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CHAPTER XVII.

VALIDITY OF CONTRACTS.

§ 167. Preliminary. The validity of a contract is very distinct from its obligation, its interpretation, or its discharge. The last three matters are reserved for future discussion. This chapter will be devoted to an examination of the "proper law" governing the validity of a contract.

It will be remembered that although sometimes the "proper law" governing a contract in some of its aspects is "the law in the minds of the parties," irrespective of situs, a different rule applies to questions of the validity of the contract. The design or purpose of the parties to enter into a valid contract, standing alone, can never suffice to validate a contract prohibited by the law, nor to invalidate (except by mutual rescission) a contract not legally prohibited. It is true that where the intent of the parties is doubtful and susceptible of several interpretations, according to one of which the contract would be legal and according to the other illegal, that interpretation will be given to the terms used which will give rise to a lawful, rather than to an unlawful, contract. But if there is no ambiguity, and it is clear that the parties intend to enter into a contract which the law invalidates, their innocence of design to violate the law is entirely immaterial, except in the few cases where it is the guilty intent alone which invalidates.2

The question therefore, where the validity of the contract is under investigation, is not what law do the parties intend shall govern a particular element, but what law shall actually govern it. The answer is that the validity of the contract, in respect

1 That is, when the maxim, “modus et conventio legem vincunt," is appli cable to the question. Ante, § 154. See Pope v. Nickerson, 3 Story, 465, 484.

2 Ante, § 154; Pope v. Nickerson, 3 Story, 465, 484.

to each of its elements, is to be controlled by the law of the situs of that element; by the lex loci celebrationis, if the element in question relates to the making of the contract; by the lex loci solutionis, if it relates to the performance of it; and by the lex loci considerationis, if it is the consideration of the contract whose sufficiency or legality is disputed.

For the purposes of this discussion, an executory contract may be defined as "a mutual agreement, not prohibited by law to be entered into, between two or more legally competent persons, made in due legal form, touching a lawful subject-matter, for a legal consideration."

A careful examination of this definition will show that a contract in its very nature must come into contact with legal restrictions at no less than five points. (1) The contract must not be one the entrance into which the law prohibits; (2) The parties must be legally competent to contract (which is really part of the first proposition); (3) The contract must be in the form, if any, required by law (another branch of the first proposition); (4) The thing agreed to be done under the contract must be one not prohibited by law; (5) The consideration supporting the contract must not be one which the law regards as insufficient or illegal.

The first three of these heads relate to the entering into the contract, or the making of it; the fourth relates to the performance of the contract; and the fifth, to the consideration. All these elements are included in the definition of a contract, and if any one of them fails to measure up to the standard required by the law, the contract must fall; it is invalid.

At all these points the contract comes into contact with "law," and must conform itself to it. But the question remains, what law? Is it the same law for all these elements, or may each have a separate law to govern its validity? To this inquiry we will now address ourselves.

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§ 168. Contracts Prohibited to be entered into -In General-Lex Loci Celebrationis. If the alleged invalidity of a contract turns upon the question whether the law prohibits the contract to be entered into, it is manifest that the situs of this element of the contract is the situs of the making (locus celebra

tionis). The act in this case condemned by the law is the making of the contract. With this act no State has usually any concern save the State where the act is done, that is, the State where the contract is made. Comity and justice unite in demanding that the lex loci celebrationis shall determine the effect to be given to the act of entering into the contract, and neither the lex solutionis nor the lex fori should be permitted to supplant it.

Excellent illustrations of this principle may be found in the case of Sunday contracts. The laws of some States avoid contracts made on Sunday, while other States permit them. It is well settled that the lex loci celebrationis will determine the validity of the contract in this respect.1

Thus in McKee v. Jones, suit was brought in Mississippi upon a contract made in Louisiana upon Sunday. The defence was that contracts made on Sunday were void under the law of Mississippi. But the court sustained the contract, holding that its validity in this respect must be controlled by the law of Louisiana.

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So in Brown v. Browning, a Connecticut statute prohibited secular business on Sunday between sunrise and sunset. A similar Rhode Island statute prohibited business in one's ordinary calling during the whole of Sunday. It was held by the Rhode Island court that a contract made in Connecticut after sunset, in the course of the plaintiff's ordinary calling, might be sued upon in Rhode Island, it not being contra bonos mores, nor invalid where made.

These conclusions are eminently reasonable. The laws of Mississippi and of Rhode Island were aimed against acts done in those States, not against acts done elsewhere. The laws of those States therefore were not violated by these contracts entered into in other States. As the court, in Brown v. Browning, expressed it: "The contract was valid in Connecticut, where it

1 McKee v. Jones, 67 Miss. 405, 7 So. 348; Brown v. Browning, 15 R. I. 422, 7 Atl. 403; Swann v. Swann, 21 Fed. 299; Murphy v. Collins, 121 Mass. 6; Arbuckle v. Reaume, 96 Mich. 243, 55 N. W. 808.

2 67 Miss. 405, 7 So. 348.

8 15 R. I. 422, 7 Atl. 403.

was made, because it was not in violation of the law of that State. The making of the contract did not violate the law of this State, because it was not done in this State." 4

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On the other hand, in Arbuckle v. Reaume, suit was brought in Michigan on a note executed and delivered in Michigan on Sunday, but payable in Ohio. The court declared the note void, holding that the law of Michigan (lex celebrationis) should apply, and not the law of Ohio (lex solutionis). In the course of its opinion the court said: "The court below was in error in holding that the note could be enforced here by reason of its being made payable in Ohio. Parties cannot be allowed to defy our laws and recover upon a contract void from its inception under our statute by making the place of payment outside the State."

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Another application of the same principles may be seen in connection with champertous contracts. Champerty consists in prosecuting a suit upon shares, and is prohibited in some States, while permitted in others. It is the policy of the State where the champertous suit is to be brought that will usually determine the effect of such contracts. Hence the general rule is that the validity of an agreement entered into in one State to conduct a suit upon shares in another State is to be governed by the lex solutionis of the agreement, that is, by the law of the place where the champertous suit is to be brought." Yet, in Blackwell v. Webster, notwithstanding this general rule, it was properly held that the lex celebrationis, not the lex solutionis,

The fact that the lex loci solutionis of the contract would have avoided it, if it had been made there, should not affect in the slightest the operation of the lex loci celebrationis. Arbuckle v. Reaume, 96 Mich. 243, 55 N. W. 808. But see Murphy v. Collins, 121 Mass. 6.

5 96 Mich. 243, 55 N. W. 808.

• But, as we shall presently see, if the contract is to be performed on Sunday, the ground of its alleged invalidity is the performance on Sunday. The invalidity in such case, if any, will relate not to the making of the contract, but to its performance, and will be governed by the law of the situs of the performance (lex loci solutionis). W. U. Tel. Co. v. Way, 83 Ala. 542, 4 So. 844. See Stebbins v. Leowolf, 3 Cush. (Mass.) 137. Post, § 175.

7 Post, § 175. See Hickox v. Elliott, 27 Fed. 830.

8 29 Fed. 614.

should govern under the circumstances following: An agreement was entered into in Maine to prosecute a suit upon shares in New York. Such an agreement was legal in New York (locus solutionis), but a Maine statute provided that "any person agreeing to prosecute or defend a suit at law or in equity upon shares" should be criminally punished. It was held by a federal court sitting in New York, upon a suit brought to enforce the champertous agreement, that since the law of Maine expressly forbade the making of such a contract, the law of Maine (lex celebrationis) should prevail over the law of New York (lex solutionis). The court said: "The validity of the agreement is to be determined by the law of Maine, and it is void; for the plaintiff, when he entered into the agreement, did an act made criminal by the law of Maine. The statute of Maine forbade the doing in Maine precisely what the plaintiff did. The agreement was void at its inception, because the making of it was made criminal by the Maine statute. But the plaintiff contends that this contract was lawful because the place of performance was in New York. But it seems to me plain that since the act of making the agreement could not be lawfully done in Maine, the circumstance that other acts were intended to be done in New York cannot render lawful the act that was done in Maine."

So, though the validity of contracts made in one State to purchase lottery tickets in another would ordinarily be governed by the law of the latter State, since the alleged invalidity relates to the performance of the contract (to be controlled by the lex solutionis), yet if the lex loci celebrationis expressly forbids contracts to be made there for the purchase of lottery tickets elsewhere, the lex celebrationis will govern.10

§ 169. Same Exemptions in Bills of Lading. It is now well established that the validity of contracts, often found in bills of lading, exempting carriers from liability for damage resulting from the carrier's negligence or otherwise, is to be governed by the law of the place where the contract of carriage

• Hatch v. Hanson, 46 Mo. App. 323.

10 Goodrich v. Houghton, 134 N. Y. 115, 31 N. E. 516.

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