1. Review by certiorari will be confined to the question on
which the petition for the writ was based. P. 275 U. S.
2. It is only because of the dominant public interest that one
who has had the benefit of performance by the other party is
Page 275 U. S. 200
avoid his own contract obligation on the plea that the agreement
is illegal. It is a matter of great public concern that freedom of
contract be not lightly interfered with. P. 275 U. S.
3. Only in clear cases will contracts be held void as against
public policy. The principle must be cautiously applied to avoid
confusion and injustice. P. 275 U. S.
4. Where nothing sinister or improper is done or contemplated
under the contract, detriment to the public interest will not be
presumed. P. 275 U. S.
5. A contract between S and D for construction of a railroad to
connect with an existing railroad and extend to a town where D
owned property, contained a promise by him to procure necessary
franchises and ordinances from that town, and a promise by S that
he would procure the company which was to own the new line and the
company owning the existing one to operate regular trains over the
two roads giving to the town above referred to the same service as
that had by the one where they connected. D's purpose in making and
performing the contract was to enhance the value of his property by
the contemplated railroad facilities. S was a stockholder of the
old company and took all the stock of the new one; held,
that neither of the two stipulations was shown to be against public
policy. P. 275 U.S.
11 F.2d 595 affirmed.
Certiorari, 271 U.S. 658, to a judgment of the circuit court of
appeals, which reversed a judgment of the district court dismissing
on demurrer an action brought by Drummond to recover damages for
breach of a contract between him and Steele.
Jurisdiction of the district court was founded on diversity of
Page 275 U. S. 203
MR. JUSTICE BUTLER delivered the opinion of the Court.
Respondent sued in the District Court for the Northern District
of Georgia to recover damages for breach of contract. A general
demurrer was interposed and sustained. The circuit court of appeals
held that the one count states a cause of action and reversed the
judgment. The petition for certiorari was based on the contention
that the contract in suit was contrary to public policy and void.
No other question will be considered. Alice State Bank v.
Houston Pasture Co., 247 U. S. 240
247 U. S. 242
Webster Co. v. Splitedorf Co., 264 U.
, 264 U. S.
The material allegations are: Panama City and St. Andrews are
adjoining municipalities in Florida. These were rival cities, whose
resources were timber lands and fisheries awaiting development. A.
B. Steele was a stockholder in the Atlanta & St. Andrews Bay
Railway Company, which operated a railroad between Dothan, Alabama,
and Panama City. He was interested in a lumber company, which was a
large stockholder in the railway company. Drummond owned much land
in St. Andrews, and some of it was on St. Andrews Bay. Steele
desired to extend the railway from Panama City to the Bay. Drummond
was willing to cooperate with him to that end. His purpose was to
enhance the value of his lands by procuring railroad facilities for
St. Andrews equal to those at Panama City. Steele agreed to procure
a charter for a railway company, to convey to it a right of way
within Panama City, to furnish all the iron and steel for track
material; to deliver the cross-ties which were to be furnished by
Drummond, and to procure the proposed company, in conjunction with
the Atlanta & St. Andrews Bay Railway Company, to operate
regular trains over
Page 275 U. S. 204
the two roads from Dothan to St. Andrews, giving the latter the
same service as that had by Panama City. Drummond agreed to obtain
and convey to the new company a right of way within St. Andrews,
"and to procure necessary franchises and ordinances from the town
of St. Andrews;" to pay the cost of clearing and grading the whole
line, furnish and lay all ties, build necessary trestles and
culverts, lay the rails, and put in a wye, and to cause a tract of
terminal land fronting on St. Andrews Bay to be conveyed to the new
company. Steele procured the charter, organized a company, and
became owner of all its stock; and at his instance, Drummond
conveyed the completed railroad to the new company. Steele caused
the railway service to be furnished as agreed until August, 1921,
when operation ceased. Service at Panama City continued. Except for
the covenant in respect of service for St. Andrews, Drummond would
not have made the contract. This was known to Steele, and it is
alleged that to perform on his part, Drummond expended $53,178.11,
and that, by reason of Steele's failure to cause continuous
service, Drummond's expenditures became a total loss.
Petitioner contends that the contract is illegal and void
because respondent's undertaking to procure the passage of the
ordinances was contrary to public policy. In Marshall
v. Baltimore & Ohio Railroad Co.,
16 How. 314,
Mr. Justice Grier, delivering the opinion of the Court, said (p.
57 U. S.
"It is an undoubted principle of the common law that it will not
lend its aid to enforce a contract to do an act that is illegal, or
which is inconsistent with sound morals or public policy, or which
tends to corrupt or contaminate, by improper influences, the
integrity of our social or political institutions. . . . Public
policy and sound morality do therefore imperatively require that
courts should put the stamp of their
Page 275 U. S. 205
disapprobation on every act, and pronounce void every contract
the ultimate or probable tendency of which would be to sully the
purity or mislead the judgments of those to whom the high trust of
legislation is confided."
And then, to make distinction between legitimate action and the
contract condemned in that case, it is said:
"All persons whose interests may in any way be affected by any
public or private act of the legislature have an undoubted right to
urge their claims and arguments, either in person or by counsel
professing to act for them, before legislative committees, as well
as in courts of justice."
While the principle is readily understood, its right application
is often a matter of much delicacy. It is only because of the
dominant public interest that one, who has had the benefit of
performance by the other party, is permitted to avoid his own
obligation on the plea that the agreement is illegal. And it is a
matter of great public concern that freedom of contract be not
lightly interfered with. Baltimore & Ohio Southwestern Ry.
v. Voigt, 176 U. S. 498
176 U. S. 505
The meaning of the phrase "public policy" is vague and variable;
there are no fixed rules by which to determine what it is. It has
never been defined by the courts, but has been left loose and free
of definition, in the same manner as fraud. 1 Story on Contracts
(5th ed.) § 675; Pope Mfg. Co. v. Gormully, 144 U.
, 144 U. S. 233
It is only in clear cases that contracts will be held void. The
principle must be cautiously applied to guard against confusion and
injustice. Atlantic Coast Line R. Co. v. Beazley,
311, 387; Barrett v. Carden,
65 Vt. 431, 433; Richmond
v. Dubuque & Sioux City R. Co.,
26 Iowa, 191, 202;
Egerton v. Earl Brownlow,
4 H.L.Cas. 1, 122;
Richardson v. Mellish,
2 Bing. 229, 242, 252. Detriment to
the public interest will not be presumed, where nothing sinister or
improper is done or contemplated. Valdes
Page 275 U. S. 206
Larrinaga, 233 U. S. 705
233 U. S. 709
The contract here under consideration is to be distinguished from
those dealt with in Tool Co. v.
2 Wall. 45, Trist v.
21 Wall. 441; Meguire v. Corwine,
101 U. S. 108
Oscanyan v. Arms Co., 103 U. S. 261
Hazelton v. Sheckels, 202 U. S. 71
Crocker v. United States, 240 U. S.
. The claims there considered were under contracts
requiring or contemplating the obtaining of legislative or
executive action as a matter of favor by means of personal
influence, solicitation, and the like, or by other improper or
But this case is different. Drummond was not employed by Steele
or by the railroad company to secure the passage of the ordinances.
He was interested as an owner of property. Neither the contract,
nor what was done, suggests that the location or construction of
the proposed line was not a legitimate enterprise undertaken for
the public good, or that anything improper was contemplated as a
means to secure the passage of the ordinances. Drummond's object
was to obtain the railway service, and, for that purpose, he
expended a large sum. The mere fact that he owned property that
might be favorably affected does not tend to discredit him, or to
make evil his undertaking to obtain the ordinances. His interest in
having the railroad extended into St. Andrews gave him the right in
every legitimate way to urge the passage of appropriate ordinances.
There is nothing that tends to indicate that in the promotion or
passage of them there was any departure from the best standards of
duty to the public. The contention that Drummond's agreement to
secure their passage was contrary to public policy cannot be
sustained. Cole v. Brown-Hurley Co.,
139 Iowa, 487;
Burbank v. Gas Co.,
35 La.Ann. 444; Greene v
85 Me. 148. Cf. Houlton v. Nichol,
93 Wis. 393;
Noble v. Mead-Morrison Mfg. Co.,
237 Mass. 5, 21.
Page 275 U. S. 207
Petitioner also contends that the contract contravened public
policy and is void because Steele agreed to procure the specified
service to be given St. Andrews. The argument is that, in order to
keep his covenant, he might be tempted to use his vote to obtain
corporate action of the railroad companies that was not to the best
interest of their stockholders. But the contention has no
foundation of fact on which to rest. As shown above, it must be
clearly established that public policy would be violated before
Steele may raise that objection to prevent enforcement of the
contract. The allegations do not indicate that the carriers were
not in duty bound to give equality of service to these adjoining
and competing towns, and, for aught that appears, their interests
would have been served best by continuing operation over the new
line. It does not appear that the giving of the service would have
resulted to the disadvantage of either company or its shareholders.
Steele took all the stock of the new company; it does not appear
that it ever had any other stockholders. The facts alleged fail to
show that performance would tend to constitute a fraud upon the old
company or its stockholders or tend in any degree to injure them.
It would be mere speculation to say that the transaction described
has any tendency to bring Steele's personal interest into conflict
with his duty as a voting shareholder.