This section is from the book "American Commercial Law Series ", by Alfred W. Bays. Also available from Amazon: American commercial law series.
Where the contract is innocent upon its face, and the intention of one party is not illegal, the guilty intention of the other will not invalidate the agreement as to the first party; and though that guilty intention is known to such first party, yet if he have no share therein and do nothing in aid thereof, the contract is enforceiii. Brown v. Phelps, 211 Mass. 376, 97 N. E. 762. 112. Buckley v. Humason, 50 Minn. 195.
able by him, unless the intention is of a highly immoral or heinous character.
Suppose that a contract is fair upon its face and capable of performance for a legal purpose, will the guilty intention of one party to take an illegal advantage of it make the agreement illegal? If that intention is secret, manifestly the party harboring it cannot avail himself of it to prevent enforcement by the other. But suppose the other party knows of such intention. It seems well established that if his share in the intention is by way of mere knowledge, that will not vitiate the agreement as to him, it being kept in mind that the agreement is one which on its face is capable of a legal object. An exception to this rule is that where the illegality contemplated is of a highly immoral or heinous character, the mere knowledge will vitiate the agreement on the theory that one contracting party having knowledge of such contemplated illegality becomes by his consent to the contract, particeps criminis.
Within these rules it has been held that mere knowledge that the buyer expects to resell the goods bought under the contract without a required license can not be set up in defense to a suit for the purchase price, the seller doing nothing to aid or encourage the violation of law, and the goods not being sold for the express purpose of enabling him to such violation.113 But if he should sell poison knowing the intention was to accomplish a murder, he would be barred.114 If one knowing that another intends to sell liquor contrary to law, aids him in the execution of that intention by false
113. Graves v. Johnson, 179 Mass. 53.
114. Hanauer v. Doane, 12 Wall. (U. S.) 342 (treason).
wrapping, fictitious inventories, etc., he becomes a party to the illegality and cannot enforce the agreement.115
D. Judicial Remedies in Illegal Agreements.
A court will not enforce an illegal agreement.
From the considerations noted throughout this chapter, it is apparent that if an agreement is positively illegal, or against public policy, courts will not enforce it. If it is illegal in its nature, the maxim applies "Ex turpi contractu non oritur actio." 116
As will be seen in the sections following, some relief may be afforded in certain cases by parties to illegal contracts, but the relief is by way of withdrawal, not enforcement.
An illegal or unenforceable contract which has been executed, will not be rescinded by the courts.
If a person has lost money or parted with any consideration in the performance of an illegal agreement, he will not be aided by the courts in the recovery of what he has parted with. As is frequently said, "The Court will leave him where it finds him." As the maxim has it, "allegans suam turpitudinem non est audiendus."
Example 54. H paid C $300.00 for counterfeit money. C did not produce the money. H sues to get his money back. Held, the Court will not help him.117
115. Kohn v. Melcher, 43 Fed. 641.
116. Goodrich v. Tenney, 144 111. 422.
117. Chapman v. Haley, 80 S. W. (Ky.) 190.
To this rule there are some exceptions, as shown below.
If the plaintiff is not in equal guilt with the defendant, he may recover what he has parted with.
An exception is made to the rule that no relief will be granted where the parties are not "in pari delicto/' such relief being always by way of avoidance and not enforcement. These cases, although called cases of "unequal guilt," usually involve the element of undue influence, fraud, oppression or superior advantage of some sort, and there is not merely a comparison of degrees of guilt, that being quite impossible.118
Example 55. Wolf was indicted for murder and was out on bail. Baehr loaned him money with which to flee from justice, and took a mortgage on Wolf's land. Wolf was innocent of the crime with which he was charged, but under Baehr's insinuations and arguments, his fears preyed on him and he fled from justice. Baehr's intentions were that Wolf should disappear and he would ultimately have clear title to Wolf's land. Wolf returned and seeks foreclosure from the mortgage. Baehr defends that Wolf mortgaged the land to obtain money to flee from justice. But the Court held that there was a species of duress here which made the parties to be unequally in guilt and Wolf could have relief.119
Doctrine of locus poenitentiae. Where the defendant's part of the contract is totally unperformed by him, and plaintiff has paid money or parted with property to the defendant under an illegal contract, some courts allow a recovery.
118. Duval v. Wellman, 124 N. Y. 156.
119. Baehr v. Wolf, 59 111. 470.
Another exception as to a right to rescind in case of an illegal contract is one not so clearly defined, not recognized by all courts and which seems as an exception to conflict with the rule rather than to be an exception to it, and may be stated generally that where the plaintiff has paid money or parted with property to the defendant, and the defendant has as yet done nothing, or at most very little in the performance of the contract, the plaintiff being in a place of repentance (locus poeni-tentice), may recover what he has parted with. Thus, one who has paid a wager to a stakeholder, has been allowed to recover it where, by acting, he prevents a horse race from being run.120 But this doctrine is not accepted everywhere, and its distinction as an exception in not clearly distinguished from the general rule that one who has become a party to an illegal contract is entitled to no aid from the courts, even by way of relief.
Even if the contract is executed the statute in some cases allows money paid or property parted with to be recovered.
In some cases the legislature deems it wise to make exceptions to the law and allow a party to be put back in his original position. Thus, in some states one can recover money lost at gaming. The common law, applying the general rule, would leave both parties in the position in which they have placed themselves, that is, would give its aid to neither to relieve them of their illegal act. But the legislature in some states has deemed it best to alter this.121 So in case of money paid to a lottery in some states; and in some states usury paid may be recovered.
120. Johnston v. Russell, 37 Cal. 670.
(d) Contracts partly legal and partly illegal.
If one inseparable promise is based on several considerations, some illegal, the promise is nevertheless unenforceable in toto; but if there are several promises, each referable to a separate consideration, only those promises will fall which are supported by illegal considerations.
If an entire promise is based on one legal, one illegal consideration, it is impossible to say what part of the promise is supported by the legal consideration and therefore the illegality will go to the whole contract.122 Thus, if A makes a promise to pay $100 for a slot machine and a counter, it is impossible to say which part of the $100 is for the machine and which for the counter. The court cannot divide the promise for the parties and make a contract for them. But suppose at one bargaining A orders a slot machine for $50 and a counter for $50; this is one contract, yet its promises and considerations are separable. The good will be upheld. The illegal will fall.
121. Rice v. Winslow, 182 Mass. 273.
122. Bixby v. Moor, 51 New Hampshire Reports, 402 (suit for wages for services rendered in caring for a billiard hall operated legally and a saloon operated illegally, under one indivisible contract. Held, there could be no recovery for any of the services).