Chapter 13 Legality and Public Policy 253 being in contravention of sound public pol- although avoidance of the contract icy is a very delicate and undefined power, imposed a forfeiture on Bovard, he did and...should be exercised only in cases free from doubt."... recover the corporate machinery, the only assets of the business which could be used Before labeling a contract as being contrary to for lawful purposes, i.e., to manufacture public policy, courts must carefully inquire into jewelry. Thus, the forfeiture was significant- the nature of the conduct, the extent of public ly mitigated if not negligible. Finally, there harm which may be involved, and the moral is no special public interest in the enforce- quality of the conduct of the parties in light of ment of this contract, only the general inter- the prevailing standards of the community.... est in preventing a party to a contract from These factors are more comprehensively avoiding a debt. On the other hand, the Restatement fac- set out in the Restatement Second of Con- tors favoring a public policy against tracts section 178: enforcement of this contract are very 1. A promise or other term of an agreement is strong.... The public policy against manu- unenforceable on grounds of public policy if facturing paraphernalia to facilitate the use legislation provides that it is unenforceable of marijuana is strongly implied in the or the interest in its enforcement is clearly statutory prohibition against the posses- outweighed in the circumstances by a public sion, use, etc., of marijuana, a prohibition policy against the enforcement of such which dates back at least to 1929.... terms. Obviously, refusal to enforce the instant 2. In weighing the interest in the enforcement contract will further that public policy not of a term, account is taken of only in the present circumstances but by a. the parties justified expectations, serving notice on manufacturers of drug b. any forfeiture that would result if paraphernalia that they may not resort to enforcement were denied, and the judicial system to protect or advance c. any special public interest in the their business interests. Moreover, it is enforcement of the particular term. immaterial that the business conducted by 3. In weighing a public policy against enforce- American Horse Enterprises was not ment of a term, account is taken of expressly prohibited by law when Bovard a. the strength of that policy as manifested and Ralph made their agreement since both by legislation or judicial decisions, parties knew that the corporation's prod- b. the likelihood that a refusal to enforce ucts would be used primarily for purposes the term will further that policy, which were expressly illegal. We conclude c. the seriousness of any misconduct the trial court correctly declared the con- involved and the extent to which it was tract contrary to the policy of express law deliberate, and and therefore illegal and void.... d. the directness of the connection between that misconduct and the term. [judgment affirmed] Applying the Restatement test to the present circumstances, we conclude the Questions interest in enforcing this contract is very 1. Who raised the winning argument in tenuous. Neither party was reasonably jus- the Bovard case? What was it? tified in expecting the government would 2. What provision of the contract in the not eventually act to geld American Horse Bovard case was illegal? Enterprises, a business harnessed to the 3. Did the court in Bovard overstep its production of paraphernalia used to facili- bounds and infringe on the role of the leg- tate the use of an illegal drug. Moreover, islature?252 Part 2 Contracts business world becomes increasingly signifi- B. AGREEMENTS AFFECTING cant in determining the validity of the contract PUBLIC WELFARE as between the parties. Courts are considering a kinginc contract as a legal relationship only between A Agreements that may harm the public welfare and B less and less often. The modern court is increasingly influenced in its decision by the are condemned as contrary to public policy and are not binding. Agreements that interfere with recognition of the fact that the contract before the court is not one in a million but is one of a public service or the duties of public officials million. For example, an insurer makes a con- obstruct legal process, or discriminate against tract with Kelley that is of the same nature as members of minority groups are considered one that the insurer makes with Fanta. Also, detrimental to public welfare and, as such, are not enforceable. these contracts are the same as the one that a different insurance company makes with Vidas 8. Agreements Contrary to Public Policy and so on. A similar industrywide pattern is seen in the case of the bank loan made by one A given agreement may not violate any statute bank to a borrower, by a second bank to a dif- but may still be so offensive to society that the courts feel that enforcing the contract would be hereit harmwer., and so on. contrary to public policy. That was the question underlying the book, FR. BOVARD . AMERICAN HORSE ENTERPRISES, INC. 247 Cal Rptr 340 (Ct App 1985) American Horse Enterprises was predominantly engaged in manufacturing devices for smoking marijuana and, to a minor degree, in making jewelry. A state law made it illegal to possess, use, or transfer marijuana, but no statute prohibited manufacturing equipment for smoking marijuana. Bovard owned the stock of American Horse Enterprises and con- tracted to sell the corporation to Ralph, but Ralph did not make the payments required by the contract. Bovard then brought suit to enforce the contract. The trial judge raised the question whether the contract sued upon was void for illegality. The trial judge held the contract void as contrary to public policy. Bovard appealed. BUGLIA, J.... The trial court concluded the consideration for the contract was contrary been graphically articulated by the to the policy of the law as expressed in the California Supreme Court as follows: 'It has statute prohibiting the possession, use and been well said that public policy is an transfer of marijuana. Whether a contract is unruly horse, astride of which you are contrary to public policy is a question of carried into unknown and uncertain law to be determined from the circum- paths.'..." While contracts opposed to stances of the particular case.... Whenever morality or law should not be allowed to a court becomes aware that a contract is show themselves in courts of justice, yet illegal, it has a duty to refrain from enter- public policy requires and encourages the taining an action to enforce the contract. ... making of contracts by competent parties The question whether a contract vio- upon all valid and lawful considerations lates public policy necessarily involves a and courts so recognizing have allowed degree of subjectivity. Therefore,"... courts parties the widest latitude in this regard have been cautious in blithely applying and, unless it is entirely plain that a con- public policy reasons to nullify otherwise tract is violative of sound public policy. a enforceable commiatis. This."coreco..has. court will never so declare. "The power off the courts to declare a contract void for