Summary
In Nahas, the decedent's estate tried to recover under an alleged oral agreement, and the Supreme Court said the contract was unlawful because Nahas (a convicted felon) attempted to become a partner in a liquor selling business without disclosing said fact to the Department of Liquor Control before securing its approval.
Summary of this case from Crawford v. HawesOpinion
No. 32455
Decided July 5, 1951.
Liquor Control Act — Section 6064-1 et seq., General Code — Business of selling beer and intoxicating liquor — Only permit holders may lawfully engage in — Partnership may not engage in, when — Permit issued to one partner only — Operation by partnership illegal, and accounting between partners denied.
1. Under the Liquor Control Act (Section 6064-1 et seq., General Code), representing the public policy of Ohio, no person shall directly or indirectly engage in the sale of beer or intoxicating liquor, unless he is the holder of a permit to do so issued by the Department of Liquor Control, and any permit issued shall not authorize a person or persons other than those named therein to engage in such business.
2. It is unlawful for a partnership to carry on the business of selling beer and intoxicating liquor under a permit applied for by only one of the partners and issued in his name alone.
3. The operation of such a partnership enterprise is illegal and in violation of public policy, and a court will not entertain an action by the administrator of a deceased partner, who held no permit to sell beer and intoxicating liquor, for an accounting from the surviving partner, but will leave the parties where it finds them.
APPEAL from the Court of Appeals for Summit county.
In September 1947, Lillian Nahas, as administratrix of the estate of Elias Nahas, deceased, instituted an action in the Court of Common Pleas of Summit County against Solomon George. The petition alleged that plaintiff's decedent entered into an oral partnership agreement with the defendant about April 1, 1938, for the purpose of operating an establishment called the Elk Cafe. The petition stated further that the partnership promptly obtained in the name of defendant a D-3 liquor permit from the Department of Liquor Control of the State of Ohio and commenced operation of the cafe. It was claimed in the petition also that plaintiff's decedent owned a one-half interest in the cafe business, including the fixtures, equipment, the liquor permit and goodwill, at all times up to and including the time of his death on February 22, 1942; that thereafter the defendant continued to operate the cafe business wholly as his own; and that on February 2, 1946, he sold the business for a substantial sum.
In the prayer of the petition, an accounting was asked from the defendant with judgment in favor of plaintiff for the amount found to be due her.
Defendant's answer denied generally the existence of the alleged partnership and denied further that any amount was due and owing plaintiff from defendant.
On the hearing of the case, the Court of Common Pleas made no specific finding as to the existence or nonexistence of a partnership, but denied the prayer for an accounting and dismissed the petition on the ground that, since plaintiff's decedent could not have successfully maintained an action against defendant for an accounting by reason of decedent's own unlawful conduct in attempting to become a partner in a liquor selling business without disclosing such fact to the Department of Liquor Control and securing its approval, plaintiff was in no better position and was not entitled to the relief sought.
On an appeal on questions of law and fact to the Court of Appeals, that court dismissed the appeal ( 85 Ohio App. 328, 88 N.E.2d 429), holding that original jurisdiction of the subject matter of the action was vested exclusively in the Probate Court by Section 8085 et seq., General Code, and that consequently the Court of Common Pleas was without jurisdiction to entertain the cause.
This court allowed a motion to require the Court of Appeals to certify its record and held in the case reported in 153 Ohio St. 574, 93 N.E.2d 5, that the Court of Common Pleas did have jurisdiction of the cause, and that the Court of Appeals was wrong in its determination to the contrary. In that case, the last paragraph of the opinion written by Judge Stewart is as follows:
"Since the Court of Appeals held that original jurisdiction of the subject matter of the instant case is exclusively in the Probate Court and refrained from deciding the other issues involved, the judgment of the Court of Appeals is reversed and the cause remanded to that court for further proceedings."
Pursuant to the remand, the Court of Appeals followed the line of reasoning taken by the Court of Common Pleas, denied the prayer of the petition for an accounting and for equitable relief and dismissed the petition.
Again, this court allowed the motion to certify, and the cause is here a second time for disposition on its merits.
Messrs. Brouse, McDowell, May, Bierce Wortman, for appellant.
Mr. Albert F. Schwartz, Mr. Nathan Koplin, and Messrs. Slabaugh, Guinther Pfleuger, for appellee.
The evidence as to the existence of a partnership between the decedent and defendant is in sharp conflict. There are a number of indicia which would support the conclusion that no partnership was intended or created and that the decedent was no more than an employee of defendant. Be that as it may, the Court of Appeals found upon some evidence that a partnership did exist, and since this court does not weigh evidence such finding will be accepted.
It appears from the bill of exceptions that during 1938 defendant was a resident of the city of Akron, and during the spring of that year entered into negotiations with the Walsh brothers for the purchase of the Elk Cafe located in that city and which they owned and operated. Plaintiff's decedent resided in the state of Illinois and came to Akron about April 1, 1938. Under date of March 31, 1938, the Walsh brothers executed and delivered a bill of sale to defendant for all the physical equipment and chattels in the Elk Cafe, and he paid them the sum of $5,000 therefor. The Walsh brothers then held permits from the Ohio Department of Liquor Control for the sale of beer and intoxicating liquor in the Elk Cafe, viz., D-1, D-2, and D-3 permits. Walsh brothers made application for the transfer of these permits to defendant and he, upon approval of the transfers, became a permit holder.
Each year thereafter, permits were issued to defendant alone and the name of plaintiff's decedent was not mentioned and did not appear in any of the transactions. The entire cafe business was ostensibly carried on in the name of defendant and there is no clear indication in any of the written records produced at the trial that the decedent was a partner in the business.
Several provisions of the Liquor Control Act of Ohio are pertinent to this controversy.
By Section 6064-8 (2), General Code, the Department of Liquor Control has the power to grant or refuse permits for the sale of beer and intoxicating liquor.
By Section 6064-14, General Code, "no person shall directly or indirectly * * * sell * * * any beer or intoxicating liquor * * * unless such person * * * shall be the holder of a permit issued by the Department of Liquor Control."
By Section 6064-17, General Code, no permits, of the classifications specified, "shall be issued to a firm or partnership unless all of the members of said firm or partnership are citizens of the United States and a majority thereof have resided in this state for one year prior to application therefor."
By Section 6064-18, General Code, successful applicants for permits of the classifications herein involved shall give an approved bond.
By Section 6064-20, General Code, the permit issued "shall authorize the person therein named to carry on the business therein specified at the place * * * therein described," and such permit shall not "authorize any person other than the one therein named to carry on such business at the place * * * named therein."
For obvious reasons, the state is vitally concerned with the character and reputation of every individual who sells alcoholic beverages and with the manner in which this activity is conducted. As has been noted, the statutes of Ohio set out definite and specific rules which must be strictly complied with for one lawfully to engage in the business of selling beer and intoxicating liquor, and the identity of all those desiring to engage in such business must be disclosed in the applications for permits. As a condition to the issuance of permits applicants must meet the qualifications prescribed by statute and by rules and regulations of the Department of Liquor Control. One of the principal purposes of the Liquor Control Act is to promote public policy by restricting and regulating a business potentially dangerous to the morals of the people.
As long ago as 1775, Lord Mansfield said in the case of Holman v. Johnson, 1 Cowper, 341, 343:
"The objection that a contract is immoral or illegal as between plaintiff and defendant, sounds at all times very ill in the mouth of the defendant. It is not for his sake, however, that the objection is ever allowed; but it is founded in general principles of policy, which the defendant has the advantage of, contrary to the real justice, as between him and the plaintiff, by accident, if I may so say. The principle of public policy is this; ex dolo malo non oritur actio [out of fraud no action arises]. No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act. If, from the plaintiff's own stating or otherwise, the cause of action appears to arise ex turpi causa [out of a base consideration], or the transgression of a positive law of this country, there the court says he has no right to be assisted. It is upon that ground the court goes; not for the sake of the defendant, but because they will not lend their aid to such a plaintiff."
A part of the above language was quoted with approval and applied in Kahn, Jr., v. Walton, 46 Ohio St. 195, 207, 20 N.E. 203, 209.
Upon the principle stated, the courts in most jurisdictions will not recognize a partnership agreement to carry on an illegal business or to conduct a legal business in an unlawful manner and will not enforce or compel an accounting or contribution between or among the partners in such an illegal enterprise. 40 American Jurisprudence, 358, Section 326.
In Massillon Savings Loan Co. v. Imperial Finance Co., 114 Ohio St. 523, 151 N.E. 645, the third paragraph of the syllabus baldly states:
"A party who enters into a contract despite a statute prohibiting it, cannot thereafter claim the fruits of its performance in a court of justice."
In the case of Tucker v. Binenstock, 310 Pa. 254, 259, 165 A. 247, 248, one partner attempted to secure an accounting from his copartner in connection with a project involving the illegal sale of intoxicating liquor. The court, in refusing to accord the relief, stated in the course of its opinion:
"There is no principle more clearly established than that the law will not enforce an illegal transaction, nor will it be an instrument for distribution of moneys illegally gained. * * * It simply leaves the wrongdoers where it finds them. The rule is not designed for the protection of the more dishonest of the partners, although the latter may benefit from its application, but rests upon a broad principle of public policy; the government seeks to punish transgressions of the law, not to reward or aid them by countenancing any phase of the illegality. Therefore, in litigation where the government is not a party, where transactions are tainted with wrongdoing, as violations of statutes intended for the upbuilding of the moral structure of the body politic, no court will lend its aid where the cause of action is grounded on such immoral or illegal acts."
A frequently cited case of similar import is Vandegrift v. Vandegrift, 226 Pa. 254, 75 A. 365, 18 Ann. Cas., 404, in which it was held that a surviving partner could not maintain a bill for an accounting against his deceased partner's executrix, where the partnership was formed for the purpose of manufacturing and selling distilled liquor and where the business under the partnership agreement was conducted in the name of the deceased partner only and the licenses, state and federal, were issued in the decedent's name alone. The court took the view that such partnership arrangement was illegal in the face of laws which required that an applicant for a distiller's license shall state that he is the only person pecuniarily interested in the business and that every distiller shall report to a designated authority the names of those interested in such business. It was held further that under circumstances like those disclosed equity will leave the parties where it finds them and will not lend its aid toward the recovery of money derived from the partnership business which one partner claims is due him from the other. See, also, Eisenman v. Seitz, 26 Del. Ch. 185, 25 A.2d 496, and Cerino v. Van Orden, 98 N.J. Eq. 7, 129 A. 704, affirmed 100 N.J. Eq. 339, 134 A. 916.
In the instant case, the rights of plaintiff are no greater than or different from those of her decedent. The principal business of the Elk Cafe was the sale of beer and intoxicating liquor. Under the express provisions of the Liquor Control Act, representing the public policy of this state, no person shall directly or indirectly sell any beer or intoxicating liquor, unless such person shall be the holder of a permit, issued by the Department of Liquor Control, to do so, and any permit issued shall not authorize any person other than the one named therein to engage in such business.
Assuming the existence of a partnership between defendant and the decedent, the latter was engaged in the sale of beer and intoxicating liquor in direct opposition to and in defiance of the statutes of Ohio and was consequently unlawfully engaged in such undertaking.
Under the authorities cited, which correspond with the weight of authority and are in accord with the Ohio cases dealing with the general subject, the decedent's status was such that he could not have successfully resorted to a court of equity for an accounting between himself and defendant, and his administratrix is in no better position.
Counsel for defendant urge several other reasons why the judgment of the Court of Appeals should be affirmed. However, the basis upon which this decision has been placed makes it unnecessary to note or discuss those matters.
The judgment of the Court of Appeals is, therefore, affirmed.
Judgment affirmed.
WEYGANDT, C.J., STEWART, MIDDLETON, TAFT, MATTHIAS, and HART, JJ., concur.