Clouse v. Myers

Brief Fact Summary.

Patricia Myers (defendant) operated the Green Door tavern. J. Todd Clouse (plaintiff) entered into an agreement with Patricia and her husband, Jerry Myers, titled “Employment/Management Contract.” The agreement also provided that if the Myerses caused the loss of the tavern’s liquor license, they would refund any money paid by Clouse. The Missouri Division of Liquor Control notified Patricia that she would need to apply for a license in the names of all of the business’s partners. Patricia instead chose to relinquish the liquor license. Clouse sued the Myerses for misrepresentation and for a refund of the $7,500 he had paid them.

Synopsis of Rule of Law.

A party may not recover for a wrong that results from the party’s own illegal conduct. Under Missouri law, it is illegal for any person or partnership to sell intoxicating liquor without first obtaining a license.

Facts.

Patricia Myers (defendant) operated the Green Door tavern. J. Todd Clouse (plaintiff) entered into an agreement with Patricia and her husband, Jerry Myers, titled “Employment/Management Contract.” The agreement also provided that if the Myerses caused the loss of the tavern’s liquor license, they would refund any money paid by Clouse. The Missouri Division of Liquor Control notified Patricia that she would need to apply for a license in the names of all of the business’s partners. Patricia instead chose to relinquish the liquor license. Clouse sued the Myerses for misrepresentation and for a refund of the $7,500 he had paid them. The Myerses counterclaimed for the $7,500 still owed to them under the contract. At trial, Clouse testified that he knew the Green Door’s license was in Patricia’s sole name and that the contract was, in fact, a partnership agreement, not an employment contract. Clouse also testified that the reason for labeling the contract an “Employment/Management Contract” was to allow him to operate the tavern under Patricia’s license. The trial court entered a judgment for Clouse on his claims for $7,500 and a judgment against the Myerses on their counterclaim. The Myerses appealed.

Issue.

Whethera party can recover for a wrong that results from the party’s own illegal conduct.

Held.

Clouse and the Myerses violated the law when they knowingly entered into a partnership agreement that would allow Clouse to operate the business on Patricia’s license without attempting to secure a new partnership license. Neither party may recover on an illegal agreement that they knew or should have known was illegal at the time they entered into it. In addition, the evidence does not support Clouse’s fraud claim. There is no evidence that a misrepresentation was made. Clouse testified that he knew that the liquor license was in Patricia’s sole name when he entered the agreement. Clouse also testified that at the time he signed the contract, he knew that it was, in fact, a partnership agreement and that the reason for labeling it an employment and management contract was to allow him to operate under Patricia’s license. The trial court’s judgment in favor of Clouse for $7,500 is reversed, and the judgment in favor of Clouse on the Myerses’ counterclaim is affirmed.

Discussion.

Neither party may recover on an illegal agreement that they knew or should have known was illegal at the time they entered into it.