CHAPTER VIII.

LEGALITY OF THE SUBJECT MATTER.

103. The subject matter as an element in a valid contract. In general, the parties may contract about whatever they choose. This freedom of contract is limited, however, to this extent: certain objects are illegal (1) either by statute or (2) by common law, or (3) they are forbidden because of public policy. Although all of the other requisites of a valid contract are present, if the parties have in mind one of these prohibited objects, the contract will not be enforced.12 But if the contract can be performed in two ways, one legal and the other illegal, the law presumes, in the absence of proof to the contrary, that the legal method was intended, and this presumption will be adopted. The three-fold classification given above is mainly for the sake of convenience. Objects cannot be placed with certainty into any one of the three classes, for a particular object may be illegal by statute in one state and by the common law in another jurisdiction. Whether an object is expressly forbidden by statute, or violates a positive rule of the common law, or is merely against the policy of the law in any particular state, depends to a great extent upon the way in which public sentiment has expressed itself in that state. Much of the common law has become so by an adapta

42 Hunt v. Knickerbacker, 5 Johns. 327 (N. Y.), LEADING ILLUSTRATIVE CASES; McMullen v. Hoffman, 174 U. S. 639.

tion of old statutes, and in many instances the courts have shown a disposition to legislate by interpreting the law and moulding it in accordance with public sentiment."

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104. Contracts illegal by common law and by statute.-Practically all of the states and also the federal government have statutes regulating the conduct of certain lines of business. Provisions as to weights and measures, as to dealing in certain commodities, as to the proper handling of drugs and explosives, as to the non-adulteration of foods, as to the employment of children in factories, and as to the guarding of machinery, are invariably upheld under the police power of the state, although they clearly interfere with the right of freedom to contract.44 Contracts in violation of such provisions are void, although in all other respects valid. In the same class are statutes regulating the sale of liquors. Thus, in Eaton v. Kegan,45 a merchant was not permitted to recover for meal sold by the bag instead of by the bushel as prescribed by statute. Similarly, a sale of fertilizer not properly inspected was held illegal.46 Where a statute forbids the employment of children, a father may not recover for the services of the employed child." There may be no recovery for the value of liquor sold on Sunday in violation of a statute 48

43 Miller v. Ammon, 145 U. S. 421, LEADING ILLUSTRATIVE CASES.

44 Eaton v. Kegan, 114 Mass. 433.

45 114 Mass. 433.

46 Pacific Guano Co. v. Mullen, 66 Ala. 582.

47 Birkett v. Chatterton, 13 R. I. 299.

48 Melchoir v. McCarty, 31 Wis. 252; Miller v. Ammon, 145 U. S. 421, LEADING ILLUSTRATIVE CASES.

Sunday contracts. Some states expressly forbid the making of contracts on Sunday. Others forbid the doing of any labor or business on Sunday. Under either of such statutes, a contract made on Sunday is invalid.19 In some jurisdictions, work is prohibited, but only as to one's ordinary calling. On Sunday, A may agree to sell a horse, and on Monday refuse to abide by his promise. But acts of religious worship, or anything which is intended to preserve life or property, are excepted. Such acts must not be performed merely for the purpose of saving time, however, for in that event they would be illegal.50 If a transaction is started on Sunday, it will be legal if completed on another day; but there is a conflict of authority as to whether a Sunday contract may be later ratified.51

105. Same subject-Wagers.-A wager is defined as a promise to give money or its equivalent upon the determination or ascertainment of an uncertain event. The consideration for such a promise is either something given by the other party to abide the event or a promise to give upon the event determining in a particular way.52 This definition illustrates the difference between a wager and a premium or reward. The latter is an offer made with no condition as to the way in which the event determines and therefore is not illegal.53

49 Smith v. C. M. St. P. Ry., 83 Wis. 271; see Bryan v. Watson, 127 Ind. 42. 50 Aldrich v. Blackstone, 128 Mass. 148.

51 McKinnis v. Estes, 81 Ia. 749; Grant v. McGrath, 56 Conn. 333; Russell v. Murdock, 79 Ia. 101.

52 Anson, Contracts (Huffcut's 2d ed.), § 240; Love v. Harvey, 114 Mass. 80, LEADING ILLUSTRATIVE CASES.

53 Porter v. Day, 71 Wis. 296; see subject, SALES, to distinguish wager and conditional promise.

Wagers were originally legal at common law in England and even in some of our states.54 But the Statute of 16 Car. II, chapter 7, and 9 Anne, chapter 14, prohibited them, and there are similar statutes in most of the states. In a number of jurisdictions, these English statutes are considered as a part of the common law.

Contracts of insurance are really wagers. They are enforcible, however, as being within the policy of the law, for they result in positive good to the individual, and it has been clearly proven that they can be profitable to the insurer. The law carefully examines such contracts, however, and no one is allowed to be a party to them unless he has an insurable interest in the object insured, whether that be a person or property. This interest must be great enough to prevent the policy-holder from destroying the subject insured.55

Another example of a wagering contract is a sale of stock or grain where delivery is not intended.56 The distinction between such an agreement and an agreement for future sale or delivery, which is not illegal, is that in the former, delivery is never intended, whereas in the latter, actual delivery is intended.57 But where one of the parties has an honest intention to deliver, the contract will be upheld.58 In Illinois, the statute would seem to cover any contract

54 Campbell v. Richardson, 10 Johns. 406 (N. Y.); Cothran v. Ellis, 125 Ill. 496.

55 See subject, INSURANCE.

56 Such contracts are usually made on the stock exchange or board of trade.

57 Harvey v. Merrill, 150 Mass. 1.

58 See subject, SALES.

for future delivery, even where an actual delivery is contemplated.59

Lotteries are the distribution of prizes by lot or chance. They are another form of wagering contracts and are illegal. But where there is a mere distribution of prizes and no consideration is paid directly or indirectly for the right to participate, it is not a lottery.c

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106. Same subject-Usury.-Practically all of the states have a rate of interest for the loan of money, beyond which it is not legal to exact interest. Laws dealing with this subject are usually termed usury laws. A contract which violates the provisions of such a statute is said to be usurious. In order to make the contract usurious, there must be an actual borrowing or lending of money.61 Thus, it is permissible to place a penalty of a certain amount in a contract, in case of a default by one party. Where A agrees to convey Blackacre to B, and B promises to pay A $5,000 by January 1st, or pay an additional sum of $50 a day for each day of delay, such a contract is not usurious. But where A loans B $100, and it is agreed that B shall pay twelve per cent. interest, the contract is bad if the legal rate of interest is about seven per cent. Various penalties are attached by statutes to such usurious contracts. Some provide that neither the principal nor the interest may be recovered; others allow the recovery of the principal, but not of the interest. There is a conflict

59 Schneider v. Turner, 130 Ill. 28.

80 People v. Gillson, 109 N. Y. 389; Cross v. People, 18 Colo. 321. 61 Struthers v. Drexel, 122 U. S. 487; Drury v. Wolfe, 134 Ill. 294.