Steele v. Drummond

• Citation: 275 U.S. 199,48 S.Ct. 53,72 L.Ed. 238
• Decision Date: 21 November 1927
• Docket Number: No. 60,60
• Parties: STEELE v. DRUMMOND
• Court: United States Supreme Court

275 U.S. 199

48 S.Ct. 53

72 L.Ed. 238

STEELE

v DRUMMOND.

No. 60.

Argued and Submitted Oct. 20, 1927.

Decided Nov. 21, 1927.

Messrs. William D. Thomson, Harold Hirsch, and Daniel MacDougald, all of Atlanta, Ga., for petitioner.

[Syllabus from page 200 intentionally omitted] Mr. John A. Sibley, of Atlanta, Ga., for respondent.

[Argument of Counsel from pages 201-202 intentionally omitted] 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, 242, 38 S. Ct. 496, 62 L. Ed. 1096; Webster Co. v. Splitdorf Co., 264 U. S. 463, 464, 44 S. Ct. 342, 68 L. Ed. 792.

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, Ala., 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 co-operate 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 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 Pannama 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, 14 L. Ed. 953, Mr. Justice Grier, delivering the opinion of the Court, said (page 334):

'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 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, 505, 20 S. Ct. 385, 44 L. Ed. 560. 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...