235 Or. 428, 385 P.2d 161 (1963)
In December 1958, Leonard I. Kaufman, Jr. induced the plaintiff Olshen, a druggist in Portland, to advance to him the sum of $1,575 as an investment in a joint venture for the purchase of toys for resale.1 A few months later Kaufman informed plaintiff that they had doubled their money.2 He offered to give plaintiff a check in settlement and at the same time proposed another venture in the purchase of binoculars to which the plaintiff agreed.3 Plaintiff's share of the toy business, his investment plus the profit, was $2,340.4 This sum and an additional $2,660, totaling $5,000, were thereupon advanced by plaintiff to Kaufman for use in the binocular business.5
Later Kaufman told plaintiff that the latter was entitled to $750 as his share of the profits from that venture, and he gave the plaintiff his check for $5,750, dated October 1, 1959, drawn on the Bank of California, N.A., in full settlement of his indebtedness to the plaintiff.6 There were insufficient funds in Kaufman's account with the bank to pay the check and no part of the debt has been paid except $1,400.7 Plaintiff brought this action to recover the balance of $4,350, together with interest and a reasonable attorney's fee.8
Kaufman had been adjudged a spendthrift and Leon W. Behrman appointed guardian of his estate by order of the Circuit Court for Multnomah County, Probate Department, entered February 25, 1953, upon a petition filed by Kaufman's mother and sister.9 Behrman immediately duly qualified as guardian and has ever since acted in that capacity.10 When the action was commenced the only defendant was Kaufman; the guardian was not made a defendant until after the case came on for trial.11
There was a trial before the court without a jury, upon the conclusion of which the court entered findings to the effect that the transactions, as a result of which Kaufman delivered the check to the plaintiff, were not transactions for necessaries and that the guardian had declared void the transactions and the agreement of Kaufman to pay $5,750 to the plaintiff.12 Judgment accordingly was entered for the defendant.13 The plaintiff appeals.14
Whether, under the statute of this state providing for the appointment of guardians for spendthrifts, recovery may be had on the contract of a spendthrift when his guardian has repudiated the obligation?15
Former ORS 126.335 provides that after the appointment of a guardian for a spendthrift, all contracts, except for necessaries, and all gifts, sales and transfers of real or personal estate made by such spendthrift thereafter and before the termination of the guardianship are voidable.16
No. Kaufman was adjudged a spendthrift in 1953 with Behrman appointed guardian of his estate.17 The guardian repudiated the contract underlying the check because the transactions were not for necessaries.18 The statute grants the guardian discretion to avoid contracts that are not for necessaries to protect the ward's estate against wasteful habits.19 The guardian exercised that authority when he declared the transactions and the agreement void.20
Recovery may not be had on the contract.21
Related opinions on this issue
Justice Sloan dissents because the guardian's power to avoid contracts should be subject to judicial review to prevent unconscionable conduct against innocent creditors.22 The ex parte appointment process could enable a spendthrift to shield assets while continuing business to the detriment of creditors.23 Equitable principles drawn from the law of infants and mental incompetents should limit avoidance where the other party acted without fraud.24
ORS 126.320(3) regarding just debts supports allowing recovery beyond mere necessaries.25 The statute should not be construed to license fraud upon the innocent.26
Whether, if a spendthrift engages in business to some extent with the knowledge though not the approval of his guardian, the ward and the guardian are estopped to question the validity of a contract entered into by the ward with one who has no actual notice or knowledge of the guardianship?27
A spendthrift under guardianship ceases to be sui juris except for necessaries, the guardianship provides constructive notice of the disability, and estoppel cannot validate the contract or prevent assertion of its invalidity.28
No. An active guardianship existed at the time of the transactions with annual reports filed and the estate valued at over $63,000.29 The guardian knew of some business activities but did not approve them.30 The guardianship order conclusively establishes the ward's disability.31 Neither the ward nor the guardian can be estopped from relying on the statute.32
The ward and the guardian are not estopped.33
Related opinions on this issue
Joined by Justice Goodwin
Justice O'Connell dissents because the statute should not permit avoidance when it would be inequitable to third parties without notice who dealt with the spendthrift in apparent business activities.34 The voidability rule is not absolute and courts will hold incompetents to their bargain if it would be inequitable not to do so.35 Recovery should be allowed to the extent the spendthrift benefited from the transaction.36
Analogies to estoppel principles applied to infants who engage in business as adults support this result.37 The competing interests of the spendthrift and innocent third parties must be balanced in defining the scope of the statute.38
Whether the defendants are liable under some theory of restitution?39
An action on a check is not a suit for restitution, and permitting recovery on a restitution theory would evade the statute rendering the contract voidable by the guardian.40
No. This is an action to recover the balance owing on the check after the guardian repudiated the underlying contract.41 It is not a suit for restitution. Allowing recovery as though restitution were the theory of the case would constitute an evasion of the statute.
The defendants are not liable under a theory of restitution.42