Restatement (Second) of Contracts, sec. 18B, comment c, (Tent. Draft No. 1, 1964). The rationale for the rule is plain: a minor who disaffirms a purchase and recovers his purchase price should not also be permitted to profit by retaining the property purchased. The infancy doctrine is designed to protect the minor, sometimes at the expense of an innocent vendor, but it is not to be used to bilk merchants out of property as well as proceeds of the sale. Consequently, it is clear that, when the minor no longer possesses the property which was the subject matter of the contract, the rule requiring the return of property does not apply.^[1]The minor will not be required to give up what he does not have. We conclude that Olson does no more than set forth the foregoing rationale and that the word "restitution" as it is used in that opinion is limited to the return of the property to the vendor. We do not agree with Lemke and the court of appeals dissent that Olsonrequires a minor to make restitution for loss or damage to the property if he is capable of doing so.

Here Lemke seeks restitution of the value of the depreciation by virtue of the damage to the vehicle prior to disaffirmance. Such a recovery would require Halbman to return more than that remaining in his possession. It seeks compensatory value for that which he cannot return. Where there is misrepresentation by a minor or willful destruction of property, the vendor may be able to recover damages in tort. See, e.g., Kiefer v. Fred Howe Motors, Inc., supra;42 Am. Jur.2d Infants sec. 105 (1969). But absent these factors, as in the present case, we believe that to require a disaffirming minor to make restitution for diminished value is, in effect, to bind the minor to a part of the obligation which by law he is privileged to avoid. See: Nelson v. Browning, supra at 875-76; Williston, supra, sec. 238, 39-41.

The cases upon which the petitioner relies for the proposition that a disaffirming minor must make restitution for loss and depreciation serve to illustrate some of the ways other jurisdictions have approached this problem of balancing the needs of minors against the rights of innocent merchants. In Barber v. Gross, 74 S.D. 254, 51 N.W.2d 696 (1952), the South Dakota Supreme Court held that a minor could disaffirm a contract as a defense to an action by the merchant to enforce the contract but that the minor was obligated by a South Dakota statute, upon sufficient proof of loss by the plaintiff, to make restitution for depreciation. Cain v. Coleman, 396 S.W.2d 251 (Tex. Civ. App. 1965), involved a minor seeking to disaffirm a contract for the purchase of a used car where the dealer claimed the minor had misrepresented his age. In reversing summary judgment granted in favor of the minor, the court recognized the minor's obligation to make restitution for the depreciation of the vehicle. The Texas court has also ruled, in a case where there was no issue of misrepresentation, that upon disaffirmance and tender by a minor the vendor is obligated to take the property "as is." Rutherford v. Hughes,228 S.W.2d 909, 912 (Tex. Civ. App. 1950). Scalone v. Talley Motors, Inc., 158 N.Y.S.2d 615, 3 App. Div.2d 674 (1957), and Rose v. Sheehan Buick, Inc., 204 So.2d 903 (Fla. App. 1967), represent the proposition that a disaffirming minor must do equity in the form of restitution for loss or depreciation of the property returned. Because these cases would at some point force the minor to bear the cost of the very improvidence from which the infancy doctrine is supposed to protect him, we cannot follow them.

[6, 7]

As we noted in Kiefer, modifications of the rules governing the capacity of infants to contract are best left to the legislature. Until such changes are forthcoming, however, we hold that, absent misrepresentation or tortious damage to the property, a minor who disaffirms a contract for the purchase of an item which is not a necessity may recover his purchase price without liability for use, depreciation, damage, or other diminution in value.

Recently the Illinois Court of Appeals came to the same conclusion. In Weisbrook v. Clyde C. Netzley, Inc., 58 Ill. App.3d 862, 374 N.E.2d 1102 (1978), a minor sought to disaffirm a contract for the purchase of a vehicle which developed engine trouble after its purchase. In the minor's action the dealer counterclaimed for restitution for use and depreciation. The court affirmed judgment for the minor and, with respect to the dealer's claim for restitution, stated:

"In the present case, of course, the minor plaintiff never misrepresented his age and, in fact, informed defendant that he was 17 years old. Nor did plaintiff represent to defendant that his father was to be the owner or have any interest in the automobile. There is no evidence in the present case that plaintiff at the time of entering the contract with defendant intended anything more than to enjoy his new automobile. He borrowed the total purchase price and paid it to defendant carrying out the transaction fully at the time of taking delivery of the vehicle. Plaintiff sought to disaffirm the contract and the return of the purchase price only when defendant declined to make repairs to it. In these circumstances we believe the weight of authority would permit the minor plaintiff to disaffirm the voidable contract and that defendant-vendor would not be entitled to recoup any damages which he believes he suffered as a result thereof."

Id. at 1107. See also: Johnson Motors, Inc. v. Coleman, 232 So.2d 716 (Miss. 1970); Rutherford v. Hughes, supra; Fisher v. Taylor Motor Co., 249 N.C. 617, 107 S.E. 2d 94 (1959). We believe this result is consistent with the purpose of the infancy doctrine.

By the Court.—The decision of the court of appeals is affirmed.

[1] Although we are not presented with the question here, we recognize there is considerable disagreement among the authorities on whether a minor who disposes of the property should be made to restore the vendor with something in its stead. The general rule appears to limit the minor's responsibility for restoration to specie only. Terrace Company v. Calhoun, 37 Ill. App.3d 757, 347 N.E.2d 315, 320 (1976); Adamowski v. Curtiss-Wright Flying Service, 300 Mass. 281, 15 N.E.2d 467 (1938); Quality Motors v. Hays, 225 S.W.2d 326, 328 (Ark. 1949). But see: Boyce v. Doyle, 113 N.J. Super. 240, 273 A.2d 408 (1971), adopting a "status quo" theory which requires the minor to restore the precontract status quo, even if it means returning proceeds or other value; Fisher v. Taylor Motor Co.,249 N.C. 617, 107 S.E.2d 94 (1959), requiring the minor to restore only the property remaining in the hands of the minor, "`or account for so much of its value as may have been invested in other property which he has in hand or owns and controls.'" Id. at 97. Finally, some attention is given to the "New Hampshire Rule" or benefits theory which requires the disaffirming minor to pay for the contract to the extent he benefited from it. Hall v. Butterfield, 59 N.H. 354 (1879); Porter v. Wilson, 106 N.H. 270, 209 A.2d 730 (1965). See also: 19 Hastings L.J. 1199, 1205-08 (1968); 52 Marq. L. Rev. 437 (1969); Calamari and Perillo, The Law of Contracts, sec. 129, 215-16 (Hornbook Series 1970).

A. Richard Golub and Gary S. Graifman for respondent-appellant.

Sandor Frankel and Peter M. Thall for respondent-appellant.

Chief Judge COOKE and Judges JONES and WACHTLER concur with Judge SIMONS; Judge JASEN dissents in part and votes to affirm in a separate opinion in which Judges FUCHSBERG and MEYER concur.

SIMONS, J.

The issue on this appeal is whether an infant model may disaffirm a prior unrestricted consent executed on her behalf by her parent and maintain an action pursuant to section 51 of the Civil Rights Law against her photographer for republication of photographs of her. We hold that she may not.

Plaintiff is now a well-known actress. For many years prior to these events she had been a child model and in 1975, when she was 10 years of age, she obtained several modeling jobs with defendant through her agent, the Ford Model Agency. One of the jobs, a series of photographs to be financed by Playboy Press, required plaintiff to pose nude in a bathtub. It was intended that these photos would be used in a publication entitled "Portfolio 8" (later renamed "Sugar and Spice"). Before the photographic sessions, plaintiff's mother and legal guardian, Teri Shields, executed two consents in favor of defendant.^[*] After the pictures were taken, they were used not only in "Sugar and Spice" but also, to the knowledge of plaintiff and her mother, in other publications and in a display of larger-than-life photo enlargements in the windows of a store on Fifth Avenue in New York City. Indeed, plaintiff subsequently used the photos in a book that she published about herself and to do so her mother obtained an authorization from defendant to use them. Over the years defendant has also photographed plaintiff for Penthouse Magazine, New York Magazine and for advertising by the Courtauldts and Avon companies.

In 1980 plaintiff learned that several of the 1975 photographs had appeared in a French magazine called "Photo" and, disturbed by that publication and by information that defendant intended others, she attempted to buy the negatives. In 1981, she commenced this action in tort and contract seeking compensatory and punitive damages and an injunction permanently enjoining defendant from any further use of the photographs. Special Term granted plaintiff a preliminary injunction. Although it determined that as a general proposition consents given by a parent pursuant to section 51 barred the infant's action, it found that plaintiff's claim that the consents were invalid or restricted the use of the photographs by Playboy Press presented questions of fact. After a nonjury trial the court ruled that the consents were unrestricted as to time and use and it therefore dismissed plaintiff's complaint. In doing so, however, it granted plaintiff limited relief. On defendant's stipulation it permanently enjoined defendant from using the photographs in "pornographic magazines or publications whose appeal is of a predominantly prurient nature" and it charged him with the duty of policing their use. The Appellate Division, by a divided court, modified the judgment on the law and granted plaintiff a permanent injunction enjoining defendant from using the pictures for purposes of advertising or trade. Two Justices voted for the result believing that plaintiff possessed a common-law right to disaffirm the consent given defendant by her parent. Justice KUPFERMAN concurred, believing that in addition to the common-law right, the consents were governed by section 3-105 of the General Obligations Law and therefore could be interpreted to have expired after three years. Justice ASCH also concurred in the result but on other grounds. He construed the transaction as a sale of pictures, not services, and applying the Uniform Commercial Code, he interpreted the consents and found them void because they were "unconscionable" (see Uniform Commercial Code, §§ 2-102, 2-302). Plaintiff had not raised that issue before the trial court, however, nor did the parties present evidence on it and we have not considered it (see Uniform Commercial Code, § 2-302, subd [2]). Justice CARRO dissented and voted to affirm the judgment of Trial Term. It was his view that the consents given in conformity with the statute constituted general releases and provided a complete defense to plaintiff's subsequent action.

The parties have filed cross appeals. Defendant requests reinstatement of the trial court's judgment. Plaintiff requests, in the alternative, that the order of the Appellate Division be modified by striking the limitation enjoining use only for purposes of advertising and trade, or that the order of the Appellate Division should be affirmed or, failing both of these, that a new trial be granted. Since the Appellate Division accepted the trial court's findings that the consents were valid and unrestricted as to time and use, we are presented with only a narrow issue of law concerning the legal effect to be given to the parent's consents.

Historically, New York common law did not recognize a cause of action for invasion of privacy (Arrington v New York Times Co., 55 N.Y.2d 433; Roberson v Rochester Folding Box Co., 171 N.Y. 538). In 1909, however, responding to the Robersondecision, the Legislature enacted sections 50 and 51 of the Civil Rights Law. Section 50 is penal and makes it a misdemeanor to use a living person's name, portrait or picture for advertising purposes without prior "written consent". Section 51 is remedial and creates a related civil cause of action on behalf of the injured party permitting relief by injunction or damages (see Arrington v New York Times Co., supra, at p 439; Flores v Mosler Safe Co., 7 N.Y.2d 276, 280). Section 51 of the statute states that the prior "written consent" which will bar the civil action is to be as "above provided", referring to section 50, and section 50, in turn, provides that: "A person, firm or corporation that uses for advertising purposes, or for the purposes of trade, the name, portrait or picture of any living person without having first obtained the written consent of such person, or if a minor of his or her parent or guardian, is guilty of a misdemeanor" (emphasis added).

Thus, whereas in Roberson, the infant plaintiff had no cause of action against the advertiser under the common law for using her pictures, the new statute gives a cause of action to those similarly situated unless they have executed a consent or release in writing to the advertiser before use of the photographs. The statute acts to restrict an advertiser's prior unrestrained common-law right to use another's photograph until written consent is obtained. Once written consent is obtained, however, the photograph may be published as permitted by its terms (see Welch v Mr. Christmas, 57 N.Y.2d 143).

Concededly, at common law an infant could disaffirm his written consent (see Joseph v Schatzkin, 259 N.Y. 241; Casey v Kastel, 237 N.Y. 305) or, for that matter, a consent executed by another on his or her behalf (see Lee v Silver, 262 App Div 149, affd 287 N.Y. 575; Goldfinger v Doherty, 153 Misc 826, affd 244 App Div 779; Aborn v Janis, 62 Misc 95, affd 122 App Div 893). Notwithstanding these rules, it is clear that the Legislature may abrogate an infant's common-law right to disaffirm (see, e.g., General Obligations Law, § 3-101, subd 3; § 3-102, subd 1; § 3-103; Education Law, § 281; Insurance Law, § 145) or, conversely, it may confer upon infants the right to make binding contracts (see Matter of T.W.C., 38 N.Y.2d 128, 130 [Domestic Relations Law, § 115-b]; Hamm v Prudential Ins. Co. of Amer., 137 App Div 504 [Insurance Law, § 145, formerly § 55]; Matter of Presler, 171 Misc 559). Where a statute expressly permits a certain class of agreements to be made by infants, that settles the question and makes the agreement valid and enforceable. That is precisely what happened here. The Legislature, by adopting section 51, created a new cause of action and it provided in the statute itself the method for obtaining an infant's consent to avoid liability. Construing the statute strictly, as we must since it is in derogation of the common law (see McKinney's Cons Laws of NY, Book 1, Statutes, § 301, subd b), the parent's consent is binding on the infant and no words prohibiting disaffirmance are necessary to effectuate the legislative intent. Inasmuch as the consents in this case complied with the statutory requirements, they were valid and may not be disaffirmed (see Matter of T.W.C., supra).

Nor do we believe that the consents may be considered void because the parties failed to comply with the provisions of section 3-105 of the General Obligations Law requiring prior court approval of infants' contracts. By its terms, section 3-105 applies only to performing artists, such as actors, musicians, dancers and professional athletes moreover, it is apparent by comparing other statutes with it that the Legislature knowingly has differentiated between child performers and child models. Thus, section 3229 (formerly § 3216-c) of the Education Law, which applies to "Child performers", is referred to in section 3-105 (subd 2, par a) of the General Obligations Law but section 3230 of the Education Law, which applies to child models, is not. Child models are also recognized as a separate work classification in section 172 (subd 2, par f) of the Labor Law. Furthermore, section 3-105 was not designed to expand the rights of infants to disaffirm their contracts, as the concurring Justice at the Appellate Division would apply it, but to provide assurance to those required to deal with infants that the infants would not later disaffirm executory contracts to the adult contracting party's disadvantage (see Matter of Prinze [Jonas], 38 N.Y.2d 570, 575). Sections 50 and 51 as we interpret them serve the same purpose, to bring certainty to an important industry which necessarily uses minors for its work. This same need for certainty was the impetus behind not only section 3-105 but the various other sections of the General Obligations Law which prohibit disaffirmance of an infant's contract.

Realistically, the procedures of prior court approval set forth in section 3-105, while entirely appropriate and necessary for performing artists and professional athletes, are impractical for a child model who, whether employed regularly or sporadically, works from session to session, sometimes for many different photographers. Moreover, they work for fees which are relatively modest when compared to those received by actors or professional athletes who may be employed by one employer at considerably greater remuneration for a statutorily permissible three-year term. Indeed, the fee in this case was $450, hardly sufficient to warrant the elaborate court proceedings required by section 3-105 or to necessitate a court's determination of what part should be set aside and preserved for the infant's future needs. Nor do we think court approval necessary under the circumstances existing in the normal child model's career. Given the nature of the employment, it is entirely reasonable for the Legislature to substitute the parents' judgment and approval of what is best for their child for that of a court.

It should be noted that plaintiff did not contend that the photographs were obscene or pornographic. Her only complaint was that she was embarrassed because "they [the photographs] are not me now." The trial court specifically found that the photographs were not pornographic and it enjoined use of them in pornographic publications. Thus, there is no need to discuss the unenforceability of certain contracts which violate public policy (see, e.g., Penal Law, § 235.00 et seq.) or to equate an infant's common-law right to disaffirm with that principle, as the dissent apparently does.

Finally, it is claimed that the application of the statute as we interpret it may result in unanticipated and untoward consequences. If that be so, there is an obvious remedy. A parent who wishes to limit the publicity and exposure of her child need only limit the use authorized in the consent, for a defendant's immunity from a claim for invasion of privacy is no broader than the consent executed to him (see Welch v Mr. Christmas, 57 N.Y.2d 143, supra; Adrian v Unterman, 281 App Div 81,affd 306 N.Y. 771).

The order of the Appellate Division should be modified by striking the further injunction against use of the photographs for uses of advertising and trade, and as so modified, the order should be affirmed.

JASEN, J. (dissenting).

Since I believe that the interests of society and this State in protecting its children must be placed above any concern for trade or commercialism, I am compelled to dissent. The State has the right and indeed the obligation to afford extraordinary protection to minors.

At the outset, it should be made clear that this case does not involve the undoing of a written consent given by a mother to invade her infant daughter's privacy so as to affect prior benefits derived by a person relying on the validity of the consent pursuant to sections 50 and 51 of the Civil Rights Law. Rather, what is involved is the right of an infant, now 17 years of age, to disaffirm her mother's consent with respect to future use of a nude photograph taken of her at age 10.

The majority holds, as a matter of law, not only in this case but as to all present and future consents executed by parents on behalf of children pursuant to sections 50 and 51 of the Civil Rights Law, that once a parent consents to the invasion of privacy of a child, the child is forever bound by that consent and may never disaffirm the continued invasion of his or her privacy, even where the continued invasion of the child's privacy may cause the child enormous embarrassment, distress and humiliation.

I find this difficult to accept as a rational rule of law, particularly so when one considers that it has long been the rule in this State that a minor enjoys an almost absolute right to disaffirm a contract entered into either by the minor or by the minor's parent on behalf of the minor (Sternlieb v Normandie Nat. Securities Corp., 263 N.Y. 245; Joseph v Schatzkin, 259 N.Y. 241; International Text Book Co. v Connelly, 206 N.Y. 188; Rice v Butler, 160 N.Y. 578; Sparman v Keim, 83 N.Y. 245; Green v Green, 69 N.Y. 553) and the statute in question does not in any manner abrogate this salutary right.

This right has been upheld despite the fact that the minor held himself out to be an adult (Sternlieb v Normandie Nat. Securities Corp., supra) or that a parent also attempted to contractually bind the minor (Kaufman v American Youth Hostels, 13 Misc 2d 8, mod on other grounds 6 AD2d 223, mod and certified question answered in negative 5 N.Y.2d 1016). Significantly, whether or not the minor can restore the other contracting party to the position he was in prior to entering the contract is pertinent only to the extent that the minor, by disaffirming the contract, cannot put himself into a better position than he was in before entering the contract. (Sternlieb v Normandie Nat. Securities Corp., supra; Rice v Butler,supra.) In the past, this court has noted that those who contract with minors do so at their own peril. (Joseph v Schatzkin, supra, at p 243.)

Understandably, such a broad right has evolved as a result of the State's policy to provide children with as much protection as possible against being taken advantage of or exploited by adults. "The right to rescind is a legal right established for the protection of the infant" (Green v Green, supra, at p 556). This right is founded in the legal concept that an infant is incapable of contracting because he does not understand the scope of his rights and he cannot appreciate the consequences and ramifications of his decisions. Furthermore, it is feared that as an infant he may well be under the complete influence of an adult or may be unable to act in any manner which would allow him to defend his rights and interests. (28 NY Jur, Infants, § 3, pp 221-222.) Allowing a minor the right to disaffirm a contract is merely one way the common law developed to resolve those inequities and afford children the protection they require to compensate for their immaturity.

Can there be any question that the State has a compelling interest in protecting children? Indeed, the most priceless possessions we have in the Nation are our children. Recognizing this compelling interest in children, the State has assumed the role of parens patriae, undertaking with that role the responsibility of protecting children from their own inexperience. Acting in that capacity, the State has put the interests of minors above that of adults, organizations or businesses. (Rice v Butler, supra; Kaufman v American Youth Hostels, supra; Sternlieb v Normandie Nat. Securities Corp., supra.) The broad right given a minor to disaffirm a contract is, of course, an obvious example of the State's attempt to afford an infant protection against exploitation by adults. (28 NY Jur, Infants, op. cit.) Thus, I am persuaded that, in this case, 17-year-old Brooke Shields should be afforded the right to disaffirm her mother's consent to use a photograph of her in the nude, taken when she was 10 years old, unless it can be said, as the majority holds, that the Legislature intended to abrogate that right when it enacted sections 50 and 51 of the Civil Rights Law.

The legislative history of this statute enacted in the early 1900's is understandably scarce. The case law prior to its passage, however, indicates that a minor's right to disaffirm a contract under the common law was well established at that time. Additionally, it is well accepted that this statute was enacted in response to this court's decision in Roberson v Rochester Folding Box Co. (171 N.Y. 538; see, also, Arrington v New York Times Co., 55 N.Y.2d 433, 439) in which the court held that a minor had no recourse against an entrepreneur who made commercial use out of her picture without her consent. Apparently, in order to alleviate litigation over whether or not consent had been given, the Legislature required that such consent be in writing and, if the person was a minor, that the parent sign the consent form. There is no indication that by requiring consent from the minor's parents, the Legislature intended in any way to abrogate that minor's right to disaffirm a contract at some future date. Indeed, the requirement of parental consent, like the broad right to disaffirm a contract, was granted in order to afford the minor as much protection against exploitation as possible. The assumption, of course, was that a parent would protect the child's interests. But if that assumption proves invalid, as may well be the case if a minor upon reaching the age of maturity realizes that the parent, too, has been exploiting him or her or had failed to adequately guard his or her interest by giving consent for pictures which caused humiliation, embarrassment and distress, then the child should be able to cure the problem by disaffirming the parent's consent. To say, as does the majority, that the mother could have limited her consent avoids the issue. If the parent has failed to put any restrictions on the consent, as occurred in this case, and has thus failed to protect the child's future interests, I see no reason why the child must continue to bear the burden imposed by her mother's bad judgment. This means the child is forever bound by its parent's decisions, even if those decisions turn out to have been exploitative of the child and detrimental to the child's best interests.

Furthermore, nothing compels the majority's conclusion that the right to disaffirm a contract was eliminated when the Legislature created a new cause of action for invasion of privacy merely because that statute provided safeguards for the child's privacy by giving the parent the right to grant or withhold consent. When both rights are viewed, as I believe they must be, as protection for the child, logic and policy compels the conclusion that the two rights should exist coextensively. The requirement that a parent consent before the child's privacy can be invaded by commercial interests establishes the parent as the first guardian of the child's interest. But the State retains its long-standing role of parens patriae so that if the parent fails to protect the child's interests, the State will intervene and do so. One means of doing so is to allow the child to exercise its right to disaffirm if the child concludes that its parent improvidently consented to the invasion of the child's privacy interests. Given the strong policy concern of the State in the child's best interests,^[*] I can only conclude that the Legislature did not intend to abrogate the child's commonlaw right to disaffirm a contract when it required, by statute, the additional protection of written, parental consent prior to any commercial use of the child's image.

This conclusion is further supported by other statutes in which the Legislature has clearly abrogated the infant's right to disaffirm a contract in those situations in which it has determined that the damage incurred by the minor will be minimal and the cost to the contracting party or society would be great. Invariably, these are contractual situations in which the minor has incurred a contractual obligation in order to receive a benefit which cannot be deemed anything other than a benefit. For example, section 281 of the Education Law negates a minor's right to disaffirm a contract when that contract afforded him a student loan to pursue an advanced education. (See, also, General Obligations Law, § 3-103.) No one can argue that the contract was anything other than beneficial to the minor. Such legislation was endorsed by the Law Revision Commission on the basis of a legislative finding "that the type of contract involved is clearly for the benefit of the infant". (1961 Report of NY Law Rev Comm, pp 269, 275, citing Touster, Contracts Relating to the Services of Talented Minors and the Treatment of Their Earnings Therefrom.)

Two factors distinguish sections 50 and 51 of the Civil Rights Law from those statutory provisions which do, in certain contexts, abolish the minor's right to disaffirm a contract. The first is that in all cases when the Legislature has intended to do so, they have made their intention clear by specific language which directly refers to the infant's common-law right. The absence of any reference in the Civil Rights Law to the minor's right to disaffirm a contract, especially when it is clear that the right to disaffirm was well established, indicates that the Legislature did not intend to affect that right. Secondly, unlike the other kinds of contracts which the Legislature has designated as immune from the minor's right to disaffirm, it cannot be said that a contract releasing all rights to photographs or even limited rights to those pictures is necessarily beneficial to the infant. This is even more true when the pictures, as in this case, are of the variety which can be exploited in the future or used in publications of questionable taste.

I do not believe that the Legislature's intent in enacting sections 50 and 51 of the Civil Rights Law was to elevate the interests of business and commercialism above the State's interest in protecting its children. Since this statute was enacted in response to this court's decision in Roberson v Rochester Folding Box Co.(supra), which denied an infant plaintiff any recovery for the invasion of her privacy by a commercial enterprise in using her picture without her consent, it would seem to me that the legislative intent was to expand individual protections, rather than to afford protection to commercial enterprises.

The fact that when an infant disaffirms a contract there may be harsh results to the person or commercial enterprise attempting to exploit the child has never caused the courts to alter the scope of the protection that right affords the child. The overriding interest of society in protecting its children has long been held to outweigh the interests of merchants who attempt to contract with children. (Sternlieb v Normandie Nat. Securities Corp., supra, at p 250.)

In those situations in which the Legislature has decided that business ventures need additional protection, it has done so not merely by abolishing the infant's right to disaffirm, but, rather, by providing alternative protection. Section 3-105 of the General Obligations Law provides for judicial approval of contracts for the services of child performers or professional athletes. It is clear that the statute protects not only the business interests which are investing in and profiting from the child's talents, but also the child. For instance, paragraph d of subdivision 2 generally restricts such contracts to a three-year period and paragraph e of subdivision 2 provides that even after approving a contract of a child performer, the court may, if it finds that the child's well-being is in any way being impaired by its performance under the contract, revoke or modify the contract so as to protect the child. Similarly, it provides for supervision by the court of the child's earnings to assure that the child will benefit from his labors. The clear intent of such provisions is to protect the child against any exploitation. The failure of the Legislature to cover child models in this provision indicates to me that they intended child models to retain the protections afforded by the common-law right to disaffirm a contract. It is unfortunate that by virtue of the majority's interpretation of the Civil Rights Law those children may not in the future be afforded protection against exploitation by their own parents.

It is even more unfortunate that by its interpretation of sections 50 and 51 the majority takes away a large part of the protection those children had at common law.

Order modified, with costs to defendant, in accordance with the opinion herein and, as so modified, affirmed.

[*] The consents provided in pertinent part:

"I hereby give the photographer, his legal representatives, and assigns, those for whom the photographer is acting, and those acting with his permission, or his employees, the right and permission to copyright and/or use, reuse and/or publish, and republish photographic pictures or portraits of me, or in which I may be distorted in character, or form, in conjunction with my own or a fictitious name, on reproductions thereof in color, or black and white made through any media by the photographer at his studio or elsewhere, for any purpose whatsoever, including the use of any printed matter in conjunction therewith.

"I hereby waive any right to inspect or approve the finished photograph or advertising copy or printed matter that may be used in conjunction therewith or to the eventual use that it might be applied."

[*] The discussion in this opinion of the policy behind affording a child the extraordinary protection of the right to disaffirm a contract should not be read, as the majority does, to equate the right to disaffirm with the principle that a court will refuse to enforce contracts which violate public policy. Indeed, had the courts below found that her mother had contracted for her daughter to pose in an obscene manner or that the photographs were obscene or pornographic, then we would not need to decide the applicability of the infant's right to disaffirm that contract as I assume the majority would find the contract and the consent incorporated in it to violate public policy. (Penal Law, § 235.00 et seq.; People v Ferber, 52 N.Y.2d 674 [JASEN, J., dissenting], revd 458 US ___, 102 S Ct 3348, on remand 57 N.Y.2d 256.) A contract held to be unenforceable because it violates public policy is void ab initio and, thus, there is no need to consider whether or not it may be disaffirmed.

Irving I. Lederman and Arnold Davis for plaintiff. Jules B. St. Germain for defendant.

BERNARD S. MEYER, J.

The relationship of psychiatry to the criminal law has been the subject of study and recommendation by the Temporary Commission on Revision of the Penal Law and Criminal Code (Leg. Doc. [1963], No. 8, pp. 16-26). This court had reason to touch upon the relationship of psychiatry to matrimonial law in Anonymous v. Anonymous (37 Misc 2d 773). The instant case presents yet a third aspect of the same basic problem: that involving the law of contract.

Plaintiff herein seeks rescission of a contract for the purchase of vacant land in Long Beach on the ground that he was not at the time the contract was entered into of sufficient mental competence. Defendant counterclaims for specific performance.

The evidence demonstrates that from April until July, 1961, plaintiff was in the depressed phase of a manic-depressive psychosis and that from August until the end of October he was in the manic stage. Though under care of Dr. Levine, a psychiatrist, beginning June 8 for his depression, he cancelled his August 8 appointment and refused to see the doctor further. Previously frugal and cautious, he became more expansive beginning in August, began to drive at high speeds, to take his wife out to dinner, to be sexually more active and to discuss his prowess with others. In a short period of time, he purchased three expensive cars for himself, his son and his daughter, began to discuss converting his Long Beach bathhouse and garage property into a 12-story co-operative and put up a sign to that effect, and to discuss the purchase of land in Brentwood for the erection of houses. In September, against the advice of his lawyer, he contracted for land at White Lake in the Catskills costing $11,500 and gave a $500 deposit on acreage, the price of which was $41,000 and talked about erecting a 400-room hotel with marina and golf course on the land.

On September 16, 1961, he discussed with Mr. Kass, defendant's president, the purchase of the property involved in this litigation for the erection of a discount drugstore and merchandise mart. During the following week Kass advised plaintiff that defendant would sell. On the morning of Saturday, September 23, plaintiff and Kass met at the office of defendant's real estate broker. Kass asked $55,000, plaintiff offered $50,000; when the broker agreed to take $1,500 commission, Kass offered to sell for $51,500 and plaintiff accepted. It was agreed the parties would meet for contract that afternoon. Kass obtained the services of attorney Nathan Suskin who drew the contract prior to the 2:00 P.M. conference. Plaintiff returned to that conference with his lawyer (who is also his brother-in-law) who approved the contract as to form but asked plaintiff how he would finance it and also demanded that the contract include as a condition that a nearby vacant property would be occupied by Bohack. No mention was made of plaintiff's illness. When Suskin refused to consider such a condition, plaintiff's lawyer withdrew. The contract was signed in the absence of plaintiff's lawyer and the $5,150 deposit paid by check on plaintiff's checking account in a Rockaway bank.

On the following Monday morning, plaintiff transferred funds from his Long Beach bank account to cover the check. On the same day, he went to Jamaica and arranged with a title abstract company for the necessary search and policy, giving correct details concerning the property, price and his brother-in-law's address and phone number and asking that search be completed within one week. Between September 23 when the contract was signed and October 8 when plaintiff was sent to a mental institution, he persuaded Leonard Cohen, a former employee, to join in the building enterprise promising him a salary of $150 a week and a Lincoln Continental when the project was complete, caused a sign to be erected on the premises stating that "Faber Drug Company" and a "merchandise mart" were coming soon, hired an architect, initiated a mortgage application giving correct details as to price and property dimensions, hired laborers to begin digging (though title was not to close until Oct. 20), filed plans with city officials and when told by them that State Labor Department approval was required, insisted on driving to Albany with the architect and Leonard Cohen to obtain the necessary approval.

On September 25 plaintiff saw Dr. Levine as a result of plaintiff's complaint that his wife needed help, that she was stopping him from doing what he wanted to. He was seen again on September 26 and 28, October 2 and October 8, and hospitalized on October 8 after he had purchased a hunting gun. Dr. Levine, Dr. Sutton, who appeared for defendant, and the hospital all agree in a diagnosis of manic-depressive psychosis. Dr. Levine testified that on September 23 plaintiff was incapable of reasoned judgment; the hospital record shows that on October 9, Dr. Krinsky found plaintiff's knowledge good, his memory and comprehension fair, his insight lacking and his judgment defective. Dr. Sutton's opinion, based on the hospital record and testimony of plaintiff's wife and Dr. Levine, was that plaintiff was subject to mood swings, but that there was no abnormality in his thinking, that his judgment on September 23 was intact.

The contract of a mental incompetent is voidable at the election of the incompetent (Blinn v. Schwarz, 177 N.Y. 252) and if the other party can be restored to status quo rescission will be decreed upon a showing of incompetence without more (Verstandig v. Schlaffer, 296 N.Y. 62; see Church v. Dreier, 205 App. Div. 820). If the status quo cannot be restored and the other party to the contract was ignorant of the incompetence and the transaction was fair and reasonable, rescission will, however, be denied notwithstanding incompetence (Mutual Life Ins. Co. v. Hunt, 79 N.Y. 541, 545; see Riggs v. American Tract Soc., 84 N.Y. 330, 337). The burden of proving incompetence is upon the party alleging it, but once incompetence has been shown, the burden of proving lack of knowledge and fairness is upon the party asking that the transaction be enforced (Merritt v. Merritt, 43 App. Div. 68, 70; Aikens v. Roberts, 164 N. Y. S. 502; Beale v. Gibaud, 15 F.Supp. 1020, 1028). In the instant case the contract concerns vacant land and is executory and though plaintiff caused some digging to be done on the premises, the proof shows that the land has been levelled again. Clearly, the status quo can be restored and plaintiff is, therefore, entitled to rescission if the condition described meets the legal test of incompetence.

The standards by which competence to contract is measured were, apparently, developed without relation to the effects of particular mental diseases or disorders and prior to recognition of manic-depressive psychosis as a distinct form of mental illness (Matter of Martin, 82 Misc. 574, 578). Primarily they are concerned with capacity to understand: (Aldrich v. Bailey, 132 N.Y. 85, 87-88) "so deprived of his mental faculties as to be wholly, absolutely and completely unable to understand or comprehend the nature of the transaction"; (Paine v. Aldrich, 133 N.Y. 544, 546) "such mental capacity at the time of the execution of the deed that he could collect in his mind without prompting, all the elements of the transaction and retain them for a sufficient length of time to perceive their obvious relations to each other, and to form a rational judgment in regard to them"; (Matter of Delinousha v. National Biscuit Co., 248 N.Y. 93, 95) "A contract may be avoided only if a party is so affected as to be unable to see things in their true relations and to form correct conclusions in regard thereto". (See, also, Aikens v. Roberts, supra, p. 504; Morse v. Miller, 39 N. Y. S. 2d 815, 818, affd. 267 App. Div. 801; Martin v. Teachers' Retirement Bd., 70 N. Y. S. 2d 593, 594.) If cognitive capacity is the sole criterion used, the manic must be held competent (Lovell v. Keller, 146 Misc. 100; Beale v. Gibaud, supra; cf. Matter of Martin, supra), for manic-depressive psychosis affects motivation rather than ability to understand.

The law does, however, recognize stages of incompetence other than total lack of understanding. Thus it will invalidate a transaction when a contracting party is suffering from delusions if there is "some such connection between the insane delusions and the making of the deed as will compel the inference that the insanity induced the grantor to perform an act, the purport and effect of which he could not understand, and which he would not have performed if thoroughly sane" (Moritz v. Moritz, 153 App. Div. 147, 152, affd. 211 N.Y. 580, see Beisman v. New York City Employees' Retirement System, 275 App. Div. 836, affd. 300 N.Y. 580). Moreover, it holds that understanding of the physical nature and consequences of an act of suicide does not render the suicide voluntary within the meaning of a life insurance contract if the insured "acted under the control of an insane impulse caused by disease, and derangement of his intellect, which deprived him of the capacity of governing his own conduct in accordance with reason." (Newton v. Mutual Benefit Life Ins. Co., 76 N.Y. 426, 429; Van Zandt v. Mutual Benefit Life Ins. Co., 55 N.Y. 169.) Finally, Paine v. Aldrich (supra) and the Delinousha case consider not only ability to understand but also capacity to form "a rational judgment" or "correct conclusions." Thus, capacity to understand is not, in fact, the sole criterion. Incompetence to contract also exists when a contract is entered into under the compulsion of a mental disease or disorder but for which the contract would not have been made.

Whether under the latter test a manic will be held incompetent to enter into a particular contract will depend upon an evaluation of (1) testimony of the claimed incompetent, (2) testimony of psychiatrists, and (3) the behavior of the claimed incompetent as detailed in the testimony of others (Green, Judicial Tests of Mental Incompetency, 6 Mo. L. R. 141), including whether by usual business standards the transaction is normal or fair (Green, Proof of Mental Incompetency and the Unexpressed Major Premise, 53 Yale L. J. 271, 299-305). Testimony of the claimed incompetent often is not available, and in any event is subject to the weakness of his mental disorder, on the one hand, and of his self-interest on the other. The psychiatrist in presenting his opinion is, in final analysis, evaluating factual information rather than medical data, and is working largely with the same evidence presented to the court by the other witnesses in the action (Leifer, Competence of the Psychiatrist to Assist In the Determination of Incompetency, 14 Syracuse L. R. 564). Moreover, in the great majority of cases psychiatrists of equal qualification and experience will reach diametrically opposed conclusions on the same behavioral evidence. The courts have, therefore, tended to give less weight to expert testimony than to objective behavioral evidence (Halpern, Civil Insanity: The New York Treatment of the Issue of Mental Incapacity in Non-Criminal Cases, 44 Corn. L. Q. 76; Green, op. cit., 53 Yale L. J., p. 306).

In the instant case, plaintiff did not testify at the trial but his examination before trial was read into the record. It shows that he understood the transaction in which he was engaged, but throws no light on his motivation. Plaintiff introduced no evidence concerning the rationality or fairness of the transaction (in the apparent belief that Merritt v. Merritt, 43 App. Div. 68, supra, applied and that such proof, therefore, was not part of his case) so the court has no basis for comparison in that respect. Plaintiff's evidence concerning the location of the property and the nature of the business he proposed to carry on there fell short of establishing irrationality, nor can it be said that the making of an all cash contract was abnormal, even if the two earlier White Lake dealings are considered, in view of the testimony of plaintiff and his wife that the Long Beach bathhouse property was worth $200,000 and that it was free and clear. But the rapidity with which plaintiff moved to obtain an architect and plans, hire laborers, begin digging on the property, and his journey to Albany to obtain building approval, all prior to title closing, are abnormal acts. Viewing those acts in the context of his actions, detailed above, with respect to the White Lake properties, his plans with respect to the Brentwood property and the conversion of his bathhouse premises, and his complaint to Dr. Levine on September 25 that his wife was in need of help because she was trying to hold him back, the court is convinced that the contract in question was entered into under the compulsion of plaintiff's psychosis. That conclusion is contrary to the opinion expressed by Dr. Sutton, but the court concludes that Doctors Levine and Krinsky as treating physicians had the better basis for the opinions they expressed. In any event their opinions are but confirmatory of the conclusion reached by the court on the basis of the evidence above detailed.

Defendant argues, however, that the contract was ratified by the acts of plaintiff's attorney in forwarding a title objection sheet to defendant's attorney and in postponing the closing and by plaintiff himself. Ratification requires conscious action on the part of the party to be charged. Plaintiff was still in the mental hospital when the objection sheet was sent and the closing date postponed and these acts have not been shown to have been carried out with his knowledge or by his direction. As for his own action it was merely to answer, in reply to an inquiry from defendant's president as to when he was going to take title, that he did not know, it was up to his attorney. The contract with defendant had been signed on September 23, plaintiff had been sent to the hospital on October 8 and remained there until November 11, having a series of electro-shock treatments while there, and the complaint in this action was verified November 20. The conversation with defendant's president could not have occurred until after November 11 and must have occurred several days prior to November 20. An answer as equivocal in nature and made under the circumstances as the one under consideration cannot in any fair sense be characterized as an exercise of plaintiff's right of election to "hold on to the bargain if it is good and let it go if it is bad" (Blinn v. Schwarz, 177 N.Y. 252, 263, supra).

Accordingly, defendant's motions at the end of plaintiff's case and of the whole case, on which decision was reserved, are now denied, and judgment will be entered declaring the contract rescinded and dismissing the counterclaim. The foregoing constitutes the decision of the court pursuant to section 440 of the Civil Practice Act.

During trial motions were granted amending the title of the action to read "Isidore Faber by Esther Faber, his guardian ad litem, plaintiff, v. Sweet Style Manufacturing Corporation, successor by merger to Semel Realty Corp., defendant." The judgment to be settled hereon shall be entitled accordingly.

Virgil M. Smith, Gadsden, for appellants.

George P. Ford of Dortch, Wright, Ford & Russell, Gadsden, for appellee Family Sav. Federal Credit Union.

William H. Rhea, III of Rhea, Boyd & Rhea, Gadsden, for appellees Bobby C. Matthews and Vicki D. Matthews.

PER CURIAM.

This is an appeal from an order denying appellant Williamson injunctive relief seeking to cancel a deed and to set aside a sale of property from Williamson to the Matthews. We reverse and remand.

The Matthews learned from members of their family that Williamson wanted to sell her home. Her mortgage was in default, and the mortgagee was threatening foreclosure. There was some evidence to the effect that Williamson wanted to get enough equity to help her finance a mobile home. When they went to Williamson's house to inquire about it, Williamson showed the Matthews through the house. Bobby Matthews asked Williamson how much she wanted for it. Williamson told the Matthews to come back the next day. It is at this point that the parties are in disagreement. The Matthews contend that Williamson offered to sell her equity for $1,700, and Williamson contends that she offered to sell her equity for $17,000, and that the Matthews agreed to pay off the mortgage. It is undisputed that on September 27, 1978, the parties went to attorney Arthur J. Cook's office to execute a contract for the sale of the property. The contract of sale stated the purchase price to be $1,800 ($100 increase reflecting an agreement between the parties concerning some of the furniture in the home) plus the unpaid balance of the mortgage. Attorney Cook testified that he read the terms of the sale to both parties.

The parties then met on October 10, 1978, at attorney Larry Keener's office to sign the deed and to close a loan from appellee Family Savings Federal Credit Union to the Matthews so that the Matthews could buy the property from Williamson. Appellee The Brooklyn Savings Bank was about to foreclose the mortgage on Williamson's property. Keener disbursed part of the loan proceeds to Williamson. Williamson signed the deed to the property.

This Court was advised at oral argument that further disbursement of funds has been held up pending final disposition of this appeal.

Immediately after the sale, Williamson became concerned that she had not received her full consideration and consulted an attorney.

Two days later, on October 12, 1978, Williamson filed a petition for injunctive relief alleging inadequate consideration and mental weakness. The trial court granted Williamson a temporary restraining order preventing the sale from being completed, but at a full hearing on the petition for injunctive relief, the court denied Williamson the relief she requested. Williamson moved for and was granted a rehearing and further testimony was taken on the issue of Williamson's alleged mental weakness. Following the rehearing, the court issued a final order, again denying Williamson injunctive relief. This appeal followed.

Williamson's contention of inadequacy of consideration is based upon evidence which she introduced at trial showing a property appraisal of $16,500. Using this figure and deducting the existing mortgage of approximately $6,500, Williamson's equity would amount to $10,000, $8,300 more than the $1,700 she was paid. Williamson contends that she was due $17,000 for her equity, which would result in the property being valued at $23,500 (adding the mortgage of $6,500). In other words, accepting Williamson's first contention, the Matthews should have paid her $8,300 more; accepting the second contention, Williamson should receive $15,300 more. There was also evidence that the credit union appraised the property for $19,500. This would reflect an equity of $13,000. Accepting this figure, she should have been paid $11,300 more. Thus, the claim of inadequacy of consideration (and it would seem to be well established) varied from $8,300 to $15,300.

Although it is a fundamental principle of law that inadequacy of consideration is not, by itself, a sufficient ground to set aside a contract for the sale of land, in Judge v. Wilkins, 19 Ala. 765, 772 (1851), over 128 years ago, this Court stated that: "... [I]nadequacy of price within itself, and disconnected from all other facts, cannot be a ground for setting aside a contract, or affording relief against it. There must be something else besides the mere inadequacy of consideration or inequality in the bargain, to justify a court in granting relief by setting aside the contract. What this something else besides the inadequacy should be, perhaps no court ought to say, lest the wary and cunning, by employing other means than those named, should escape with their fraudulent gains. I, however, will venture to say, that it ought, in connection with the inadequacy of consideration, to superinduce the belief that there had been either a suppression of the truth, the suggestion of falsehood, abuse of confidence, a violation of duty arising out of some fiduciary relation between the parties, the exercise of undue influence, or the taking of an unjust and inequitable advantage of one whose peculiar situation at the time would be calculated to render him an easy prey to the cunning and the artful. But if no one of these appears, or if no fact is proved that will lead the mind to the conclusion, that the party against whom relief is sought has suppressed some fact that he ought to have disclosed, or that he has suggested some falsehood, or abused in some manner the confidence reposed in him, or that some fiduciary relation existed between the parties, or that the party complaining was under his influence, or at the time of the trade was in a condition, from any cause, that would render him an easy victim to the unconscientious, then relief cannot be afforded; for inadequacy of consideration, standing alone and unsupported by any thing else, can authorize no court, governed by the rules of the English law, to set aside a contract...."

19 Ala. at 772.

Even a total failure of consideration is an insufficient ground for the cancellation of an otherwise valid deed. Ingram v. Horn, 294 Ala. 353, 317 So.2d 485 (1975).

Although in the case at bar there is no proof of suppression of fact, presentation of falsehood, abuse of confidence, fiduciary relationship between the parties, overreaching, or undue influence, the Court in Judge did not limit "this something else" besides mere inadequacy of consideration to these factors alone.

Williamson contends that the "something else" in the case at bar is mental weakness, either due to some form of permanent mental incapacity or due to intoxication. Of course, the contracts of an insane person are absolutely void. Walker v. Winn, 142 Ala. 560, 564, 39 So. 12 (1904). Williamson, however, is not contending that she was insane at the time of the contract, but rather is contending that she had a mental incapacity, which coupled with inadequacy of consideration requires the setting aside of the transaction.

Our rule in such a case is that a party cannot avoid, free from fraud or undue influence, a contract on the ground of mental incapacity, unless it be shown that the incapacity was of such a character that, at the time of execution, the person had no reasonable perception or understanding of the nature and terms of the contract. Weaver v. Carothers, 228 Ala. 157, 160, 153 So. 201 (1934).

Our rule regarding incapacity due to intoxication is much the same. The drunkenness of a party at the time of making a contract may render the contract voidable, but it does not render it void; and to render the contract voidable, it must be made to appear that the party was intoxicated to such a degree that he was, at the time of the contracting, incapable of exercising judgment, understanding the proposed engagement, and of knowing what he was about when he entered into the contract sought to be avoided. Snead v. Scott, 182 Ala. 97, 104, 62 So. 36 (1913). Proof merely that the party was drunk on the day the sale was executed does not per se, show that he was without contractual capacity; there must be some evidence of a resultant condition indicative of that extreme impairment of the faculties which amounts to contractual incapacity. Snead v. Scott, supra.

The burden was therefore cast on Williamson to show, by clear and convincing evidence, that she was incapable, at the time of execution, of executing the contract for sale and of executing the deed. Snead v. Scott, supra.

We hold that Williamson met this burden. The testimony elicited at trial by Williamson's attorney charted a history of aberrative behavior. A Mrs. Logan, Williamson's mother, provided lengthy testimony about her daughter's past aberrations. Additionally, Dr. Fredric Feist provided expert testimony regarding Williamson at the rehearing. He stated that she showed signs of an early organic brain syndrome due to her excessive drinking, that she had emotional problems, that he thought that some of her brain cells were destroyed, and that her ability to transact business had been impaired.

Indulging the usual presumption due the trial court, we nevertheless hold that, under the facts of this case, it appears to us that Williamson was not, at the time of execution, capable of fully and completely understanding the nature and terms of the contract and of the deed. Cross v. Maxwell, 263 Ala. 509, 83 So.2d 211 (1955). Williamson's contention that she was intoxicated supports this holding. Testimony was admitted from various witnesses to the effect that Williamson had a history of drinking, that she still had the problem at the time she executed the contract, and that she had in fact taken a couple of drinks before leaving for the meeting in attorney Arthur Cook's office. We do not hold that Williamson was so intoxicated as to render her incapable of contracting. However, numerous factors combine to warrant the conclusion that she was operating under diminished capacity. Testimony showed that Williamson's capacity to transact business was impaired, that she had a history of drinking, that she had been drinking the day she conducted negotiations, and that she had an apparent weakened will because she was pressured by the possibility of an impending foreclosure. Moreover, Williamson made complaint to an attorney only hours after the transaction. These factors are combined with a gross inadequacy of consideration.

No mitigating factors exist to the contrary. No right of any intervening third party is involved. Further disbursement of the loan proceeds has been frozen until final disposition of this appeal. No hardship is worked upon any party.

Although the evidence was presented before the trial court ore tenus, and in such a case where there is evidence to support the trial court's judgment, this Court will not ordinarily reverse that judgment unless there is a showing of plain and palpable error or manifest injustice [Terry v. Buttram, 368 So.2d 859, 860 (Ala.1979)], we consider that the record supports a finding in this case of such manifest injustice as to require a reversal of the judgment.

We recognize that two able and conscientious attorneys handled parts of the transaction. They are in no wise responsible for, nor were they aware of, the factors which prompt us to require a reversal of this case.

REVERSED AND REMANDED.

TORBERT, C. J., and BLOODWORTH, FAULKNER, ALMON and EMBRY, JJ., concur.

Alan R. Scott, Jr., Eugene, argued the cause and filed the brief for appellant.

Gerald R. Pullen, Portland, argued the cause and filed the brief for respondent.

Before TANZER, P.J., and THORNTON and CAMPBELL, JJ.

THORNTON, Judge.

This is an appeal from a decree directing specific performance of two contracts to sell land.^[1] Defendant assigns as error the trial court's finding that one of the vendors, Mrs. Bonham, had the capacity to contract for the sale of her parcel. Defendant also assigns error to the decree of specific performance contending that the ten percent liquidated damages clause in the contracts was intended by the parties to be the exclusive remedy for breach.

The facts are as follows:

Ruby Bonham, aged 81 at the date of the contract, owned 80 acres of land near Grants Pass. Her daughter, defendant Pauline Olson (who appeals both in her personal capacity and as conservator of the estate of her mother) owned an adjacent 10 acre parcel. In early 1976, Mrs. Bonham decided to sell her property and, desiring a national listing, contacted Mr. Martin of United Farm Agency. She originally wanted to ask $80,000 for the property but was persuaded by Mr. Martin, based on his experience and the fact that he had listed a similar parcel for $55,000, to reduce the asking price to $60,000. Mr. Martin further advised her that she should consider any offer above $50,000.

In July, 1976, plaintiff became interested in the property. He visited it on July 31, 1976. Based on this inspection he offered $50,000 for the parcel, contingent on Mrs. Olson's agreeing to sell her adjacent property for which he offered $15,000. The following day, Mr. Martin discussed the offer with both women and they rejected the offer as too low. Following a discussion with Mrs. Olson's attorney, they made a counter-offer to plaintiff of $52,500 and $20,000 for the two parcels respectively. This offer was accepted and Mr. Martin procured the signatures of each of them. He testified that before she signed the earnest money agreement on September 28, 1976, he had explained the details of the transaction to Mrs. Bonham in the presence of her sister. In December, 1976, Mrs. Olson decided that her mother was not competent at the time she signed the counter-offer and both refused to sign the final contracts.

Medical evidence of two doctors who treated Mrs. Bonham beginning in November, 1976, showed that she suffered from a heart blockage which caused seizures and blackouts and involutional psychosis resulting in depression. Both agreed that the condition would have been present prior to September, 1976, and could well have affected her mental processes.

Friends and relatives of Mrs. Bonham all testified to a gradual deterioration of her mental acuity over several years prior to the transaction in question. This deterioration manifested itself in a number of ways, including periods of disorientation and depression, occasional paranoia, an increase in eccentric habits and delusions concerning people long dead and imagined friendships with Barry Goldwater and Frank Sinatra.

On the other hand, plaintiff testified that while Mrs. Bonham appeared eccentric to him, he had no reason to question her capacity. When he visited the property, she showed him around and answered all his questions respecting the features of the property. Mr. Martin testified that she accurately answered all his questions when he prepared the listing agreement and appeared at all times to know that she was engaged in selling her property, apparently intending to move back to Tennessee, where she had grown up.

On September 28, 1976, when Mrs. Bonham signed the earnest money agreement, Mr. Martin testified he explained the details to her carefully, that she read the agreement and appeared to understand. Mrs. Bonham's sister, who was also present, testified that Mrs. Bonham just stared into space while Mr. Martin read the agreement to her and her only comment was, "I don't care what you do with this property. You can give it back to the Indians if you want to."

Mrs. Olson testified that she finally accepted that her mother was incompetent in October, 1976, and first discussed with her attorney the possibility of creating a conservatorship at that time. Based on this decision, she refused to sign the final contracts.

The test of contractual capacity is whether a person is able to understand the nature of his action and apprehend its consequences. Coke v. Coke, 242 Or. 486, 489, 410 P.2d 214 (1966). This capacity is measured at the time of the execution of the contract, in this case, the earnest money agreement. First Christian Church v. McReynolds, 194 Or. 68, 72, 241 P.2d 135 (1952). Even where there are substantial indications of mental incompetence, it is possible that a person may have "lucid intervals" during which he possesses the requisite capacity. Pioneer Trust Co. v. Currin, 210 Or. 343, 347, 311 P.2d 445 (1957). Capacity includes the ability to reason and exercise judgment and, in essence, to bargain with the other party. First Christian Church v. McReynolds, supra, 194 Or. at 72-73, 241 P.2d 135. Neither old age, illness nor extreme emotional distress is sufficient of itself to negate such capacity. Id.

In Gindhart v. Skourtes, 271 Or. 115, 530 P.2d 827 (1975), the seller suffered from an arteriosclerotic condition which caused periods of confusion which he claimed reduced his mental competence. He suffered a stroke shortly after the sale. The evidence showed, however, that he had tried to sell the land for two years without success, rejected the buyers' first offer and subsequently reached a compromise price which defendant's experts testified was in line with other prices for land in the area. 271 Or. at 119, 530 P.2d 827. The court found him competent.

In Pioneer Trust Co. v. Currin, supra, plaintiff's ward appeared disoriented and unresponsive and frequently talked to himself. He was committed to a mental hospital four months after selling the land in question. Nevertheless, he had lucid periods and defendant testified he had shown him around the place and answered all his questions in a normal fashion. The ward told defendant he was anxious to sell because he intended to leave the state soon and wanted cash. Defendant purchased the property for cash at a price below what probably could have been obtained. The court held the ward competent to enter into the contract.

While there is ample evidence to establish that Mrs. Bonham's mental state on September 28, 1976, had deteriorated substantially from what it once had been, this does not resolve the matter. We are persuaded, largely by the circumstances of the sale, that Mrs. Bonham was competent to sell her land. Mrs. Bonham had definite ideas about how the property should be listed and accurately supplied all the necessary information. The purchase price was negotiated over several months and the offer that was ultimately accepted was made by Mrs. Bonham and Mrs. Olson. Before obtaining her signature, Mr. Martin read the important features of the earnest money agreement to Mrs. Bonham and had her read the document, a point of considerable significance. First Christian Church v. McReynolds, supra,194 Or. at 83, 241 P.2d 135. Furthermore, Mrs. Olson and her attorney were constantly involved and no one, prior to November, 1976, suggested that Mrs. Bonham did not possess the requisite competence. In fact, defendant's primary dissatisfaction with the deal appears to be the price obtained, not the fact that the property was sold. In sum, the evidence indicates that Mrs. Bonham knew what she was doing and, though her reasons for selling may not have been altogether wise, she intended to sell and was cognizant of the consequences.

PROPRIETY OF THE REMEDY

Defendant contends that the liquidated damages clause in the earnest money agreements evinces the intent of the parties that it be the exclusive remedy in the event one party decided not to proceed with the sale.

The clause in question reads:

"It is agreed, if either seller or buyer fails to perform his part of this agreement, he shall forthwith pay to the other party hereto a sum equal to 10% of the agreed price of sale as consideration for the execution of this agreement by such other party."

The presence in a contract to sell real estate of a liquidated damages or forfeiture provision will not per se preclude specific performance. Slattery v. Gross, 96 Or. 554, 558, 187 P. 300, 190 P. 577 (1920); 5A Corbin, Contracts 435-36, § 1213. It must appear from the construction of the contract that the damages provision was intended by the parties to be the exclusive remedy for breach. Potter Realty Co. v. Derby, 75 Or. 563, 571, 147 P. 548 (1915). In Potter, the contract provided that in the event of breach by the buyer, installments made under the contract would be forfeited, and the "contract shall be null and void as to both parties hereto * * *." 75 Or. at 566, 147 P. at 549. The court held this remedy to be exclusive.

Defendant cites Dillard Homes, Inc. v. Carroll, 152 So.2d 738 (Fla.App. 1963). That case does not support defendant's position since the clause provided that the deposit of ten percent of the purchase price would be forfeited and "the parties hereto shall be relieved of all obligations under this instrument." 152 So.2d at 739. The authorities cited in that case support the proposition that the intent to preclude specific performance as a remedy must clearly appear. Deborah Homes, Inc. v. Firestone, 135 N.Y.S.2d 289 (Sup.Ct. 1954) (upon buyer's failure to take title, contract would be "deemed cancelled"); In re Tatnall, 102 N.J. Eq. 445, 141 A. 174 (1928) (sum to be retained "as liquidated damages, without any further liability of any kind whatsoever * * *.") 152 So.2d at 740-41. See also Rootberg v. Richard J. Brown Associates of Delaware, Inc., 14 Ill. App.3d 301, 302 N.E.2d 467, 469-70 (1973), where the contract contained a clause reserving specific performance as a seller's remedy which had been lined out prior to execution of the contract and the court remanded rather than hold as a matter of law that it constituted an intent to bar specific performance.

The intent to eliminate specific performance as a remedy does not appear from the clause in the contracts at issue.

Affirmed.

[1] The specific performance decree included an abatement of the purchase price for timber which was removed from the land by a third party at defendant's request following repudiation of the contracts.

469 P.2d 177 (1970)

Dick McINTOSH and Martha McIntosh v. George MURPHY and Murphy Motors, Limited, a Hawaii Corporation.

Supreme Court of Hawaii.

May 11, 1970.

Rehearing Denied June 12, 1970.

L. Richard Fried, Jr. and Ted Gamble Clause, Honolulu (Pratt, Moore, Bortz & Case, Honolulu, of counsel), for defendants-appellants.

Katsugo Miho, Honolulu (Fong, Miho, Choy & Robinson, Honolulu), for plaintiffs-appellees.

Before RICHARDSON, C.J., and MARUMOTO, ABE, LEVINSON and KOBAYASHI, JJ.

LEVINSON, Justice.

This case involves an oral employment contract which allegedly violates the provision of the Statute of Frauds requiring "any agreement that is not to be performed within one year from the making thereof" to be in writing in order to be enforceable. HRS § 656-1(5). In this action the plaintiff-employee Dick McIntosh seeks to recover damages from his employer, George Murphy and Murphy Motors, Ltd., for the breach of an alleged one-year oral employment contract.

While the facts are in sharp conflict, it appears that defendant George Murphy was in southern California during March, 1964 interviewing prospective management personnel for his Chevrolet-Oldsmobile dealerships in Hawaii. He interviewed the plaintiff twice during that time. The position of sales manager for one of the dealerships was fully discussed but no contract was entered into. In April, 1964 the plaintiff received a call from the general manager of Murphy Motors informing him of possible employment within thirty days if he was still available. The plaintiff indicated his continued interest and informed the manager that he would be available. Later in April, the plaintiff sent Murphy a telegram to the effect that he would arrive in Honolulu on Sunday, April 26, 1964. Murphy then telephoned McIntosh on Saturday, April 25, 1964 to notify him that the job of assistant sales manager was open and work would begin on the following Monday, April 27, 1964. At that time McIntosh expressed surprise at the change in job title from sales manager to assistant sales manager but reconfirmed the fact that he was arriving in Honolulu the next day, Sunday. McIntosh arrived on Sunday, April 26, 1964 and began work on the following day, Monday, April 27, 1964.

As a consequence of his decision to work for Murphy, McIntosh moved some of his belongings from the mainland to Hawaii, sold other possessions, leased an apartment in Honolulu and obviously forwent any other employment opportunities. In short, the plaintiff did all those things which were incidental to changing one's residence permanently from Los Angeles to Honolulu, a distance of approximately 2200 miles. McIntosh continued working for Murphy until July 16, 1964, approximately two and one-half months, at which time he was discharged on the grounds that he was unable to close deals with prospective customers and could not train the salesmen.

At the conclusion of the trial, the defense moved for a directed verdict arguing that the oral employment agreement was in violation of the Statute of Frauds, there being no written memorandum or note thereof. The trial court ruled that as a matter of law the contract did not come within the Statute, reasoning that Murphy bargained for acceptance by the actual commencement of performance by McIntosh, so that McIntosh was not bound by a contract until he came to work on Monday, April 27, 1964. Therefore, assuming that the contract was for a year's employment, it was performable within a year exactly to the day and no writing was required for it to be enforceable. Alternatively, the court ruled that if the agreement was made final by the telephone call between the parties on Saturday, April 25, 1964, then that part of the weekend which remained would not be counted in calculating the year, thus taking the contract out of the Statute of Frauds. With commendable candor the trial judge gave as the motivating force for the decision his desire to avoid a mechanical and unjust application of the Statute.¹

The case went to the jury on the following questions: (1) whether the contract was for a year's duration or was performable on a trial basis, thus making it terminable at the will of either party; (2) whether the plaintiff was discharged for just cause; and (3) if he was not discharged for just cause, what damages were due the plaintiff. The jury returned a verdict for the plaintiff in the sum of $12,103.40. The defendants appeal to this court on four principal grounds, three of which we find to be without merit. The remaining ground of appeal is whether the plaintiff can maintain an action on the alleged oral employment contract in light of the prohibition of the Statute of Frauds making unenforceable an oral contract that is not to be performed within one year.

I. TIME OF ACCEPTANCE OF THE EMPLOYMENT AGREEMENT

The defendants contend that the trial court erred in refusing to give an instruction to the jury that if the employment agreement was made more than one day before the plaintiff began performance, there could be no recovery by the plaintiff. The reason given was that a contract not to be performed within one year from its making is unenforceable if not to be writing.

The defendants are correct in their argument that the time of acceptance of an offer is a question of fact for the jury to decide. But the trial court alternatively decided that even if the offer was accepted on the Saturday prior to the commencement of performance, the intervening Sunday and part of Saturday would not be counted in computing the year for the purposes of the Statute of Frauds. The judge stated that Sunday was a non-working day and only a fraction of Saturday was left which he would not count. In any event, there is no need to discuss the relative merits of either ruling since we base our decision in this case on the doctrine of equitable estoppel which was properly briefed and argued by both parties before this court, although not presented to the trial court.

II. ENFORCEMENT BY VIRTUE OF ACTION IN RELIANCE ON THE ORAL CONTRACT

In determining whether a rule of law can be fashioned and applied to a situation where an oral contract admittedly violates a strict interpretation of the Statute of Frauds, it is necessary to review the Statute itself together with its historical and modern functions. The Statute of Frauds, which requires that certain contracts be in writing in order to be legally enforceable, had its inception in the days of Charles II of England. Hawaii's version of the Statute is found in HRS § 656-1 and is substantially the same as the original English Statute of Frauds.

The first English Statute was enacted almost 300 years ago to prevent "many fraudulent practices, which are commonly endeavored to be upheld by perjury and subornation of perjury". 29 Car. 2, c. 3 (1677). Certainly, there were compelling reasons in those days for such a law. At the time of enactment in England, the jury system was quite unreliable, rules of evidence were few, and the complaining party was disqualified as a witness so he could neither testify on direct-examination nor, more importantly, be cross-examined. Summers, The Doctrine of Estoppel and the Statute of Frauds, 79 U.Pa.L.Rev. 440, 441 (1931). The aforementioned structural and evidentiary limitations on our system of justice no longer exist.

Retention of the Statute today has nevertheless been justified on at least three grounds: (1) the Statute still serves an evidentiary function thereby lessening the danger of perjured testimony (the original rationale); (2) the requirement of a writing has a cautionary effect which causes reflection by the parties on the importance of the agreement; and (3) the writing is an easy way to distinguish enforceable contracts from those which are not, thus chanelling certain transactions into written form.² In spite of whatever utility the Statute of Frauds may still have, its applicability has been drastically limited by judicial construction over the years in order to mitigate the harshness of a mechanical application.³ Furthermore, learned writers continue to disparage the Statute regarding it as "a statute for promoting fraud" and a "legal anachronism."⁴

Another method of judicial circumvention of the Statute of Frauds has grown out of the exercise of the equity powers of the courts. Such judicially imposed limitations or exceptions involved the traditional dispensing power of the equity courts to mitigate the "harsh" rule of law. When courts have enforced an oral contract in spite of the Statute, they have utilized the legal labels of "part performance" or "equitable estoppel" in granting relief. Both doctrines are said to be based on the concept of estoppel, which operates to avoid unconscionable injury. 3 Williston, Contracts § 533A at 791 (Jaeger ed. 1960), Summers, supra at 443-49; Monarco v. Lo Greco, 35 Cal.2d 621, 220 P.2d 737(1950) (Traynor, J.).

Part performance has long been recognized in Hawaii as an equitable doctrine justifying the enforcement of an oral agreement for the conveyance of an interest in land where there has been substantial reliance by the party seeking to enforce the contract. Perreira v. Perreira, 50 Haw. 641, 447 P.2d 667 (1968) (agreement to grant life estate); Vierra v. Shipman, 26 Haw. 369 (1922) (agreement to devise land); Yee Hop v. Young Sak Cho, 25 Haw. 494 (1920) (oral lease of real property). Other courts have enforced oral contracts (including employment contracts) which failed to satisfy the section of the Statute making unenforceable an agreement not to be performed within a year of its making. This has occurred where the conduct of the parties gave rise to an estoppel to assert the Statute. Oxley v. Ralston Purina Co., 349 F.2d 328 (6th Cir.1965) (equitable estoppel); Alaska Airlines, Inc. v. Stephenson, 217 F.2d 295, 15 Alaska 272 (9th Cir.1954) ("promissory estoppel"); Seymour v. Oelrichs, 156 Cal. 782, 106 P. 88 (1909) (equitable estoppel).

It is appropriate for modern courts to cast aside the raiments of conceptualism which cloak the true policies underlying the reasoning behind the many decisions enforcing contracts that violate the Statute of Frauds. There is certainly no need to resort to legal rubrics or meticulous legal formulas when better explanations are available. The policy behind enforcing an oral agreement which violated the Statute of Frauds, as a policy of avoiding unconscionable injury, was well set out by the California Supreme Court. In Monarco v. Lo Greco, 35 Cal.2d 621, 623, 220 P.2d 737, 739 (1950), a case which involved an action to enforce an oral contract for the conveyance of land on the grounds of 20 years performance by the promisee, the court said:

The doctrine of estoppel to assert the statute of frauds has been consistently applied by the courts of this state to prevent fraud that would result from refusal to enforce oral contracts in certain circumstances. Such fraud may inhere in the unconscionable injury that would result from denying enforcement of the contract after one party has been induced by the other seriously to change his position in reliance on the contract * * *.

See also Seymour v. Oelrichs, 156 Cal. 782, 106 P. 88 (1909) (an employment contract enforced).

In seeking to frame a workable test which is flexible enough to cover diverse factual situations and also provide some reviewable standards, we find very persuasive section 217A of the Second Restatement of Contracts.⁵ That section specifically covers those situations where there has been reliance on an oral contract which falls within the Statute of Frauds. Section 217A states:

(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce the action or forbearance is enforceable notwithstanding the Statute of Frauds if injustice can be avoided only by enforcement of the promise. The remedy granted for breach is to be limited as justice requires.(2) In determining whether injustice can be avoided only by enforcement of the promise, the following circumstances are significant: (a) the availability and adequacy of other remedies, particularly cancellation and restitution; (b) the definite and substantial character of the action or forbearance in relation to the remedy sought; (c) the extent to which the action or forbearance corroborates evidence of the making and terms of the promise, or the making and terms are otherwise established by clear and convincing evidence; (d) the reasonableness of the action or forbearance; (e) the extent to which the action or forbearance was forseeable by the promisor.

We think that the approach taken in the Restatement is the proper method of giving the trial court the necessary latitude to relieve a party of the hardships of the Statute of Frauds. Other courts have used similar approaches in dealing with oral employment contracts upon which an employee had seriously relied. See Alaska Airlines, Inc. v. Stephenson, 217 F.2d 295 (9th Cir.1954); Seymour v. Oelrichs, 156 Cal. 782, 106 P. 88 (1909). This is to be preferred over having the trial court bend over backwards to take the contract out of the Statute of Frauds. In the present case the trial court admitted just this inclination and forthrightly followed it.

There is no dispute that the action of the plaintiff in moving 2200 miles from Los Angeles to Hawaii was foreseeable by the defendant. In fact, it was required to perform his duties. Injustice can only be avoided by the enforcement of the contract and the granting of money damages. No other remedy is adequate. The plaintiff found himself residing in Hawaii without a job.

It is also clear that a contract of some kind did exist. The plaintiff performed the contract for two and one-half months receiving $3,484.60 for his services. The exact length of the contract, whether terminable at will as urged by the defendant, or for a year from the time when the plaintiff started working, was up to the jury to decide.

In sum, the trial court might have found that enforcement of the contract was warranted by virtue of the plaintiff's reliance on the defendant's promise. Naturally, each case turns on its own facts. Certainly there is considerable discretion for a court to implement the true policy behind the Statute of Frauds, which is to prevent fraud or any other type of unconscionable injury. We therefore affirm the judgment of the trial court on the ground that the plaintiff's reliance was such that injustice could only be avoided by enforcement of the contract.

Affirmed.

ABE, Justice (dissenting).

The majority of the court has affirmed the judgment of the trial court; however, I respectfully dissent.

I.

Whether alleged contract of employment came within the Statute of Frauds:

As acknowledged by this court, the trial judge erred when as a matter of law he ruled that the alleged employment contract did not come within the Statute of Frauds; however, I cannot agree that this error was not prejudicial as this court intimates.

On this issue, the date that the alleged contract was entered into was all important and the date of acceptance of an offer by the plaintiff was a question of fact for the jury to decide. In other words, it was for the jury to determine when the alleged one-year employment contract was entered into and if the jury had found that the plaintiff had accepted the offer¹ more than one day before plaintiff was to report to work, the contract would have come within the Statute of Frauds and would have been unenforceable. Sinclair v. Sullivan Chevrolet Co., 31 Ill.2d 507, 202 N.E.2d 516 (1964); Chase v. Hinkley, 126 Wis. 75, 105 N.W. 230 (1905).

II.

This court holds that though the alleged one-year employment contract came within the Statute of Frauds, nevertheless the judgment of the trial court is affirmed "on the ground that the plaintiff's reliance was such that injustice could only be avoided by enforcement of the contract."

I believe this court is begging the issue by its holding because to reach that conclusion, this court is ruling that the defendant agreed to hire the plaintiff under a one-year employment contract. The defendant has denied that the plaintiff was hired for a period of one year and has introduced into evidence testimony of witnesses that all hiring by the defendant in the past has been on a trial basis. The defendant also testified that he had hired the plaintiff on a trial basis.

Here on one hand the plaintiff claimed that he had a one-year employment contract; on the other hand, the defendant claimed that the plaintiff had not been hired for one year but on a trial basis for so long as his services were satisfactory. I believe the Statute of Frauds was enacted to avoid the consequences this court is forcing upon the defendant. In my opinion, the legislature enacted the Statute of Frauds to negate claims such as has been made by the plaintiff in this case. But this court holds that because the plaintiff in reliance of the one-year employment contract (alleged to have been entered into by the plaintiff, but denied by the defendant) has changed his position, "injustice could only be avoided by enforcement of the contract." Where is the sense of justice?

Now assuming that the defendant had agreed to hire the plaintiff under a one-year employment contract and the contract came within the Statute of Frauds, I cannot agree, as intimated by this court, that we should circumvent the Statute of Frauds by the exercise of the equity powers of courts. As to statutory law, the sole function of the judiciary is to interpret the statute and the judiciary should not usurp legislative power and enter into the legislative field. A.C. Chock, Ltd. v. Kaneshiro, 51 Haw. 87, 93, 451 P.2d 809 (1969); Miller v. Miller, 41 Ohio Op. 233, 83 N.E.2d 254 (Ct. C.P. 1948). Thus, if the Statute of Frauds is too harsh as intimated by this court, and it brings about undue hardship, it it for the legislature to amend or repeal the statute and not for this court to legislate.

KOBAYASHI, J., joins in this dissent.

Footnotes

1. THE COURT: You make the law look ridiculous, because one day is Sunday and the man does not work on Sunday; the other day is Saturday; he is up in Fresno. He can't work down there. And he is down here Sunday night and shows up for work on Monday. To me that is a contract within a year. I don't want to make the law look ridiculous, Mr. Clause, because it is one day later, one day too much, and that one day is a Sunday, and a non-working day.2. Fuller, Consideration and Form, 41 Colum.L.Rev. 799, 800-03 (1941); Note: Statute of Frauds — The Doctrine of Equitable Estoppel and the Statute of Frauds, 66 Mich.L.Rev. 170 (1967).3. Thus a promise to pay the debt of another has been construed to encompass only promises made to a creditor which do not benefit the promisor (Restatement of Contracts § 184 (1932); 3 Williston, Contracts § 452 (Jaeger ed. 1960)); a promise in consideration of marriage has been interpreted to exclude mutual promises to marry (Restatement, supra § 192; 3 Williston, supra § 485); a promise not to be performed within one year means a promise not performable within one year (Restatement, supra § 198; 3 Williston, supra, § 495); a promise not to be performed within one year may be removed from the Statute of Frauds if one party has fully performed (Restatement, supra § 198; 3 Williston, supra § 504); and the Statute will not be applied where all promises involved are fully performed (Restatement, supra § 219; 3 Williston, supra § 528).4. Burdick, A Statute for Promoting Fraud, 16 Colum.L.Rev. 273 (1916); Willis, The Statute of Frauds — A Legal Anachronism, 3 Ind.L.J. 427, 528 (1928).5. Restatement (Second) of Contracts § 217A (Supp. Tentative Draft No. 4, 1969).1. Plaintiff testified that he accepted the offer in California over the telephone.

Tom Thomas, Dallas, Tex., for plaintiff-appellant-cross appellee.

Wentworth T. Durant, Ronald G. Williams, Dallas, Tex., for defendant-appellee-cross appellant.

Before THORNBERRY, AINSWORTH, and MORGAN, Circuit Judges.

THORNBERRY, Circuit Judge:

This diversity dispute^[1] centers around an oral employment agreement, its modification, and the fallout resulting therefrom. Bad feelings abound between former employee and former employer, and we resolve the dispute by affirming the district court's decision that both sides take nothing.

Defendant C. A. Roberts Co., an Illinois corporation, distributes tubing, pipes, and similar metal goods. Although the company has done business in Texas for more than 40 years, it did not have an employee in the state until July 1968, when it hired plaintiff Mercer. A Dallas sales office was established a few months later, with Mercer as its manager. The employment agreement between the parties was oral and was without a definite term of duration; however, it was understood that Mercer would develop the Dallas office to maturity, a process that would take from three to five years. Mercer was well-suited for the job, having left the employ of one of Roberts' competitors to assume this position.

In August 1970, it was agreed that Mercer would receive incentive compensation in addition to his regular salary. This bonus plan consisted of fifteen per cent of the Dallas office's contribution to the company's annual profits. The bonus was payable quarterly and retroactive to January 1, 1970. Again there was no written agreement. More than four years later, in August 1974, Mercer was informed of a change in his compensation formula retroactive to January 1 of that year. Apparently the unanticipated revenue from the Dallas office resulted in Mercer's compensation under the formula being disproportionate to the compensation received by other employees. Dissatisfied with this revision, Mercer resigned on January 20, 1975.

Upon leaving the company, Mercer took with him a "customer data book" containing the names of all his customers, the types of materials purchased by each, their purchasing habits, information on various suppliers, and the like. He also took the company's price book, which contained a list of every item it sold and the price. Mercer has since engaged in a competition with Roberts and has solicited business from Roberts' customers in the Dallas area. The day after he resigned, he formed a Texas corporation — C. A. Roberts Co., Inc. — with himself as sole stockholder. However, pursuant to the Texas "assumed name" statutes,^[2]he filed a certificate with the clerks of Dallas and Tarrant Counties to do business under the name "Mercer Metals." Defendant Roberts had never registered or reserved its corporate name with the Texas Secretary of State.^[3] Mercer subsequently dissolved his corporation and now makes no claim to its name.

Mercer filed this suit on the day of his resignation, seeking approximately $37,000 in unpaid salary and bonuses, plus attorney's fees. Roberts filed an answer and counterclaimed for injunctive relief and some $35,000 in damages on the theory that Mercer had breached his fiduciary duty to the company by appropriating trade secrets and engaging in unfair competition. The district court held that the employment contract was unenforceable under the statute of frauds, Tex.Bus. & Comm.Code § 26.01, and that Mercer had not taken any trade secrets, engaged in unfair competition, or breached a fiduciary duty. Accordingly, judgment was entered for Roberts on the complaint and for Mercer on the counterclaim. Mercer brought this appeal, and Roberts cross-appealed.

I. STATUTE OF FRAUDS

The Texas "statute of frauds" is found in Tex.Bus. & Comm.Code § 26.01, which provides in pertinent part:

(a) A promise or agreement described in Subsection (b) of this section is not enforceable unless the promise or agreement, or a memorandum of it, is

(1) in writing; and

(2) signed by the person to be charged with the promise or agreement or by someone lawfully authorized to sign for him.

(b) Subsection (a) of this section applies to . . .

(6) an agreement which is not to be performed within one year from the date of making the agreement; . . ..

In interpreting this provision,^[4] the Texas courts have consistently held that where the time for performance of an oral agreement — including an oral employment agreement — is uncertain and performance can conceivably occur within one year, the statute of frauds is inapplicable, even if performance within the year is highly improbable. Miller v. Riata Cadillac Co., 517 S.W.2d 773 (Tex.1974); Bratcher v. Dozier, 162 Tex. 319, 346 S.W.2d 795 (1961); Hall v. Hall, 158 Tex. 95, 308 S.W.2d 12 (1957).

However, when no time for performance has been specified in the agreement, a reasonable time will be implied on the basis of all circumstances surrounding adoption of the agreement, the situation of the parties, and the subject matter of the agreement. Hall v. Hall, supra; Krueger v. Young, 406 S.W.2d 751 (Tex.Civ.App.-Eastland 1966, writ ref. n. r. e.); Adams v. Big Three Indus., Inc., 549 S.W.2d 411 (Tex.Civ.App.-Beaumont 1977, writ ref. n. r. e.). If the agreement, so interpreted, cannot be performed within one year, it comes within the statute of frauds and is unenforceable.

When the agreement is unwritten and its interpretation depends on disputed facts, the question of "reasonable duration" is one of fact to be determined by the trier of fact. Adams v. Big Three Indus., Inc., supra; McRae v. Lindale Ind. School Dist.,450 S.W.2d 118 (Tex.Civ.App.-Tyler 1970, writ ref. n. r. e.). That is the situation in the instant case, and the district court found that the agreement was not performable in one year because the parties contemplated that Mercer would develop the Dallas office to maturity, a process that would take three to five years. That finding is not clearly erroneous. Rule 52(a), Fed.R.Civ.P.^[5]

Given this finding and the above-stated Texas law, it is clear that the employment agreement is within the statute of frauds and thus unenforceable. Insufficiency of a contract on such grounds precludes both recovery for specific performance and damages for breach of contract. Wilson v. Fisher, 144 Tex. 53, 188 S.W.2d 150 (1945); Edward Scharf Associates, Inc. v. Skiba, 538 S.W.2d 501 (Tex.Civ.App.-Waco 1976, no writ).

Mercer argues, however, that the statute of frauds does not apply because the agreement has been fully performed. The Texas courts have, in many situations, held that full or partial performance of an oral agreement by one party precludes invocation of the statute of frauds by the other. E. g., Hooks v. Bridgewater, 111 Tex. 122, 229 S.W. 114 (1921) (contract for sale of realty); Kirk v. Beard, 162 Tex. 144, 345 S.W.2d 267 (1961) (agreement to make mutual wills that disposed of real property); Oak Cliff Realty Corp. v. Mauzy, 354 S.W.2d 693 (Tex.Civ.App.-Dallas 1962, writ ref. n. r. e.) (lease of real property); Vick v. McPherson, 360 S.W.2d 866 (Tex.Civ.App.-Amarillo 1962, writ ref. n. r. e.) (purchase of insurance agency); Wynnewood State Bank v. Brigham, 434 S.W.2d 874 (Tex.Civ.App.-Texarkana 1968, writ ref. n. r. e.) (agreement of bank to purchase credit life insurance for maker of note). To justify such equitable intervention by the courts in light of a clear statute, there must be something more than a mere wrong or breach of contract. The situation must be such that nonenforcement of the contract would itself plainly amount to fraud. Meyer v. Texas Nat'l Bank of Commerce, 424 S.W.2d 417 (Tex.1968).

Oral employment agreements, however, have been treated as contracts of a different color. Partial or full performance of such agreements by an employee has been held insufficient to render the statute of frauds inoperative. E. g., Paschall v. Anderson, 127 Tex. 251, 91 S.W.2d 1050 (Tex.Comm.App.1936, opinion adopted); Chevalier v. Lane's, Inc., 147 Tex. 106, 213 S.W.2d 530 (1948); Collins v. McCombs, 511 S.W.2d 745 (Tex.Civ.App.-San Antonio 1974, writ ref. n. r. e.); Choleva v. Spartan Aviation, Inc., 524 S.W.2d 739 (Tex.Civ.App.-Corpus Christi 1975, no writ). Nonetheless, there are circumstances in which the employee's performance of the agreement may trigger equitable relief. See Paschall v. Anderson, supra, 91 S.W.2d at 1051; Chevalier v. Lane's, Inc., supra, 213 S.W.2d at 534. However, the Texas courts found no such circumstances present in the above-cited cases, and we find none here.

The result may seem harsh, since Mercer worked from January to August 1974 under the assumption that he would receive his incentive pay. In August the company altered the compensation formula and made the change retroactive to January 1. However, the Texas courts have made clear that an oral agreement within the statute of frauds will not be enforced except in egregious situations. For example, in Collins v. McCombs, supra, Collins entered into an oral agreement with McCombs under which he would receive a set salary for operating a miniature train ride. At the end of three years, he would begin to share in the profits of the business. The three years passed, with Collins receiving the agreed upon salary, but when he approached McCombs about receiving a portion of the business, McCombs told him he "was not ever going to get" such an interest. The court held the contract was within the statute of frauds and thus unenforceable.

The instant case is similar. Mercer worked from January to August expecting to receive his incentive pay. During that time he was paid his regular salary. However, in August he was informed that he would not receive the commission, just as Collins was told he would not receive an interest in the train business. Mercer was arguably earning the commission during the eight-month period, but Collins, too, was in a real sense earning his share of the business. The Texas court in Collinswas not willing to upset the clear legislative policy embodied in the statute of frauds, and we are unwilling to do so in the instant case. Accordingly, we hold the oral agreement unenforceable.^[6]

II. TRADE SECRETS

When Mercer left the company, he took with him a "customer data book" containing an alphabetical listing of Roberts' customers, with notations stating the type and amount of material purchased, its price, addresses of the purchaser, and names of its agents; a "price book" listing all of Roberts' products and prices; and related information including Roberts' analysis of the company's suppliers. Roberts argues that these were confidential materials containing valuable trade secrets and that Mercer took them in breach of a fiduciary duty and used them in unfair competition against the company.

Our initial inquiry is whether a confidential relationship existed between Mercer and Roberts, for Texas follows the rule that one is liable for disclosure of trade secrets (1) if he discovers the secret by improper means or (2) his disclosure constitutes a breach of confidence. Hyde Corp. v. Huffines, 158 Tex. 566, 314 S.W.2d 763, 769 (1958). Only the second possibility is at issue here.

The district court found that the parties did not agree that the material was to be confidential, but there need not be such an express agreement as to confidentiality. Hyde Corp. v. Huffines, supra at 770. The law will imply as part of the employment contract an agreement not to disclose information which the employee receives as an incident of his employment "if the employee knows that his employer desires such information be kept secret, or if, under the circumstances, he should have realized that secrecy was desired." Lamons Metal Gasket Co. v. Traylor, 361 S.W.2d 211, 213 (Tex.Civ.App.-Houston 1961, writ ref. n. r. e.).

It is clear that not all employment relationships are confidential. Rimes v. Club Corp. of America, 542 S.W.2d 909 (Tex.Civ.App.-Dallas 1976, writ ref. n. r. e); Furr's, Inc. v. United Specialty Advertising Co., 385 S.W.2d 456 (Tex.Civ.App.-El Paso 1964, writ ref. n. r. e.), cert. denied, 382 U.S. 824, 86 S.Ct. 59, 15 L.Ed.2d 71 (1965). When an employee acquires an intimate knowledge of the employer's business, however, the relationship can be deemed confidential. Thermotics, Inc. v. Bat-Jac Tool Co., 541 S.W.2d 255 (Tex.Civ.App.-Houston [1st Dist.] 1976, no writ); Orkin Exterminating Co. v. Wilson, 501 S.W.2d 408, 411 (Tex.Civ.App.-Tyler 1973, writ dism'd); Rimes v. Club Corp. of America, supra at 914 (dictum).

While there is no doubt that Mercer had gained an "intimate knowledge" of Roberts' operations, we do not think that a confidential employment relationship existed. Mercer was not informed that the information was to be kept secret, and under the circumstances he could have reasonably assumed that the material was not confidential. The district court found that one of Mercer's assets as a new employee was his ability to retain a substantial number of customers in the area that he had served while working for one of Roberts' competitors. He thus brought considerable information about these customers to Roberts and apparently saw nothing wrong with taking similar information with him when he struck out on his own.^[7]

Alternatively, we hold that the information in question is not a trade secret under Texas law. At the outset, it should be noted that Roberts' price list was admittedly not kept from competitors and thus cannot be a trade secret. Rimes v. Club Corp. of America, supra; Research Equipment Co. v. Galloway, 485 S.W.2d 953 (Tex.Civ.App.-Waco 1972, no writ). Moreover, it has been held that a mere list of customers does not constitute a trade secret. SCM Corp. v. Triplett Co., 399 S.W.2d 583 (Tex.Civ.App.-San Antonio 1966, no writ); Gaal v. BASF Wyandotte Corp., 533 S.W.2d 152 (Tex.Civ.App.-Houston [14th Dist.] 1976, no writ); Research Equipment Co. v. Galloway, supra.

Roberts contends that its own analysis of suppliers and the specific needs and buying habits of various customers are trade secrets. There is no doubt that this information would greatly aid a would-be competitor, but we cannot say it rises to the level of a trade secret. In Brooks v. American Biomedical Corp., 503 S.W.2d 683 (Tex.Civ.App.-Eastland 1973, writ ref. n. r. e.), the court held that credit information regarding prices, courier routes, and customers of a business, as well as the employees of those customers, did not constitute a trade secret. The court stressed that these matters "are generally known to any person engaged in this business or can be ascertained by an independent investigation." Id. at 685.^[8]Similarly, we think that much of the information contained in the material taken by Mercer could be obtained from other sources. The district court so found, and the finding is not clearly erroneous. It seems obvious that the needs and purchasing habits of customers could be readily ascertained through simple observation or contact with each customer. Although the supplier evaluations present somewhat different considerations, this information is only a portion of data utilized by a company in selecting a supplier. For example, one supplier may be considered more reliable, but it may have significantly higher prices than another supplier. Moreover, Mercer had worked as a salesman for a competitor before joining Roberts, and anyone with experience in the field must certainly have had experience with various suppliers. Therefore, although the supplier evaluations may not be readily available from other sources, we conclude that they are not in themselves trade secrets.

Our conclusion on this issue is buttressed by the fact that Roberts hired Mercer to develop its Dallas office in part because of Mercer's knowledge of the trade area gained as an employee for a competitor and his ability to retain a substantial number of those customers when he joined Roberts. As the district court found, "[i]mplicit in the ability to retain these customers was Roberts' knowledge of the identities and needs of those customers which [Mercer] retained and furnished to Roberts". This finding is not clearly erroneous. Moreover, while Mercer may not have had certain information regarding Roberts' customers had he not work for the company, Roberts would not have had similar information about its competitors had it not hired Mercer. To put it simply, "what is sauce for the goose is sauce for the gander."

III. MISAPPROPRIATION OF CORPORATE NAME

The district court found that Mercer did not use the name of his Texas corporation, C. A. Roberts Co., Inc., to solicit business, that he did not mislead potential customers by using that name, and that he transacted no business whatsoever under that name. These findings are not clearly erroneous.

Roberts, however, contends that Mercer's reservation of the name "C. A. Roberts Co., Inc." with the Texas Secretary of State prevented the company from qualifying to do business in Texas and from building a warehouse in the state. However, the record is devoid of any attempt of the company to so qualify to do business in Texas. See Tex.Bus.Corp.Act art. 8.01. At the time of trial Roberts had not paid franchise taxes to the State of Texas, although it had been doing business in the state for several years, and had not attempted to register its corporate name with the Secretary of State. See Tex.Rev.Civ.Stat.Ann., Taxation-General, art. 12.01 (franchise taxes); Tex.Bus.Corp. Act art. 2.07 (reservation of corporate name). The district court properly concluded that Roberts suffered no injury from Mercer's formation of the Texas corporation, which was dissolved prior to trial.

IV. CONCLUSION

Because of our treatment of this case, we need not reach other issues addressed by the parties. The judgment of the district court is affirmed in all respects, and each party shall bear his own costs on appeal.

AFFIRMED.

AINSWORTH, Circuit Judge, dissenting:

I respectfully dissent from the failure of the court to reverse that portion of the district court judgment which denied relief to plaintiff Mercer. I agree, however, that the judgment should be affirmed insofar as it denies defendant's counterclaims.

In my view the Texas statute of frauds, Tex.Bus. & Comm.Code § 26.01, does not apply to the oral employment contract between plaintiff Mercer and defendant C. A. Roberts Company involved in this case, for the following reasons.

First, I would hold that the employment agreement was an annual agreement beginning on January 1 of each year, and thus was to be performed within one year from the date of its making. See Tex.Bus. & Comm.Code § 26.01(b)(6) (Texas statute of frauds applies only to "an agreement which is not to be performed within one year from the date of making the agreement . .."). The parties may have contemplated that it would take Mercer three to five years to develop the Dallas office of C. A. Roberts Company to maturity, but they specified no definite time for performance. On the contrary, the parties treated the agreement as if executed on an annual basis. See Miller v. Riata Cadillac Co., 517 S.W.2d 773 (Tex. 1974); Bratcher v. Dozier, 162 Tex. 319, 346 S.W.2d 795 (1961); Hall v. Hall, 158 Tex. 95, 308 S.W.2d 12 (1957).

Second, and most importantly, Mercer has fully performed the agreement upon which he now sues. He does not seek recovery for prospective employment compensation, but only for the months during which he was actually employed and fulfilled his employment obligations. The majority points out that the Texas courts have on occasion held that partial or full performance by an employee of an oral employment contract is insufficient to render the statute of frauds inoperative. At least two of those courts, however, have stated there are circumstances in which an employee's performance of the oral agreement does call for equitable relief — when nonenforcement of the agreement would amount to fraud. Chevalier v. Lane's, Inc., 147 Tex. 106, 213 S.W.2d 530, 534 (1948); Paschall v. Anderson, 127 Tex. 251, 91 S.W.2d 1050, 1051 (Tex.Comm.App.1936, opinion adopted).

Thus the Texas statute is subject to the exception that its provisions will not be maintained where to do so would amount to a denial of equity to a plaintiff in circumstances which show that employment for the year involved was induced by defendant's fraud. It must be emphasized that it was not until August 1974 — of the year sued upon — that defendant C. A. Roberts unilaterally notified plaintiff Mercer that his compensation, bonus and salary, would be substantially reduced retroactive to January 1, 1974. Mercer had first been employed by defendant in 1968. It is undisputed that in August 1970 the parties agreed that Mercer's compensation would be $870 per month plus 15% of defendant's Dallas office contribution to profits for the year, retroactive to January 1, 1970. Thereafter, for four consecutive years, 1970-1973, Mercer was paid in accordance with this agreement. But defendant seeks nevertheless to abort its agreement and deprive Mercer of money fully earned, by resorting to the Texas statute of frauds. Defendant C. A. Roberts is thus attempting by fraudulent means to obtain an advantage over plaintiff which equity clearly forbids. Mercer was induced to work for defendant in the year 1974, believing his compensation would be the same as in the four previous years, but defendant changed the basis of compensation in August 1974 without mutual agreement and retroactive to January 1974. Certainly defendant should be estopped from attempting to avoid payment of just compensation in this inequitable way.

The majority concedes that C. A. Roberts Company changed Mercer's compensation formula simply because his compensation had become disproportionate to that of other employees. The court's opinion observes that "The result may seem harsh since Mercer worked from January to August 1974 under the assumption that he would receive his incentive pay." Yet Mercer's earnings had risen only as a result of his doing what the company hired him to do — develop the Dallas office into a profitable enterprise. As C. A. Roberts Company made money, Mercer was to make money; that was the agreement. We should not and need not reach a "harsh" result in this case since neither the Texas statute nor the Texas decisions require it. The laborer is worthy of his hire. An appropriate order should be entered requiring that he be paid.

[1] We apply the law of Texas, the forum state. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).

[2] Tex.Bus.Corp. Act art. 2.05; Tex.Rev.Civ.Stat.Ann. art. 5924 et seq. The Texas Legislature recently overhauled the assumed name requirements by adding Chapter 36 to the Business and Commerce Code. Session Laws 65th Legislature, Ch. 403, at 1095 (1977).

[3] Tex.Bus.Corp. Act art. 2.07.

[4] The statute of frauds was first enacted in Texas on January 8, 1840, when, of course, Texas was a republic. Acts of 1840, at 28; Gammel's Laws of Texas, vol. 2, at 202. It followed the statute of King Charles II, 29 Car. II, c. 3, § 4 (1677), and provided that no action shall be brought "upon any agreement which is not to be performed within the space of one year from the making thereof" unless the "agreement upon which action shall be brought, or some memorandum or note thereof, shall be in writing, and signed by the party to be charged therewith, or by some person by him thereunto authorized." The statute appeared in various codifications of Texas law over the years, finally coming to rest in Art. 3995, Tex.Rev.Civ.Stat., in 1925. There it remained until 1967 when the Legislature enacted the Business and Commerce Code, the first code to be passed under the state's statutory revision program.

[5] A finding is clearly erroneous when, although there is evidence to support it, the reviewing court, after examining the entire record, is left with a "definite and firm conviction that a mistake has been committed by the district court." Causey v. Ford Motor Co., 516 F.2d 416, 420 (5 Cir. 1975).

[6] The dissent would go well beyond Collins and hold the agreement enforceable, but it does not even attempt to distinguish that case. As pointed out previously, Texas courts have recognized that an agreement may be enforced where nonenforcement would amount to fraud. Chevalier v. Lane's, Inc., supra; Paschall v. Anderson, supra. However, in neither of those cases did the court enforce the agreement; moreover, the court in Collins, faced with circumstances at least as harsh as those in the instant case, held the contract unenforceable. Were we writing on a clean slate, the dissent's position would certainly be a tenable one, but being Erie-bound, we cannot ignore the parameters of the Texas case law.

Mercer also argues that payment of compensation on a monthly or annual basis removes the contract from the statute of frauds, citing Miller v. Riata Cadillac Co., supra. That case, however, is wholly inapposite, and it has been held that the fact that payment is made monthly does not take an employment agreement out of the statute of frauds. Jackman v. Anheuser-Busch, 162 S.W.2d 744 (Tex.Civ.App.-Dallas 1942, writ ref'd). This argument is without merit.

[7] Moreover, Roberts obviously benefited from Mercer's prior knowledge of customers and their needs and should not be heard to complain now that the shoe is on the other foot.

[8] Apparently contra is Crouch v. Swing Machinery Co., 468 S.W.2d 604 (Tex.Civ.App.-San Antonio 1971, no writ), which is not cited or distinguished in the later Brooks decision. However, we consider Brooks the more authoritative of the two, since the Supreme Court of Texas refused to hear the case, noting that there was no reversible error. Crouch, on the other hand, has no writ history, indicating that it was not appealed to the Supreme Court.

Moore, Lympus & Doran, Kalispell, Gary G. Doran, argued, Kalispell, for plaintiffs and appellants.

Morrison & Hedman, Whitefish, Donald E. Hedman, argued, Whitefish, for defendants and respondents.

SHEEHY, Justice.

Lawrence and Billy Ann Schwedes (Schwedes) brought suit in the District Court, Eleventh Judicial District, Flathead County against Dorlaine A. Romain and LeRoy Mudgett (respondents) to obtain either specific performance of an alleged contract with respondents for the sale of land, or damages for breach of such contract. Respondents, after discovery, moved for summary judgment in their favor, which was granted. Schwedes appeal from the summary judgment against them, and from the refusal of the District Court to alter, amend, or vacate the summary judgment.

We conclude the District Court should be affirmed in this case.

In 1976, respondents, as part of a business partnership, owned twenty acres of land on or near the Swan River in Flathead County. Schwedes, residents of Santa Monica, California, searching for a place to retire in the Flathead Valley, received the following letter from Dorlaine A. Romain:

"Romain & Mudgett Aug. 9, 1976 Bigfork, Mont. 59911 "Mr. & Mrs. Laurence Schwedes 353 24th St. Santa Monica, Calif. 90402

"Dear Mr. Schwedes,

"Concerning the Swan River property you were interested in, We have contacted Mr. Charles Hash, attorney of Kalispell and he informs us that the Title Ins. Co. says the acreage and survey is correct at 19.53 acres and should be sold as is. If there is an confusion at the courthouse is can be cleared with a simple Quit Claim  from us to Kirbys without contacting the Albrechts.

"We have agreed to sell to you for $60,000 cash is you are interested. There is $19,170.00 contract that could be assumed. This contract has 3 years left at 7 ½% interest.

"We have listed the property with the local realties at $65,000 with a 6% commission charge and have shown it several times but so far we have not heard anything interesting. We are interested in selling this year if possible and hope you will consider this price.

"Sincerely yours, "Dorlaine Romain"[sic]

Lawrence Schwedes on August 16, 1976 communicated acceptance of the respondents' offer by telephone call to Dorlaine A. Romain in Flathead County. Thereupon respondents employed an attorney, Tom Hoover, to attend to details relating to the closing of the real estate transaction. Mr. Hoover ordered a title insurance commitment with an effective date of September 9, 1976 and prepared appropriate deeds to be executed by respondents in favor of the Schwedes. A closing date was set for September 20, 1976, a date agreed upon by all the parties. However, before that date, Mr. Hoover, in a telephone conversation with Schwedes, indicated it would not be necessary for them to come to Flathead County to close the transaction until they were further notified by telephone by Mr. Hoover. Nevertheless, on the previously agreed upon closing date, September 20, 1976, Mr. Hoover called Schwedes to indicate that the title reports had been received and would be sent by mail to the Schwedes. At that time, Lawrence Schwedes offered in the telephone call to send the whole purchase price as agreed, but was told by Mr. Hoover that it would be unnecessary and that the Schwedes could take care of it when they came to close the transaction, which was then set for October 3, 1976.

On September 30, 1976, respondents sold the real property in question to a third party, identified in the record as the "Vornbrocks" from Alberta, Canada, for a consideration stated to be $64,000. The action in the District Court ensued.

It is clear from the record that no document in writing was signed by either of the Schwedes respecting the transaction; that Attorney Hoover had no authority in writing to bind respondents to the transaction; that respondents would have executed the necessary documents for the property transaction and authorized their delivery to the Schwedes if the purchase price had been delivered to them prior to the date of sale to the Vornbrocks; that the Schwedes did not take possession of the property, erected no improvements thereon, paid no taxes or other assessments on the property, nor any sums of money to respondents.

From our examination of the record, and our consideration of the briefs and oral argument herein, we must conclude (1) no enforceable contract between the parties existed; (2) there was no basis upon which the District Court could have granted specific performance to the Schwedes; and (3) even if a contract existed, there was no part performance thereof, nor estoppel against respondents, so as to take the contract out of the statute of frauds. Therefore, the summary judgment granted by the District Court against Schwedes was correct.

The four essential elements of a contract are (1) legally capable parties, (2) their consent, (3) a lawful object, and (4) consideration. Section 13-102, R.C.M. 1947. Here there is no evidence that any consideration moved from Schwedes to respondents. A mere oral promise to pay, as in this case, is not sufficient consideration to support a contractual obligation on the part of Schwedes. Such a promise must be binding and impose some legal obligation on the one making it. 17 Am.Jur.2d 450, 451 Contracts § 105. A contract is not made so long as, in the contemplation of both parties thereto, something remains to be done in order to establish contract relations. See Mahoney v. Lester (1946), 118 Mont. 551, 557, 168 P.2d 339.

Respondents argue that the acceptance of the offer by Schwedes was not unqualified, as required by section 13-321, R.C.M. 1947, and therefore, this essential element of consent is also missing from the purported contract. Since this is an appeal from a summary judgment, we will not consider that point where the evidence may be conflicting, and the issue does not enter into our decision.

It is further true, however, that a contract for the sale of real estate is invalid unless it, or some note or memorandum thereof is in writing subscribed by the parties to be charged. Section 13-606(4), R.C.M. 1947. Here there is no writing, memorandum or note binding Schwedes to buy this property. Hence, the oral promise of Schwedes was not legally binding, and imposed no legal duty upon them.

Likewise, Schwedes may not rely, to establish a contract between them and respondents, on the fact that Attorney Hoover prepared and mailed a form of deed and a title report, or that he extended the time for payment. The attorney, as any other agent, has no power to bind respondents in this case unless his authority to act on behalf of respondents is in writing, subscribed by respondents. Section 13-606(4); Hartt v. Jahn (1921), 59 Mont. 173, 196 P. 153.

We now consider whether the Schwedes are entitled to specific performance.

To begin with, the Schwedes have no evidence upon which they can establish a valid enforceable contract. In that situation, they may not obtain specific performance of the purported contract:

"While it is universally recognized that equitable relief by way of specific performance does not follow as a matter of course by establishing the existence and validity of the contract, the performance of which is sought, the existence of a valid contract is essential to the remedy of specific performance. In order for equity to decree specific performance, it is necessary that there be in existence and in effect a contract valid at law and binding upon the parties against whom performance is sought, for specific performance is never applicable where there is no obligation to perform... ." 71 Am.Jur.2d 27 Specific Performance § 13.

See Long v. Cornell (1963), 142 Mont. 21, 381 P.2d 302; Dineen v. Sullivan (1949), 123 Mont. 195, 213 P.2d 241.

As a third point, the Schwedes say the contract is not invalid under the statute of frauds because of partial performance, both by the Schwedes and the respondents. The acts of partial performance by Schwedes, relied upon by them, are that they secured financing and offered (but did not pay) the full purchase price to respondents' attorney. They further claim respondents partially performed by withholding their property from the market while the parties were negotiating, obtaining a title report and hiring an attorney to close the deal.

It appears to us that appellants have failed to distinguish between acts undertaken in contemplation of eventual performance, and acts which truly constitute part performance of a contract. Acts undertaken by a party under the first category are not such part performance of the contract as to take it out of the operation of the statute of frauds. Here, the actions of Schwedes in obtaining financing and offering to pay the full amount, with nothing further, did not constitute part performance of the contract.

Claimed acts of partial performance sufficient to take an otherwise unenforceable contract out of the statute of frauds must be unequivocally referable to that contract. Throndson v. Commissioner of Internal Revenue (Cal. 1972), 457 F.2d 1022. The sufficiency of acts to constitute such part performance can be decided as a matter of law. Boesiger v. Freer (1963), 85 Idaho 551, 381 P.2d 802. Such acts as obtaining financing and making studies of the real property have been held insufficient part performance to preclude the defense of the statute of frauds. Gene Hancock Construction Co. v. Kempton & Snedigar Dairy (Ariz. 1973), 20 Ariz. App. 122, 510 P.2d 752, 755. The actions of respondents relied on by Schwedes are acts undertaken in contemplation of eventual performance of the contract. Again, these do not constitute part performance to remove the operation of the statute of frauds. Further, the acts of the respondents may not be relied upon by Schwedes because in order to remove the contract from the operation of the statute of frauds; a party may rely only on his part performance and not on the purported partial performance of others.

"... So, it is often laid down as a general rule that the acts relied upon as part performance to remove a parol agreement for the sale of lands from the operation of the Statute of Frauds must have been performed by the parties seeking to enforce the agreement. Part performance by the parties sought to be charged does not take an agreement out of the Statute of Frauds. Since the basis of the doctrine of part performance is to prevent a fraud upon the plaintiffs, it is true as a general proposition, that if a party who resists the enforcement of a contract chooses not to stand on what he has done under and in pursuance of it, the other party cannot be aided by it." 73 Am.Jur.2d 38 Statute of Frauds § 411.

The final issue of Schwedes is that respondents are estopped to deny the validity of the contract between them. Again Schwedes rely on the actions they claim constitute part performance as above set forth, and further upon the fact that it was respondents' attorney who told the Schwedes not to pay the purchase price on September 20, 1976, but to do it at a later closing date.

This contention is inapplicable and can be answered simply by quoting the comment in 56 A.L.R.3d at 1054, regarding Sinclair v. Sullivan Chevrolet Co. (Ill. 1964), 45 Ill. App.2d 10, 195 N.E.2d 250, affirmed 31 Ill.2d 507, 202 N.E.2d 516,as follows:

"... [T]he court explicitly stated that where a case is clearly within the statute of frauds, promissory estoppel is inapplicable, for [the net effect would be to repeal the statute completely. The court cited [a] general rule that the moral wrong of refusing to be bound by an agreement because it does not comply with the statute of frauds, does not of itself authorize the application of the doctrine of estoppel, because the breach of a promise which the law does not regard as binding is not a fraud. The court also stated that acts performed in contemplation of the contract are not considered as sufficient part performance to bring the case within any exception to the statute of frauds, or to permit the application of doctrine of estoppel... ."

Usually the courts will apply the doctrine of promissory estoppel to suspend the statute of frauds only in those situations when the statute would otherwise operate to perpetrate a fraud. 56 A.L.R.3d 1037, 1056. Such is not the case here.

For the foregoing reasons, the summary judgment granted by the District Court is affirmed.

HASWELL, C.J., and DALY, HARRISON and SHEA, JJ., concur.

931 F.2d 1178 (7th Cir. 1991)

Monetti, S.p.a., and Melform U.s.a., Inc., Plaintiffs-appellants, v. Anchor Hocking Corporation, Defendant-appellee

US Court of Appeals for the Seventh Circuit

Argued Feb. 14, 1991

Decided May 1, 1991

Jonathan G. Bunge, Stephen L. Agin, Kevin Tottis, Jill E. Evans, Keck, Mahin & Cate, Chicago, Ill., for plaintiffs-appellants.

John A. Relias, Jeannine M. Pisoni, Jennifer A. Murphy, Vedder, Price, Kaufman & Kammholz, Chicago, Ill., for defendant-appellee.

Before WOOD, Jr. and POSNER, Circuit Judges, and FAIRCHILD, Senior Circuit Judge.

POSNER, Circuit Judge.

This is a diversity suit for breach of contract; the parties agree that Illinois law governs the substantive issues. The district judge dismissed the suit, on the defendant's motion for summary judgment, as barred by the statute of frauds, and also refused to allow the plaintiffs to amend their complaint to add a claim of promissory estoppel. The appeal, which challenges both rulings, presents difficult and important questions concerning both the general Illinois statute of frauds, Ill.Rev.Stat. ch. 59, p 1, and the statute of frauds in the Uniform Commercial Code, UCC Sec. 2-201, adopted by Illinois in Ill.Rev.Stat. ch. 26, p 2-201.

The plaintiffs are Monetti, an Italian firm that makes decorative plastic trays and related products for the food service industry, and a wholly owned subsidiary, Melform U.S.A., which Monetti set up in 1981 to market its products in the U.S. In 1984, Monetti began negotiations with a father-and-son team, the Schneiders, importers of food service products, to grant the Schneiders the exclusive right to distribute Monetti's products in the United States and in connection with this grant to turn over to them Melform's tangible and intangible assets. While these negotiations were proceeding, the Schneiders sold their importing firm to Anchor Hocking, the defendant, and their firm became a division of Anchor Hocking, though--at first--the Schneiders remained in charge. In the fall of 1984, the younger Schneider, who was handling the negotiations with Monetti for his father and himself, sent Monetti a telex requesting preparation of an agreement "formalizing our [i.e., Anchor Hocking's] exclusive for the United States." In response, Monetti terminated all of Melform's distributors and informed all of Melform's customers that Anchor would become the exclusive U.S. distributor of Monetti products on December 31, 1984.

On December 18, the parties met, apparently for the purpose of making a final agreement. Monetti--which incidentally was not represented by counsel at the meeting--submitted a draft the principal provisions of which were that Anchor Hocking would be the exclusive distributor of Monetti products in the U.S., the contract would last for ten years, and during each of these years Anchor Hocking would make specified minimum purchases of Monetti products, adding up to $27 million over the entire period. No one from Anchor Hocking signed this or any other draft of the agreement. However, the record contains a memo, apparently prepared for use at the December 18 meeting, entitled "Topics of Discussion With Monetti." The memo's first heading is "Exclusive Agreement--Attachment # 1"--a reference to an attached draft which is identical to the Monetti draft except for two additional, minor paragraphs added in handwriting. Under the heading appears the notation "Agree" beside each of the principal paragraphs of the agreement, with one exception: beside the first paragraph, the provision for exclusivity, the notation is "We want Canada" (i.e., exclusive distribution rights in Canada as well as in the U.S.). On the bottom of the left-hand side of the last page appears the legend "SS/mh"--indicating that the younger Schneider (Steve Schneider) had dictated the memo to a secretary.

Shortly after the December 18 meeting, Monetti--which had already, remember, terminated Melform's distributors and informed Melform's customers that Anchor Hocking would be the exclusive distributor of Monetti products in the United States as of the last day of 1984--turned over to Anchor Hocking all of Melform's inventory, records, and other physical assets, together with Melform's trade secrets and know-how.

Several months later, in May 1985, Anchor Hocking abruptly fired the Schneiders. Concerned about the possible implications of this demarche for its relationship with Anchor Hocking, Monetti requested a meeting between the parties, and it was held on May 19. Reviewing the events up to and including that meeting, a memo dated June 12, 1985, from Raymond Davis, marketing director of Anchor Hocking's food services division, to the law department of Anchor Hocking, states that "In the middle to latter part of 1984 Irwin Schneider and his company were negotiating an agreement with [Monetti and Melform] to obtain exclusive distribution rights on Melform's plastic tray product line in the United States"; "later, this distribution agreement was expanded to also include Canada, the Caribbean and Central and South America"; there had been many meetings between the parties, including the meeting of May 19 (at which Davis had been present); "Exhibit A (attached) represents the summary agreement that was reached in the meeting. You will notice that I have added some handwritten changes which I believe represents more clearly our current position regarding the agreement.... Now that we have had our 'New Management' [i.e., the management team that had replaced the Schneiders] meeting with Monetti, both parties would like to have a written and signed agreement to guide this new relationship." Exhibit A to the Davis memo is identical to Attachment # 1 to Steve Schneider's memo, except that it contains the handwritten changes to which the Davis memo refers. Shortly after this memo was written, the parties' relationship began to deteriorate, and eventually Monetti sued for breach of contract.

Illinois' general statute of frauds forbids a suit upon an agreement that is not to be performed within a year "unless the promise or agreement upon which such action shall be brought, or some memorandum or note thereof, shall be in writing, and signed by the party to be charged therewith, or some other person thereunto by him lawfully authorized." The statute of frauds in Article 2 of the Uniform Commercial Code makes a contract for the sale of goods worth at least $500 unenforceable "unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker." The differences between these formulations are subtle but important. The Illinois statute requires that the writing "express the substance of the contract with reasonable certainty." Frazer v. Howe, 106 Ill. 564, 574 (1883); see also Holsz v. Stephen, 362 Ill. 527, 532, 200 N.E. 601, 603 (1936); Mariani v. School Directors, 154 Ill.App.3d 404, 407, 107 Ill.Dec. 90, 92, 506 N.E.2d 981, 983 (1987). The UCC statute of frauds does not require that the writing contain the terms of the contract. Ill.Code Comment 1 to UCC Sec. 2-201. In fact it requires no more than written corroboration of the alleged oral contract. Even if there is no such signed document, the contract may still be valid "with respect to goods ... which have been received and accepted." Sec. 2-201(3) (c). This provision may appear to narrow the statute of frauds still further, but if anything it curtails a traditional exception, and one applicable to Illinois' general statute: the exception for partial performance, on which see, for example, Payne v. Mill Race Inn, 152 Ill.App.3d 269, 277-78, 105 Ill.Dec. 324, 330-331, 504 N.E.2d 193, 199-200 (1987); Grundy County National Bank v. Westfall, 13 Ill.App.3d 839, 845, 301 N.E.2d 28, 32 (1973). The Uniform Commercial Code does not treat partial delivery by the party seeking to enforce an oral contract as a partial performance of the entire contract, allowing him to enforce the contract with respect to the undelivered goods.

Let us postpone the question of partial performance for a moment and focus on whether there was a signed document of the sort that the statutes of frauds require. The judge, over Monetti's objection, refused to admit oral evidence on this question. He was right to refuse. The use of oral evidence to get round the requirement of a writing would be bootstrapping, would sap the statute of frauds of most of its force, and is therefore forbidden. Western Metals Co. v. Hartman Co., 303 Ill. 479, 485, 135 N.E. 744, 746 (1922); R.S. Bennett & Co. v. Economy Mechanical Industries, Inc., 606 F.2d 182, 186 n. 4 (7th Cir. 1979); Bazak International Corp. v. Mast Industries, Inc., 73 N.Y.2d 113, 117-18, 538 N.Y.S.2d 503, 505, 535 N.E.2d 633, 635 (1989). The Hip Pocket, Inc. v. Levi Strauss & Co., 144 Ga.App. 792, 793, 242 S.E.2d 305, 306 (1978), is contra, but does not discuss the question and is, we think, wrong; while Impossible Electronic Techniques, Inc. v. Wackenhut Protective Systems, Inc., 669 F.2d 1026, 1034 (5th Cir. 1982), on which Monetti also relies, is distinguishable from our case because there the writing was first held to satisfy the statute of frauds and only then was oral evidence admitted to clear up a detail, albeit a vital one--the identity of one of the parties!

Although we have cited cases from different jurisdictions, the question whether oral evidence is admissible to show that an ambiguous document satisfies the requirements of the statute of frauds is ultimately one of state law. So far as we have been able to discover, the question is uniformly assumed to be substantive rather than procedural for purposes of determining, in accordance with the Erie doctrine, whether state or federal law applies, though direct authority on the question is sparse. Lehman v. Dow, Jones & Co., 606 F. Supp. 1152, 1156 (S.D.N.Y. 1985); McInnis v. A.M.F., Inc., 765 F.2d 240, 245 (1st Cir. 1985) (dictum); 19 Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure Sec. 4512, at pp. 194-95 (1982). We think the assumption is well founded, although the point is not crucial in this case because neither party questions the applicability of Illinois law. It is true that a statute of frauds is procedural in form and that its main proximate goal is evidentiary; it is largely based on distrust of the ability of juries to determine the truth of testimony that there was or was not a contract. 2 E. Allan Farnsworth, Farnsworth on Contracts Sec. 6.1, at p. 85 (1990). But it is usually and we think correctly regarded as a part of contract law, not of general procedural law. Cf. Harbor Ins. Co. v. Continental Bank Corp., 922 F.2d 357, 364 (7th Cir. 1990). It is designed to make the contractual process cheaper and more certain by encouraging the parties to contracts to memorialize their agreement. The end of the statute of frauds thus is substantive (albeit the means is procedural), which makes essential aspects of the administration of the statute, such as the admissibility of oral evidence to disambiguate an ambiguous document that is contended to satisfy the statute of frauds, a matter of primary concern to the states rather than to the federal government. So Illinois law applies to the issue; and Western Metals indicates that Illinois courts would not allow oral evidence to be used to enable a vague document to satisfy the statute of frauds.

Because oral evidence was inadmissible on the question whether the documents meet the requirements of the statutes of frauds, it was proper for the judge to resolve it on motion for summary judgment. The parties agree that, if this was proper, our review is plenary. This does not follow, however, from the documentary character of the issue, Anderson v. City of Bessemer City, 470 U.S. 564, 105 S. Ct. 1504, 84 L. Ed. 2d 518 (1985), as the parties may believe. But in view of the parties' agreement concerning the proper scope of our review, we need not resolve the matter, beyond noting that there is authority, illustrated by the Bazak case, for regarding the issue as one of law, not fact--and if it is an issue of law, then our review is indeed plenary.

We have two documents (really, two pairs of documents) to consider. The first is Steve Schneider's "Topics for Discussion" memo with its "Attachment # 1." Since "signed" in statute-of-frauds land is a term of art, meaning executed or adopted by the defendant, Weston v. Myers, 33 Ill. 424, 433 (1864); UCC Sec. 1-201(39) and Ill.Code Comment thereto; 2 Farnsworth on Contracts, supra, Sec. 6.8, at p. 144, Schneider's typed initials are sufficient. The larger objection is that the memo was written before the contract--any contract--was made. The memo indicates that Schneider (an authorized representative of the defendant) agrees to the principal provisions in the draft agreement prepared by Monetti, but not to all the provisions; further negotiations are envisaged. There was no contract when the memo was prepared and signed, though it is fair to infer from the memo that a contract much like the draft attached to it would be agreed upon--if Monetti agreed to Anchor Hocking's demand for Canada, as Monetti concedes (and the Davis memo states) it did.

Can a memo that precedes the actual formation of the contract ever constitute the writing required by the statute of frauds? Under the Uniform Commercial Code, why not? Its statute of frauds does not require that any contracts "be in writing." All that is required is a document that provides solid evidence of the existence of a contract; the contract itself can be oral. Three cases should be distinguished. In the first, the precontractual writing is merely one party's offer. We have held, interpreting Illinois' version of the Uniform Commercial Code, that an offer won't do. R.S. Bennett & Co. v. Economy Mechanical Industries, Inc., supra, 606 F.2d at 186. Otherwise there would be an acute danger that a party whose offer had been rejected would nevertheless try to use it as the basis for a suit. The second case is that of notes made in preparation for a negotiating session, and this is another plausible case for holding the statute unsatisfied, lest a breakdown of contract negotiations become the launching pad for a suit on an alleged oral contract. Third is the case--arguably this case--where the precontractual writing--the Schneider memo and the attachment to it--indicates the promisor's (Anchor Hocking's) acceptance of the promisee's (Monetti's) offer; the case, in other words, where all the essential terms are stated in the writing and the only problem is that the writing was prepared before the contract became final. The only difficulty with holding that such a writing satisfies the statute of frauds is the use of the perfect tense by the draftsmen of the Uniform Commercial Code: the writing must be sufficient to demonstrate that "a contract for sale has been made.... The 'futuristic' nature of the writing disqualifies it." Micromedia v. Automated Broadcast Controls, 799 F.2d 230, 234 (5th Cir. 1986) (emphasis in original); see also American Web Press, Inc. v. Harris Corp., 596 F. Supp. 1089, 1093 (D. Colo. 1983). Yet under a general statute of frauds, "it is well settled that a memorandum satisfying the Statute may be made before the contract is concluded." Farrow v. Cahill, 663 F.2d 201, 209 (D.C. Cir. 1980) (footnote omitted). And while merely because the UCC's draftsmen relaxed one requirement of the statute of frauds--that there be a writing containing all the essential terms of the contract--doesn't exclude the possibility that they wanted to stiffen another, by excluding writings made before the contract itself was made, the choice of tenses is weak evidence. No doubt they had in mind, as the typical case to be governed by section 2-201, a deal made over the phone and evidenced by a confirmation slip. They may not have foreseen a case like the present, or provided for it. The distinction between what is assumed and what is prescribed is critical in interpretation generally.

In both of the decisions that we cited for the narrow interpretation, the judges' concern was with our first two classes of case; and judicial language, like other language, should be read in context. Micromedia involved an offer; in American Web, negotiations were continuing. We agree with Professor Farnsworth that in appropriate circumstances a memorandum made before the contract is formed can satisfy the statute of frauds, 2 Farnsworth on Contracts, supra, Sec. 6.7, at p. 132 and n. 16, including the UCC statute of frauds. This case illustrates why a rule of strict temporal priority is unnecessary to secure the purposes of the statute of frauds. Farnsworth goes further. He would allow a written offer to satisfy the statute, provided of course that there is oral evidence it was accepted. Id., n. 16. We needn't decide in this case how far we would go with him, and therefore needn't reexamine Bennett.

Nor need we decide whether the first memo (Schneider's) can be linked with the second (Davis's)--probably not, since they don't refer to each other, Poulos v. Reda, 165 Ill.App.3d 793, 800, 117 Ill.Dec. 465, 471, 520 N.E.2d 816, 822 (1987); Southmark Corp. v. Life Investors, Inc., 851 F.2d 763, 767 n. 5 (5th Cir. 1988)--to constitute a post-contract writing and eliminate the issue just discussed. For, shortly after the Schneider memo was prepared, Monetti gave dramatic evidence of the existence of a contract by turning over its entire distribution operation in the United States to Anchor Hocking. (In fact it had started to do this even earlier.) Monetti was hardly likely to do that without a contract--without in fact a contract requiring Anchor Hocking to purchase a minimum of $27 million worth of Monetti's products over the next ten years, for that was a provision to which Schneider in the memo had indicated agreement, and it is the only form of compensation to Monetti for abandoning its distribution business that the various drafts make reference to and apparently the only one the parties ever discussed.

This partial performance took the contract out of the general Illinois statute of frauds. Unilateral performance is pretty solid evidence that there really was a contract--for why else would the party have performed unilaterally? Almost the whole purpose of contracts is to protect the party who performs first from being taken advantage of by the other party, so if a party performs first there is some basis for inferring that he had a contract. The inference of contract from partial performance is especially powerful in a case such as this, since while the nonenforcement of an oral contract leaves the parties free to pursue their noncontractual remedies, such as a suit for quantum meruit (a form of restitution), Farash v. Sykes Datatronics, Inc., 59 N.Y.2d 500, 503, 465 N.Y.S.2d 917, 918, 452 N.E.2d 1245, 1246 (1983); Robertus v. Candee, 205 Mont. 403, 407, 670 P.2d 540, 542 (1983); 2 Farnsworth on Contracts, supra, Sec. 6.11, at p. 171, once Monetti turned over its trade secrets and other intangible assets to Anchor Hocking it had no way of recovering these things. (Of course, Monetti may just have been foolish.) The partial-performance exception to the statute of frauds is often explained (and its boundaries fixed accordingly) as necessary to protect the reliance of the performing party, so that if he can be made whole by restitution the oral contract will not be enforced. This is the Illinois rationale, Payne v. Mill Race Inn, supra, 152 Ill.App.3d at 277-78, 105 Ill.Dec. at 330-331, 504 N.E.2d at 199-200, and it is not limited to Illinois. 2 Farnsworth on Contracts, supra, Sec. 6.9. It supports enforcement of the oral contract in this case.

This discussion assumes, however, that the contract is governed by the general Illinois statute of frauds rather than, as the district judge believed, by the UCC's statute of frauds (or in addition to it--for both might apply, as we shall see), with its arguably narrower exception for partial performance. The UCC statute of frauds at issue in this case appears in Article 2, the sale of goods article of the Code, and, naturally therefore, is expressly limited to contracts for the sale of goods. That is a type of transaction in which a partial-performance exception to a writing requirement would make no sense if the seller were seeking payment for more than the goods he had actually delivered. Suppose A delivers 1,000 widgets to B, and later sues B for breach of an alleged oral contract for 100,000 widgets and argues that the statute of frauds is not a bar because he performed his part of the contract in part. In such a case partial performance just is not indicative of the existence of an oral contract for any quantity greater than that already delivered, so it is no surprise that the statute of frauds provides that an oral contract cannot be enforced in a quantity greater than that received and accepted by the buyer. Sec. 2-201(3) (c); cf. Sec. 2-201(1). The present case is different. The partial performance here consisted not of a delivery of goods alleged to be part of a larger order but the turning over of an entire business. That kind of partial performance is evidence of an oral contract and also shows that this is not the pure sale of goods to which the UCC's statute of frauds was intended to apply.

This is not to say that the contract is outside the Uniform Commercial Code. It is a contract for the sale of goods plus a contract for the sale of distribution rights and of the assets associated with those rights. Courts forced to classify a mixed contract of this sort ask, somewhat unhelpfully perhaps, what the predominant purpose of the contract is. Yorke v. B.F. Goodrich Co., 130 Ill.App.3d 220, 223, 85 Ill.Dec. 606, 608, 474 N.E.2d 20, 22 (1985), and cases cited there. And, no doubt, they would classify this contract as one for the sale of goods, therefore governed by the UCC, because the $27 million in sales contemplated by the contract (if there was a contract, as we are assuming) swamped the goodwill and other intangibles associated with Melform's very new, very small operation. Distributorship agreements, such as this one was in part, and even sales of businesses as going concerns, are frequently though not always classified as UCC contracts under the predominant-purpose test. Compare De Filippo v. Ford Motor Co., 516 F.2d 1313, 1323 (3d Cir. 1975); Hudson v. Town & Country True Value Hardware, Inc., 666 S.W.2d 51, 53 (Tenn.1984); Cavalier Mobile Homes, Inc. v. Liberty Homes, Inc., 53 Md.App. 379, 394, 454 A.2d 367, 376 (1983); and WICO Corp. v. Willis Industries, 567 F. Supp. 352, 355 (N.D. Ill. 1983) (applying Illinois law), with Lorenz Supply Co. v. American Standard, Inc., 419 Mich. 610, 615, 358 N.W.2d 845, 847 (1984).

We may assume that the UCC applies to this contract; but must all of the UCC apply? We have difficulty seeing why. It is not a matter of holding the contract partly enforceable and partly unenforceable, a measure disapproved in Distribu-Dor, Inc. v. Karadanis, 11 Cal. App. 3d 463, 468, 90 Cal. Rptr. 231, 234 (1970). Because of the contract's mixed character, the UCC statute of frauds doesn't make a nice fit; it's designed for a pure sale of goods. The general statute works better. The fact that Article 2, which we have been loosely referring to as the sale of goods article, in fact applies not to the sale of goods as such but rather to "transactions in goods," Sec. 2-102, while its statute of frauds is limited to "contract [s] for the sale of goods," Sec. 2-201(1), could be thought to imply that the statute of frauds does not cover every transaction that is otherwise within the scope of Article 2. 2 Farnsworth on Contracts, supra, Sec. 6.6, at p. 126 and n. 5. Perhaps the contract in this case is better described as a transaction in goods than as a contract for the sale of goods, since so much more than a mere sale of goods was contemplated.

Another possibility is to interpret the UCC statute of frauds flexibly (an approach endorsed in Meyer v. Logue, 100 Ill.App.3d 1039, 1044-46, 56 Ill.Dec. 707, 710-12, 427 N.E.2d 1253, 1256-58 (1981)) in consideration of the special circumstances of the class of cases represented by this case, so that it does make a smooth fit. There is precedent for doing this. When the partial performance is not the delivery of some of the goods but part payment for all the goods, most courts will enforce oral contracts under the UCC. Sedmak v. Charlie's Chevrolet, Inc., 622 S.W.2d 694, 698-99 (Mo.App.1981); W.I. Snyder Corp. v. Caracciolo, 373 Pa.Super. 486, 494-95, 541 A.2d 775, 779 (1988); The Press, Inc. v. Fins & Feathers Publishing Co., 361 N.W.2d 171, 174 (Minn.App.1985). Such cases do not present the danger at which the limitation on using partial performance to take the entire contract outside of the statute of frauds was aimed, that of the seller's unilaterally altering the quantity ordered by the buyer, although they could be thought to present the analogous danger of the seller's unilaterally altering the price the buyer had agreed to pay--by claiming that full payment was actually part payment. This case, at all events, presents no dangers of the sort the provision in question was designed to eliminate. The semantic lever for the interpretation we are proposing is that the UCC does not abolish the partial-performance exception. It merely limits the use of partial delivery as a ground for insisting on the full delivery allegedly required by the oral contract. That is not what Monetti is trying to do.

We need not pursue these interesting questions about the applicability and scope of the UCC statute of frauds any further in this case, because our result would be unchanged no matter how they were answered. For we have said nothing yet about the second writing in the case, the Davis memorandum of June 12. It was a writing on Anchor Hocking's letterhead, so satisfied the writing and signature requirements of the UCC statute of frauds, and it was a writing sufficient to evidence the existence of the contract upon which Anchor Hocking is being sued. It is true that "Exhibit A" does not contain all the terms of the contract; it makes no reference to the handing over of Melform's assets. But, especially taken together with the Davis memo itself (and we are permitted to connect them provided that the connections are "apparent from a comparison of the writings themselves," Western Metals Co. v. Hartman Co., supra, 303 Ill. at 483, 135 N.E. at 746, and they are, since the Davis memo refers explicitly to Exhibit A), Exhibit A is powerful evidence that there was a contract and that its terms were as Monetti represents. Remember that the UCC's statute of frauds does not require that the contract be in writing, but only that there be a sufficient memorandum to indicate that there really was a contract. The Davis memorandum fits this requirement to a t. So even if the partial-performance doctrine is not available to Monetti, the UCC's statute of frauds was satisfied. And since the general Illinois statute was satisfied as well, we need not decide whether, since the contract in this case both was (we are assuming) within the UCC and could not be performed within one year, it had to satisfy both statutes of frauds. 2 Farnsworth on Contracts, supra, Sec. 6.2, at pp. 90-91.

Our conclusion that Monetti's suit for breach of contract is not barred by the statute(s) of frauds makes the district judge's second ruling, refusing to allow Monetti to add a claim for promissory estoppel, academic. The only reason Monetti wanted to add the claim was as a backstop should it lose on the statute of frauds. In light of our decision today, he does not need a backstop.

Can promissory estoppel be used to avoid the limitations that the statute of frauds places on the enforcement of oral promises? It can be argued that a party to a contract for the sale of goods should not be allowed to get around the statute of frauds merely by alleging promissory estoppel and using partial performance to establish the necessary reliance in circumstances in which the requirements for the exception in the statute of frauds for partial performance would for one reason or another not be satisfied. It can further be argued that since promissory estoppel unlike equitable estoppel is a method of establishing contractual liability, the statute of frauds should be no less applicable than if the contract were supported by consideration or a seal rather than by promissory estoppel. A/S Apothekernes Laboratorium for Specialpraeparater v. I.M.C. Chemical Group, Inc., 725 F.2d 1140, 1142 (7th Cir. 1984). On the other side it can be argued that promissory estoppel is deliberately open-ended, and should therefore remain available to overcome, in appropriate cases, possible rigidities in the statute of frauds. Hoffman v. Red Owl Stores, Inc., 26 Wis. 2d 683, 133 N.W.2d 267 (1965). Consistent with this counterargument, we held in R.S. Bennett & Co. v. Economy Mechanical Industries, Inc., supra, 606 F.2d at 187-89, that Illinois' version of the UCC statute of frauds was inapplicable to promissory estoppel cases. Janke Construction Co. v. Vulcan Materials Co., 386 F. Supp. 687, 697 (W.D. Wis. 1974), aff'd, 527 F.2d 772 (7th Cir. 1976), reached a similar conclusion under Wisconsin's general statute of frauds, and in affirming we cut loose promissory estoppel from contract law, thus answering the second argument in favor of applying the statute of frauds in promissory estoppel cases. Id. at 777. See also 2 Farnsworth on Contracts, supra, Sec. 6.12, at p. 185 n. 26. We have been having second thoughts lately. Goldstick v. ICM Realty, 788 F.2d 456, 464-66 (7th Cir. 1986); Evans v. Fluor Distribution Cos., 799 F.2d 364, 367-68 (7th Cir. 1986). But as in Goldstick and Evans, so in this case, we need not and do not decide whether Bennett was an accurate forecast of Illinois law. Not only is the issue moot in view of our decision that the statute of frauds does not bar Monetti from enforcing the contract, but Bennett was not a case in which the plaintiff was using promissory estoppel to avoid the UCC's provision disallowing a defense to the statute of frauds for partial performance consisting of the delivery of some but not all of the quantity allegedly contracted for orally. It is in such a case that the "end run" character of promissory estoppel appears most strongly; yet we need not and do not decide whether the appearance is so strong as to preclude resort to promissory estoppel.

REVERSED AND REMANDED.

262 N.Y. 80 (N.Y. 1933)

MICHAEL T. WATTS, Respondent, v. JOHN B. MALATESTA, Appellant, Impleaded with Others

Court of Appeals of the State of New York

May 22, 1933

CROUCH, J.

The action is under section 994 of the Penal Law to recover money paid by plaintiff to defendant upon the event of prohibited wagers or bets. Plaintiff proved conclusively that on divers dates and occasions from April 28, 1928, to April 17, 1930, he had paid defendant, a bookmaker, various sums of money aggregating $37,535 for wagers lost upon a series of horse races. The defendant adduced evidence which, it may be assumed, warranted a finding that during the same period defendant lost and paid to plaintiff like wagers aggregating a much larger sum. It was the contention of the defendant, under a pleaded counterclaim, that he was entitled to recover from the plaintiff a sum equal to the excess of the total amount lost and paid by him to the plaintiff over the total amount lost and paid by the plaintiff to him. That contention, accepted by the trial court, was rejected by the Appellate Division. Plaintiff was granted judgment for the entire amount of the wagers lost and paid by him to the defendant. As matter of law, the judgment was right.

Under the evidence and for the purpose of this case, plaintiff must be regarded as a casual, and the defendant as a professional gambler. "The statute against betting and gaming was enacted as a protection of the public morals. The intention of the legislature was to discourage and repress gambling in all its forms, and the law * * * is to be construed so as to accomplish, so far as possible, the suppression of the mischief against  which it was directed." ( Luetchford v. Lord, 132 N.Y. 465, 469, citing Ruckman v. Pitcher, 1 N.Y. 392, 396, and Storey v. Brennan, 15 N.Y. 524, 527.) But casual betting or gaming by individuals as distinguished from betting or gambling as a business or profession, is not a crime. ( People v. Stedeker, 175 N.Y. 57; People v. Bright, 203 N.Y. 73; People ex rel. Collins v. McLaughlin, 128 App. Div. 599.) The distinction between the two species has long "obtained in this state where ordinary betting has never been made a crime * * * while the keeping of a gambling house, selling lottery tickets and the profession of a common gambler have been subjected to severe punishment." ( People v. Stedeker, supra, p. 62.) Discouragement of casual betting has never gone beyond the point of making recovery by a winner impossible upon default by the loser (Penal Law, §§ 991 and 992); and of compelling return to the loser of voluntary payments made by him. (Penal Law, §§ 994 and 995.) Attack or defense in a civil action has been regarded as adequate — "as one of the best and surest means" ( Ruckman v. Pitcher, supra, p. 405) — for the suppression of that kind of betting. The evil which the law chiefly condemns (N.Y. Const. art. I, § 9) and makes criminal (Penal Law, art. 88) is betting and gambling organized and carried on as a systematic business. The reason seems obvious. Curb the professional with his constant offer of temptation coupled with ready opportunity, and you have to a large extent controlled the evil.

It is clear that in the eye of the law the professional gambler and his customer do not stand on the same plane. They are not in pari delicto.

To argue, therefore, that the Legislature, by using the phrase "any person" in section 994 of the Penal Law, intended to confer a right upon the professional to recover his losses from his customer, is unconvincing. Under such a construction, a criminal act would give rise to a cause of action. That cannot be the law. (Cf. Riggs  v. Palmer, 115 N.Y. 506; Murray v. Interurban Street Ry. Co., 118 App. Div. 35.) By no possibility could such a construction tend, as we have said it should, to "the suppression of the mischief against which it [the statute] is directed."

But it is urged that in any event the defendant, a professional specializing in the field of bookmaking, may offset his losses against the plaintiff's claim. How may that be, if he has no cause of action at all? To permit it would be to permit pro tanto what the law denies in toto. Nowhere in the statute is there any indication of an intent to afford a locus poenitentiae to the professional. Quite the contrary. Whatever his shape may be, he is an outlaw. Moreover it is to be remembered that the right of recovery given by statute to the casual gamester is not intended to benefit him, but to put teeth in the prohibition against all betting.

As a precedent for the theory of offset, however, there is pressed to our attention the case of Elias Shepherd v. Gill ( 92 Ky. 569). The compromise involved in that decision is a sporting one, and on that ground admirable. We think it can be sustained on no other, and prefer to follow Lyons v. Coe ( 177 Mass. 382), which dealt with an analogous, if less ambiguous, statute.

The judgment should be affirmed, with costs.

CRANE, J. (dissenting).

The plaintiff and the defendant are two gamblers, the defendant being a bookmaker at the race tracks, and the plaintiff placing his bets on the races with the defendant through himself and his betting agent. These transactions covered the period between April 27, 1928, and May 28, 1929, during which time the plaintiff won nearly $250,000, and had lost about $150,000. His gains over losses were about $100,000. All the money he won was paid to him. He now brings this action under section 994 of the Penal Law to recover his losses but makes no offer to repay his winnings — these he wants to keep. 

In his complaint he alleges that between the dates stated he paid to John B. Malatesta $37,773 as his wagers upon horse races at the Belmont track, the Jamaica race track and the Empire City race track; that having lost, he demanded back his money which the defendant failed to pay. Mind you, he sues to recover no single bet, nor does he even state or prove what the wagers were as made. He lumps his demands for a year's betting and asks for the total; he treats the transactions as a running account.

The defendant in his answer admits that between the dates mentioned he and the plaintiff entered into a series of wagers upon horse races but denies that the plaintiff's losses have not been repaid. He further alleges, as a counterclaim, the fact that he paid the plaintiff $95,938, his winnings at the track over and above the losses, and demands judgment for its return.

At the trial the complaint was dismissed and the defendant was awarded judgment on his counterclaim. The Appellate Division reversed the judgment and gave judgment for the plaintiff, dismissing the counterclaim. The result in my judgment is that both parties should have lost; that neither should have recovered from the other; that they were in pari delicto and that section 994 never intended that a person who makes a wager may sue for and recover the same, although he may at the same time keep all his own winnings made in the same course of transactions more than sufficient to meet his losses.

Section 991 reads as follows: "All wagers, bets or stakes, made to depend upon any race, or upon any gaming by lot or chance, or upon any lot, chance, casualty, or unknown or contingent event whatever, shall be unlawful."

Section 992 reads: "All contracts for or on account of any money or property, or thing in action wagered, bet  or staked, as provided in the preceding section, shall be void."

The plaintiff could not have recovered his winnings from the defendant. He would have no standing in court, for the law refuses to recognize gambling debts or afford the winner any relief. ( Meech v. Stoner, 19 N.Y. 26.) The Revised Statutes (1 R.S. p. 662), the forerunner of section 994 of the Penal Law, permitted a recovery of his losses.

When, however, the plaintiff, under section 994, seeks to recover what he has lost, at the same time having in his possession and having received from the defendant more than sufficient to cover such losses, all coming out of the same course of transactions, the court should afford him no relief. Section 994 of the Penal Law was never intended to cover such a case. Instead of discouraging gambling and bookmaking, which is the purpose of the law, such a result would do the very reverse by encouraging people to wager on horse races with a bookmaker whose money they could legally take, and then recover all that they may have lost in the same afternoon. The very purpose of section 994 is thus nullified.

This was the view taken of a similar statute by the Supreme Court of Kentucky in Elias Shepherd v. Gill ( 92 Ky. 569). The Kentucky statute, like our Revised Statute (1 R.S. p. 662), provides (General Statutes, ch. 47, art. 1, § 2) that "if any person shall lose to another at one time or within any twenty-four hours, five dollars or more * * * and shall pay * * * the same, such loser or any creditor of his may recover the same * * * from the winner * * * by suit brought within five years after the payment."

Under this statute it was held that where one sought to recover of pool sellers on horse races the money which had been lost in wagering, the pool sellers were entitled to deduct from the amount lost or paid to them the sum  which they had paid and which the person laying the wager had won. The court said: "But while it is true appellants could not, by an original action, have recovered any part of the amount lost in their own pool-rooms to appellee, nor are entitled to judgment even on their counter-claim, still, whatever amount or amounts they lost to him on account of wagers between them on horse races at the dates or within the period mentioned in the petition, should be set off against or deducted from what he may be entitled to recover in this action. For certainly it was not the intention of the Legislature to afford to a party voluntarily buying pools on horse races, or betting at a faro-bank, the undue advantage of recovering back what he may have lost to the seller or dealer, without disgorging and accounting for what he won from him. The purpose of the statute was to afford to such party remedy to the extent of his actual loss, not to enable him to recover back what he lost, while keeping and profiting by what he won from the defendant. It therefore seems to us clear that the criterion of the amount appellee is entitled to recover, if any at all, is the excess of what he lost to appellants above what he won from them during the period mentioned; and at the trial the burden should be on him to show the amount of his losses to appellants, subject to reduction or set-off by the amount he won from them."

This is the exact situation in the case now before us. Our section 994 of the Penal Law likewise was never intended to enable a better on horse races to profit by his losses. In interpreting our laws, we must have in mind as a fundamental principle the evils which they are sought to prevent and not so construe them as to create greater evils.

My associate, Judge CROUCH, is of the opinion that the plaintiff and the defendant are in different positions because the defendant has committed crime, being a bookmaker. In this I think he is mistaken. He cites  for authority Riggs v. Palmer ( 115 N.Y. 506, 511), which held that a beneficiary, under a will, could not recover his benefactions where he had murdered the testator in order speedily to come into possession of the estate. The rule, however, that one may not profit by his own wrong is not confined to criminal acts. It applies equally to those who have done wrong, not amounting to crimes, such as acting contrary to public policy. "No one," said the court, "shall be permitted to profit by his own fraud, or to take advantage of his own wrong, or to found any claim upon his own iniquity, or to acquire property by his own crime." Thus, in Attridge v. Pembroke ( 235 App. Div. 101, 102), it was held that a mutual agreement that if the plaintiff would terminate and break her engagement to marry her fiance, the defendant, a third party, would pay her a sum of money, is void, as against public policy, for it bound the plaintiff to do an illegal act. "It is not necessary," said the court, "to plead the illegality of a contract which is contrary to public policy; the court will, of its own motion, step in and deny the right to any relief thereunder without reference to the state of the pleadings, whenever it becomes apparent that the agreement is antagonistic to the interests of the public."

In Continental Wall Paper Co. v. Voight Sons Co. ( 212 U.S. 227) it was held that a vendor could not recover for the price of wall paper sold and delivered, as to enforce the claim would be to aid in the execution of an agreement in restraint of trade. (See, also, Morgan Munitions Co. v. Studebaker Corp., 226 N.Y. 94.) The rule, therefore, was not confined to one who was a criminal. No one could recover on a contract which was contrary to the public policy of the State.

The position, in this particular, of the plaintiff and the defendant at common law was the same. Neither could recover losses sustained upon a wagering contract. Both were equally barred from the courts and the position of  the man who bet was no better than the criminal who was a common gambler. The plaintiff in this case by betting on the horse races was acting contrary to the public policy of this State, as evidenced by the provisions of the Penal Law, above cited, and article I, section 9, of the Constitution of New York. When, therefore, section 994 of the Penal Law and its predecessor, the Revised Statutes (1 R.S. p. 662), removed this ban so as to permit any person who shall pay money upon the event of any wager to recover the same, it applied to the bookmaker as well as to the better. The statute makes no exceptions. Both were equally barred by the common law as equally culpable and when the prohibition was removed both were afforded equal rights, not for their own sakes, but for the benefit of the public. Personally, I believe that the defendant in this case has as much right to recover on his counterclaim as the plaintiff has to recover his losses. Both come under section 994 of the Penal Law. But at least I am convinced that the defendant having paid the plaintiff his winnings, is entitled to have them considered as repayment of the losses.

The remedy, under section 994 of the Penal Law, is not confined to those who bet with professional gamblers or with bookmakers at race tracks, but applies also to to those who bet at poker or on the result of elections. The loser may always sue to recover back his lost wager. This he could not do at common law. Betting was illegal, or, as stated by Judge CULLEN in People v. Lambrix ( 204 N.Y. 261, 264), "All gambling has for a long time been illegal in this State." The Constitution (Art. I, § 9) has enacted that no kind of gambling shall be authorized or allowed within this State. Prior to these provisions of the Revised Statutes, followed by section 994 of the Penal Law, the loser could not maintain an action to recover his losses because, having participated in an illegal act, the courts would not aid him. It left the parties in the position in which it found them. This court said in  Meech v. Stoner ( 19 N.Y. 26, 27): "If the statute had not given an action to recover money lost at play, it is quite certain that on the general principles of law a suit for such a purpose could not be maintained. The winner's exemption from suit and recovery would not result, however, from any title in himself to the money or thing won and received by him. On the contrary, the whole transaction being unlawful, he is bound in conscience to make restoration, and would be bound in law to do so, but for a peculiar maxim having the force of law, and according to which the courts withhold their remedial processes from each of the offending parties. ` In pari delicto potior est conditio defendentis,' is the rule in such cases; but this is a rule which acknowledges no just or legal title in the defendant. It assumes, on the other hand, that the money or thing in his possession has been acquired in violation of the law, and it then denies a remedy to the other party because he has been an equal sharer in the same offense. Thus the parties are left where the law finds them, and the defendant prevails, not upon his own merits or title, but because the plaintiff is deemed unworthy to be heard in the particular case. ( Nellisv. Clark, 20 Wend. 24, and cases cited; S.C. in Court of Errors, 4 Hill, 424.)"

The purpose of section 994 was merely to restore — to put the party back in the same position as if he had never parted with his property, to disregard the wager as an illegal act and to give the bettor that which he had lost, or, in the words of the decisions, that which the winner wrongfully kept. The statute, however, never intended to go further than this, or to permit one to profit out of his wrong, recover not only what he has lost, but also keep all that he has won. As above stated, to permit him to do this is to afford a rare opportunity for adventure or extortion, or betting on a "sure thing."

While the law prohibits bookmaking and makes it a criminal offense, it also provides the punishment.  Although the bookmaker may be subject to this punishment, he is not to be made the victim of frauds and cheats. One cannot steal from a bookmaker simply because he is a bookmaker. He has his remedy in court. When, therefore, the law allows the loser to recover from the bookmaker the money he has lost, it does not or should not permit the better to also keep what he has won from the bookmaker.

The purpose of section 994 of the Penal Law was to prevent under the mandate of the Constitution all forms of gambling. It was not aimed at professional gambling or against bookmakers or poolsellers; it was aimed at any person who gambles. This court, therefore, in construing this statute, should not deal with it as one in aid of the loser, but construe it in such a way as to aid in the purpose of the Legislature to stop, and not encourage betting. No surer way can be devised to encourage the gambling instinct than to say to these semi-professional gamblers like the plaintiff, "You can risk all your money on the horses and, if you lose, recover it back. If you win, you need never pay back." This makes a sure thing of this form of gambling. A gambler like the plaintiff can always win and never lose. Such a construction of this statute is to defeat its very purpose and resurrect that which the law has buried. We are at least in harmony with the intentions of the Constitutional Convention and of the Legislature when we hold that while the loser may recover from a bookmaker at the race track his losses, he cannot recover more, and if the bookmaker in the same course of transactions has paid winnings equal to the amount of the losses, the plaintiff or the better has suffered no loss. "It is the function of the court to construe the statute, not to defeat it as construed. * * * To construe statutes so as to avoid absurd or glaringly unjust results, foreign to the legislative purpose is, as we have seen, a traditional and appropriate function of the courts." ( Sorrells v. United States, 287 U.S. 435, 449, 450.)

There is another ground for holding that this plaintiff cannot recover. The reason he recovers at all is because under the statute the bet is illegal (§§ 991, 992). Section 991 says that all bets upon a race are unlawful and that all contracts for money wagered shall be void. The money paid by the bookmaker to the plaintiff was on a void transaction. The plaintiff is not entitled to it. It is not his money. In the eyes of the law it is money had and received which he should pay back. The plaintiff still has money which belongs to the defendant. There is nothing I know of in the law which prevents this defendant from pleading that the plaintiff has been paid in full. Even if the bookmaker may not be able to recover back his money (which I doubt) he is fully authorized when sued to set up any defense known to the law. He has proved payment by showing that the plaintiff has received more than he gave.

I, therefore, am for reversal, the dismissal of the complaint and of the counterclaim, basing my opinion upon these two grounds: (1) Section 994 of the Penal Law was never intended to cover a case like this which would permit a bettor to recover all his losses without offsetting his winnings, and (2) for the reason that the winnings, growing out of the same course of transactions, amount to a repayment of the losses.

POUND, Ch. J., KELLOGG and O'BRIEN, JJ., concur with CROUCH, J.; CRANE, J., dissents in opinion in which LEHMAN, J., concurs; HUBBS, J., not sitting.

Judgment affirmed.

291 F.2d 471 (5th Cir. 1961)

New York Football Giants, Inc., Appellant. v. Los Angeles Chargers Football Club, Inc., and Charles Flowers, Appellees

U.S. Court of Appeals for the Fifth Circuit

June 14, 1961

Joel T. Camche, J. Howard Carter, New York City, James Hugh Ray, Tupelo, Miss. (Lumpkin, Holland & Ray, Tupelo, Miss., Townley, Updike, Carter & Rodgers, New York City, of counsel), for appellant.

James McClure, Herbert M. Fant, Sardis, Miss., Lester G. Fant, Jr., Holly Springs, Miss. (McClure, Fant & McClure, Sardis, Miss., of counsel, for Los Angeles Chargers Football Club, Inc.; R. P. Crutcher, Jr., Holly Springs, Miss., of counsel, for Charles Flowers) for appellees.

Before TUTTLE, Chief Judge, RIVES, Circuit Judge, and DE VANE, District Judge.

TUTTLE, Chief Judge.

In the case of Detroit Football Company v. Robinson, 186 F. Supp. 933, 934, Judge Wright, of the District Court for the Eastern District of Louisiana, said:

"This case is but another round in the sordid fight for football players, a fight which begins before these athletes enter college and follows them through their professional careers. It is a fight characterized by deception, double dealing, campus jumping, secret alumni subsidization, semi-professionalism and professionalism. It is a fight which has produced as part of its harvest this current rash of contract jumping suits. It is a fight which so conditions the minds and hearts of these athletes that one day they can agree to play football for a stated amount for one group, only to repudiate that agreement the following day or whenever a better offer comes along. So it was with Johnny Robinson."

We have read cases cited in Judge Wright's opinion and we share his disgust at the sordid picture too often presented in this kind of litigation. So much so, in fact, that we conclude that in an appropriate case the federal equity court, which is the tribunal usually appealed to for a decree of specific performance or injunction, must decline to lend its aid to either party to a transaction that in its inception offends concepts of decency and honest dealing, such as the case before us.

In the fall of 1959 Flowers was an outstanding football player on the University of Mississippi team. His team was to play a post-season game on January 1, 1960, at the Sugar Bowl in New Orleans against a traditional rival, Louisiana State University.

The well understood rules of the Southeastern Conference (SEC) and the National Collegiate Athletic Association (NCAA)¹  made ineligible from further participation in intercollegiate games any player who had signed a contract to play with a professional team. Flowers wanted above all else to play in the Sugar Bowl game. On a trip to New York City for other purposes he was invited by the Giants' official Mara to come to his office where he was urged to sign a contract to play two seasons, beginning in 1960, with the Giants. He told Mara he wanted to retain his eligibility to play in the Sugar Bowl game. The manner in which this was made clear to Mara and the device by which Mara persuaded Flowers to sign the contract and deceive his coach, the University and the opposing team, as well as the college football public, can most satisfactorily be expressed by quoting Mara's own testimony on cross-examination:

"Q. Prior to the signing of any instrument in your office between you and Charles Flowers, Flowers made it clear to you, didn't he, that the University of Mississippi Football Team had been invited to play in the Sugar Bowl Game on January 1st in New Orleans. You knew that? A. Yes, sir.

"Q. Didn't he make it clear to you prior to the signing of the contract, or paper, in your office on December 1st, he did not want to do anything that would destroy his eligibility as a player in that game? A. We discussed that earlier.

"Q. Did he make that crystal clear he did not want to do anything, or sign any paper in your office on December 1st, that would destroy his eligibility as a player in that game? A. I certainly understood that. Yes, sir.

"Q. He made it crystal clear to you that was his attitude about it, wasn't it? A. I knew that was his attitude.

"Q. In order for you to have a binding contract with Mr. Flowers in the paper that was signed and exhibited here as # 3 to your testimony, and allow him to play in the Sugar Bowl Game, what proposal did you make to Mr. Flowers as to how he could sign the paper and play in the game?

* * * * * *

"A. That the signing of the contract would be kept confidential.

"Q. Kept confidential. So your proposal was that he could sign the paper and play in the game and you would keep it a secret. Is that correct? A. That is correct.

"Q. Why did you want to keep it a secret? A. I knew if it were revealed, that Flowers would not be permitted to play in the Sugar Bowl Game.

"Q. You knew Coach Vaught, the Head Coach at Ole Miss? A. Yes, sir.

"Q. You had known him a number of years? A. I first met him in '58, I believe.

"Q. You knew that if Coach Vaught knew this young man, Flowers, had signed a contract in your office on December 1st, obligating his service to your team, Coach Vaught would not have allowed him to play in that Sugar Bowl Game, didn't you?

* * * * * *

"A. That was my feeling.

"Q. That was your feeling. That was one reason you wanted to keep the matter a secret, wasn't it? A. That's correct."

Following such proposal by Mara, Flowers signed the standard form of contract of the National Football league, and received checks totalling $3500 as a sign-on bonus, and then returned to Mississippi. One of the terms of the contract was that: "This agreement shall become valid and binding upon each party hereto only when, as and if it shall be approved by the Commissioner." Part of the deceit agreed to between the parties was an agreement that Mara would not submit the contract to the Commissioner until after January 1st. Flowers later made some effort by telephone on or about December 5th to withdraw from the contract. Thereafter, the Giants promptly filed the contract with the Commissioner, and he "approved" it on December 15th. However, at Mara's request, he withheld announcement of his approval until after January 1st. On December 29th Flowers had negotiations with the Los Angeles Chargers, as a result of which he was offered a better contract, but which was not formally executed until after the Sugar Bowl game on January 1st. He wrote a letter to the Giants on December 29th stating that he was withdrawing from his agreement with them. He returned the uncashed checks for the bonus money. Flowers played in the game, all of his fans presumably thinking that he was still an eligible player, thanks to the deception proposed by the Giants and entered into by him.

The trial court held that until the "contract" was approved by the Commissioner it was not binding. See Detroit Football Co. v. Robinson, supra; Los Angeles Rams Football Club v. Cannon, D.C., 185 F. Supp. 717, and Chicago Cardinals Football Club, Inc. v. Etcheverry, No. 3186 Civil, D.C.N.M. It held, therefore, that when Mara, contrary to his agreement not to submit the contract to the Commissioner until after January 1st, did so, the approval by the Commissioner was not effective to make it binding and that Flowers still had the legal right to cancel until January 1st. The trial court, therefore, entered judgment for both defendants.

Without considering the legal issues on the merits, we affirm the judgment of the trial court. We do so by application of the age-old, but sometimes overlooked, doctrine that "he who comes into equity must come with clean hands." A recent discussion of this maxim by the United States Supreme Court is controlling here:

"The guiding doctrine in this case is the equitable maxim that `he who comes into equity must come with clean hands.' This maxim is far more than a mere banality. It is a self-imposed ordinance that closes the doors of a court of equity to one tainted with inequitableness or bad faith relative to the matter in which he seeks relief, however improper may have been the behavior of defendant. That doctrine is rooted in the historical concept of court of equity as a vehicle for affirmatively enforcing the requirements of conscience and good faith. This presupposes a refusal on its part to be `the abettor of iniquity.' Bein v. Heath, 6 How. 228, 247 [12 L. Ed. 416]. Thus while `equity does not demand that its suitors shall have led blameless lives, Loughran v. Loughran, 292 U.S. 216, 229 [54 S. Ct. 684, 689, 78 L. Ed. 1219], as to other matters, it does require that they shall have acted fairly and without fraud or deceit as to the controversy in issue. Keystone Driller Co. v. General Excavator Co., 290 U.S. 240, 245 [54 S. Ct. 146, 147, 78 L. Ed. 293]; Johnson v. Yellow Cab [Transit] Co., 321 U.S. 383, 387 [64 S. Ct. 622, 624, 88 L. Ed. 814]; 2 Pomeroy, Equity Jurisprudence (5th Ed.) §§ 379-399.

"This maxim necessarily gives wide range to the equity court's use of discretion in refusing to aid the unclean litigant. It is `not bound by formula or restrained by any limitation that tends to trammel the free and just exercise of discretion.' Keystone Driller Co. v. General Excavator Co., supra, [290 U.S. 240] 245, 256 [54 S. Ct. 146, 147, 148, 78 L. Ed. 293]. Accordingly one's misconduct need not necessarily have been of such a nature as to be punishable as a crime or as to justify legal proceedings of any character. Any willful act concerning the cause of action which rightfully can be said to transgress equitable standards of conduct is sufficient cause for the invocation of the maxim by the chancellor.

"Moreover, where a suit in equity concerns the public interest as well as the private interests of the litigants this doctrine assumes even wider and more significant proportions. For if an equity court properly uses the maxim to withhold its assistance in such a case it not only prevents a wrongdoer from enjoying the fruits of his transgression but averts an injury to the public. The determination of when the maxim should be applied to bar this type of suit thus becomes of vital significance. See Morton Salt Co. v. [G. S.] Suppiger Co., 314 U.S. 488, 492-494 [62 S. Ct. 402, 405, 406, 86 L. Ed. 363]." Precision Instrument Mfg. Co. v. Automotive Maintenance Machinery Co., 324 U.S. 806, 814, 815, 65 S. Ct. 993, 997, 998, 89 L. Ed. 1381.

Earlier the Supreme Court said in Deweese v. Reinhard, 165 U.S. 386, 390, 17 S. Ct. 340, 341, 41 L. Ed. 757:

"* * * A court of equity acts only when and as conscience commands, and if the conduct of the plaintiff be offensive to the dictates of natural justice, then, whatever may be the rights he possesses and whatever use he may make of them in a court of law, he will be held remediless in a court of equity."

Here the plaintiff's whole difficulty arises because it admittedly took from Flowers what it claims to be a binding contract, but which it agreed with Flowers it would, in effect, represent was not in existence in order to deceive others who had a very material and important interest in the subject matter. If there had been a straightforward execution of the document, followed by its filing with the Commissioner, none of the legal problems now presented to this court to untangle would exist. We think no party has the right thus to create problems by its devious and deceitful conduct and then approach a court of equity with a plea that the pretended status which it has foisted on the public be ignored and its rights be declared as if it had acted in good faith throughout.

When it became apparent from uncontradicted testimony of Mara that this deceit was practiced in order to bring into being the "contract" sued upon, the trial court should have dismissed the suit without more on the basis of the "clean hands" doctrine.

To the extent that the final judgment of the trial court dismissed the complaint as amended, with costs adjudged against the plaintiff, the said judgment is affirmed. To the extent that the judgment proceeded to a legal determination as to the validity of the contracts between the parties, we conclude that, in the view we take of the equitable principles applicable, these judgments should not have been reached. The judgment of the trial court is, therefore, modified by striking therefrom paragraphs B and C of section 5 of the said judgment.

As thus modified the judgment is affirmed.

¹ SEC Constitution and By-Laws, 1959, Rule VIII:

"Professionalism.

Any student who signs a contract or enters into any agreement, explicit or implicit, with a professional team * * * shall not be eligible for intercollegiate athletics."

NCAA Constitution, 1958-1959, Article III:

"Principle of Amateurism. * * * One who takes or has taken pay, or has accepted the promise of pay, in any form, for participation in athletics * * * does not meet [the] definition of an amateur."

Rosenberg & Rosenberg for defendant.

Amos S. Basel for plaintiff.

EDER, J.

Motion to dismiss complaint for legal insufficiency in failing to state facts sufficient to constitute a cause of action, and upon the further ground that the alleged agreement pleaded in the complaint is against public policy and hence unenforcible.

The action is to recover damages alleged to have been sustained by reason of breach of a contract entered into between the parties, dated October 31, 1950.

The complaint alleges plaintiff is the authoress of a certain novel originally entitled "Sit Still My Soul", and presently entitled, "The Kneeling God".

Defendant, it is averred, at all times in concern, was and still is a famous comedian and theatrical performer with a vast public of admirers and fans, and has acquired great prominence in all fields of entertainment, including the legitimate stage, motion pictures, radio and television.

It is alleged by plaintiff that in February, 1950, defendant requested plaintiff to write a serious novel to be published under his name as sole author, in order to gain recognition in the literary field; that he advised plaintiff that if she agreed to write such novel, that the finished work would be published under defendant's name as the sole author thereof, "thereby insuring the likelihood of a large sale" because of defendant's vast public of admirers and fans and because of his many public appearances before huge audiences, which afforded "opportunities to exploit and sell said book" and thereby insure its success; that plaintiff and defendant agreed to divide equally all profits derived from the work; that plaintiff's share would be far greater than if the book were published under plaintiff's authorship.

The complaint alleges that plaintiff proceeded to write and complete the book; that she commenced in February, 1950, and finished the work in July, 1950, when she delivered to defendant a copy of her complete work. It is then alleged that on or about October 31, 1950, the parties entered into a written agreement, dated that day, which is made a part of the complaint, marked Exhibit "A".

It is further alleged that defendant gave interviews to the press and issued statements announcing that he was the sole author of said book and that it was soon to be published.

That in breach and violation of the agreement defendant advised plaintiff that he would not permit her work to be published and had withdrawn it from the market; that plaintiff has performed all the terms and conditions of said contract on her part to be performed, and damages are sought to be recovered because of such breach.

In sum, therefore, plaintiff seeks to recover damages allegedly sustained by her by reason of defendant's refusal to permit a book written by plaintiff to be published under defendant's name as the sole author thereof.

Defendant contends, and the court is in accord therewith, that the alleged agreement upon which plaintiff's cause of action is predicated offends public policy and is unenforcible, in that it has for its purpose and object the practicing of a fraud and deception upon the public.

It is established by abundant authority that agreements which tend to or have for their purpose to defraud the public generally, even though they may not amount to a criminal conspiracy, are illegal and void. They are denounced as contravening public policy, a declaration of principle that no one can lawfully do that which has a tendency to be injurious to the public or against the public good (Veazey v. Allen, 173 N.Y. 359, 368). Public policy is the interest of others than the parties directly concerned in the contract.

By the allegations of the complaint there is, in my opinion, apodictically shown, a scheme concocted and devised by the parties to deliberately foist a fraud on the public in the manner described; in effect and ultimate result to extract from the public the cost of the book by means of deception practiced upon it.

To urge that such a scheme and such an agreement be upheld as valid and enforcible is to ignore multitudinous rulings to the converse (see 13 C. J., Contracts, § 345, p. 414, "Agreements to Defraud the Public Generally", and numerous cases there cited. See, also, Sheridan v. Weber, 252 App. Div. 398, 402-403).

Relative to the instant situation, it is appropriate to quote from the opinion in Skinner v. Oakes (10 Mo. App. 45, 57): "Thus, if an author were to assign to another the privilege of publishing books with his name upon their title-page, * * * it cannot for a moment be supposed that any court would protect such a supposed right, even as against the original assignor. This point is absolutely clear, both upon principle and authority." The principle is applicable here.

It is not an instance of writing under a nom de plume. In such a case, regardless of the pen name employed by the writer, he is, in truth, the real author and is not exploiting the ability, talent and authorship of another, palming it off under the false pretense that it is his own. In the former instance, it is, however, the true and real author, but merely employing a pseudonym, which is permissible in the field of literature and recognized in law (Clemens v. Belford, Clark & Co., 14 F. 728, 729).

It is evident from the foregoing that the agreement in concern is void as against public policy.

What has been said (supra) expresses the policy of the law as it is conceived and enforced by and under decisional law. The same denouncement manifests itself in terms of positive law (see Penal Law, §§ 421, 964), castigating fraudulent and deceptive practices upon the public.

But, assuming, ar guendo, only the parties hereto were affected by the agreement under consideration, as pleaded in the complaint, it would, nonetheless, still be denied recognition by the courts, both at law and in equity.

No action can arise out of an immoral or unlawful consideration, and it is also a well-established rule of law that where a contract has its genesis in fraud, deceit or violation of law, or violates accepted standards of right conduct, the contract is unenforcible and void (Finkelman v. Stuyvesant Town Corp., 85 N. Y. S. 2d 593). In other words, where the cause of action arises ex turpi causa, the courts deny relief.

In the situation disclosed by the complaint, the court is of opinion that the agreement pleaded and relied on by plaintiff is void and unenforcible as against public policy.

There is a further reason why the complaint should be dismissed, and it is that it is legally insufficient in that it does not state facts sufficient to constitute a cause of action.

Paragraph "Seventh" of the complaint alleges that the contract which the parties entered into is that set forth as Exhibit "A", annexed to the complaint and made a part thereof.

Paragraph "Eighth" alleges that "pursuant to the terms of the aforesaid agreement", plaintiff agreed to allow said book to be published under the defendant's name as the sole author thereof, but there is no allegation, it is to be observed, that defendant agreed to publish plaintiff's book under his name as the sole author thereof. The written agreement, Exhibit "A", annexed to the complaint, imposes no obligation upon the defendant with respect to the publication of the book.

Where a writing is annexed to a pleading and made part thereof, the writing prevails over the allegations and conclusions of the pleader; where there is a variance between the allegations and the writing, the instrument prevails (Kobert v. National Mach. Co., 233 App. Div. 234, affd. 258 N.Y. 586; New Amsterdam Cas. Co. v. Mobinco Brokerage Co., 219 App. Div. 486; Kucker v. Gates Container Corp., 263 App. Div. 1006).

There being nothing in the writing, Exhibit "A", that defendant agreed to publish plaintiff's book under his name as the sole author thereof, and the allegations of the complaint being to the converse, and at variance with the writing, the writing controls and thereunder no maintainable cause of action is set forth so far as the instrument is concerned.

The motion is granted and the complaint is dismissed. Settle order.

Page 454

Page 455

        [20 Ill.Dec. 477] Burt Greaves, Champaign, for plaintiffs-appellants.

        Auler Law Offices, Robert I. Auler, Urbana, for defendant-appellee.

        TRAPP, Justice.

        Plaintiff appeals from the order of the trial court dismissing her complaint which prayed that the court grant to her a just, fair share of the property, earnings, and profits of the defendant, order a proper provision for support and maintenance of plaintiff and their minor children, or, in the alternative, divide the joint tenancy property of the parties and impress a trust on other property acquired through the joint efforts of plaintiff and defendant.

        Plaintiff's initial pleading was a complaint for divorce alleging a marriage in Iowa in June 1960, their subsequent cohabitation as husband and wife until September 1975, and the birth of three children. The trial court heard evidence on defendant's motion to dismiss. His memorandum opinion found that plaintiff conceded that there was no marriage ceremony as alleged in the complaint, that the parties had never lived together in the State of Iowa and that there was no common law marriage which the court might recognize.

Page 456

        [20 Ill.Dec. 478] The trial court also found that defendant admitted the paternity of the children, that the only question upon that issue was that of child support, [62 Ill.App.3d 862] and that it was unnecessary to require a separate action to be brought under the Paternity Act. (Ill.Rev.Stat.1975, ch. 1063/4, par. 51 Et seq.) The court further found that certain property was held in joint tenancy and plaintiff was directed to amend her pleadings to make her complaint more definite and certain as to the nature of the property in joint tenancy.

        The order on appeal was directed to an amended count which contained the following allegations: That prior to June 1960, the parties were residents of Illinois attending Grinnell College in Iowa, that plaintiff became pregnant, and that on or about such date the defendant told plaintiff that they were husband and wife and that they would thereafter live together as such; that no formal marriage ceremony was necessary and that defendant stated that he would thereafter share his life, future earnings, and property with plaintiff; that the parties immediately announced their marriage to their respective parents, thereafter lived together as husband and wife and that in reliance upon defendant's representations she devoted her entire efforts to assisting in the completion of defendant's professional education and the establishing of his successful practice of pedodontia; that such professional education was assisted financially by the parents of plaintiff; that plaintiff assisted defendant in the practice of his profession by virtue of her special skills and that although plaintiff was given a payroll check for such services the monies were placed in the family funds and used for family purposes. It is further alleged that defendant is a successful professional man with an income of $80,000 per year who has acquired property both in joint tenancy and as separate property, and that the assistance and encouragement and industry of the plaintiff were directed to the acquiring of such property and professional pecuniary advancement of defendant.

        It is alleged that plaintiff furnished defendant with every assistance that a wife and mother could give, including social activities designed to enhance defendant's social and professional reputation. Plaintiff further alleges that for 17 years defendant represented to her and to all the world that they were husband and wife and that she has relied upon such representations to her detriment, and that she should be entitled to equal division of the property whether in joint tenancy or in the sole name of defendant.

        It is alleged that the court should enforce the implied contract evidenced by the conduct of the parties; that plaintiff relied upon defendant's representation that they were partners within the family relationship; and that defendant knowing that the alleged marriage was not legal nevertheless continued to assure plaintiff that she was his wife and continued to hold himself out as husband of the plaintiff to secure the benefits to be gained through the services, devotion, thrift, and industry [62 Ill.App.3d 863] of plaintiff invested in the family relationship so that the property of the defendant should be impressed with a trust to protect plaintiff from the frauds and deception of the defendant.

        The order of the trial court on appeal found that the law and public policy of the State requires the claims of plaintiff to be based upon a valid legal marriage; that there was no such legal marriage shown by the facts alleged; and that the allegations failed to state a cause of action recognized in Illinois upon a theory of implied contract, joint venture, or partnership. The order does not expressly speak to the allegation of an express oral contract, but we will presume that the ruling would be the same.

        In argument, defendant has referred to plaintiff as a meretricious spouse living in a meretricious relationship. The adjective should be examined in its precise meaning, I. e., "Of, pertaining to, befitting or of a character of a harlot" (Shorter Oxford English Dictionary, 1934), or, "Of or relating to a prostitute." (Webster's New Collegiate Dictionary, 1973.) Neither is it correct to refer to plaintiff as a concubine which is

Page 457

        The well-pleaded facts contradict the terms in showing that the parties lived, and for a time, enjoyed a most conventional, respectable and ordinary family life. The single flaw is that for reasons not explained, the parties failed to procure a license, a ceremony, and a registration of a marriage. Upon the present pleading nothing discloses a scandal, an affront to family living or society, or anything other than that the parties were known as husband and wife. We refuse to weigh defendant's claim in the context of such epithets.

        All parties agreed that no court of review in Illinois has examined claims arising under comparable circumstances. See cases collected in Annotation, 31 A.L.R.2d 1255, and its supplements.

        Defendant argues that plaintiff's claims must be defeated upon the grounds of public policy in that all rights must rest upon a valid marriage contract within the provisions of the Illinois Marriage and Marriage Dissolution Act, effective October 1, 1977. Section 102 of that Act (Ill.Rev.Stat.1977, ch. 40, par. 102) states that:

"(I)ts underlying purposes, which are to:

(1) provide adequate procedures for the solemnization and registration of marriage;

(2) strengthen and preserve the integrity of marriage and safeguard family relationships; * * *."

        The provisions of the Act do not undertake to prohibit cohabitation without such solemnization of marriage. Its section 201 provides:

[62 Ill.App.3d 864] "A marriage between a man and a woman licensed, solemnized and registered as provided in this Act is valid in this State."

        Upon the facts pleaded, plaintiff has for more than 15 years lived within the legitimate boundaries of a marriage and family relationship of a most conventional sort. The record does not suggest that the parties' relationship came within the proscription of prohibited marriages. Ill.Rev.Stat.1977, ch. 40, par. 212.

        Public policy suggests inquiry within the criminal statutes. The Criminal Code, article 11, section 11-7, makes adultery an offense. (Ill.Rev.Stat.1977, ch. 38, par. 11-7.) Since neither party has had a living spouse, that statute has no significance. The statute defines as an offense:

"(a) Any person who cohabits or has sexual intercourse with another not his spouse commits fornication if the behavior is open and notorious." (Ill.Rev.Stat.1977, ch. 38, par. 11-8(a).)

        The Committee Comments (S.H.A., p. 290) state that the basic premise of the Article which includes the statute penalizing fornication includes as its purpose:

"(3) (P)rotection of the public from open and notorious conduct which disturbs the peace, tends to promote breaches of the peace, or openly flouts accepted standards of morality in the community; and,

(4) protection of the institution of marriage and normal family relationships from sexual conduct which tends to destroy them. * * *."

        Such Comments further state:

"The Article is not intended to proscribe any sexual conduct between consenting adults unless such conduct adversely affects one of the key interests sought to be protected." (S.H.A., p. 291.)

        In The People v. Cessna (1976), 42 Ill.App.3d 746, 1 Ill.Dec. 433, 356 N.E.2d 621, the court had occasion to delimit behavior which was "(O)pen and notorious." The court stated:

"Clearly the adulterous conduct proscribed by this provision is not that which is essentially private or discreet. (People v. Potter, 319 Ill.App. 409, 49 N.E.2d 307.) Behavior which is 'open and notorious' by definition means that such behavior is prominent, conspicuous and generally known and recognized by the public. The prohibition of open and notorious adultery is meant to protect the public from conduct which disturbs the peace, tends

Page 458

        Within such standards the facts pleaded do not suggest a criminal offense which offends public policy. Rather, the family relationship was conventional without an open flouting of accepted standards. From the facts pleaded and the evidence heard it may reasonably be inferred that the want of a marriage ceremony was first disclosed by defendant's motions to plaintiff's complaint for divorce.

        Plaintiff has alleged that she was induced and persuaded to live and cohabit with the defendant as an adult by reason of his assurances that a marriage ceremony was not required, and the representations and promises that they would live as husband and wife sharing the benefits resulting from his professional career which she aided through procuring financial assistance, as well as her role and services as companion, housewife and mother. The practical question is whether she should be denied all claims by reason of the absence of a marriage ceremony.

        Plaintiff urges that this court adopt the rationale of the Supreme Court of California stated in its well-publicized opinion, Marvin v. Marvin (1976), 18 Cal.3d 660, 134 Cal.Rptr. 815, 557 P.2d 106. Under the name Michelle Marvin that plaintiff alleged that she had lived with defendant for seven years without a marriage ceremony under an express oral contract that they would share equally in any property accumulated by their efforts while living together; that they should be known as husband and wife; that defendant would provide for plaintiff's needs for life and that plaintiff would forego her career to devote her time to defendant as a companion, homemaker and cook, and that she had so performed her duties until defendant forced her to leave. Plaintiff prayed a declaratory judgment to determine her contract and property rights and the declaration of a constructive trust in one-half of the property accumulated while the parties lived together. Of the cases examined, Marvin includes facts most clearly comparable to those present here, although Marvin was known to be married to another during the first three years of the relationship with Michelle.

        That trial court entered a judgment for defendant upon the pleadings without assigning reasons.

        As here, Marvin argued that the character of their relationship was immoral and violated public policy. While no courts of review in Illinois have considered such relationship, California courts had examined a number of instances concerning agreements to share accumulated [62 Ill.App.3d 866] property by unmarried persons cohabiting together. Reviewing such cases, the court said:

"Although the past decisions hover over the issue in the somewhat wispy form of the figures of a Chagall painting, we can abstract from those decisions a clear and simple rule. The fact that a man and woman live together without marriage, and engage in a sexual relationship, does not in itself invalidate agreements between them relating to their earnings, property, or expenses. Neither is such an agreement invalid merely because the parties may have contemplated the creation or continuation of a nonmarital relationship when they entered into it. Agreements between nonmarital partners fail only to the extent that they rest upon a consideration of meretricious sexual services. Thus the rule asserted by defendant, that a contract fails if it is 'involved in' or made 'in contemplation' of a nonmarital relationship, cannot be reconciled with the decisions."

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        The court continued:

"The principle that a contract between nonmarital partners will be enforced unless expressly and inseparably based upon an illicit consideration of sexual services not only represents the distillation of the decisional law, but also offers a far more precise and workable standard than that advocated by defendant." 134 Cal.Rptr. 815, 823, 557 P.2d 106, 114.

        The court said that the authorities demonstrate:

"(T)hat a contract between nonmarital partners, even if expressly made in contemplation of a common living arrangement, is invalid only if sexual acts form an inseparable part of the consideration for the agreement. In sum, a court will not enforce a contract for the pooling of property and earnings if it is explicitly and inseparably based upon services as a paramour. * * *." 134 Cal.Rptr. 815, 823, 557 P.2d 106, 114.

        The court concluded:

"So long as the agreement does not rest upon illicit meretricious consideration, the parties may order their economic affairs as they choose, and no policy precludes the courts from enforcing such agreements." 134 Cal.Rptr. 815, 825, 557 P.2d 106, 116.

        Defendant argues that plaintiff has engaged in improper conduct, and in effect, should be punished by denial of relief. This argument may be answered as in Marvin :

"Indeed, to the extent that denial of relief 'punishes' one partner, it necessarily rewards the other by permitting him to retain a [62 Ill.App.3d 867] disproportionate amount of the property. Concepts of 'guilt' thus cannot justify an unequal division of property between two equally 'guilty' persons." 134 Cal.Rptr. 815, 830, 557 P.2d 106, 121.

        He also argues that any claim of plaintiff to equity should be barred by the doctrine of "unclean hands." However, as stated in West v. Knowles (1957), 50 Wash.2d 311, 316, 311 P.2d 689, 692-93:

"Under such circumstances (the dissolution of a nonmarital relationship), this court and the courts of other jurisdictions have, in effect, sometimes said 'We will wash our hands of such disputes. The parties should and must be left to their own devices, just where they find themselves.' To me, such pronouncements seem overly fastidious and a bit fatuous. They are unrealistic and, among other things, ignore the fact that an unannounced (but nevertheless effective and binding) rule of law is inherent in any such terminal statements by a court of law. The unannounced but inherent rule is simply that a party who has title, or in some instances who is in possession, will enjoy the rights of ownership of the property concerned. The rule often operates to the great advantage of the cunning and the shrewd, who wind up with possession of the property, or title to it in their names, at the end of a so-called meretricious relationship. So, although the courts proclaim that they will have nothing to do with such matters, the proclamation in itself establishes, as to the parties involved, an effective and binding rule of law which tends to operate purely by accident or perhaps by reason of the cunning, anticipatory designs of just one of the parties." (Finley, conc. opn.)

        Here, plaintiff prays relief not only under allegations of an express oral contract, but also seeks recovery upon allegations supporting implied contract, equitable relief upon allegations of misrepresentation, and as constructive trust. Upon determination that plaintiff states a cause of action upon an express oral contract we observe no reasons of public policy to conclude that other forms of relief framed upon appropriate allegations of fact and proved before the trier of fact should not be available to plaintiff.

        In Marvin, the court unanimously determined that the plaintiff's complaint stated a cause of action upon an express contract. The court continued, with one dissent expressing belief that it was unnecessary, to

Page 460

"But, although parties to a nonmarital relationship obviously cannot have based any expectations upon the belief that they were [62 Ill.App.3d 868] married, other expectations and equitable considerations remain. The parties may well expect that property will be divided in accord with the parties' own tacit understanding and that in the absence of such understanding the courts will fairly apportion property accumulated through mutual effort. We need not treat nonmarital partners as putatively married persons in order to apply principles of implied contract, or extend equitable remedies; we need to treat them only as we do any other unmarried person." (134 Cal.Rptr. 815, 830, 557 P.2d 106, 121.)

        And continued:

"We conclude that the judicial barriers that may stand in the way of a policy based upon the fulfillment of the reasonable expectations of the parties to a nonmarital relationship should be removed. As we have explained, the courts now hold that express agreements will be enforced unless they rest on an unlawful meretricious consideration. We add that in the absence of an express agreement, the courts may look to a variety of other remedies in order to protect the parties' lawful expectations.

The courts may inquire into the conduct of the parties to determine whether that conduct demonstrates an implied contract or implied agreement of partnership or joint venture (see Estate of Thornton (1972) 81 Wash.2d 72, 499 P.2d 864), or some other tacit understanding between the parties. The courts may, when appropriate, employ principles of constructive trust (see Omer v. Omer (1974) 11 Wash.App. 386, 523 P.2d 957) or resulting trust (see Hyman v. Hyman (Tex.Civ.App.1954) 275 S.W.2d 149). Finally, a nonmarital partner may recover in quantum meruit for the reasonable value of household services rendered less the reasonable value of support received if he can show that he rendered services with the expectation of monetary reward." 134 Cal.Rptr. 815, 831-32, 557 P.2d 106, 122-23.

        We conclude that the reasoning followed in Marvin is particularly persuasive upon the allegations here pleaded wherein plaintiff has alleged facts which demonstrate a stable family relationship extending over a long period of time.

        It would be superficial to conclude that by this determination this court has revived or restored a form of common law marriage now forbidden by statute. It is apparent that the matters to be alleged and the facts to be proved here are substantially, if not enormously, different.

        The value of a stable marriage remains unchallenged and is not denigrated by this opinion. It is not realistic to conclude that this determination will "discourage" marriage for the rule for which defendant contends can only encourage a partner with obvious income-[62 Ill.App.3d 869] producing ability to avoid marriage and to retain all earnings which he may acquire. One cannot earnestly advocate such a policy.

        It has been documented that:

"The 1970 census figures indicate that today perhaps eight times as many couples are living together without being married as cohabited ten years ago." Comment, In re Cary: A Judicial Recognition of Illicit Cohabitation (1974) 25 Hastings L.J. 1226.

        It has been concluded that reasons for such way of life include the economic forces of loss of pension or welfare rights and the impact of income taxes, as well as personal reasons. While the court cannot now predict what the evidence will prove, the courts should be prepared to deal realistically and fairly with the problems which exist in the life of the day.

        We conclude that upon the record it neither can be said that plaintiff participated in a meretricious relationship nor that her conduct so affronted public policy that she should be denied any and all relief.

Page 461

        [20 Ill.Dec. 483] The judgment of the trial court is reversed and the cause remanded for further proceedings not inconsistent with the views expressed.

        Reversed and remanded.

        MILLS, P. J., and CRAVEN, J., concur.