Lilienthal v. Kaufman

• Decision Date: 30 September 1964
• Citation: 395 P.2d 543,239 Or. 1
• Parties: Phillip N. LILIENTHAL, III, Appellant, v. Leonard I. KAUFMAN, Jr., also known as Leonard Kaufman, Jr., also known as Leonard Kaufman, Respondent.
• Court: Oregon Supreme Court

Page 543

395 P.2d 543

239 Or. 1

Phillip N. LILIENTHAL, III, Appellant, v.Leonard I. KAUFMAN, Jr., also known as Leonard Kaufman, Jr. also known as Leonard Kaufman, Respondent.

Supreme Court of Oregon, In Banc.

Argued and Submitted March 30, 1964.

Reargued June 30, 1964.

Decided Sept. 30, 1964.

Cleveland C. Cory, Portland, argued the cause for appellant.With him on the briefs was George H. Fraser, Portland.

Louis Schnitzer, Portland, argued the cause and filed a brief for respondent.

Before ROSSMAN, P. J., and PERRY, SLOAN, O'CONNELL, GOODWIN, DENECKE and LUSK, JJ.

DENECKE, Justice.

This is an action to collect two promissory notes.The defense is that the defendant maker has previously been declared a spendthrift by an Oregon court and placed under a guardianship and that the guardian has declared the obligations void.The plaintiff's counter is that the notes were executed and delivered in California, that the law of California does not recognize the disability of a spendithrift, and that the Oregon court is bound to apply the law of the place of the making of the contract.The trial court rejected plaintiff's argument and held for the defendant.

This same defendant spendthrift was the prevailing party in our recent decision in Olshen v. Kaufman, 235 Or. 423, 385 P.2d 161(1963).In that case the spendthrift and the plaintiff, an Oregon resident, had gone into a joint venture to purchase binoculars for resale.For this purpose plaintiff had advanced moneys to the spendthrift.The spendthrift had repaid plaintiff by his personal check for the amount advanced and for plaintiff's share of the profits of such venture.The check had not been paid because the spendthrift had had insufficient funds in his account.The action was for the unpaid balance of the check.

The evidence in that case showed that the plaintiff had been unaware that Kaufman was under a spendthrift guardianship.The guardian testified that he knew Kaufman was engaging in some business and had bank accounts and that he had admonished him to cease these practices; but he could not control the spendthrift.

The statute applicable in that case and in this one is ORS 126.335:

'After the appointment of a guardian for the spendthrift, all contracts, except for necessaries, and all gifts, sales and transfers of real or personal estate made by such spendthrift thereafter and before the termination of the guardianship are voidable.'(Repealed 1961, ch. 344, § 109, now ORS 126.280).

We held in that case that the voiding of the contract by the guardian precluded recovery by the plaintiff and that the spendthrift and the guardian were not estopped to deny the validity of plaintiff's claim.Plaintiff does not seek to overturn the principle of that decision but contends it has no application because the law of California governs, and under California law the plaintiff's claim is valid.

The facts here are identical to those in Olshen v. Kaufman, supra, except for the California locale for portions of the transaction.The notes were for the repayment of advances to finance another joint venture to sell binoculars.The plaintiff was unaware that defendant had been declared a spendthrift and placed under guardianship.The guardian, upon demand for payment by the plaintiff, declared the notes void.The issue is solely one involving the principles of conflict of laws.

We could quickly dispose of some of the conflict problems involved by applying principles previously stated some years ago by this court and other courts and writers.We are restrained from following this easy course for two reasons: First, 'Contracts is by common consent the most complex and also the most confused part of Conflict of Laws.'Restatement (Second), Conflict of Laws, Tentative Draft No. 6, p. 1.'Conflict of laws was in a far more unexplored state than it is now when Professor Beale began work on the original Restatement of the nineteen-twenties.'Reese, Contracts and the Restatement of Conflict of Laws, Second, 9 Int. & Comp.L.Q. 531, 532(1960).Second, the field of conflict of laws is today filled with judicial and pedagogical groping: the blazes of the future trail still remain faint and far apart.'In certain fields, as currently in Conflict of Laws, the wilderness grows wilder, faster than the axes of discriminating men can keep it under control.'Traynor, Law and Social Change in a Democratic Society, 1956 Ill.L.For. 230, 234.

Under these circumstances our duty is threefold,--to decide this case correctly, to indicate generally our views on the course to be taken in this particular part of the conflict of laws, but at the same time to refrain from making any pronouncements which might in the future restrain this court from taking a course which by that time has proved to be the most desirable.

Before entering the choice-of-law area of the general field of conflict of laws, we must determine whether the laws of the states having a connection with the controversy are in conflict.Defendant did not expressly concede that under the law of California the defendant's obligation would be enforceable, but his counsel did state that if this proceeding were in the courts of California, the plaintiff probably would recover.We agree.

At common law a spendthrift was not considered incapable of contracting.Taylor v. Koenigstein, 128 Neb. 809, 260 N.W 544, 546(1935).Incapacity of a spendthrift to contract is a disability created by the legislature.California has no such legislation.In addition, the Civil Code of California provides that all persons are capable of contracting except minors, persons judicially determined to be of unsound mind, and persons deprived of civil rights.§ 1556.Furthermore, § 1913 of the California Code of Civil Procedure provides: '* * * that the authority of a guardian * * * does not extend beyond the jurisdiction of the Government under which he was invested with his authority.'

Defendant contends that the law of California should not be applied in this case by the Oregon court because the invalidity of the contract is a matter of remedy, rather than one of substance.Matters of remedy, procedure, are governed by the law of the forum.What is a matter of substance and what is a matter of procedure are sometimes difficult questions to decide.Stumberg states the distinction as follows: '* * * procedural rules should be classified as those which concern methods of presenting to a court the operative facts upon which legal relations depend; substantive rules, those which concern the legal effect of those facts after they have been established.'Stumberg, Principles of Conflict of Laws (3d ed.), 133.Based upon this conventional statement of the distinction, it is obvious that we are not concerned with a procedural issue, but with a matter of substantive law.

Plaintiff contends that the substantive issue of whether or not an obligation is valid and binding is governed by the law of the place of making, California.This court has repeatedly stated that the law of the place of contract 'must govern as to the validity, interpretation, and construction of the contract.'Jamieson v. Potts, 55 Or. 292, 300, 105 P. 93, 95, 25 L.R.A., N.S., 24(1910).Restatement 408, Conflict of Laws, § 332, so announced and specifically stated that 'capacity to make the contract' was to be determined by the law of the place of contract.

This principle, that lex loci contractus must govern, however, has been under heavy attack for years.For example, seeLorenzen, Validity and Effects of Contracts in the Conflict of Laws, 30 YaleL.J. 565, 655(1921), 31 YaleL.J. 53(1921).The strongest criticism has been that the place of making frequently is completely fortuitous and that on occasion the state of making has no interest in the parties to the contract or in the performance of the contract.Stumberg, supra, at 231.The principle is undermined when it is observed that in many of the decisions, the state of the place of making had other associations with the contract, e. g., it was also the place of performance and the domicile of one of the parties.In our decisions stating this principle, the state whose law was applied had connections with the contract in addition to being the place of making.Jamieson v. Potts, supra, 55 Or. 292, 105 P. 93;McGirl v. Brewer, 132 Or. 422, 443, 280 P. 508, 285 P. 208(1930).As a result of this long and powerful assault, the principle is no longer a cornerstone of the law of conflicts.Tentative Draft No. 6, p. 3, Restatement (Second), Conflict of Laws, comments on the new contracts chapter: 'First, it no longer says dogmatically that the validity of a contract is governed by the law of the place of contracting.'

There is no need to decide that our previous statements that the law of the place of contract governs were in error.Our purpose is to state that this portion of our decision is not founded upon that principle because of our doubt that it is correct if the only connection of the state whose law would govern is that it was the place of making.

In this case California had more connection with the transaction than being merely the place where the contract was executed.The defendant went to San Francisco to ask the plaintiff, a California resident, for money for the defendant's venture.The money was loaned to defendant in San Francisco, and by the terms of the note, it was to be repaid to plaintiff in San Francisco.

On these facts, apart from lex loci contractus, other accepted principles of conflict of laws lead to the conclusion that the law of California should be applied.Sterrett v. Stoddard Lumber Co., 150Or. 491, 504, 46 P.2d 1023(1935), rests, at least in part, v. Stoddard Lumber Co., 150 Or. 491, 504, note is determined by the law of the place of payment.Tentative Draft No. 6, p. 30, Restatement (Second), Conflict of Laws, § 332b(a) states: 'if the place of contracting and the place of...