Court Opinion

ID: 9853150
Source: CourtListenerOpinion
Date Created: 2023-09-24 05:43:28.46489+00
Date Added: 2024-06-11T09:22:41.451744
License: Public Domain

UDALL, Justice
(dissenting) :
I respectfully disagree with the majority in the interpretation given to that part of the contract designated:
“(2) GUARANTORS agree:
“A. To guarantee the payment to LESSOR of rent totalling Sixty Thousand Dollars ($60,000.00), or Five Per Cent (5%) of the gross proceeds of the sale, whichever is greater, at the rate and in the manner provided for in said Lease Agreement, over a period of ten (•10) years from the date the initial term of said lease commences, without respect to future changes in conditions obtaining now or at any given time, * * (emphasis added)
A.R.S, § 4-203, subsec. E reads:
“E. No spirituous liquor license shall be assigned, transferred of sold, except as provided for in this title. No spirituous liquor license shall be leased or subleased, except that for the purpose of preserving rights and duties that have already matured, any licensee who has leased a spirituous liquor license under a lease-in effect on the effective date of this subsection shall, after examination of such lease by the superintendent, be permitted to continue the lease according to its terms, and the license shall revert to the lessor upon expiration of the lease, or upon any termination of the lease, or by December 31, 1963, whichever is sooner.”
It is my opinion that in 1961, when the Arizona State Legislature adopted the above, it effected a change in the law that made it illegal for the liquor license in the case at bar to be transferred to the guarantor, or such person or persons as might be designated by him, and therefore it was impossible for the guarantor to comply with the contract.
The guarantor contends that the clause in the contract, “without respect to future changes in conditions obtaining now or at any given time”, was inserted to cover the probabilities of deterioration or change in economic conditions which might frustrate the use of the license in question by the lessee, such as the abandonment of Ft. Huachuca as a military installation, or other occurrences of a like kind, but that it did not include a change in the law by the legislature that would make illegal the performance of the contract in question. I agree with this contention.
The majority has cited the cases of Ellwood v. Nutex Oil Co. (Tex.Civ.App.) 148 S.W.2d 862; Allanwilde Transport Corp. v. Vacuum Oil Co., 248 U.S. 377, 39 S.Ct. 147, 63 L.Ed. 312; International Paper Co. v. The Schooner Gracie D. Chambers, 248 U.S. 387, 39 S.Ct. 149, 63 L.Ed. 318; Standard Varnish Works v. Steamship Bris, 248 U.S. 392, 39 S.Ct. 150, 63 L.Ed. 321; *171and Berg v. Erickson, 234 F. 817 (8th Cir.), to the general effect that:
“An intention of the parties to the effect that performance by one of them shall not be affected by supervening impossibility, has been inferred by the courts from the fact that under the contract, interpreted as a whole, the party who has performed has agreed that his performance shall be absolute, unconditional, or irrevocable.” 144 A.L.R. 1319
In none of these cases is there even an intimation that compliance could not be carried forward because of a change in the law. ' All. of the cases above referred to concern “future changes in conditions” affecting the contracts but none of them pertain to a “change in the law” that prevents the performance of the contract! Furthermore, all of these cases are clearly distinguishable from the instant case on their facts. For example, that' Allanwilde, International Paper and Standard Varnish are decisions dealing with maritime' shipping and prepaid freight fees.
I am of the persuasion that the principles of law applicable to the interpretation' of the subject contract under the facts • in this case are those discussed in the following cases: In Burkus v. Henshall, 386 Pa. 478, 126 A.2d 722, 724, the court quoted with approval from Restatement, Contracts, § 458:
“ ‘A contractual duty * * * is discharged, in the absence of circumstances showing * * * a contrary intention * * *, where performance is subsequently prevented or prohibited (a) by * * * a statute of * * * any one of the United States whose law determines the validity and effect of the contract * * ”
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“ ‘There is appended to all contracts an implied condition that after the making of the agreement, no law or governmental regulation will be enacted rendering continued performance of the contract unlawful. Therefore, where without fault of the party his continued performance of a contract is rendered illegal by a subsequent governmental regulation, his duty of rendering performance is discharged.’ ” (Sum.Pa.Jur., Contracts, § 465).
The case of Jefferson Estates v. Wilson, Mun.Ct., 35 N.Y.S.2d 582, 584, contains the following language:
“The general rule that where a party, by his own contract creates a duty or charge upon himself, that he is bound to make it good, if he may, notwithstanding any accident by inevitable necessity, does not apply where performance becomes impossible by a change in the law or by reason of action taken under governmental authority. To hold them bound to anticipate future legislation would be equivalent to making them obligate themselves to performance of conditions prescribed by others, which in the nature of things could not have been within the contemplation of the parties at the time the contract was made.”
The Ohio court in Massillon Savings & Loan Co. v. Imperial Finance Co., 114 Ohio St. 523, 151 N.E. 645, stated the rule to be that where a contract is legal when made, and subsequently such contract or its performance is prohibited by statute, performance thereof after the time when such prohibitive law becomes effective is illegal and neither party can recover for breach of the contract. The opinion quotes from 3 Williston on Contracts, § 1759:
“Where the contract was originally legal, but because of a change * * * in the law, performance of the acts contracted for on one side or the other has become illegal, any subsequent performance of such acts is against public policy and the party who has undertaken to perform them is excused from so doing.”
In the California case of Industrial Development & Land Co. v. Goldschmidt, 56 *172Cal.App. 507, 206 P. 134, 135, it was held that:
“ * * * (A) contract which contemplates the doing of a thing, at first lawful, but which afterwards and during the running of the contract term becomes unlawful, is affected in the same way, and ceases to be operative upon the taking effect of a prohibitory law.”
See also the cases of Takahashi v. Pepper Tank & Contracting Co., 58 Wyo. 330, 131 P.2d 339; Colonial Operating Corp. v. Hannon Sales & Service, Inc., 178 Misc. 879, 34 N.Y.S.2d 116; and Adler v. Miles, 69 Misc. 601, 126 N.Y.S. 135.
Hence, what I believe to be the applicable ¡ law is stated as follows in 6 Williston on f Contracts, § 1938:
“It would obviously be a gross injustice if the law should hold a promisor liable for failing to perform the promised act after the law itself had prohibited its performance, though at the time of the contract the undertaking was legal; and it may be said broadly that where the law forbids or prevents the performance of a promise, legal when made, the prom-isor is freed from liability.”
I also disagree with the statement of the majority that the consideration for the subject contract had not failed even though the statute of 1961 had been enacted. The majority opinion states-
“Although it [referring to the enactment of 1961] outlawed leasing of liquor licenses, it also provided that lessees who lost their leases of liquor licenses because of the new law could apply for and receive new licenses to replace those lost. In other words, this lessee was provided with an opportunity to get a new license so that he could continue to operate his cocktail lounge in Guarantor’s building. Pis right to such new license came directly from the outlawed lease under which he had been operating. Obviously, therefore, there was no failure of consideration as to lessee or guarantor.”
The lessor agrees in section C of- the guaranty agreement:
“That in the event the Lessee’s right to operate under said license is terminated for any reasons prior to the expiration of ten (10) years from the date of commencement of said lease term, then and in such case, Lessor will lease said license to Guarantors or the person or persons designated from the remainder of said ten (10) year period upon the following terms and conditions:
“(1) Any such further and additional lease shall be subject, in all cases, to the final approval of the State Department of Liquor Licenses * *
In Hooper v. Duncan, 95 Ariz. 305, 308, 389 P.2d 706, 708, this Court said:
“ * * * as between the licensee and the state, a liquor license is merely a privilege subject to the police power of the state; it is not a ‘property right’ or a ‘contract’ in the legal or constitutional sense of those terms.”
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“ ‘A license for the sale of liquor is in effect a mere permit, affording protection to the holder against legal animadversion for acts which, without its sanction, would be illegal and punishable.’ ”
We noted in Black v. Siler, 96 Ariz. 102, 105, 392 P.2d 572, 574:
“ ‘State control of liquor licenses under the police power ranges from complete prohibition to lesser degrees of regulation and surveillance, (citation) It is the province of the Legislature to determine to what extent such regulation shall be exercised. The prohibition of the leasing of liquor licenses commence within such state control.’ ”
I am convinced that under these decisions the guarantor had no absolute rights under the subject contract, and when the lessor agreed to lease said license to guarantor, or the person of persons designated by him, for the remainder of the ten-year period, the agreement was void since the lessor had *173no such right to lease the license to the guarantor. A.R.S. § 4-203, subsec. E, adopted in 1961, provides in pertinent part:
“E. * * * No spirituous liquor license shall be leased or subleased, except that for the purpose of preserving rights and duties that have already matured, any licensee who has leased a spirituous liquor license under a lease in effect on the effective date of this subsection shall, after examination of such lease by the superintendent, be permitted to continue the lease according to its terms * *
I think it is clear that the rights of the guarantor in the lease had not already matured nor had a lease been put into effect in favor of the guarantor as of the effective date of the statute in 1961. Therefore, contrary to the opinion of the majority, there was a failure of consideration as to the guarantor. ■
For the above reasons, I would affirm the opinion of the Court of Appeals that the judgment of the lower court should be reduced from the sum of $30,000 to the sum of $8,500, which sum represents the rent due from August 1962 through December of 1963.