Where one of the parties intends a contract, innocent in itself, to further an illegal purpose, and the other enters into the contract in ignorance of his intention, the innocent party is entitled to full benefits under the contract.16 In the case of contracts of sale for future delivery, for instance, if one of the parties intends a bona fide sale, he may enforce the contract, though the other party may have intended no actual sale, but merely an illegal speculation on future prices.17
On the other hand, if the contract is still executory, he is not bound to go on with it, but may avoid it at his option.18 Thus where, in an action for breach of an agreement by the defendant to let to plaintiff a set of rooms, it appeared that the plaintiff intended to use the rooms for the purpose of delivering blasphemous lectures, which were unlawful under a statute, though the defendant was not aware of such a purpose when the agreement was made, and he afterwards refused to allow the plaintiff to use the rooms, it was held that he was entitled to avoid the contract.19
(b) Where the transaction was not illegal, but merely void and unenforceable, a parol promise, not being in the form of a negotiable instrument, is void as without consideration; but a promise under seal is valid.
16 Pixley v. Boynton, 79 I11. 351; Quirk v. Thomas, 6 Mich. 76; Scanlon v. Warren, 1G9 I11. 142, 48 N. E. 410. See "Contracts," Dec. Dig. (Key-No.) § 102; Cent. Dig. §§ 462-467.
17 Williams v. Tiedemaun, 6 Mo. App. 269; Pixley v. Boynton, 79 I11. 351; Whitesides v. Hunt, 97 Ind. 191, 49 Am. Rep. 441; Gregory v. Wendell, 39 Mich. 337, 33 Am. Rep. 390; post, p. 429. See "Contracts," Dec. Dig. (Key-No.) § 102; Cent. Dig. §§ 462-467.
18 Cowan v. Milbourn, L. R. 2 Exch. 230; Church v. Proctor, 66 Fed. 240, 13 C. C. A. 426. And see Clay v. Yates, 1 Hurl. & N. 78. But see O'Brien v. Brietenbach, 1 Hilt. (N. Y.) 304. See "Contracts." Dec. Dig. (Key-No.) § 102; Cent. Dig. §§ 462-467.
19 Cowan v. Milbourn, L. R. 2 Exch. 230. See "Contracts," Dec. Dig. (Key-No.) § 102; Cent. Dig. §§ 462-467.
(c) Where the promise is in the form of a negotiable instrument the above rules still apply as between the immediate parties, and as against all persons who are not bona fide purchasers for value. In the hands of bona fide purchasers for value the instrument is valid, whether the transaction was illegal or merely void, unless a statute declares that the instrument shall be void.
Where a promise has been given to secure the payment of money due or about to become due upon an illegal transaction, the validity of such a promise, as between the immediate parties, or others occupying the same position, is based upon two considerations: (1) Whether the transaction was illegal or merely void, and (2) whether or not the promise is made under seal. Where the promise is given in the form of a negotiable instrument, a further question arises as to its value in the hands of third parties, but it will prevent confusion if we treat of the latter question separately.
There is a distinction, not very easy to analyze, but of considerable practical importance, between cases in which the common law or statutes make an object illegal, and cases in which they make it merely void. The effect of the difference is this: that in the one case the promise is regarded as given upon an illegal consideration, while in the other it is regarded as given on no consideration at all. In the first case everything connected with the transaction is "tainted with illegality," while in the second collateral contracts arising out of the avoided transaction are, under certain circumstances, supported.
In cases where the transaction is illegal, a promise, even under seal, given to secure the payment of money due upon it, is void. In an action upon a covenant to pay money, in which the defense was that the covenant was security for the payment of a sum of money due upon a purchase of land conveyed for a purpose prohibited by statute, the court of exchequer chamber, reversing the judgment of the queen's bench, held that the illegality, when proved; tainted the subsequent promise, and that this was not a simple promise to pay money, but that it "springs from and is the creature of the illegal agreement." 20 It will be noticed that in the case mentioned the promise was under seal, but that made no difference; for, although want of consideration will not defeat a sealed contract, the seal will not prevent the contract from being void if the consideration, where there was a consideration, was illegal. The objection on the ground of illegality is "rather that of the public, speaking through the court, * * * not from any consideration of the moral position and rights of the parties, but upon grounds of public policy." 21
20 Fisher v. Bridges, 3 El. & Bl. 642. And see Everingham v. Meighan, 55 Wis. 354, 13 N. W. 269; Claflin v. Torlina, 56 Mo. 369; Howe v. Litchfield, 3 Allen (Mass.) 443; Stanton v. Allen, 5 Denio (N. Y.) 435, 49 Am. Dec. 282; Holden v. Cosgrove, 12 Gray (Mass.) 216; Hall v. Gavitt, 18 Ind. 390; Crossley v. Moore, 40 N. J. Daw, 27; Chancely v. Bailey, 37 Ga. 532, 95 Am. Dec. 350; Coulter v. Robertson, 14 Smedes & M. (Miss.) 18. See "Contracts," Deo. Dig. (Key-No.) | 105; Cent. Dig. §§ 478-497.
Where the consideration is not illegal, but the transaction is merely void, a promise given to pay money due upon such a transaction is based upon no consideration at all. If made under seal, it is binding, for no consideration is then necessary; but if made by parol, it is void. Where a municipal corporation, for instance, borrowed money, and gave a mortgage, which a statute declared it unlawful for them to give without complying with certain conditions which they failed to observe, it was held that, though the mortgage was invalid, the corporation was liable on its covenant therein to repay the money it had received.22 So, also, in case of promises of payment made in consideration of past illicit cohabitation, the promises are invalid if made by parol; not on the ground that the consideration is illegal, but because there is in fact no consideration at all.23 A bond given upon such a past consideration, because of the seal, would be binding.24
It is often a difficult question to determine whether a given contract is illegal or merely void, and there is much direct conflict in the decisions. Of course there can be no question but that it is illegal where it involves the commission of a crime which is malum in se, or, it seems, where it tends to the prejudice of the public, and is void because against public policy;25 but it is not so easy to declare a transaction illegal in the strict sense, where it is only unlawful because prohibited by statute. In an English case it was held that a note given to secure the payment of money under a wagering contract did not take its inception in illegality within the meaning of the rule we have been discussing. "There is no penalty attached to such a wager," it was said. "It is not in violation of any statute, nor of the common law, but is simply void; so that the consideration was not an illegal consideration, but equivalent in law to no consideration at all." 26 In those of our states where wagers are held contrary to public policy, even where there is no statute prohibiting them, the ruling on this point would be different.27
21Lyon v. Waldo, 36 Mich. 845, 353. See Parks v. McKamy, 3 Head (Tenn.) 297; Wooden v. Shotwell, 23 N. J. Law, 465; Buffendeau v. Brooks, 28 Cal. 641; Seidenbender v. Charles' Adm'rs, 4 Serg. & R. (Pa.) 151, 8 Am. Dec 682. See "Contracts," Dec. Dig. (Key-No.) § 105; Cent. Dig. §§ 478- 497.
22Payne v. Mayor of Brecon, 3 Hurl. & N. 579. See "Contracts" Dec. Dig. (Key-No.) § 105; Cent. Dig. §§ 478-497.
23Beaumont v. Reeve, 8 Q. B. 483. See "Contracts," Dec. Dig. (Key-No.) § 112; Cent. Dig. §§ 512-514.
24 Ayerst v. Jenkins, L. R, 16 Eq. 275. See "Contracts," Dec. Dig. (Key-No.) § 112; Cent. Dig. §§ 512-514.
25 BISHOP v. PALMER, 146 Mass. 469, 16 N. E. 299, 4 Am. St Rep. 339, Throckmorton Cas. Contracts, 290; Harvey v. Merrill, 150 Mass. 1, 22 N. E. 49, 5 L. R. A. 200, 15 Am. St. Rep. 159. See "Contracts," Dec. Dig. (Key-No.) § 136; Cent. Dig. §§ 681-700.
An assignee of an illegal contract not negotiable stands in the same position as his assignor and may not obtain any relief to which his assignor was not entitled.28