Supreme Court of WisconsinSep 10, 1940
235 Wis. 551 (Wis. 1940)
235 Wis. 551292 N.W. 908

June 4, 1940 —

September 10, 1940.

APPEAL from a judgment of the circuit court for Columbia county: C. F. VAN PELT, Circuit Judge. Modified and affirmed.

For the appellant there were briefs by Lueck, Skupniewitz Lueck of Beaver Dam and Schubring, Ryan, Petersen Sutherland of Madison, and oral argument by Arthur W. Lueck.

For the respondent there was a brief by Grady Fairchild of Portage, and oral argument by Thomas E. Fairchild and Daniel H. Grady.

This is an action for an accounting and specific performance of a partnership agreement commenced September 4, 1939, by the plaintiff, Herman Brill. The defendant, Myron Salzwedel, interposed several counterclaims, the nature of which will be referred to in the opinion. The case was tried to the court, and judgment was rendered dismissing plaintiff's complaint upon the merits.

Among other material facts, the court found in substance as follows: That on and prior to March 1, 1937, plaintiff was the owner of tavern fixtures, equipment, and stock of goods contained in a tavern at Columbus, Wisconsin; that the plaintiff was the assignee of a written lease executed by the owner of the building in which his tavern was located, which said lease expires April 20, 1941; that the fixtures, equipment, and goods were subject to a chattel mortgage in the sum of $300; that during the month of February, 1937, plaintiff approached defendant for the purpose of interesting him in some arrangement for the operation or sale of said tavern property and business; that on March 1, 1937, plaintiff and defendant made and entered into the following written agreement:

"Articles of agreement entered into this 1st day of March, 1937, between Myron Salzwedel, party of the first part, of the city of Columbus, Columbia county, Wisconsin, and Herman Brill, party of the second part, witnesseth.

"Whereas, party of the second part is the owner of all of the fixtures, equipment, stock of goods and all other personal property contained in the building located at 173 James street, Columbus, Wisconsin, and

"Whereas, the party of the first part is desirous of entering into a tavern business in said location, but does not have the necessary funds to purchase said personal property.

"Now therefore, it is agreed between the parties hereto that the said party of the first part shall operate and conduct said business, and that said party of the second part shall furnish the necessary financial assistance and equipment and that the said business be conducted on a partnership basis, share and share alike.

"It is agreed that the party of the first part be given the right to withdraw eight dollars ($8) of his share of the profits on Monday of each week and a like amount is to be withdrawn by the party of the second part. It is agreed that all of the rest of the said profits in said business be retained to insure an adequate stock of goods by the party of the first part. The party of the first part agrees that all the rest of the profits due him shall be paid to the party of the second part until the said party of the first part has paid for his one half of the value of the personal property, equipment and financial assistance contributed by the party of the second part, said one half amounting to three hundred fifty dollars ($350).

"This arrangement shall continue until the same is dissolved by the mutual consent of both parties. After the party of the first part has paid for his one-half share in the personal property amounting to $350, then in the event that either party to this contract wishes to withdraw from this said enterprise, it is expressly agreed that he cannot sell his interest to an outsider, but may sell his interest to the other partner on the following terms: $350 which represents his half interest in the personal property, plus one half of the value of the stock of goods on hand at the date of sale after subtracting one half of all of the outstanding bills.

"In witness whereof, we have hereunto set our hands and seals this 1st day of March, 1937.

"MYRON A. SALZWEDEL (Seal) "Party of the first part "HERMAN BRILL (Seal) "Party of the second part. "In presence of RUTH SALZWEDEL."

The court further found that prior to the commencement of the operation of said tavern, both parties contemplated that a license for the retail sale of intoxicating liquor under sec. 176.05 (1), Stats. 1937, for the operation of said tavern should be applied for from the common council of the city of Columbus in the name of defendant; that in dealings with creditors, the public, and the bank, the business should be carried on in defendant's name; that the actual purchase of supplies and liquor, the retail sale of liquor, and the hiring of labor should be performed by defendant.

That plaintiff has never had a license for the operation of a tavern or the retail sale of intoxicating liquor; that prior to the signing of the written instrument above referred to, plaintiff drafted an application to the common council of the city of Columbus for a license to operate a tavern at 173 James street and for the retail sale of intoxicating liquors; that said application was signed by defendant only; that said application as drawn by plaintiff made no reference to any interest of any person other than defendant and contained no reference to any partnership or joint adventure of any kind; that said application was submitted to the common council of the city of Columbus with plaintiff's consent, approval, and at his suggestion; that the license for the operation of a tavern at 173 James street, city of Columbus, and for the retail sale of intoxicating liquor was issued to defendant by the common council of the city of Columbus, March 2, 1937; that said license contained no reference to any interest in the operation of said tavern or retail sale of intoxicating liquors of any person other than defendant and contained no authorization to defendant to operate said tavern business in partnership with or as the agent of another person; that the cost of said license and all subsequent licenses were paid by defendant out of the profits of said tavern business, and that such payments were consented to by plaintiff.

That subsequent to the granting of said license, defendant purchased the liquor and other supplies, and hired the necessary help in the operation of said business, and sold liquor and other commodities at retail in said tavern; that defendant has, during the period from March 2, 1937, to January 2, 1939, paid to the plaintiff at least the sum of $1,090 from the proceeds of the business; that the value of the plaintiff's investment in the business did not exceed $700.

The court further found "that the said written instrument [above quoted] sets forth an arrangement which would be unfair and inequitable, and which would impose unreasonable hardship upon defendant because by its terms defendant was to devote his time to the carrying on of the business; that by the terms of the said instrument the defendant was to repay to the plaintiff one half of plaintiff's investment; that said instrument contemplated that after such repayment, each party would have a half interest in the assets of the business and each party would receive half the profits, but the defendant would contribute his services in addition."

Among other conclusions of law, the court found that the contract between the parties is unfair, inequitable, and unconscionable; that specific performance thereof and that accounting of profits thereunder should be denied; that the written instrument literally would require defendant to remain in the business under the arrangement provided for in said instrument until plaintiff consented to the termination of the agreement, or, at least, until defendant was willing to sacrifice his share in any good will or going-concern value that might have been built up; that the arrangement embodied in the written instrument is for that reason, among others, unfair, inequitable, and imposes unreasonable hardship upon the defendant; that the consideration moving from plaintiff to defendant is grossly inadequate for the promises of defendant sought to be enforced; and that defendant is entitled to judgment dismissing the complaint with costs.

The following opinion was filed June 20, 1940:

The foregoing statement discloses that this is an unusual case. The defendant appears to be somewhat reluctant to admit that the agreement of March 1, 1937, is a partnership agreement. The plaintiff contends that it is a partnership agreement, and the prayer of his complaint is, (1) that an account be taken of all of said partnership dealings and transactions from March 1, 1937, to the commencement of this action, and an account of the moneys received and paid out by defendant in the conduct of said business, and that defendant be required to make such accounting; (2) that defendant be adjudged to pay to plaintiff out of the net profits of said business, as such net profits shall be determined on such accounting, (a) the sum of $350 due to plaintiff for one half of plaintiff's investment in said business, and (b) the $8 weekly withdrawals due plaintiff, commencing January 2, 1939, and (c) one half of the net profits remaining after such payments are made; (3) that it be adjudged that the new lease of said premises made by defendant was made for the benefit of said partnership, and that after said payments are made to plaintiff that it be adjudged that the parties equally own said business and all personal property and equipment connected therewith, and that said business continue as in said agreement provided.

Defendant's counterclaims are based upon the theory that the agreement created a debtor-creditor relationship, and that as such it is a usurious contract. Upon that theory defendant seeks to recover substantial damages from the plaintiff in this action.

We find nothing ambiguous in the agreement. The language is simple and clear. Both parties knew what they were doing. It is our conclusion that they entered into a partnership agreement to conduct a lawful business, but unfortunately for the parties, their agreement provides for conducting the tavern business in an unlawful manner. We have not been cited any statutory authority which authorizes a partnership to take a license for the sale of intoxicating liquors in the name of one of the partners, and we have been unable to find any such law. Sec. 176.05 (3), Stats. 1937, so far as here material, provides:

"No such license shall be issued to any person acting as agent for or in the employ of another."

The articles of agreement make no reference as to whom the tavern license shall be issued. But it does provide for a joint interest with equal shares to both parties from the operation of the tavern business. Both parties knew when they signed the agreement that it would be necessary to obtain a license. Sec. 176.05 (1), Stats., so far as here material, provides:

"and common council may grant retail licenses, under the conditions and restrictions in this chapter [ch. 176] contained, to such persons entitled to a license under this chapter as they deem proper to keep places within their respective towns, villages, or cities for the sale of intoxicating liquors."

Sec. 176.05 (5), Stats., requires that the application for the license shall be so worded as to make clear to any licensing authority the past history of the applicant and his fitness to conduct the business for which application is made. Sec. 176.05 (9) provides:

"No license or permit shall be granted to any person or persons for the sale of any such intoxicating liquors, who is not of good moral character and a full citizen of the United States and of this state and who has not resided in this state continuously for at least one year prior to the date of filing the application; nor shall any such license be granted or issued to any person who has habitually been a petty law fender, or has been convicted of an offense against the laws of this state punishable by imprisonment in the state prison, unless the person so committed has been duly pardoned. The provisions of this subsection shall not apply to a Wisconsin corporation; such provisions apply, however, to all officers and directors of any such corporation."

Sec. 176.05 (13), Stats., authorizes a corporation to name an agent and permits a municipality to license such agent, but sec. 176.05 (9) requires that all the officers and directors of the corporation measure up to the standards as to good moral character, full citizenship, and residence in Wisconsin for at least one year, as well as the other conditions and requirements of said section.

There is no legal sanction under our law whereby a so-called silent partner can engage in the tavern business in which intoxicating liquors are sold under a license issued in the name of one of the partners. In the case of corporations, full disclosure must be made as to all officers and directors the corporation. There is an obvious reason for such disclosure. The licensing authorities are entitled to know the personnel of those directly interested in the business for the operation of which the municipality grants the license. The emphasis is upon the personal qualifications of the licensees and those in control of the liquor business. The latter is clearly indicated in the disclosures required concerning officers and directors of corporations, and the public is entitled to know who is actually in control, both as to ownership and management in any branch of the liquor traffic required by law to be licensed.

A partnership may be granted a license to operate a tavern and sell intoxicating liquors provided the names of the partners are disclosed in both the application for and in the license granted. But it may not, as in the instant case, obtain a license in the name of one of the members of the partnership.

The trial court made extensive findings on the merits of the litigation. The action was one in equity; both parties were asserting rights founded upon an illegal and void contract. In such a case, it is a well-settled rule that a court of equity leaves the parties to such a situation just where they placed themselves and as the court found them. Its doors are closed to any applicant for relief from or under such a contract. Netherton v. Frank Holton Co. 191 Wis. 483, 489, 210 N.W. 379. See cases there cited.

The judgment of the lower court dismissing the action upon the merits with costs must be affirmed. However, in view of the fact that the findings in some respects may be determinative as to such facts in subsequent litigation affecting the rights of the parties as to the ownership of the fixtures, equipment, stock of goods, and other personal property located in the tavern in question which should not be passed upon in this litigation, we conclude that all such findings and such conclusions of law as relate thereto should be vacated and set aside.

By the Court. — The findings of fact and conclusions of law as indicated in the opinion are vacated and set aside. The judgment dismissing the complaint upon the merits with costs is affirmed.

A motion for a rehearing was denied, with $25 costs, on September 10, 1940.