Janke v. Janke

• Court: New York Supreme Court — Appellate Division
• Writing for the Court: Before CARDAMONE; GOLDMAN; CARDAMONE, J.P., and MAHONEY; SIMONS and WITMER, JJ., dissent and vote to reverse the judgment and dismiss the complaint in the following Opinion by SIMONS; SIMONS; WITMER
• Citation: Janke v. Janke, 47 A.D.2d 445, 366 N.Y.S.2d 910 (N.Y. App. Div. 1975)
• Decision Date: 23 April 1975
• Parties: Irene R. JANKE, Respondent, v. William F. JANKE, Appellant.

Page 910

366 N.Y.S.2d 910

47 A.D.2d 445

Irene R. JANKE, Respondent, v. William F. JANKE, Appellant.

Supreme Court, Appellate Division, Fourth Department.

April 23, 1975.

Vincent D. Cardone, Medina, for appellant (Bernard Sax, Niagara Falls, of counsel).

Thielman & Lalime, Buffalo, for respondent (Philip A. Thielman, Buffalo, of counsel).

Before CARDAMONE, J.P., and SIMONS, MAHONEY, GOLDMAN and WITMER, JJ.

OPINION

GOLDMAN, Justice:

Defendant-appellant, divorced husband of plaintiff-respondent, appeals from a judgment granted the wife in the sum of $37,393.52, which the trial court found to be the value of a one-half interest in a restaurant-tavern business. The court also found that the wife had a one-half interest in the real property in which the business was housed, which the parties stipulated had a value of $15,000. No appeal has been taken from this part of the judgment.

In 1957 the parties purchased the real property and the restaurant-tavern business as a joint venture with another couple named Tomak. Each couple invested $7,000 and the title to the real property was taken in their four names. Both Jankes signed the note given to the bank from which they borrowed the $7,000 for their share of the purchase price. After some renovation a restaurant business was opened under the assumed name of Ship & Shore Restaurant. The two men applied for a liquor license which was issued in their names in 1959. At about that time the Jankes purchased the interest of the Tomaks and they continued the operation of the business. Repondent wife testified that although the liquor license was in the husband's name alone it was the intention of the parties 'to operate the tavern as a husband and wife operation.' The husband testified that in purchasing the business he 'was looking for a future for both of us . . ..'

From the beginning of the business until 1968 the husband had another full-time job which prevented him from coming to the business premises until some time after 5:00 P.M. When the business first began the wife worked therein full time, starting with the opening of the restaurant in the morning. She testified that she spent 10 hours per day, six days per week conducting the business. Her duties consisted of cooking, cleaning, lighting the fires, waiting on tables, tending bar, maintaining the property inside and out, ordering supplies, doing the banking, keeping books and acting as general manager of the establishment. Except for such assistance as the husband rendered after his outside working hours, the wife worked alone until about 1965 when a woman was employed to assist her. Despite the husband's claim that this woman did much of the work which the wife testified she had performed, this employee was not called as a witness to support the husband's testimony. Repairs of the premises and payments on the mortgage were made from the business proceeds. A part of the husband's salary, which in the early years of the enterprise was $60 a week, was contributed to the business, as was a $4,000 inheritance which the wife had received. The family needs, such as food, clothing, automobiles and other necessaries, were paid for from the business proceeds. Both parties jointly signed all tax returns until their separation in 1969, but the business was held solely in the husband's name.

Although the trial court in determining to award one-half of the interest in the business to the wife did not use the term 'constructive trust', this must have been the principle on which it made its award. A constructive trust will be imposed where one party holding title to property is under an equitab duty to convey it to another (V Scott on Trusts, (3d ed.) § 462). In order to establish a constructive trust there must be (1) a promise--express or implied; (2) a transfer of property in reliance thereon; (3) a confidential relationship and (4) unjust enrichment (Foreman v. Foreman, 251 N.Y. 237, 240, 167 N.E. 428; Sinclair v. Purdy, 235 N.Y. 245, 253, 139 N.E. 255, 258). Although not directly expressed in language, the facts in the record indicate that all of these elements are present in the instant case. A constructive trust may be imposed where property has been parted with on the faith of an oral promise (see Matter of Wells, 36 A.D.2d 471, 474, 321 N.Y.S.2d 200, 204, affd. 29 N.Y.2d 931, 280 N.E.2d 95) and here the entire relationship and the actions and contributions made by both parties were instinct with a mutual promise of a joint endeavor for the benefit of both. An express promise is not required; it may be implied. As Judge Cardozo observed '(t)hough a promise in words was lacking, the whole transaction, it might be found, was 'instinct with an obligation' imperfectly expressed' (Sinclair v. Purdy, 235 N.Y. 245, 254, 139 N.E. 255, 258). The understanding of the parties should be interpreted not literally and irrespective of its setting but sensibly and broadly with all its reasonable implications.

Consistent with the theory that husband and wife were both to share in the benefits of this business is the husband's position that they were to share equally in the liabilities. It is undisputed in the record that the husband expected that the wife would sign the business income tax returns and she signed them for every year during the marriage. After they separated and when advised that there was an income tax liability due and owing, the husband stated to the wife that she should sign the return because he believed that she was liable for half of it. However, not only did the plaintiff wife contribute her full time services for a period of 12 years to the business, but she also contributed a $4,000 cash inheritance. It is this contribution of money and services by the wife which distinguishes the case at bar from Fischer v. Wirth, 38 A.D.2d 611, 326 N.Y.S.2d 308 upon which appellant relies. In Fischer there was no business partnership and the wife in no manner contributed services or in any way assisted the husband in his work, which was the sole source of the assets in which the wife sought to share. The husband was the provider and the wife performed the usual duties of managing the household.

The absence of any express promise formalizing the venture grows out of the very confidence and trust implicit in the marriage relationship. It would be unnatural for a husband and wife to reduce their understanding to writing. Certainly it is difficult to conceive of a more confidential relationship than that of husband and wife. '(T)he exaction of such a promise, in view of the relation, might well have seemed to be superfluous' (Sinclair v. Purdy, Supra, at page 254, 139 N.E. at page 258). As was stated in Goldsmith v. Goldsmith, 145 N.Y 313, 318, 39 N.E. 1067, 1068 'The absence of a formal writing grew out of that very confidence and trust, and was occasioned by it . . .'. (Also, see, I Scott on Trusts, (3d ed.) § 44.2; V Scott on Trusts, (3d ed.) §§ 440, 462.2). Dean Pound has written of the use of the constructive trust as affording 'specific restitution of a received benefit in order to prevent unjust enrichment'. He has pointed out that the constructive trust, unlike the express trust, is remedial and not a substantive doctrine. (Pound, The Progress of the Law, 33 Harv.L.Rev. 420, 421.)

To permit the husband to retain for himself all of the business assets to which each contributed and which each rightfully expected to share would constitute unjust enrichment of the defendant husband at the plaintiff wife's expense. This would be wrong as a matter of conscience. Judge Cardozo stated the principle succinctly in Beatty v. Guggenheim Exploration Co., 225 N.Y. 380, 386, 122 N.E. 378, 380, that '(a) constructive trust is the formula through which the conscience of equity finds expression. When property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee. Moore v. Crawford, 130 U.S. 122, 128, 9 S.Ct. 447, 32 L.Ed. 878; Pomeroy Eq. Jur. sec. 1053'. Equity out of a sense of fairness and obligation converts the husband into a trustee to prevent or redress a wrong.

A more troublesome issue, one not raised by the parties, appears in the record. That is plaintiff's unclean hands in participating in a business enterprise which requires securing of a liquor license without notifying the Liquor Authority of her interest in it. This was in violation of the Alcoholic Beverage Control Law, §§ 100, 110. It is a recognized principle that where a party must trace her cause of action to an illegal transaction there can be no recovery. (O'Mara v. Dentinger, 271 App.Div. 22, 32, 62 N.Y.S.2d 282.) Although neither party raised the issue of unclean hands or illegality as a defense to plaintiff's action for a declaration of her one-half interest in this tavern business, this court is not precluded from raising the issue Sua sponte for the first time on appeal (O'Mara v. Dentinger, 271 App.Div. 22, 33, 62 N.Y.S.2d 282, 291) not to favor defendant, but as a matter of public policy (Richards v. Levy, 40 A.D.2d 1055, 338 N.Y.S.2d 929). It has been held that one who has failed to register his name with the State Liquor Authority in obtaining a license, thereby violating the Alcoholic Beverage Control Law, cannot invoke the power of the equity court to impose a constructive trust on his share of the proceeds of that business being conducted in violation of statute. (O'Connor v. O'Connor, 263 App.Div. 820, 31 N.Y.S.2d 372, affd. 288 N.Y. 579, 42 N.E.2d 26; Carmine v. Murphy, 285 N.Y. 413, 35 N.E.2d 19; Falcone v. Falcone, 31 Misc.2d 740, 221 N.Y.S.2d 904, revd. other, 18 A.D.2d 1127, 239 N.Y.S.2d 656.)

In O'Connor v. O'Connor, 288 N.Y. 579, 42 N.E.2d 26, Supra, plaintiff purchased a business solely with his funds and ran it himself but put the liquor license in his wife's name. When his wife thereafter excluded him from the...