Nicholson v. Ellis

73 A. 17, 110 Md. 322, 1909 Md. LEXIS 67

• Court: Court of Appeals of Maryland
• Decided: March 24, 1909
• Status: Published

Opinion

Worthington, J.,

delivered the opinion of the Court.

Tbis case comes before us upon appeal from, tbe Circuit Court of Baltimore City, and presents tbe rulings of that Court upon exceptions to tbe ratification of a mortgagee’s sale made under and by virtue of a consent decree obtained in • that Court on July 8th, 1908,

Tbe lower Court sustained, tbe exceptions, annulled tbe sale, and declared tbe decree void, on tbe ground that tbe consideration for-the mortgage and mortgage notes was illegal.

Tbe consideration in tbis case is held to be illegal because ■ tbe agreement containing tbe promise to pay the money secured by tbe mortgage contains, in addition to a transfer of ' certain property rights and secret formulas, to tbe promisor, also a covenant on tbe part of tbe promisee to refrain from doing certain things wbicb are deemed to be illegal as in restraint of trade; and tbe argument is that therefore tbe whole consideration is tainted and insufficient to support a promise.

It seems to be well settled that any stipulation to perform an immoral act would taint tbe entire contract, and render it void in toto. Anson on Contracts, p. 251; Erie Ry. Co. v. Union Locomotive Co., 6 Vroom, 240; Emerson v. Townsend, 73 Md. 224. So also where tbe entire consideration for a promise is illegal, merely, though not immoral, the contract is void. Wildey v. Collier, 1 Md. 213. So also it has been held that where a part of the consideration is good and part illegal merely, though not contrary to good morals, if the bad part of the consideration is not severable from the good, the whole promise fails. Bishop v. Palmer, 146 Mass. 469. On the other hand, the Supreme Court of New Jersey, in a well-considered opinion by Beasley, Chief Justice, maintained that a stipulation which was not immoral would not vitiate or avoid the entire agreement, although such stipulation was so blended with the residue of the consideration, consisting of valuable rights and interests, as not to be severable from it. Fishall v. Gray, 60 N. J. L. 5.

The learned Judge in that case said: “There is nothing immoral or criminal in a stipulation not to engage in a certain business. A man may bind himself to such an abstention without incurring any legal penalty. The only effect is that such an agreement cannot be enforced, either at law or in. equity.” Further on in the same opinion he said: “If it be true that by reason of-the promise of the plaintiff to abstain from this business being blended with the residue of the consideration, that consisted of valuable interests transferred to the company, will prevent a recovery of the price agreed to be paid for such property, and will enable the company to retain it without giving -the equivalent, agreed on, a result certainly obtains that would be both wholly unconscionable and impolitic.”

In a later New Jersey case (1901), the Court of Errors and Appeals of that State said: “The contract between the parties was based on sufficient reciprocal consideration, apart from the plaintiff’s restrictive agreement. Both parties must be presumed to have known the law as to contracts in restraint of trade, and therefore the restrictive covenant, if invalid, ought not to be held to avoid the valid covenants Contracts in restraint of trade are loosely spoken of as ‘illegal contracts;’ it would be more accurate to style them ‘unenforceable contracts.’ ”

These cases and others that might be cited shew that there is some contrariety of opinion as to how far a partial illegality of consideration involving no moral turpitude will affect the whole contract.

We think, however, that the present case is free from difficulty, because, assuming, without deciding, that the covenant contained in the agreement of date April 30th, 1007, is illegal as in restraint of trade, yet the covenant is so far distinct from the residue of the consideration for which the promise to pay the money secured by the mortgage was made, as to be easily severable from it.

The agreement above mentioned which we will ask the reporter to set out in full in his report of this case is, in effect, the sale and transfer of all the right, title and interest of Harry E. Hicholson, the appellant, in and to the use of the name “Baltimore Acid Works,” also of the stock in trade, .book accounts, good will of the business and formulas for making Ho. 2 Distilled Sulphurous Acid and Benzine Bleach, in consideration of the payment to him, by Luke Ellis, the purchaser, of the sum of six hundred dollars. One hundred dollars of which was paid in cash and promissory notes, secured by mortgage, given for the residue..

In a separate paragraph at the end of the contract is the covenánt on the part of Hicholson not to enter into or conduct a like or similar business in the United States, nor to reveal to anyone other than the said Luke Ellis the formulas thereby conveyed to him.

Ho part of the purchase price is expressed to be paid for this covenant, and so far as appears from the language and form of the agreement, the covenant was an afterthought, voluntarily entered into by Hicholson as a better protection to his grantee. At any rate, the covenant is clearly separable from the other 'part of the consideration, and even if it be illegal as against public policy, it contains nothing contrary to good morals, and nothing for which a legal penalty is incurred, and therefore it does not taint the whole agreement so as to render it void in toto.

As was said by Chief Baboh Pollock in Green v. Price, 13 Mees. & W. 695 : “It is not like a contract to do an illegal act. It is merely a covenant wbicb tbe law will not enforce, but tbe party may perform if it chooses.”

There is no intimation that the defendant in this case has not faithfully observed the. covenant, but we' áre asked to declare void a mortgage given by the purchaser to secure the balance due of the purchase money agreed to be paid for a certain business, stock in trade, good will and secret formulas, merely because the seller, for the better protection of the purchaser at the end of the agreement added the restrictive covenant above mentioned.

As this covenant is not so interwoven with rhe residue of the consideration as to be inseverable from it, we think the promissory notes, secured by mortgage, given fur the residue of the purchase money, are valid and enforceable contracts, and that there was error in the ruling of the lowei Court holding the contrary. It follows that the decree of the lower Court must be reversed and the cause remanded for further proceedings.

Decree reversed with costs, and cause remanded.