§ 18 Upon Stock ExchiEknge transactions is well summarised in the

Appendix to the Beport of the Stock Exchange Commission, 1878

["57]. P- 366-

tjl FOSMATidN 5p GON^TRACT. Part II.

Lifeinsur- But a polUy of life iiisiii^nce ittifiBers in an important

from othe? re^pect ffom a policy of niArine of fire ihsurance. * PolicieB

contracts of of insurance againfit fi^e or mArfne rifeik are tjonttlictfe to

insurance. ^^

recoup the loss which parties may sustain from paH;i<^.tiiat

causes. When such h l6Ss id made good aliunde, thts cotn-

panies Are not liable for a loss which has not o'ccurred ; bnt

in a life policy ther^ is no sttch provision. The policy fiever

1r/er$ to the reason fot efecHng ^. It is simply a contract

that ih consid^i*atibii of a Certid.ih Annual paynieUt, the cotb-

peHvood. pany will pay at a future time a fixed sum, calculated bV

putabfrLffe**' *liem with reference to the value of the premiums which

iK^iyiag^ are to be paidj iu t^rdet to purchase the postponed pay-

ment.'

Thus, though in h life policy the ihsufed is required by

14 Qeo. III. c^ 48 to haV^ an interest at starting, that

interest. is nothing as bet^reen hiiU and the coiupany whu

ate the insurers. * The policy UteVer refers to the reason for

effecting it.' The insurer promises to pay a large sum on the

happening of a given event, in consideration of the insured

payitig lesser sutns at stated intervals until the happeniug

of the event. Each takes his risk t>( ultimate loss, and the

Statutory requlremeUt Of interest in the insured hAs nothing

to do With the contract. And so if a creditor effects an in-

surance on his debtor's life, and afte)*wards gets his debt paid,

Jnet still contiuues to pay the iUfeUr&nee premiums, the fatJt

that the debt has been paid is Ud answer to the claim Which

he may tnake against the conipany. This rule has been

15C. B. 365. established in Dalhy v. The London Life Assurance Votn-

9 East, 7* panj/, overruling Godsall v. Baldero, in which Lord EUeh-

borough had held that a contract of life insurance, like one

i>f marine or fit-e insUrttnce, Was a contract of indemnity, and

that it could noi be enforced if the loss insured against had

not in fkct occurred.

eh^p.V. §1. LBOAUTY QF OBJECT. 173

(ii) Contracts which are made in breach of definite vvhi (^

Commfm Lav?^

1\ is hfLrdly neoeaaary to state that an agreement to Agreement

eomiuit a crime or indiotable offenoe would be made on an a^c*HmeT^

illegal eonsideratioD : but it is difficult to find an instance

which is not at the same time a breach of some statutory

prohibition.

Again, a contract with an alien enemy is illegal and void, to trade

and is 8tated> in the leading case upon the subject, to be ^emies^?

void, not on any ground of public policy, but because ' it was ^^^ °^''

a principle of the Common Law that trading with an enemy

without the king's license was illegal in British subjects.'

The commonest form of contracts in breach of rules of to commit

Common Law is an agreement to commit a chril wrong. Thus ^^^

in AUen v^ Eescou^ an agreement in which one of the parties 2 Ler. 174.

undertook to beat a man was held void. An agreement which

involves the publication of a libel is in like manner void, f'^l*^'''^'

Agreements to commit a fraud upon a third party have not

unlrequeutly come before the Courts. liius in the case of

MMdUeu V, ffodgson, a debtor making a composition with 16 q. b. 689.

hia creditors of 6&. Sd, in the pound, entered into a separate

contract with the plaintiff to pay him a part of his debt in

fall. This was held to be a fraud on the other creditors,

emsh of whom had promised to forego a portion of his debt

in consideration of the others foregoing theirs in a like pro-

portion. 'Where a creditor in fraud of the agreement to

accept the composition stipulates for a preference to himself,

his stipulation is altogether void.'

Thus too where the plaintiff purchased from the defendants

an exclusive right to use a particular scientific process, and

it turned out that they had no such exclusive right as they

professed to sell, it was held that the plaintiff could not

recover, because, upon his own showing, it appeared that

he had purchased this right in order to fl^t Si company

J 74

POBMATION OF CONTRACT.

t>art n.

Begbie ▼.

Hiosphate

Sewajg^ Co.,

L. R. 10 Q. B.

499-

Fraud and

ill^;ality.

from which he expected to make a profit by defrauding the

shareholders.

It is worth noticing here a difficulty sometimes introduced

into this part of the law of contract arising from a confusion

of illegality and fraud. Fraud is a civil wrong, and an agree-

ment to commit a fraud is an agreement to do an illegal act.

But fraud as a civil wrong must be kept apart from fraud as

a vitiating element in contract. Fraud may vitiate a contract

for a reason other than the fact that it constitutes a civil

wrong : as between the parties to a contract the fraud of one

prevents the consent of the other from being genuine. If

the fraud is discovered and the discovery acted upon in time,

the contract can be avoided, not because the fraud is an

illegality,, but because the consent of the defrauded party was

unreal : if the contract has been executed, the defrauded

party must rely upon his remedy in tort and can sue for

damages for the wrong he has sustained. But as between

the parties to a contract, while still executory, the fraud of

one affects it because the consent of the other is not genuine.

We may say then that if ii is induced to enter into a con-

tract with X by the fraud of X the contract is voidcMe,

because ii's consent is not genuine. If A and X make a

contract the object of which is to defraud M the contract is

void^ because A and X have agreed to do what is illegal.

The subject would be much obscured if we allowed ourselves

to confuse reality of consent with legality o/ohjeet.

(iii) Contracts which are made in breach of the policy oj

the law.

The policy of the law, or public policy, is a phrase of

frequent occurrence and somewhat attractive sound, but it

is very easily capable of introducing an unsatisfactory vague-

General ap- ness into the law. It would be difficult to find its earliest

pica on. appii(jation ; most likely agreements which tended to pro-

mote litigation, or to restrain trade or marriage were the first

As in Smith

oil Contracts,

Lcct vL

Public

policy.

Chap. V. $ I. LEaALITY OF OBJECT. 175

to elicit the principle that the Courts would look to the

interests of the public in giving efficacy to contracts. Wagers,

while they continued to be legal, were doubtless a frequent

proTOcataye of judicial ingenuity on this point, as is suffi-

ciently shown by the case of Gilbert v. Sykes quoted above : i6 E«i<- ^9>.

but it cannot be said with confidence that the doctrine of

public policy originated in the endeavour to elude their

binding force. Whatever may have been the origin of the

doctrine, it was applied very frequently, and not always with

the happiest results, during the latter part of the last and the

commencement of the present century. Modem decisions, Ei^ertonT.Eari

Brownlow,

however, while maintaining the duty of the Courts to consider 4 h. l c. i.

the public advantage, have tended to limit the sphere within

which this duty has been exercised, and the modem view of

the subject is perhaps best expressed by Jessel, M.S..: ' Tou

have this paramount public policy to consider, that you are PHntins ca ▼.

not lightly to interfere with the freedom of contract.' J&l ' ^*'*

There are some subjects, however, which have Mien under

tolerably definite rules making agreements of certain kinds

illegal, not as breaking express rules, but as infringing

established principles or tendencies of the law. We will

endeavour to arrange them under a few convenient heads.

Agreements tending to injure the puhlic service.

The public has an interest in the proper performance of

their duty by public servants, and Courts of Law hold con-

tracts to be illegal which have for their object the sale of Sale of

public offices or the assignment of the salaries of such offices.

This principle was carried so far that in Ca^d v. Hope a depd a b. & c. 661.

was held to be void by which the owners of the majority of

shares in a ship sold a portion of them, a part of the con-

sideration for the sale being a covenant that the purchaser

should have the command of the ship at sea, and that in the

event of his death the sellers would appoint on the nomina-

tion of his executors. The judgment proceeded not merely

176 FORMATION OF OONTBACT. Pa^ 11.

&B the ^ound that the ship was in the sei^iee of the East

PJ^chford V. India Company, which had been held equivalent to being in

8 T. R. 89. ^jj^ public seFTice, but on the ground that the public had a

right to the exercise by the owners of an^ ship of their beat

judgment in selecting ofiicere for it.

This is perhaps an extreme case. But there can be no

doubt that the sale of public offices is contrary to the rules of

1.^6. ^^ ^^' CJommon Law, as it is also subject to statutory prohibition,

49 Gea III. ^^ ^Yi^ ground that the public has a right ta some better test

of the capacity of its servants than the fact that they pojs-

sess the means of purchasing their offices.

Assignment On a Somewhat different principle the same rule applies

of sslIsxics

to the assignment of salaries or pensions.. * It is fit/ said

8 M. & w. Lord Abinger ia Faster v. Welis, * that the publio servants

should retain the means of a decent subsistence and not be

exposed to the temptations of poverty.' And in the satme

or pensions, case, Parke, B, lays down the limits within which a pension

is assignable. ' When a pension i& granted, not exclusively

for past services, but as a coi^ideration for some continuing

duty or service^ then, although the amount of it may be

influenced by the length of service which the party has

already performed, it is against the policy of the law that it

should be assignable.'

Agreements Vfihdck tend to pervert the course of justice*

Stifling pro- These most commonly appear in the form of agreements to

secu Qns, ^^.^^ prosecutions, and we can hardly do better than adopt

Lord Westbury's statement of the law in one of the latest

eases on the subject. ' You shall not make a trade of a

winianisv. felony. If you are aware that a crime has been committed

I ri. L. aao. y^^ gijg^jj j^Q^ convert that crime into a source of profit of

except benefit to yourself.' But the rule thus laid down must be

where civil

and crimi- taken subject to this qualification, that where civil and criminal

d^^o^^ remedies co-exist, a compromise of a prosecution is permis-

exist. sible. ' We shall probably be safe in laying it down that the

Chap- V. § I. LEGALITY OF OBJECT. I ^^

law will permit at compromise of all offences though made

the subject of a criminal prosecution, for which offences the

injured party might sue and recover damages in an action. ^Lord ^

It is oflen the only manner in which he can obtain redress. ^eolS]

But, if the offence is of a public nature, no agreement can be Iq. a 3^

valid that is founded on the consideration of stifling a prose-

cution for it.'

Again, agreements to refer matters in dispute to arbitra- Reference

tion are regarded as attempts to ' oust the jurisdiction of the tion.

Courts,' and are not necessarily enforced. Under the Common

Law Procedure Act, 1854, the Courts have a discretionary ^ *«« vkt.

power to stay proceedings pending an arbitration, where

there has been an agreement to refer an existing dispute.

But when a contract contains a condition which provides that

disputes arising out of it shall be referred to arbitration, the

validity of such a condition depends upon rather a fine dis-

tinction. Where the amount of damage sustained by a breach

of the contract is to be ascertained by specified arbitration Soott r. atot.

before any right of action arises, the condition is good ; but

where all matters in dispute, of whatever sort, are to be re-

ferred to arbitrators and to them alone, such a condition is

illegal. The one imposes a condition precedent to a right of Ed«anbr.

AbciAjfiuo

action accruing, the other endeavours to prevent any right of ^^^^

action accruing at all. . a a a 59^

CoTitrcKts fchieli tend to encourage litigation.

The rules respecting maintenance and cliamperty are really

based upon this consideration of public policy. It is not

thought well that one should buy an interest in another's

quarrel, or should incite to litigation by offers of assistance

for which he expects to be paid.

Maintenance has been defined to be ' when a man main-

tains a suit or quarrel to the disturbance or hindrance of

. , , Com. EKf.

ngnt. voLT.p.a>.

178

FORMATION OF CONTRACT.

Part II.

Main-

tenance.

Cliamvperty is where * he who maintaiDS another is to have

by agreement part of the land, or debt, in suit.'

Maintenance, as above described, hardly appears in the

reports of recent times. The mere maintaining or assisting

another person in a suit would not now avoid a contract

entered into for such a purpose unless there were something

vexatious in the maintenance. 'The law of maintenance,'

HM.&W.683. says Lord Abinger in Findon v, Parker, 'as I understand

it upon the modern constructions, is confined to cases where

a man improperly and for the purpose of stirring up liti-

gation and strife encourages others either to bring actions

or to make defences which they have no right to make.'

Champerty. But champerty, or the maintenance of a quarrel for a share

of the proceeds, has been repeatedly declared to avoid an

agreement made in contemplation of it. Its most obvious

form, a promise to supply evidence or conduct a suit in con-

sideration of receiving a portion of the money or property to

be recovered, was held illegal in Stanley v, Jones and Sprye

V, Porter, Its less obvious form, a purchase, out and out,

of a right to sue has been placed on the footing of an assign-

ment of a chose in action, invalid at Common Law but

enforceable in Equity under certain circumstances. The en-

forceability of such an agreement would depend upon the

purchase including any substantial interest beyond a mere

right to litigate. If property is bought to which a right to

sue attaches, that fact will not avoid the contract, but an

agreement to purchase a bare right would not be sustained.

7 Bing. 369.

7 £. & B. 8z

Prosser v.

EdmondSt

z Y. & C. 499.

Ayerst v.

Jenkins.

16 Eq. 975.

Agreements which are eontrai*y to good morah.

The only aspect of immorality with which Courts of Law

have dealt is sexual immorality; and the law upon this

point may be shortly stated.

A promise made in consideration of future illicit cohabita-

tion is given upon an immoral consideration, and is void

whether made by parol or under seal.

Chap.V. §1. LEGALITY OP OBJECT. 179

A promise made in consideration of past illicit cohabitation ^^x^

is not taken to be made on an illegal consideration, but is a iESi»JS v.

mere gratuitous promise, binding if made under seal, void if faa^j.

made by parol.

And an agreement innocent in itself will be vitiated if

intended to further an immoral purpose and known by both J^j^'v «

parties to be so intended* ' ^**^*^ "*

«

Agreements which c^ect the freedom or security of marriage.

Such agreements, in so far as they restrain the freedom of Restraint of

J* 1 i*j* 1 J • • . marriage,

marriage, are discouraged on political grounds as injunous

to the increase of the population and the moral welfare of

the citizen. So a promise under seal to marry no one but Lower. Pean.

4 Burr. 3335.

the promisee on penalty of paying her £1000 was held void,

as there was no promise of marriage on either side and the

agreement was purely restrictive. So too a wager in which Hartley v.

one man bet another that he would not marry within a certain »<» ^^^* »•

time was held to be void, as giving to one of the parties a

pecuniary interest in his celibacy.

What are called marriage brocage contracts, or promises or of free-

made upon consideration of the procuring or bringing about choice.'

a marriage, are held illegal on various social grounds. ^wuuin!"

Afireements providinff for separation of husband and wife ^'^' ^ ^^ ?*

® . . . Agreements

are valid if made in prospect of an immediate separation, for separa-

£ut if such agreements provide for a possible separation in

the future they are illegal, whether made before or after

marriage, because they give inducements to the parties not to

perform ' duties in the fulfilment of which society has an cartwritrht v.

* Cartwright,

interest' ^^: ^ ^ ^'

Agreem>ents in restraint of trade.

It is against the policy of the law that a man should deprive Restraint

himself of the means of exercising his skill and earning his ^

living. The trade of the country and the individual himself

may alike be sufferers. The law upon this subject would fiU

N 2

l8o FORMATION OF CONTRACT. Part II.

a considerable space, but it is enough for our present pur-

poses to give the simplest and most general rules to which it

can be reduced.

Rules re- (i) Consideration is required to support a promise in

gar mg it. r^atraint of trade, even though the promise be made under

XXM.&W.66S. seal. Mallan v. May. Indeed it was at one time thought

that the Courts would inquire iuto the adequacy, as well as

the existence of the consideration, but this has been settled

6 Ad. & E.438. not to be so since the case of Hitchcock v, Coker (1837).

(2) The restraint may be unlimited as to time, but must

not be unlimited as to space. A man may promise that he

will never carry on a certain trade within ten miles of

London and the promise would be good ; but if he promised

that he would not carry on the trade anywhere for five years

Ward V. Byrne, it WOuld UOt bc UPhcld.

5 M. & W. 561. , \

(3) The restriction as to space must be reasonable in the

judgment of the Court. Beyond this no definite rule as to

the extent of restriction permissible can be laid down. The

cases since 1854 turning upon this point have been excellently

Pollock, 315. summarised by Mr. Pollock.