Schara v. Thiede

• Decision Date: 20 April 1973
• Docket Number: No. 284,284
• Citation: 206 N.W.2d 129,58 Wis.2d 489
• Court: Wisconsin Supreme Court
• Parties: Albert R. SCHARA, Respondent, v. Elmer THIEDE, Appellant, Darrell J. Singleton et al., Defendants.

Page 129

206 N.W.2d 129

58 Wis.2d 489

Albert R. SCHARA, Respondent, v. Elmer THIEDE, Appellant Darrell J. Singleton et al., Defendants.

No. 284.

Supreme Court of Wisconsin.

April 20, 1973.

J. E. Richter, Fond du Lac, for appellant.

Colwin, Ondrasek & Petri, Fond du Lac, for respondent.

HEFFERNAN, Justice.

It was apparent to the trial judge, from the evidence adduced at the hearing, that the parties had in fact entered into an illegal contract. Nevertheless, he concluded that the illegality of the contract did not constitute a defense against Schara's claim. The contract on its face discloses no illegality. It provides merely for the employment of Schara as the manager of Thiede's tavern until June 30, 1970, with Schara to receive a one year lease of the premises thereafter on the condition that the premises remain licensed to operate as a tavern. Taken literally, the contract was legal, and a breach of its conditions by either party could render the other liable for damages.

Despite the facial legality of an agreement, parol evidence is admissible to show that a writing valid on its face is a mere cover for an illegal transaction. Miller v. Anderson (1924), 183 Wis. 163, 169, 196 N.W. 869; Manufacturers & Merchants Inspection Bureau v. Everwear Hosiery Co. (1913), 152 Wis. 73, 138 N.W. 624; Corbin, Contracts (hornbook ed., 1952), p. 536.

The evidence adduced at trial established that the written contract had little similarity to the parties' actual agreement as they understood it. Both Schara and Thiede, as well as Glanz, testified that there was never any intention that the operator of the tavern act as 'manager' for Thiede. On the contrary, the parties contemplated that Glanz, and subsequently Schara, would operate the tavern as his own business and that the agreement was a lease and not a contract of employment.

While they denied that they knew that the arrangement was illegal, and parties to the contract recognized that the agreement was a subterfuge to cover the fact that both Glanz and Schara were operating the tavern without a proper license. The agreement, as understood by the parties, was in violation of secs. 176.04 and 176.05, Stats., insofar as it involved the operation of the tavern by either lessee without having first obtained a proper license.

Thiede relies upon the illegality of the contract to defeat Schara's claim for damages, contending that, even though he had breached the contract, it was so tainted with illegality that it would not support a suit for equitable relief or for damages. The principle upon which he relies was recognized in this state as early as Swartzer v. Gillett (1849), 2 Pinney 238, 1 Chandler 207. Swartzer, citing earlier cases, states at page 240:

"The suppression of illegal contracts is far more likely, in general, to be accomplished, by leaving the parties without remedy against each other, and by thus introducing a preventive check, naturally connected with a want of confidence and a sole reliance upon personal honor."

"The law leaves the parties to such a contract just as it found them."

More recently, in Venisek v. Draski (1967), 35 Wis.2d 38, 50, 150 N.W.2d 347, 353, this court stated:

'The general rule is that both at law and in equity a court will not aid either party to an illegal agreement, whether executory or executed, but leaves the parties where it finds them.'

Schara does not deny the illegality of the agreement, but argues that the illegal provisions are severable and that the remainder of the agremeent, including Thiede's promise to execute a one-year lease on July 1, 1970, is enforceable. The principle of severability may be applicable even though a portion of a contract may be tainted with illegality. The following rule appears in Restatement, 2 Contracts, pp. 1119, 1120, sec. 603, and was approved by this court in Simenstad v. Hagen (1964), 22 Wis.2d 653, 661, 126 N.W.2d 529, 534:

"A bargain that is illegal only because of a promise or a provision for a condition, disregard of which will not defeat the primary purpose of the bargain, can be enforced with the omission of the illegal portion by a party to the bargain who is not guilty of serious moral turpitude unless this result is prohibited by statute . . .."

In Rietbrock v. Studds (1952), 262 Wis. 5, 8b, 53 N.W.2d 712, 54 N.W.2d 899, 900, this court, citing 17 C.J.S. Contracts § 276, p. 663, stated, "Where one can establish his case without reliance on an illegal transaction, the illegality will not bar his recovery."

The rule, however, gives no comfort to the plaintiff in this case, for his right to the one-year lease was expressly conditioned upon his faithful performance as 'manager' pursuant to the illegal agreement. Schara clearly relies upon the past performance of an illegal transaction and, accordingly, cannot expect relief from the courts.

The resolution of this case is governed by Sponholz v. Meyer (1955), 270 Wis. 288, 70 N.W.2d 619, and Brill v. Salzwedel (1940), 235 Wis. 551, 292 N.W. 908. In both of these cases, the parties had entered into a partnership for the operation of a bar. In both cases, the agreement provided that only one of the partners was to obtain the license required by law, despite the statutory requirement that...