B. Agreements Contrary to Public Policy at Common Law
| Author | John D. McCamus |
| Profession | Professor of Law. Osgoode Hall Law School, York University |
| Pages | 430-459 |
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Agreements to commit crimes or torts are unenforceable at common law. An agreement to commit an assault on a third party is obviously unenforceable.5So too, for example, are agreements to commit extortion of third parties,6to evade currency controls,7to deal in prohibited retail stamps,8to distribute obscene material,9to print libellous material10or to obtain goods by false pretences.11A contract entered into for the purpose of committing the tort of inducement of breach of contract is unenforceable.12In a perhaps predictable Canadian illustration, an
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agreement intended to induce a hockey player to break an existing contract and join a new team was held unenforceable on this ground.13Agreements entered into for the purpose of defrauding or otherwise injuring third parties are unenforceable under this common law doctrine. A substantial line of authorities holds unenforceable agreements that are structured so as to facilitate a fraud being perpetrated on revenue authorities. In Alexander v. Rayson,14for example, a lease stating a falsely low rental term, coupled with a side agreement charging handsomely for various services, designed to misrepresent the rateable value of the premises to the municipality and thereby reduce tax liability was unenforceable. An agreement permitting a broker to sell shares in a company structured in such fashion as to prevent securities regulators from detecting an unlawful level of remuneration for the broker was held unenforceable.15Similarly, a contract for the sale of a business falsely representing a low price in order to induce bank financing16and a transaction for the purchase of an apartment block falsely representing a high price in order to secure a higher mortgage loan than the lender would otherwise advance17were both held to be illegal. In an early Ontario case,18a transaction that amounted to a pyramid scheme designed to exploit third parties was struck down. A sale of shares undertaken with a view to enabling the seller to engage in share purchases that would "rig the market" by creating the impression that there was a substantial demand for the shares in question was struck down as an unlawful attempt to mislead the public.19Transactions such as these, entered into for an unlawful purpose, will be unenforceable by any party to the agreement that shared the unlawful intention.20In St. John Shipping,21Devlin J. appears to have assumed that the common law rules striking down agreements entered into with the intention of committing a crime apply to all statutory offences. Rigid
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application of a doctrine of this kind, however, could lead to unsatisfactory results, especially in the context of regulatory offences, and ought not be followed. This approach could justify, for example, the result in Kingshott v. Brunskill,22a well-known Ontario decision striking down an agreement between two farmers for the purchase and sale of ungraded apples. Under the applicable legislation and regulations, apples were required to be graded before sale. The sale thus constituted an offence. In fact, however, it was the expectation of the parties that the purchasing farmer would grade the apples before reselling them to the public. Nonetheless, the regulations, which admitted no exception for such circumstances, captured the transaction and rendered it unlawful. The Ontario Court of Appeal struck down the transaction even though the mischief presumably aimed at by the statute - sale of ungraded apples to the public - was not present. The seller therefore could not recover the price of the apples, notwithstanding the fact that the purchaser had subsequently graded them and resold them to the public. As we shall see,23this decision has been criticized by subsequent Canadian courts and is generally considered to be unsatisfactory. Cases of this kind are likely to be more satisfactorily analyzed as instances of statutory illegality, with respect to which a careful analysis of the objectives and structure of the regulatory scheme is required. Alternatively, if such cases are to be considered to be subject to the common law illegality doctrine, it will be important to recognize that the rule striking down agreements that require commission of an offence is not an absolute one. For example, it will not be applied where, as in a case such as Kingshott, an examination of the objectives of the statutory scheme of which the offence forms a part and of the disproportionate nature of the penalty imposed, indicates that holding the agreement unenforceable would produce an unjust result.24
Courts have traditionally asserted a jurisdiction to deny enforcement of contracts conducing to immoral conduct or undermining the institution of marriage. A number of the particular illustrations of the application of this principle now have a dated appearance to them and, in a
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number of instances, have been overtaken by evolving social attitudes and, indeed, statutory reform. In particular, abolition of the claim for breach of promise to marry,25increasing recognition of the enforceability of domestic agreements26and evolving social attitudes toward co-habitation outside marriage have rendered much of the traditional doctrine irrelevant to contemporary social life. Nonetheless, the jurisdiction to strike down agreements on the basis of their tendency to promote immoral conduct remains and it may well be that courts will face difficult decisions with respect to such matters in the years ahead.
Under traditional doctrine, agreements to marry were held void in circumstances where they were considered to be inconsistent with the current marital status of one of the parties. Thus, promises by a married man to marry another woman upon the death of his wife were held to be unenforceable.27Such agreements were considered to promote separation between a husband and wife or encourage immoral behaviour, such as adultery. Similarly, a promise by a married person to marry a third party upon divorce of the current marriage is also un-enforceable.28Such a promise would be enforceable, however, if given after divorce proceedings had been initiated and a decree nisi of divorce had been obtained.29In jurisdictions in which the cause of action for breach of a promise to marry has been abolished, of course, such doctrine is no longer relevant.
Agreements by married persons to live separate and apart were also considered unenforceable under traditional doctrine as being inconsistent with the institution of marriage. Thus, an agreement, signed by a couple prior to their marriage, providing that they would live separate and apart after marrying has been held to be unenforceable.30Under traditional doctrine, an agreement made in anticipation of a future separation of spouses was void as against public policy.31Modern legislation concerning domestic agreements, however, typically enables married couples and other co-habitants subject to such legislation, to stipulate a set of arrangements that will obtain in the event of a future separation
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of the parties.32Separation agreements entered into by couples who are living separate and apart are enforceable at common law.33The perceived importance of preserving, indeed fostering, public attitudes concerning the sanctity of marriage may also explain the traditional rule that marriage brokerage contracts are unenforceable. A contract under which a marriage broker undertakes to seek to arrange a marriage for a client with an identified individual for a fee is plainly unenforceable. In a leading case, Hermann v. Charlesworth,34the broker undertook, for an initial fee, to introduce the plaintiff client to a number of potential spouses with a larger fee to be paid in the event that a marriage took place. When the arrangement did not enjoy success, the plaintiff sought to recover the initial fee on the theory that the contract was one of marriage brokerage and therefore unenforceable at common law, thus providing a basis for restitution of the monies paid. The defendant broker argued that as no identified individual was stipulated as the target of the exercise, the agreement should not be considered to be a marriage brokerage contract in the requisite sense. The Court of Appeal rejected this argument and explained that the basis underlying the general principle "is the introduction of the consideration of a money payment into that which should be free from any such taint."35It may be wondered, then, whether modern dating and introduction services of various kinds are subject to a similar principle. The answer rests, in turn, on identifying the proper basis for the traditional rule. One possibility would be that marriage brokerage contracts were perceived to be exploitative and, more particularly, took advantage of the particularly vulnerable status of unmarried women in an earlier era. If this is so, it may be that evolving social attitudes and legal norms concerning gender equality may have undermined the basis of the traditional rule to some extent. Second, it may be that the better rubric for determining the enforceability of such agreements is the doctrine of unconscionability.36On this view, the arrangements concerning modern dating and introduction services might be considered valid unless, in the particular circumstances, they constitute the taking of undue advantage...
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