CAMPBELL, J.
Plaintiff Mountain Fir entered into a contract with defendant Employee Benefits Insurance Co. for workers’ compensation insurance coverage which plaintiff alleges included defendant’s oral promise for the rebates of premiums. Defendant refused to pay these rebates and plaintiff filed two amended complaints. In the first it sought to recover damages, alleging damages for breach of contract and two fraud claims. In the second it asked for reformation and damages for breach of the reformed contract. Defendant argues that neither amended complaint stated facts sufficient for valid claims of relief because the alleged contract was in violation of statute and, therefore, unenforceable. The trial court agreed and granted judgment for defendant. The Court of Appeals reversed.
Mountain Fir Lbr Co. v. EBI Co.,
64 Or App 312, 667 P2d 567 (1983). We reverse the Court of Appeals.
The parties entered into a three year contract for workers’ compensation insurance in October of 1975. In addition to the written contract, plaintiff alleges an oral agreement that defendant would rebate some money, that is, return part of the premium to plaintiff in some circumstances.
Plaintiff alleges that defendant breached this part of the contract by failing to pay these rebates, and further alleges that it only entered into this contract because of defendant’s fraudulent misrepresentations.
In response defendant filed an ORCP 21 motion to strike or dismiss the complaint
because the contract was
illegal and should not be enforced, and the fraud action cannot stand because one may not rely on an illegal promise. The trial court granted defendant’s motion to dismiss, holding that plaintiff failed to state facts sufficient for valid claims of relief.
Plaintiff then filed a second amended complaint seeking the reformation of the parties’ written contract to include the oral promise for rebates and claiming breach of the contract as reformed. The trial court again granted defendant’s motion to dismiss, evidently holding that equity would not reform or enforce a contract if the reformed contract would be unlawful and unenforceable.
Plaintiff appealed. The Court of Appeals held that although the contract was in violation of statutes, it was still enforceable because there was no clear legislative intent that the statutes forbidding oral agreements for rebates would render the contract unenforceable. It held that dismissal of the reformation claim was error because the contract was enforceable. It also held that plaintiff may proceed on the fraud claims and should be permitted to prove that it relied on and was induced by defendant’s alleged false and misleading representations.
We granted defendant’s petition for review and reverse.
The oral agreement for rebates, alleged by plaintiff and not denied by defendant, violates both ORS 746.035 and ORS 746.045:
ORS 746.035:
“Except as otherwise expressly provided by the Insurance Code, no person shall permit, offer to make or make any contract of insurance, or agreement as to such contract, unless all agreements or understandings by way of inducement are plainly expressed in the policy issued thereon.”
ORS 746.045:
“No person shall personally or otherwise offer, promise, allow, give, set off, pay or receive, directly or indirectly, any rebate of or rebate of part of the premium payable on an insurance policy or the agent’s commission thereon, or earnings, profit, dividends or other benefit founded, arising, accruing or to accrue on or from the policy, or any other valuable consideration or inducement to or for insurance on any domestic risk, which is not specified in the policy.”
Courts generally refuse to help someone who complains that an illegal promise has not been performed.
Hendrix v. McKee,
281 Or 123, 128, 575 P2d 134 (1978). If all contracts that violate a statute were unenforceable per se, or if the above statutes indicated whether contracts made in violation thereof are either void or enforceable, we would need to look no further. But this is not the case.
The general rule is from
Uhlmann v. Kin Daw,
97 Or 681, 689, 193 P 435 (1920):
“If a statute having a penalty and a prohibition, express or implied, or only a penalty or only a prohibition, is silent and otherwise contains nothing from which the contrary is to be inferred, then an agreement which conflicts with the statute is void.”
The statutes with which we are concerned are prohibitions, and ORS Chapter 731 lists possible penalties for violations thereof. The statutes are silent as to whether agreements in violation of them are unenforceable. The statutes, by themselves, contain nothing from which we can infer that the legislature intended that such agreements should be enforceable. Applying the general rule, we find that this agreement made in violation of statutes should not be enforced.
In
Hunter v. Cunning,
176 Or 250, 287, 154 P2d 562, 157 P2d 510 (1945), we summarized our holding from
Uhlmann:
“* * * We derived therefrom the fundamental distinction between the Uhlmann case and the case at bar, viz., that the rule, which avoids a contract made in contravention of a statute, will always be applied when the statute is intended for the protection of the public against those evils which we know from experience society must be guarded against by protective legislature. The statute under consideration is such a one.”
We followed this rule in
Bronson v. Moonen,
270 Or 469, 478-81, 528 P2d 82 (1974), in which vendors of property did not comply with a administrative rule requiring a written statement by the public health officer concerning the proposed method of sewage disposal. This failure to comply rendered the contract at least voidable because the rule was for the protection of the public.
In
Huff v. Bretz,
285 Or 507, 518, 592 P2d 204 (1979), after review of the above cases, we suggested that a lease provision that would require a lessor to violate Oregon statutes relating to water rights might well have been voidable, because these statutes were designed for the protection of the public. We have the same situation in the present case; the statutes violated were enacted for the protection of the public.
We find nothing in the facts of this case that would require us to modify or depart from this general rule.
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CAMPBELL, J.
Plaintiff Mountain Fir entered into a contract with defendant Employee Benefits Insurance Co. for workers’ compensation insurance coverage which plaintiff alleges included defendant’s oral promise for the rebates of premiums. Defendant refused to pay these rebates and plaintiff filed two amended complaints. In the first it sought to recover damages, alleging damages for breach of contract and two fraud claims. In the second it asked for reformation and damages for breach of the reformed contract. Defendant argues that neither amended complaint stated facts sufficient for valid claims of relief because the alleged contract was in violation of statute and, therefore, unenforceable. The trial court agreed and granted judgment for defendant. The Court of Appeals reversed.
Mountain Fir Lbr Co. v. EBI Co.,
64 Or App 312, 667 P2d 567 (1983). We reverse the Court of Appeals.
The parties entered into a three year contract for workers’ compensation insurance in October of 1975. In addition to the written contract, plaintiff alleges an oral agreement that defendant would rebate some money, that is, return part of the premium to plaintiff in some circumstances.
Plaintiff alleges that defendant breached this part of the contract by failing to pay these rebates, and further alleges that it only entered into this contract because of defendant’s fraudulent misrepresentations.
In response defendant filed an ORCP 21 motion to strike or dismiss the complaint
because the contract was
illegal and should not be enforced, and the fraud action cannot stand because one may not rely on an illegal promise. The trial court granted defendant’s motion to dismiss, holding that plaintiff failed to state facts sufficient for valid claims of relief.
Plaintiff then filed a second amended complaint seeking the reformation of the parties’ written contract to include the oral promise for rebates and claiming breach of the contract as reformed. The trial court again granted defendant’s motion to dismiss, evidently holding that equity would not reform or enforce a contract if the reformed contract would be unlawful and unenforceable.
Plaintiff appealed. The Court of Appeals held that although the contract was in violation of statutes, it was still enforceable because there was no clear legislative intent that the statutes forbidding oral agreements for rebates would render the contract unenforceable. It held that dismissal of the reformation claim was error because the contract was enforceable. It also held that plaintiff may proceed on the fraud claims and should be permitted to prove that it relied on and was induced by defendant’s alleged false and misleading representations.
We granted defendant’s petition for review and reverse.
The oral agreement for rebates, alleged by plaintiff and not denied by defendant, violates both ORS 746.035 and ORS 746.045:
ORS 746.035:
“Except as otherwise expressly provided by the Insurance Code, no person shall permit, offer to make or make any contract of insurance, or agreement as to such contract, unless all agreements or understandings by way of inducement are plainly expressed in the policy issued thereon.”
ORS 746.045:
“No person shall personally or otherwise offer, promise, allow, give, set off, pay or receive, directly or indirectly, any rebate of or rebate of part of the premium payable on an insurance policy or the agent’s commission thereon, or earnings, profit, dividends or other benefit founded, arising, accruing or to accrue on or from the policy, or any other valuable consideration or inducement to or for insurance on any domestic risk, which is not specified in the policy.”
Courts generally refuse to help someone who complains that an illegal promise has not been performed.
Hendrix v. McKee,
281 Or 123, 128, 575 P2d 134 (1978). If all contracts that violate a statute were unenforceable per se, or if the above statutes indicated whether contracts made in violation thereof are either void or enforceable, we would need to look no further. But this is not the case.
The general rule is from
Uhlmann v. Kin Daw,
97 Or 681, 689, 193 P 435 (1920):
“If a statute having a penalty and a prohibition, express or implied, or only a penalty or only a prohibition, is silent and otherwise contains nothing from which the contrary is to be inferred, then an agreement which conflicts with the statute is void.”
The statutes with which we are concerned are prohibitions, and ORS Chapter 731 lists possible penalties for violations thereof. The statutes are silent as to whether agreements in violation of them are unenforceable. The statutes, by themselves, contain nothing from which we can infer that the legislature intended that such agreements should be enforceable. Applying the general rule, we find that this agreement made in violation of statutes should not be enforced.
In
Hunter v. Cunning,
176 Or 250, 287, 154 P2d 562, 157 P2d 510 (1945), we summarized our holding from
Uhlmann:
“* * * We derived therefrom the fundamental distinction between the Uhlmann case and the case at bar, viz., that the rule, which avoids a contract made in contravention of a statute, will always be applied when the statute is intended for the protection of the public against those evils which we know from experience society must be guarded against by protective legislature. The statute under consideration is such a one.”
We followed this rule in
Bronson v. Moonen,
270 Or 469, 478-81, 528 P2d 82 (1974), in which vendors of property did not comply with a administrative rule requiring a written statement by the public health officer concerning the proposed method of sewage disposal. This failure to comply rendered the contract at least voidable because the rule was for the protection of the public.
In
Huff v. Bretz,
285 Or 507, 518, 592 P2d 204 (1979), after review of the above cases, we suggested that a lease provision that would require a lessor to violate Oregon statutes relating to water rights might well have been voidable, because these statutes were designed for the protection of the public. We have the same situation in the present case; the statutes violated were enacted for the protection of the public.
We find nothing in the facts of this case that would require us to modify or depart from this general rule. Plaintiff makes extensive arguments based on the “equities” of its case. It urges us to allow it to proceed in this action, so that defendant does not benefit from its illegal bargain. We note,
however, that ORS 737.265(2),
as it was at the time of this contract, required all insurers to adhere to rates, rating systems and policy forms of the rating organization. Statutes at that time restrict competition in the field of workers’ compensation insurance to services offered by the competing companies, rather than allowing an insurer to compete by undercutting other companies with lower premiums. This evidently was done to guarantee that all insurers would have sufficient funds to cover claims filed by the injured workers. Plaintiff in essence argues that it was an innocent victim in the making of this illegal contract. However, it cannot avoid the fact that the statutes not only forbid an insurer from offering inducements and rebates that are not included in the written contract, but also specifically forbid the insured from receiving these inducements and rebates if they are not in writing. To allow plaintiff to enforce this agreement would be to read out of ORS 746.045 the word “receive,” and ignore much of ORS 746.035. It would also allow plaintiff to benefit from the illegal bargain. This we will not do.
We further note that to deny plaintiff the right to enforce this contract will not result in any sort of forfeiture. Plaintiff paid for and received workers’ compensation insurance coverage for the three year period of the contract. It does not allege that defendant failed in any respect to provide the coverage that the parties agreed upon. We also note that the portion of the contract that violates the statute is in no sense collateral to the oral agreement sought to be enforced; it is directly connected and an integral part. The situation would be different if plaintiff had paid premiums and defendant refused to pay claims, arguing that because of the rebate provisions the contract was illegal and unenforceable, because in that instance the illegal portion of the contract possibly might be severed. Nothing can be severed here, for plaintiff is asking us to enforce the illegal provision itself.
Plaintiff argues that if we refuse to enforce this contract, we will encourage insurers to engage in this sort of
conduct in the future. We think not. When purchasers of insurance are aware that if they have entered into insurance contracts in violation of the statutes, the courts of Oregon will refuse to come to their aid if the insurer asserts a defense of illegality, we believe that they will avoid this sort of contract in the future. At the time the parties made this contract, the legislature determined that for the good of the workers in the state the entire contract for workers’ compensation insurance must be in writing and there would be no competitive rates in the workers’ compensation field; to allow the enforcement of this agreement for illegal rebates that are not contained in the written contract would be to negate that decision. Such action would condone the very evil the legislature condemned.
Plaintiff also attempted to bring two counts of fraud, one seeking the amount of the promised rebates and the other seeking the money it spent in excess of what it would have paid had it continued with its less expensive insurance coverage with SAIF. It also requested punitive damages. The right to rely is an essential element of fraud. This is a conclusion of law and therefore, need not be pleaded as ultimate fact.
U.S. National Bank v. Fought,
291 Or 201, 222, 630 P2d 337 (1981). One does not have the right to rely on a promise made in violation of a statute in an action for deceit.
Bond v. Graf,
163 Or 264, 270, 96 P2d 1091 (1939);
Thielsen v. Blake, Moffitt & Towne,
142
Or 59, 65, 17 P2d 560
(1932).
Burgdorfer v. Thielemann,
153 Or 354, 55 P2d 1122 (1936), on which plaintiff relies, is not in point because the underlying agreement there was legal; the only conflict was with the Statute of Frauds.
The reasoning in
R.D. Reeder Lathing Co. v. Cypress Insurance Co.,
3 Cal App3d 995, 84 Cal Rptr 98 (1970), a similar case in which the court allowed a fraud action, is not compelling because the court ascribed a different purpose to its antirebate statute and failed to address the question of the right to rely on an illegal promise in an action for deceit.
Plaintiffs final complaint requested reformation of the contract and damages for the breach thereof.
If we were to
reform the contract so that the oral agreement became part of the written contract, the contract would no longer violate ORS 746.035 and 746.045. We note, however, that other
statutes would be implicated. ORS 737.265(2),
737.330(1),
and 743.006
required that a workers’ compensation insurance contract adhere to set rates and be approved by the Insurance Commissioner. Just as ORS 746.035 and 746.045 forbid covert agreements for reductions of premiums, these three statutes forbid such overt agreements. We refused to reform a contract legal on its face into one that would be unlawful in
Mitchell v. Chernecki,
286 Or 285, 292, 593 P2d 1163 (1979). We also decline to reform an agreement unlawful in one way so that it is unlawful in another.
Reversed.