Hendrix v. McKee

• Decision Date: 31 January 1978
• Citation: 575 P.2d 134,281 Or. 123
• Parties: James Thomas HENDRIX, Appellant, v. Harold R. McKEE, Respondent.
• Court: Oregon Supreme Court

Page 134

575 P.2d 134

281 Or. 123

James Thomas HENDRIX, Appellant, v. Harold R. McKEE, Respondent.

Supreme Court of Oregon, In Banc.

Argued and Submitted Oct. 31, 1977.

Decided Jan. 31, 1978.

William M. Holmes, Bend, argued the cause for appellant. With him on the briefs were Gray, Fancher, Holmes & Hurley, Bend.

Frank G. MacMurray, Jr., Redmond, argued the cause for respondent. With him on the brief were [281 Or. 124-A] Craig P. Emerson, Portland, and Clark & MacMurray, Redmond.

Before DENECKE, C. J., and HOLMAN, HOWELL, BRYSON, and LENT, JJ.

LENT, Justice.

Plaintiff is seeking damages for the alleged breach of his employment contract with the defendant. ¹ The defendant interposed the affirmative defense that the contract was unenforceable as an illegal contract "contrary to the laws and public policy of the State of Oregon." The trial court, sitting without a jury, held the contract unenforceable for this reason, dismissed the complaint, and entered judgment for the defendant. Plaintiff appeals, asserting as his sole assignment of error that "(t)here was no evidence to support the memorandum opinion of the court and the subsequent judgment." ²

Our scope of review is given by the Oregon Constitution, Amended Art. VII, § 3 " * * * (N)o fact tried by a jury shall be otherwise re-examined in any court of this state, unless the court can affirmatively say there is no evidence to support the verdict. * * * "

See Shepler v. Weyerhaeuser Company, 279 Or. 477, 484, 569 P.2d 1040 (1977). The findings of fact by a trial court sitting as a trier of fact have the same legal effect as a jury verdict. ORS 17.435. See also Paul & Backer Co. v. Newman, 252 Or. 66, 68, 448 P.2d 511 (1968). In our review of the evidence, we are guided by the well-established principle, most recently iterated in Foster v. Schnell Refrigeration Co., 280 Or. 411, 414, 571 P.2d 497, 498 (1977), that

" * * * we must view the evidence in the light most favorable to (the prevailing party), and (that party) is entitled to the benefit of every reasonable inference which may be drawn from the evidence. * * * "

From the evidence and reasonable inferences ³ therefrom, viewed in this light, the trial court could have found the following facts.

Plaintiff is an electrical engineer whose work experience was primarily in the design of gambling devices. He was president of a California corporation which specialized in the design of gambling devices used in Nevada. Later he moved to Nevada to continue his work. In 1974 plaintiff was introduced to defendant by a mutual friend who was also in the business of manufacturing gambling devices. Defendant invited plaintiff to come to Oregon in 1974 over the July 4th weekend, at which time defendant took plaintiff on a tour of defendant's placements of "amusement devices" in the Bend/Redmond area (Deschutes County). These "amusement devices" were upright electro-mechanical devices sometimes known as "free play" machines.

At that time plaintiff and defendant came to an agreement ⁴ on employment to begin on July 15, 1974. Plaintiff was employed initially to build a "pull tab" machine, an electro-mechanical or electronic "punchboard," which plaintiff testified he knew was not an amusement device and which plaintiff knew was illegal in Oregon.

Plaintiff worked on designing this device in Nevada in August and September of 1974. In December 1974 defendant told plaintiff to move to Oregon in order to design some new upright devices similar to those plaintiff had been shown in July but with solid-state electronic components. Plaintiff moved to Oregon in January 1975 and began work on these upright devices. In addition, plaintiff worked on rebuilding some old upright devices at this time.

Defendant paid plaintiff $2,500 per month during his period of employment. The salary was received by plaintiff in the form of a check for $1,500 and $1,000 in cash. This latter amount was not reported on plaintiff's Oregon or Federal income tax returns for 1975.

At some point in this general time frame, ⁵ defendant was charged with and pleaded guilty to Promoting Gambling in the First Degree, a Class C felony. The charge stemmed from defendant's involvement with "electronic upright machines" which were located in Deschutes County. The trial judge in the case at bar could infer these to be the same machines defendant showed plaintiff on plaintiff's July 4th visit.

Plaintiff was employed by defendant from July 15, 1974, through June 30, 1975. On the latter date defendant notified plaintiff of his termination effective immediately.

It is often stated that courts will not enforce "illegal" contracts. This is an oversimplification of a legal principle, the application of which often involves construction of statutes and contractual provisions, delineation and balancing of public policies, and a difficult sorting and sifting process.

If the consideration for the contract or its agreed purpose is illegal or against public policy on its face, it will not be enforced. If the contract on its face is not illegal or against public policy, as in the present case, the defendant assumes the burden of alleging and proving its illegality. Intl. L. and W. Union v. Harvey Al. et al., 226 Or. 94, 98, 359 P.2d 112 (1961). In addition, if the contract is merely promotive of activities which are either illegal or against public policy, a weighing of conflicting public policies is required. This court stated in Eldridge et al. v. Johnston, 195 Or. 379, 405, 245 P.2d 239, 251 (1952), the conflict inherent in this process:

"In considering the contract executed by defendant, we are confronted with more than one principle of public policy. It is elementary that public policy requires that men of full age and competent understanding shall have the utmost liberty of contracting, and that their contracts, when entered into freely and voluntarily, shall be held sacred and shall be enforced by courts of justice, and it is only when some other over-powering rule of public policy, such as the rule against perpetuities, intervenes, rendering such agreement illegal, that it will not be enforced. This rule respecting the sanctity of contracts is so firmly fixed in our system of jurisprudence that even where the agreement is partly legal and partly illegal, if the legal may be separated from the illegal, the legal part will be enforced."

A counterweight to the public policy of freedom of contract is the general public policy against the enforcement of illegal contracts. In Northwest Amusement Co. v. Aetna Co., 165 Or. 284, 288-89, 107 P.2d 110, 111, 132 A.L.R. 118 (1940), we said:

"The rule of public policy, which prevents a recovery in court upon such an agreement, ⁶ is not based upon the impropriety of compelling the defendant to comply with his contract. That in itself would generally be a desirable thing. Relief is denied, because plaintiff is a wrongdoer.

" 'Courts do not wish to aid a man who founds his cause of action upon his own immoral or illegal act. * * * The court's refusal is not for the sake of the defendant, but because it will not aid such a plaintiff.' (Restatement, Contracts, § 597, p. 1110)." ⁷

Is this contract illegal or against public policy in the sense outlined above? ORS 167.147 states:

"(1) A person commits the crime of possession of a gambling device if, with knowledge of the character thereof, he manufactures, sells, transports, places or possesses, or conducts or negotiates a transaction affecting or designed to affect ownership, custody or use of:

"(a) A slot machine; or

"(b) Any other gambling device, believing that the device is to be used in promoting unlawful gambling activity.

"(2) Possession of a gambling device is a Class A misdemeanor."

According to ORS 167.117(10), a slot machine is defined as:

" * * * a gambling device that as a result of the insertion of a coin or other object operates, either completely automatically, or with the aid of some physical act by the player, in such a manner that, depending upon elements of chance, it may eject something of value or otherwise entitle the player to something of value. * * * "

A gambling device is defined by ORS 167.117(4) as:

" * * * any device, machine, paraphernalia or equipment that is used or usable in the playing phases of unlawful gambling, whether it consists of gambling between persons or gambling by a person involving the playing of a machine. * * * Amusement devices which do not return to the operator or player thereof anything but free additional games or plays shall not be considered to be gambling devices."

Defendant's employment involved the design of a "pull tab" machine and a number of "upright devices." The former device was characterized by the trial court's memorandum opinion as a "gambling device." While this is certainly true, it did not go far enough, since it also should be subclassified as a "slot machine." Plaintiff admitted knowledge of the character of this machine, and therefore his possession of such a device, clearly contemplated in the contract, would have "run afoul of ORS 167.147" as the trial court put it. ⁸ The "free play" or "upright" machines defendant worked on present a different problem. Although the last sentence of ORS 167.117(4) appears to exempt them from the definition of gambling devices, the Court of Appeals, in State v. Wright, 21 Or.App. 659, 666-67, 537 P.2d 130, 134 (1975), in affirming a conviction for the use of machines which were designed for free play use, but which were used for actual gambling with cash payoffs, stated:

" * * * The legislative history of ORS 167.117(4) persuades us that the legislature meant that: (1) free-play amusement devices are not per se gambling devices * * * , but (2) those machines which are mechanically free-play 'amusement devices' but used as gambling devices under ORS 167.117(4) are (illegal) * * * ." (emphasis in original)

While there is no direct evidence of the actual...