Lilienthal v. Kaufman

Brief Fact Summary

Kaufman (Defendant), an Oregon resident, had been declared a spendthrift under Oregon law and for his protection a guardian was appointed.  He went to California and borrowed money from Lilienthal (Plaintiff) to finance a business venture.

Synopsis of Rule of Law

In an interstate contract dispute, where two states have an equal balance of interests in application of their own laws, the forum is privileged to apply its own law in order to advance its own public policy.

Facts

Under a statutory procedure in Oregon, Kaufman (Defendant) had been declared a spendthrift and a guardian was appointed to manage his affairs and prevent waste of his assets to the detriment of himself and his family.  According to the terms of the statute, any contracts made by the spendthrift following the appointment of the guardian were voidable by the guardian.  Defendant traveled from his home in Oregon to San Francisco where he persuaded Lilienthal (Plaintiff) to advance him money for a business venture.

Issue

In an interstate contract dispute, where two states have an equal balance of interests in application of their own laws, is the forum privileged to apply its own law in order to advance its own public policy?

Held

(Denecke, J.)  Yes.  In an interstate contract dispute, where two states have an equal balance of interests in application of their own laws, the forum is privileged to apply its own law in order to advance its own public policy.  In a prior case where Kaufman (Defendant) was involved as a defendant in a similar suit brought by an Oregon resident, this court held that the guardianship acted as a bar to enforcement of the obligations.  However, the court is now faced with the conflicting interests of California in protecting its own creditors.  In addition, there is the traditional rule that the law of the place where a contract is made will govern its validity.  There is authority for the assertion that choice of law should be made in a manner that upholds, not voids, a contract.  Oregon has an interest in seeing that contracts made by its citizens are honored in Oregon courts.  Balanced against these considerations is the valid public policy, expressed by the legislation, of preventing a spendthrift from making himself and his family public charges as a result of his wasteful ways.  The Oregon legislation must be presumed to have considered the unfavorable consequences of the spendthrift disability on interstate commerce when deciding to provide this form of immunity.  When faced with such an equal balance of interests, the courts of this state are under an obligation to give force to the express public policy.  And with that in mind, we find the obligations unenforceable.  Affirmed.

Dissent

(Goodwin, J.)  The overriding policy of both Oregon and California to uphold the sanctity of contracts has been lost in the decision to keep the rare spendthrift off of Oregon welfare rolls.  It is a step back toward Balkanization to send an out-of-state creditor toward insolvency to uphold a questionable policy of Oregon.

Concurrence

(O’Connell, J.)  In view of our previous decision barring recovery by an Oregon creditor, I see no need to afford greater protection to an out-of-state creditor.

Discussion

The case represents an example of Currie’s approach to choice of law that points to the importance of the forum’s law.  The Oregon court was quick to find that there was a balance of conflicting interests, and in the face of that balance that the forum should prevail.  There has been criticism of this case on the ground that, while an Oregon creditor is presumed to know Oregon law, a California creditor must be presumed to act on his knowledge of California law.  The Oregon statute is not so commonplace that an out-of-state creditor would be expected to reasonably contemplate it.