# Petition for Writ of Certiorari — West Los Angeles Institute for Cancer Research v. Mayer > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385603_0129%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1967 - **Citation:** 385 U.S. 1010 ## Text . ae _ hee TARY se FILED 7 OA ee * Sinica Court. of the Wnited Sates - OCTOSER — 1966 m7 8 WEST LOS ANGELES . INSTITUTE FOR CANCER RE- SEARCH, a —— Petitioner, ov s | WARD MAYER, MARJORIE MAYER, nSw. MAYER, ‘and TIMBER STRUCTURES, INC., a corporation, individ- Ee aiRT St eheceereee tn iacanin o0, Weed Mayer Segara : jes ‘Inc., : o _, Resbondents. i ~ PETITION FOR A WRIT OF CERTIORARI TO. i UNITED STATES COURT OF APPEALS FOR THE NINTH — s HERBERT H.. ANDERSON '? 800 Pacific Building Portland, Oregon 97204 a foc Feo ae ° R My Fs Y ° 2 » - nm! “ . latina ti aed Sac > : ) *. 4 Py I ‘ \ . | Sa ° } ¢ Be q Ges | % te en sh fi Eager EY mELK Td ya wok Opinions Below | 2 ee 3 ‘ | 1 Jurisdiction -: ae a “i sre | ea! -_ Questions Presented cc ccmee SRA Se ESS ee 5 __. Statement: Reasons for Granting.the ‘Writ feoey a oe . 3 “The decision below is in conflict with the decision of this s : iY sr ; ab bea ble: i : . é: ra coat 2 A é: 4 : ] ; . aay. x e : . « ( , -t I. : = ‘ ¢ ° ts - co . q Ps . . . ” é q f * % > . y e . - - . Mie 5 0 S = ° 2 ‘ . . ' ~— 5 is j ; : ; z . 1 pais 3 ee as Statutes : ‘ re , ‘ . 7 . . . - Fo 3 7 4 . 3 o, ee eos £c a / - “. e ae ° : - . . ft -¢ 3 Seca Ss 7) . ar . : 5 3 ° : bs . ¢ 2 a. ~ X @ pig 5 : ‘ . by ¢.s uli p : : ’ \ : : , 8 3 =f 4 eh. s J . : * ° a) . ’ | / . . - / ieee tr" ° . f ne b . , fe ‘ . e » M ° . . x £ Ce 3 se : 4 ‘ sr @ . a. ¢ * * ° ‘ . & = i 3 . A e ¥ 48 ‘ : . . i aly : : 1 ° { Z reg % 5 & . - : a 5 . a. ‘ ° . ? A ~~ . 4 : : oe . \~ : F v e “3 - . ao © m d te . ris » ap ° , f . “ ~ ke : . o..- Set “ i > y : ar a ss - . 5 Se on é . oy . = =e se Pe mt e : hae at . % . . . g s . F ‘ . y ; : / . oa : . i . 2 - ° ‘ , mai . a . 2 dead , . : = ¢ oe i : ; ; ¥ : ; ea oN ae - ek, 2 24 a2 ~ ry . ¢ . } os ae sussoichon : : ‘The judgment of the Court of Appell was catered ; 2 on 5 ana 29, 1966 (R. 377) ppendix p. 23). A peti- | tion for Rehearing \ was denied tober 6, 1966. (R. 378) : The jurisdiction of this Court i is invoked under 28 U. S.C. = $1254, Fees "QUESTIONS: PRESENTED : Bo ’ Whether a Revenue Ruling has-such Logi affect : ‘that it can be held as a matter of law that it frustrated a commercial transaction, particularly where the sags : Be : is subsequently held by this Court to be wrong. 2. ‘Whether respondents were entitled to- -rescind. ae : o sale of a: business on. grounds of commercial frustration, 5 ‘when the only eviderice of frustration consisted of. an unenforceable oral agreement. to rescind i in the “event ° eet pas Se _ that the anticipated tax treatment was not.obtained,” —- “(R. 37 1, ‘in: 10) which agreement respondents admit ia they deliberately concealed from Internal Revenue au- : - ri “ie thorities because its disclosure. “might. undermine the bona fides of the whole transaction in the eyes of the . Internal Revenue Service” (R. 226). a _ STATEMENT A ie August, 1951, the individual respondents and D. . F. Kinder contracted to sell their stock in Tishber Struc- | - bares, — to West Lins perren Institute for Cater Re- search (the Institute) for a Price-of- $2;500,000. =~ ~|. | transaction was substantially similar to the sale of Clay oe .,* Brown & Company to the Institute considered i in Com- | r - missioner v. Brown, 380 U.S. 563.(1965). The written _ documents contained: default ' provisions. which permit- = | ted foreclosure in the event certain minimum payments e “were not made. Nothing concerning tax consequences | was contairied in. the -written documents but the court found’ that /the parties. made. an oral agreement for . . rescission in the, event that the ‘anticipated tax treat- as : ‘ment. was not. obtained. Respondents deliberately con- .- _ cealed the oral agreement frqm the Internal ‘Revenue | . authorities (R. 372) for the reason that, as they alleged, “Sit might undermine t the bona fides of the whole trans. . eaction i in the ores of the Internal Revenue vs aie (R. ~ “ KY 226). is.” Petitioner dissolved the coxporation and. leased the " -. assets to anew corporation also known as Timber Struc- "tures, Inc. By the end of 1954 petitioner had made pay- cae ments on the purchase price amounting to $348, 886. 67... rs An September, 1954, the Commissioner of: {nternal 2 7 Revenue issued Revéfiue Ruling 54-420 which dealt with . ~ a similar transaction. The ruling stated that the founda- ier: tion. in ‘that: case would lose its exemption and the ‘pro- ceeds of the sale. would not be entitled to capital gain ©. , _treatment. H Dingiale. lien cies ced heel ellen SMG» @ Rae SE ad) abc. =f a“ : ge ote ‘ . » ea = Meepondenite 6 secilliicil an action’ to recover the ; Properties in 1960; ; however; only i in 1962 did they claim rescission on the ground that the purpose of the parties "was; frustrated by Revenue Ruling 54-420 when issued : i 1954. The courts below granted relief on the ground ae are that t the transaction * ‘was frustrated by Revenue Ruling ae 54420. To do SO, they relied upon the oral agreement : which respondents had concealed from the Internal . Révenue Service, although the agreement was not en-- ae _forceable? under - ‘the Oregon Statute of Frauds (Tr. , 1197). tak a “Petitioner claimed that the transaction was. not. frustrated by the revenue ruling since no tax other than the anticipated ‘capital, gain tax had ever been paid by : Teatensternte. bs Cotitmissioner’ s igi under the ruling | —~~ ee _ Commissioner v. ey 380 U. S. 563. The courts belies . held that “The considération bargained for by the sell- ers i merely $2,500,000 but $2,500,000 recog- « ni nized by the IRS as procéeds from the ‘sale of a capital "> asset t and entitled-t6-capital: gain treatment,” (R: 368; . i = Sa . a. oa 1126) The only evidence of such a consideration was : : the unenforceable oral agreement to rescind i in the event the aftticipated tax, treatment was not obtained. _b. Petitioner ini claimed ghere: could be no frustra: ‘ : tion because ‘the circumstances and procedures for termi- nation ha‘ been foreseen‘and planned for in the fore- . . ~ ; . . \ (on aeie het Pat ea aah te Saab Q te ak : ; ; ee a es . « $ x 3 . \a ." : 3 . : ‘ e e \ . . a : o & ‘ ore ea es oe os ‘ ee ioe eg : ae ‘ 8 closiare | provisions. The ‘Court of Appeals vejacted: ‘this : argument on the ground that “Ward. Mayer did nd&t ; accept. the default ‘provisions ‘as ‘adequate protection against an adverse, tax ruling but Tequested assurances that the property would be returned if the Jax assump- _ tions underlying the. transaction were challenged, and . - that he was given: such assurances by representatives of the Institute, "CR. 370-37 1). The oral agreement, which respandents ‘concealed from the ‘Intérnal Revenue. 3 7 Service, was the bx pews of the decision. Pm tee ar REASONS FOR GRANTING THE oan : >. te ‘The {sion below is in conflict with the decision - otis Court i i missioner v. Brown, $80 U U.S. 563 (1965). The courts below granted rescission “‘on the ground : . that the sale and leaseback arrangement was frustrated iby Revenue Rulifig. 54-420, 1954-2 Cum. Bull. 128, issued... in’ September, 1954, which rejected. the ‘tax premises — upon which the transaction was based.” (R. 365) Saying that “the ruling denied them the anticipated benefit of 3 capital ' gain treatment” (R. 367 )s the Court of. Appeals ieee yep ~ erroneously. held the Revenue: ‘Ruling to be the law. | when published in 1954.1 The Couf® of Appeals relied upon Borup v. Western Operating Corp... 130° F.2d 381, 386 (2d Cir. 1942) where performance was -. 3 a 1, Tike radii igi Te-am cd sc Gauche tess bb A “represents the concli A Sada bate eer tapas few. Rul. ne 1, 3%, 401. = ~ ~ oO 6 . > - #8 hibited. by the President’s proclamation of April 10, . : 1940 forbidding American ships to go to Norway, then , occupied by the- Nazis. It also relied upon Dorsey 1 v. Ore- gon Motor Stages, 183 Or. 494, 194 P.2d 967, 971 (1948) where respondent was held tq be excused from a con- tractual agreement to operate appellant’s buses on an army post because an. executive order eau such BE, performance. ane In Commissioner 1 v. Brown, 380 US. 563 (1965), ’ ; this Court considered: an identical transaction between - petitioner and Clay Brown & Company. This Court there held the opinion of Revenue Ruling 54.420 to be wrong. It held that in a transaction such as this the law does and. : did permit the anticipated benefit of. capital gain ‘treat- as law, and because Commissioner v.- Brown stated the * ment. Because the Revenue Ruling Has no force or effect ot law in effect in 1954; it follows that no-frustrating event — ocgirred by issuance of the ruling. The effect to be given a revenue ruling is’ a question of importance _ which this Courtshould decide. Sho ocielan, nl: steo, Reast-sal Aapatie ta, dint te “3 a. The lower court held that although there was : : deliberategconcealment of significant facts from’ the Federal taxing authorities (R. 372) other factors “‘Susti- oS ; conflict with the decisions of this Court as to the proper _ application of the unclean hands doctrine. : fied lifting the Pe of the maxim” (R: 373) that unclean 7 hands prevent relief in equity. Those factors consisted principally of lack ‘of i injury and improper conduet by an agent of the Institute. The decision of the court be- . ‘low balancing the iniquity of the parties is directly in’ conflict with the decision of this Court in Precision Instr. Mfg. Co. v. Automotive M. ‘Mach. Co., 324 US. 806, 65S. Ct. 993 (1945), where this Conlt said: . “* * * This maxim is far more than a mere banality. * . Itis asélf-imposed ordinance that closes the doors of a court of equity to one tainted with ns tig _ or bad faith relative tothe matter in which he Seeks — relief, however improper may have been ‘the be- havior of the defendant. atte wa a USS. 814. & = ‘b. ‘The unclean hands maxim Pak coaiireinsa by the rentals to ‘the Mayers in payment of the purchase . price of the property. To make these payments possible, it was contemplated that the operating company would deduct the rental payments as a business expense and that the Institute, because of its tax-exempt status, would pay no tax on these receipts. It was contemplated that the Mayers would pay tax on the amounts which they received from the Institute at capital gain rates. However, in Revenue Ruling 54-420 the Commis- : sioner fook the position that in transactions of this type ' the operating company’s rental payments would be tax- — ’ lable to the purchasing entity as unexemipt income, and _. Payments to the selling stockholders would not be en-. titled to capital gains treatment. In October, 1954, when - , kee eg had received approximately $350,000 of the . ‘purchase price,.they and the Institute were: fae informed by the Internal Revenue Service that the rul- $2,500, "ing applied to their transaction. The district court found that this “completely frustrated the carrying out of the.. transaction. The tax consequences which were denied * - by this ruling where the. keystone of the plan, without which it was wholly: unfeasible and would never have | ae been: seriously considered by the selling stockholders. a Viewed as of the time’ of the ‘Revenue Ruling,” the finding seems unassailable. The Revenue Ruling did not’ . specifically state whether the, rental payments could be treated as a business deduction to the operating com- pany, but the rationale of the ruling strongly Suggest 5 2. Borup v. Western Operating Corp. 130 F.2d 381, 386 (2d Cir. 1948). ) ) ee £ \- " jected the t tax premises upon fetch the transaction was : they (sic) ahiey ctu not, and instead must. be srnitend as taxable income to the operating company. This, of course, would make it impossible for the operating com. . ‘pany to make the contemplated payments to the Insti- tute. In any event, since the Revenue Ruling made it - , clear that the payments wquld be taxable income to the a the Institute would be finable to make the con- ted pay-out to‘the Mayer grotip. It was also evi- - ss dent t even if the Institute: were able to pay the . ‘Mayers, completion | of the transaction would be calami- tous to ti Mayers since the ruling denied them the an- ‘ ticipated Dennett of capital- gain treatment of these _ receipts. — There was abundant evidence that the aihe recog: nized that application of the ruling to.their transaction - ‘rendered performance impossible..The parties agreed | that no further payments under the contracts would be made, and the Institute did not renew the operating ° company’s original five-year lease. The Institute sought ' to have the ruling revoked orto exempt their trans- -. action from its application. When these efforts failed .- the parties undertook negotiations looking toward rescis- sion of the transaction, and reached an informal agree- _ ment for the return of thé’properties to the Mayers, _. subject to.approval of the plan by the Internal Revenue ; -Service.3. bi, We agree with the district court that thie’ circum- stances would seem appropriate for application of the doctrine of “‘commercial frustration” or “supervening .. impossibility of performance,” which, as stated by the - Oregon Supreme Court, “reads into” contracts “an im’ plied condition that the promisor shall be absolved from . - performance if, through a supervening circumstance for which neither party is responsible, a thing, event or’. condition which was essential so that the performance | would yield to the: promisor the result which the parties. intended him to receive, fails.” Dorsey v. Oregon Motor ._ Stages, 194 P.2d 967, 971 (Sup. Ct. Ore. 1948). See also _ Tag Tanta leo abandoned its efor to soqire other properties under Pca iat pore - § Ta @ : _ + to capital gains treatment. hos the payments which sige ‘set Boe ee ie Cabell v. Federal Land Bank, 144 P.2d 297, 302 (Sup. Ct. - Oregon 1943). Compare Eggen v. Wetterborg, 237°P.2d _ 970: (Sup. Ct. Ore. 1951); Strong _v. Moore, 207 Pac. 179, -183 (Sup. Ct. Ore. 1992) ; and Elmore v. Stephens-Rus-: sellCo., 171 Pac. 763 (Sup. Ct. Ore. 1918). But see Crane _ wet School: Dist. No.. 14, 188 Pac. 712 (Sup, Ct. Ore. 1920). : The Institute sidisees thi: rescission ‘of the contract - .on this stems would. bei sss aed a number of rea- sons. First. The Institute contediite that sieateinutaigen: the contract is not in fact. impossible, because Revenue Ruling 54-420 was rejected in‘a number of subsequent - ‘court decisions which allowed operating companiics to. - treat the rental payments as a business expense, and — which allowed purchasing entities to claim their exemp- tion;® because in April, 1961, after this action. was in- - . : stituted, the. Institute offered to pay the agreed-upon . purchasi price in full out of funds other than rental pay- » action of this | type selling stockholders would be entitled .. received. = 8 Bree Gs (950); Oo Barna. ete _. . But the ssa to which the Institute rele zeley 3 is not eee by- the contract. Paym would not have accomplished the purpose for-which the - Mayers entered into the transaction, as the Institite onc Commissioner v. Brown stil] lay. in the future, that Oregon law 6. The Institute cites v. ohio 267 F.2d 380 (1st Cir 1959); : nited States, 142 F.S Pod ° we The Institute cites fe Aeon Dee 39 T.C: 1027 ; Isis Windows, - = aah Hac aA eh Brown;supra, 380 U.S: at’ 570-73, held that in a trans Gs a: April, 1961, of the balance _due on the ideas price : “Soitiy mem et wo eon cen, | this contingency. : eG Es and the agreed-upon ‘aitchaele price indlteis at t capital. Z gain rates.was not the equivalent of that purchase price ~ - taxable as ordinary income. As'the district court found, . - “The consideration bargained for by the sellers was not - _ Merely $2,500,000 but 62, 500,000 recognized by the . IRS as proceeds fron the sale of a capital asset and. en- _ titled to capital gain treatment.”” Nor could the result for which the haves con- tracted have ek ncncig by pa oye of the unpaid -. balance of appro; | - . of the purchase. price). in April, 1965, when Commis- _ sioner v. Brown was finally decided: The evidence re-, ately $2,150,000 (over.85 per cent futéd any suggestion that the parties contemplated: that performance could await the favorable outcome of an“. extended tax controversy. On the ‘contrary, it is clear -* that the parties intended that all or a substantial portion of the Mayers’ investment would. be liquidated: over a . relatively brief: period after August, 19518 . :- Second. The Institite. argues that the Boctiine ‘of Pe commercial frustration is inapplicable because the par- : ties foresaw the possibility of an adverse tax, Tuling, and included the default provisions in the contract to meet Phe The Institute places ‘particular emphasis upon ~evi- ' dence indicating ( ‘contrary to the. district court’s: find> ~ ing) that the parties did-in fact. foresee the possibility _ that the tax premises of the transaction ight be chal- 5 : THk an be: maiapeanedl. Seat slominionns of thie type xu: thaws, aecuxetely ‘de oe re nag he sia dag mae RRs Sen oy tna gee aga - bili of pee. Alnonen ne preggo ing 5 dy seal cs the ~ j objet peak mee te ate i) 61d. § 135%, became woatini. | » Galit. L Rev. 460, 469°(19 939). 3 : 8. The. court found that, th purpose ‘of Ward Mayer, ‘then ; neering 60, was fo lquidate hi A poh 297 Malt ryan ch avilable to pay inbestance aren. ‘The “was ras done the years Baer = ei dea etre, ers bl the rats a = urchase Sra TRESS RI Re RH ENE SPARE AUN ne bem oo eee eno ie Ves _ lenged.|But that alone would not bar rescission. We think it proper to-assume that the Supreme Court ‘of Oregon follows the now more widely accepted view that foreseeability of the ‘frustrating event is not alone ‘enough to bar rescission if it appears that the parties did . mot intend the promisor to assume. the risk of its occur- ___ renice. * ied oc Me TREES TS POTES part 35 r x ‘ wa : ‘ e- The ultimate question in every case is “‘whether or , . + not’proper interpretation of the. contract shows that the — ©. ° Yisk ofthe subsequent events, whether or not foreseen, + was assumed by the promisor. If it appears from the. : nature of the contract ag well as from the surrounding :. ‘ circumstances that, although they were reasonably fore- _- seeable, the promisor did not assume tie ‘isk: of the. subsequent events, the contract shows.a gap subject _to- - supplementation in-accordance with rules of objective law. Conversely, if the contract, properly construed, shows that the promisor assumed the risk of: , ae pated events, the,occurrence of such eyents does ‘hot » excuse performan Smit, 58 Colutit T Rev. 287, 314 = (1958). See also E-N. Jackson & Co. pv, Royal Norwegian pee - Gov't, 177 F.2d 694, 699 (2d Cir, 1949) ;.°6. Williston; ' Contracts § 1953, pp. 5475-76; grestatement, Contracts $$ 288, 461,9. - ¥ Bore Pee sens, _ In'the present case the district court found, on, sub- stantial evidegg, that the Mayers did not intend to as- tet ' 9. The decisions relied upon by the Institute are not inconsistent with this view. ‘ It is true that Lloyd v. } v4 , 153 P.2d 47. (Sup. Ct. Cal. 1944),: placed great np ape upon the fact that (1) the frustrating event was foreseeable and (2) the contract contained no provision excusing performance, as justify- © ing’ an inference that the promisor had. assumed the risk that the frustrating event might occur. But we.do not read the opinion as hol that this in- . © - ° ference must be drawn from the facts in the face of evidence that the parties actually intended the contrary. et We aoe 5), true that the court held in Floyd v..Murphy that the risk is ordinaril? Pea Semen eae i erence, Snes oe Pespeen te Soe - tract is destroyed or extremely impracticable, and that it is not enough that pefformance may have become unprofitable or moré difficult or expensive; but this doctrine too is. consistent ‘with rescission in the present Pug 5 One or both of these comments are also puietin the decisions of the e . pee Reggie any me Fata yaa Wal id, 159 Kan. 585, 156 P.2d ¢ 1945), and the ‘decisions of the California intermediate a te courts Pig » in alls Indemnity Co. v. Perscallo, 216 P.2d 567 (1950), and Cutter Laboratories, Inc., v. Twining, 34 Cal. Rptr. 317 (1963). - # ee vy ART oe Moe oone eee t , . : bd i g : ff : y 5 . f . wW - " ' sume the.risk of an prneton tax ruling, and: implicitly, that. the express terms of the contract, including the de fault provisions, were not intended te provide for this - contingency. As the district court said, “the selling - stockholders made it clear thréyghout the*negotiations _ ing a controversy,or a lawsuit with the validity of the promised tax advantagés.”” The court that they were relying on the \ challenged. -They repeatedly state ansaction not being: they were not buy- credited testimony that Ward Mayer did not accept the e government over | default. provisions as adequate protection against an ad- . . verse tax ruling but requested assurancés that the prop- © ‘erty would be returned if the tax assumptions‘underly-, ing the- transaction were challenged, and that he wa given such ‘assurances by représentatives of‘ the I tute.19 In the light of these circumstances, it’ would be untenable to conclude that the parties intended that the Mayers should assume the risk of an adverse tax simply because such a ruling was, in a sense,-“‘foresee- _ able* and the contract did not. expressly excuse per- ee : formance i in the event: of i its occurrence. 10. The district court found that in a. : meetin in’ July, 1951, “Mayer nites ; out that the foreclosure provision which required two years before a default could occur did not cover the matter about which he-was concerned, namely, | the fore of the ‘tax aspects of the transactiontby the IRS. Furthermore, oreclosure provisions did not give the sellers any protection in the event > did not allow capital ct at treatment of the proceeds. Mayer wanted in, the co at if the IRS disapproved any of the three csential tax ax Satores, 1 ae Pi coernes and the parties re- men men ~ ae they would: the Fat return the ‘properties in. the ely évent that the anticipated tax treatment was not obtained.” . ‘ ‘The distriét court also found that “At’the closing, Mayer again raised: the ’ inadequacies of the default provisions in that the contract did not provide - for immediate ‘return of the. properties to the sellers if the IRS refused to ‘allow the peg ee tax treatment and in that it failed to _pravide for . Fescission if the disallowed capital gains treatment of the “be sien “Seagrave again repeated the assurances he had giv of similar transactions by the IRS. L poutionnt that a’ ‘unnecessary.’ ” provigon. ‘for rétures of the properties was é The Institute’objected to the evidence upon which these findings were * 9. hesed-on the ground that its admission was barred by’ n’s -evi- dence rule, ORS §§ 41.740, 42.220. The -district court -held that the evidence was admissible to shiow~the “under which the agree enh gage pe cae tract. Seaver. Peroni 374 P.2d 472, (Sup. Ct. Ore, 1962’ a es ~ b= dap ” -eUni age oe (Ce 85s ar 7 _ @- ~~ court was as follows. Ward Mayer wished ;to have the 18 | | 3 Third. The Institute argues that equitable relief i is barred by the doctrine of “unclean. hands” since the parties deliberately omitted from the contract an ex- - press provision that the transaction would be rescinded, _ in the event of an adverse tax ruling, in order to conceal «=~ this. understanding from the Internal Revenue Service. The, version of the incident accepte By the . trial oral understanding. regarding ‘rescission ‘included in . the contract but was dissuaded by representatives of the . Institute, who purported to be experts in such matters: They did not stfggest that the existence of such an ‘un- derstanding wo a rendér the transaction any the legs -’ ‘entitled to tax treatment which the parties sought. On - the contrary, they argued that it would be an “extrane- ous provision,” * not relevant to the legitimacy -of the . transaction from a tax point of view. They urged that it be omitted “as a matter of policy,” only “because an examining Revenue Agent might be led to believe that no one-would be hurt by IRS disapproval and would, for. - *. that reason alone disapprove it. oe In Oregon, as elsewhere, -the decisions offer no clear- cut formula for determining when a plaintiff's wrongful conduct will bar equitable relief. In Oregon, as else- where, that determination must be based upon an exam- ination of all of the circumstances and a balancing of. all of the factors deemed to be relevant. Taylor v. Grant, 279 P.2d 479, 486-88 and 281 P.2d. 704; 705 \(Sup. Ct. Ore. 1955); ; Fadeley, The Clean Hands Doctrine In Ore- | * gon, 37 Ore. L.-Rev. 160, 186-187 (1958). See generally, Saari v. Yellow Cab Co., 321. U.S. 383, 387-88 (1944); Restatement, Restitution $ 140, Comment b ¢ 1937). The relative strength of the policy infringed by the _ litigant is ‘an important consideration, in determining whether relief will be denied (Fadeley, supra, 37 Ore. L. . Rev. at 170), and the public:policy offended by the de- _ liberate concealment of significant facts from the taxing authorities is a vital one. Bu i policy scan Sake its violation. gannot be considered in | a 7 19 eh a isolation. It must still be evaluated in. the light of at- tending circumstances. Although the governmental pol: icy involvéd was important and its breach deliberate, the Supreme Court of Oregon granted relief where, in light of all the circumstances, to deny a remedy would. “work injustice and wrong.” Taylor v. Grant, supra, 279 ‘P2d at 488. — 3 fa chy , ___ -Wefhink the circumstances of this case justified the ‘ district court’s determination that the clean-hands maxim should not be applied. No injury resulted to the public generally, since the anticipated tax benefits were denied despite the concealment, nor‘ did injury result to ; third parties of to the Institute.!! The Mayers’ offense, though serious, was mitigated by the circumstances that | their motive, as found by the district court, »was not to gain an unjustified tax advantage by concealing a rele- ' vant*act, but rather to assure an evaluation-of the trans- action on its merits by excluding an extraneous. fact which might improperly influence the examining -agent.!2 The parties were not in pari delicto.'3 The agents of the Institute, purportedly possessing. an ex- pertise which the Mayers lacked, stood in a superior position. They were the active parties, the Mayers re- luctantly agreeing to -the omission in response to their urgings. And the forfeiture which would be visited ypon the Mayers if relief were denied would be extreme. 14 __. Perhaps none of .these. factors alone would have Ss _ justified lifting the bar of the maxim; but the district ‘court thought their cencurrénce did,!5 and we agree. 11. Republic Molding Corp. v. B. W. Photo Utility, 319 F.2d 347, 349-50 (9th Cir| 1963), and see note 14 infra. Si eae olina Casualty Ins. Co..¥. Oregon Automobile Ins. Co., 408 P.2d 198 ip. Ct. Ore. 1965); Mock v. Bell Motors, Inc., 380 P.2d 992 (Sup. Ct. Ore. © Kergil v. Central Oregon Fir Supply Co., 323 P.2d 947 (Sug. Ct. Ore. and Reid v. Multnomah County, 196 Pac. 394 (Sup. Ct. Ore. 1921), )3. ~~ 1958); “relied upon by the Institute, involved wholly sham transactions intended to- - deéeive third parties with respect toa clearly material fact, - 13. See 2 Pomeroy, Equity Jurisprudence § 403, pp. 136-37, (5th ed. 1944); 0. €he tdctatemment’ Coaress'§ Or and see note 14 infra. fs ” 14. The Institute alleged that at the time of suit the property had a value of i contract price, or $5,000,000. 4 : 15. Edward \N. Fadeley’s summary of Oregon law, based upon a thorough re- * view of the pew ls es ae these conclusions: “The conduct which would in- © ‘ salen ' Fourth. The Institute argues that suit was barred . by lirnitations, and that in any event the Mayers waived: _ any right they may have had to rescind the transaction. Despite the literal language of ORS :12.040, the Ore- _ gon Suprefhe Court, at least in suits “of purely equitable _ cognizance,” has followed the general rule that statutes of limitations apply in equity: only by analogy. The ef- .. fect of expiration of the period limiting .an analogous . suit at law is only to shift to the plaintiff the burden of - establishing that his equitable action is not barred by ~~ laches.!6 McIver v. Norman, 213 P.2d 144, 153 (Sup. Ct. . Ore. 1949); City of Pendleton v. Holman, 164 P.2d434,7 7 439 (Sup. Ct. Ore: 1945) ;note, 29 Ore‘L.Rev. 153, 154- ~ §5 (1950) 17 | wat | ‘ After the Mayers received notice from the Internal Revenue Service that Revenue Ruling 54-420 applied to _ their‘transaction, five and a half years passed before the Mayers. filed suit. But it is well established in Oregon. law that mere lapse of time does not constitute laches. © ‘The question is whether the-enforcement of the claim would be equitable. This is to be determined by an ex- - amination of all of the circumstances of the particular © . ~ : Vohe the mixxisn reuaseD oo value may strengthen the equities of the party siti return of the property. Where the ‘subject matter. is. : isa ga and subject to rapid fluctuation in value, as are‘oil and mining properties, the doctrine of “specula- tive delay” may bar a claim to ownership if the claimant, asserts his interest only after the risk has passed and the ~ . value of the property has become apparent. Mclver v. nme. ° n, supra, 213 P.2d at 153.-But that 8% not this case. -. As we have noted, the risks of the enterprise remained . with the:.Mayers.’ ‘Moreover, the properties, were not ‘highly speculative in character, axl to the extent that the enhancement of their value was the product of man- agerial effort, the effort was that of the Mayers. a As to waiver, the district ‘court found that the Mayers “did not intend to and did not elect to affirm the transactions” after the promulgation of the revenue ruling. This finding is, amply supported. There was. . evidence that the Mayers pressed for the returri of their’ properties from the time the Institute’s efforts to avoid — the application of Revenue Ruling 54-420 failed, until the Institute unequivocally rejected the Mayers’ cam ~ ten months prior to suit. : i: _ The srtoesne ij affirmed. Sa _ UNITED STATES COURT OF “FOR THE NINTH crcurr WEST LOS ANGELES INSTITUTE FOR 7 CANCER RESEARCH, : Appellant, © aes 1 yeaa ae | . ft No. 19,551 | _WARD MAYER, ET AL... “ & Appellees reas ***ON CONSIDERATION WHEREOF, It is now here ® ‘ordered and adjudged by this Court, that the judgment of: the said District Court in this Cause be, and hereby is Filed and cutered August 29, 1966 . --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385603_0129%3A1. Public record. Not legal advice.