## Facts

- Patricia Myers operated the Green Door tavern in Granby, Missouri, under a lease and held a sole-owner 5% beer-by-the-drink liquor license issued by the Missouri Division of Liquor Control.
- Jerry Myers (Patricia’s husband) approached J. Todd Clouse, a patron of the tavern, about buying an interest in the business.
- The parties executed a written “Employment/Management Contract” dated January 28, 1987, identifying the Myerses as “Employers” and Clouse as “Employee.”
- The agreement provided that the Myerses would hire Clouse to manage the Green Door for a four-year period and pay him 60% of the business’s net profits as “salary.”
- Clouse agreed to pay the Myerses $15,000 total: $7,500 at signing and $7,500 at a later date.
- The contract contemplated that, upon termination of the agreement or earlier exercise of the lease option to purchase (whichever occurred first), Clouse would receive a 60% ownership interest in the Green Door and the Myerses would exercise their option to purchase the premises during the lease term.
- The agreement further stated that once the property was purchased, the Myerses and Clouse would each pay 50% of the purchase price.
- The contract included a provision stating that if the Myerses “caused the loss” of the tavern’s liquor license, they would refund money paid by Clouse.
- The liquor license remained solely in Patricia Myers’s name while Clouse operated and managed the tavern.
- The Division of Liquor Control learned Clouse was operating the business without being licensed as required under Missouri law and notified Patricia Myers that she would need to apply for a license in the names of all partners.
- Patricia Myers chose to relinquish the liquor license rather than apply for a new license reflecting the parties’ arrangement.
- Clouse sued Jerry and Patricia Myers for misrepresentation and sought a refund of the $7,500 he had paid; the Myerses counterclaimed for the remaining $7,500 allegedly due under the contract.
- After a court-tried case, the trial court entered judgment for Clouse for $7,500 and denied the Myerses’ counterclaim.
- At trial, Clouse testified he knew the license was only in Patricia’s name, knew the arrangement was essentially a partnership rather than employment, and agreed the contract was labeled “Employment/Management” so he could operate under Patricia’s license.

## Issues

1. Whether either party may obtain judicial relief (refund to Clouse or contract balance to the Myerses) where the agreement, as intended and performed, involved operating a liquor business without the proper license required by Missouri law.
2. Whether Clouse could recover on a misrepresentation theory when he knew the liquor license status and the true nature of the parties’ agreement.

## Decision

- The Missouri Court of Appeals, Southern District, reversed the trial court’s judgment awarding Clouse $7,500.
- The court held that because the agreement was structured and carried out in a way that violated Missouri’s liquor-licensing requirements, the courts would not grant relief to either party on claims growing out of that arrangement.
- The court left the parties where it found them: Clouse could not recover the $7,500 he paid, and the Myerses could not recover the unpaid $7,500.
- The court rejected Clouse’s misrepresentation theory because the evidence did not show an actionable false representation or justifiable reliance, given Clouse’s admitted knowledge of the licensing situation and the deal’s real character.

## Legal Principles

- Courts will not enforce a contract, or grant restitution or damages based on it, when the claim depends on performance that violates law or public policy.
- When both parties participate in the illegality (in pari delicto), the usual result is that neither may recover and the court leaves them as it finds them.
- A court looks to the substance of the transaction rather than the label the parties give it; calling a partnership-like deal an “employment” contract does not change the legal effect of the arrangement.
- A fraud or misrepresentation claim requires a false representation and justifiable reliance; a party who knows the true facts cannot establish deception or reliance.

## Conclusion

In Clouse v. Myers, the parties used an “Employment/Management Contract” to carry out what Clouse admitted was a partnership-type deal that let him operate the Green Door under Patricia Myers’s individual liquor license, contrary to Missouri licensing requirements once he functioned as an owner/partner. When the licensing problem surfaced and Patricia surrendered the license, Clouse sought to recover his initial payment and the Myerses sought the unpaid balance, but the appellate court refused to aid either side because their claims arose from an illegal arrangement, and it also rejected Clouse’s fraud theory because he knew the essential facts and was not misled.


Clouse v. Myers, 753 S.W.2d 316 (1988)