Lease Termination Without the Necessity of Notice
In determining whether the language of the lease was a limitation that would terminate the lease upon the occurrence of a contingency without the necessity of notice or other confirmatory action or whether the language created a condition subsequent, which would require some further action such as notice to terminate the lease, the court looked to the lease agreement itself.
The court relied on Hastings Associates, Inc., and 2 Restatement (Second), Contracts 181 and 182 (1981), in reaching its decision.
In finding that the promissory note was unenforceable, the court stated: "The present case is indistinguishable from Hastings Associates, Inc..
The sale of alcoholic drinks is the essence of a pub. the promissory note served to undermine the Massachusetts liquor licensing system and permit prohibited conduct to occur.
Both parties willingly and knowingly engaged in this subterfuge in order to achieve their own goals despite the strong public policy concerning control over who may sell alcoholic refreshments. . . . the promissory note was integral to implement the unlawful operation of the pub because the plaintiff demanded its creation as part of the transaction."
Hastings Associates, Inc., involved a claim for breach of a lease agreement. on appeal, the defendant claimed that the plaintiff's contract claim was barred because the lease agreement was predicated on an illegal transfer of the defendant's liquor license. Hastings Associates, Inc. v. Local 369 Building Fund, Inc., supra, 42 Mass. App. Ct. at 173.
The Massachusetts Appeals Court agreed with the defendant and concluded that the agreement was unenforceable. Id.
The court found that the parties' actions pursuant to the lease agreement effectively resulted in an illegal transfer of the defendant's liquor license to the plaintiff in violation of Mass. Gen. Laws c. 138, 2 and 23. Id., 174.
The court, however, held that the finding of an illegality alone was not sufficient to invalidate the agreement. Id.,175.
"Courts do not go out of their way to discover some illegal element in a contract or to impose hardship upon the parties beyond that which is necessary to uphold the policy of the law . . . . We must examine and weigh all of the circumstances: what was the nature of the subject matter of the contract; what was the extent of the illegal behavior; was that behavior a material or only an incidental part of the performance of the contract . . . what was the strength of the public policy underlying the prohibition; how far would effectuation of the policy be defeated by denial of an added sanction; how serious or deserved would be the forfeiture suffered by the plaintiff, how gross or undeserved the defendant's windfall." Id.
The court in Hastings Associates, Inc., then analyzed these factors in light of the facts of that case. the court found that the plaintiff's illegal use of the license was not incidental to the plaintiff's claim and that this element so permeated the parties' transaction as to be controlling. Id.,176.
As to the plaintiff's claim that it would suffer a substantial forfeiture and the defendant a windfall, the court stated: "While the cases bespeak a judicial tolerance for relatively insubstantial violations of licensing statutes or regulations, particularly when failure to enforce the contract results in substantial unfairness to one or both contracting parties, the public interest in freedom of contract is sometimes outweighed by public policy, and in such cases the contract will not be enforced.Id., 177.
Citing 2 Restatement (Second), Contracts 181 (1981), the court concluded that the liquor licensing requirements are for the protection of the public and common good; Hastings Associates, Inc. v. Local 369 Building Fund, Inc., supra, 42 Mass. App. Ct. at 177-78; and "here, where the plaintiff's application for its own license was denied, the parties by their arrangement effectively substituted their own judgment for that of the local licensing authority.
To permit the plaintiff to recover under its illegal arrangement would reward it for its illegal conduct and would contravene public policy by elevating the plaintiff's private interests over those of the public." Id., 178.