Beacon Hill Civic Ass'n v. Ristorante Toscano, Inc.

• Decision Date: 25 March 1996
• Citation: 662 N.E.2d 1015,422 Mass. 318
• Parties: BEACON HILL CIVIC ASSOCIATION v. RISTORANTE TOSCANO, INC.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 1015

662 N.E.2d 1015

422 Mass. 318

BEACON HILL CIVIC ASSOCIATION v. RISTORANTE TOSCANO, INC.

Supreme Judicial Court of Massachusetts Suffolk.

Argued Jan. 9, 1996.

Decided March 25, 1996.

CIVIL ACTION commenced in the Superior Court Department on March 25, 1994.

The case was heard by David M. Roseman, J., on motions for summary judgment.

Marcus E. Cohn (Lawrence S. DiCara with him), Boston, for defendant.

Frances S. Cohen (Amy B. Rifkind with her), Boston, for plaintiff.

James J. Duane, Ferdinand C. Mauet & Anne Victoria Quinn, Boston, for amici curiae Neighborhood Association of the Back Bay, Inc.

John E. Coyne, Boston, for amici curiae Massachusetts Restaurant Association.

Before LIACOS, C.J., and ABRAMS, LYNCH, O'CONNOR and FRIED, JJ.

ABRAMS, Justice.

The defendant, Ristorante Toscano, Inc. (Toscano), appeals from summary judgment entered in favor of the Beacon Hill Civic Association (Association). A Superior Court judge ruled that Toscano, by applying to the Boston Licensing Board for an all alcohol license, violated a 1984 contract with the Association, in which the Association agreed not to oppose Toscano's application for a beer and wine license in exchange for Toscano's promise not to apply in the future for an all alcohol license. ¹ We transferred the appeal here on our own motion. We conclude that the 1984 contract is unenforceable on public policy grounds. We reverse the judgment entered in the Superior Court, and conclude that Toscano is entitled to entry of summary judgment in its favor.

Facts. On April 11, 1984, the licensing board of Boston (board) held a hearing to determine whether Toscano, an Italian restaurant located on Charles Street in the Beacon Hill section of Boston, should have a license to sell beer and wine. Shortly before the hearing, representatives of the Association approached representatives of Toscano and informed them that the Association would oppose Toscano's application, unless Toscano executed a contract under seal in which it promised, among other things, not to apply for an all alcohol license in the future. ² Toscano executed the contract.

At the hearing, the Association urged the board to incorporate the terms of the contract into the license itself. The board did incorporate a number of those terms, but not the restriction on Toscano's future license applications. Regarding that term, the board stated that "the licensee's agreement with the Beacon Hill Civic Association is decreed illegal by the Board." No one appealed from that 1984 decision. Nine years later, in response to customer demand, Toscano applied for an all alcohol license. In August, 1993, over the Association's opposition, the board voted to give Toscano an all alcohol license.

Pursuant to G.L. c. 138, § 67 (1994 ed.), twenty-five taxpayers (all members of the Association) appealed from the board's decision to the Alcoholic Beverages Control Commission (ABCC). The ABCC conducted a public hearing in which it received testimony and documentary evidence. On February 23, 1994, the ABCC formally approved the board's decision. As to the 1984 contract, the ABCC agreed with the board that it was illegal.

The Association then filed suit against Toscano, alleging breach of contract and (in the alternative) detrimental reliance and promissory estoppel, and seeking damages and injunctive relief. Toscano and the Association filed cross motions for summary judgment. A judge in the Superior Court entered judgment in the Association's favor on the breach of contract claim. ³ Toscano appealed.

Breach of contract. We agree with the Association that "[t]he general rule of our law is freedom of contract...." Smith v. Ferncliff, 306 U.S. 444, 450, 59 S.Ct. 615, 617, 83 L.Ed. 862 (1939). That principle "rests on the premise that it is in the public interest to accord individuals broad powers to order their affairs through legally enforceable agreements." E.A. Farnsworth, Contracts § 5.1, at 345 (2d ed.1990). See Hartford Fire Ins. Co. v. Chicago, Milwaukee & St. Paul Ry., 175 U.S. 91, 106, 20 S.Ct. 33, 39, 44 L.Ed. 84 (1899); Bates v. Southgate, 308 Mass. 170, 182, 31 N.E.2d 551 (1941); United Shoe Mach. Co. v. Kimball, 193 Mass. 351, 358, 79 N.E. 790 (1907). However, "[a]s was early recognized ... contract rights are [not] absolute; for government cannot exist if the citizen may at will ... exercise his freedom of contract to work ... harm [to his fellow citizens]. Equally fundamental with the private right is [the right] of the public to regulate it in the common interest." Commonwealth v. Henry's Drywall Co., 366 Mass. 539, 543, 320 N.E.2d 911 (1974), quoting Nebbia v. New York, 291 U.S. 502, 523, 54 S.Ct. 505, 509-10, 78 L.Ed. 940 (1934). Although "[c]ourts do not go out of their way to discover some illegal element in a contract or to impose hardship upon the parties beyond that which is necessary to uphold the policy of the law," Nussenbaum v. Chambers & Chambers Inc., 322 Mass. 419, 422, 77 N.E.2d 780 (1948), it is a principle universally accepted that the public interest in freedom of contract is sometimes outweighed by public policy, and in such cases the contract will not be enforced. See Spence v. Reeder, 382 Mass. 398, 413, 416 N.E.2d 914 (1981); Broussard v. Melong, 322 Mass. 560, 561, 78 N.E.2d 623 (1948); Restatement (Second) of Contracts § 179 (1981); 6A A. Corbin, Contracts § 1375 (1962); 6 S. Williston, Contracts § 12:4 (R. Lord 4th ed.1995).

"Public policy" in this context refers to a court's conviction, grounded in legislation and precedent, that denying enforcement of a contractual term is necessary to protect some aspect of the public welfare. See Somerset Sav. Bank v. Chicago Title Ins. Co., 420 Mass. 422, 431, 649 N.E.2d 1123 (1995); Begelfer v. Najarian, 381 Mass. 177, 189, 409 N.E.2d 167 (1980); Bates, supra; Adams v. East Boston Co., 236 Mass. 121, 128, 127 N.E. 628 (1920) ("The test is, whether the underlying tendency of the contract under the conditions described was manifestly injurious to the public interest and welfare"). See also Restatement (Second) of Contracts § 179 comment a (1981). In determining the public interest and welfare in these circumstances, we look to the Legislature's statutory enactment. Although the policy that induced the enactment may not be set out in terms, "[t]he Legislature has the power to decide what the policy of the law shall be, and if it has intimated its will, however indirectly, that will should be recognized and obeyed." United States v. Atlantic Mut. Ins. Co., 343 U.S. 236, 245, 72 S.Ct. 666, 671, 96 L.Ed. 907 (1952) (Frankfurter, J., dissenting), quoting Johnson v. United States, 163 F. 30, 32 (1st Cir.1908) (Holmes, J.).

General Laws c. 138 (1994 ed.) sets out the procedure for the issuance of licenses to serve alcoholic beverages. Sections 12 and 67 provide that such licenses must be approved by both the local licensing authorities (here, the board) and the ABCC. Selectmen of Barnstable v. Alcoholic Beverages Control Comm'n, 373 Mass. 708, 714, 369 N.E.2d 1011 (1977). Applications are initially submitted to the local licensing authorities, who are required by § 15A to publish notice thereof "in a newspaper ... providing general circulation.... The notice shall set forth the name of the applicant in full, the kind of license applied for, a description of the location and area where the license is intended to be exercised...." Section 15A further provides that "[n]o application shall be acted upon by the local licensing authorities except after hearing thereon which shall be held not sooner than ten calendar days after the publication of such notice." Licenses are then issued or denied "with a view only to serve the public need ... in such a manner as to protect the common good." G.L. c. 138, § 23. If the local authorities grant a license, § 67 provides that "[u]pon the petition of twenty-five persons who are taxpayers of the city or town in which a license has been granted ... or who are registered voters in the voting precinct or district wherein the licensed premises are situated, the commission shall ... investigate the granting of such a license ... and shall, after a hearing, modify, suspend, revoke or cancel such license if, in its opinion, circumstances warrant." In seeking to "serve the public need ... in such a manner as to protect the common good," it is obvious that this statutory scheme assumes free and open discussion before the licensing officials. In other words, a public policy of open public participation is implicit in the statutory scheme. ⁴

The Association argues that Toscano contractually waived its right to participate. We agree with the Association that such a waiver appears to be "similar to a settlement--a surrender of certain rights ... in exchange for certain benefits." Spence, supra at 412, 416 N.E.2d 914. Nevertheless, the right to participate in licensing proceedings is created by statute, and "whether the effect of any specific statute can be avoided by contract depends upon the purpose for which the statute was enacted ... 'where laws are enacted on grounds of general policy their uniform application for the protection of all citizens alike is desirable, and an agreement to waive their provisions is generally declared invalid, but where they are designed solely for the protection of rights of private property, a party who may be affected can consent to a course of action, which if taken against his will, would not be valid.' " Continental Corp. v. Gowdy, 283 Mass. 204, 217, 186 N.E. 244 (1933) (creditor's waiver of directors' liability protects only private rights and is enforceable), quoting Washington Nat'l Bank v. Williams, 188 Mass. 103, 107, 74 N.E. 470 (1905). See Metz Co. v. Boston & Me. R.R., 227 Mass. 307, 308-310, 116 N.E. 475 (1917) (waiver of rights in contravention of interstate commerce act not enforceable). ⁵ Because the application review provisions of c. 138 are grounded...