Citation. 201 Cal. App. 3d 832, 247 Cal. Rptr. 340, 1988 Cal. App.
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Brief Fact Summary.
Plaintiff Robert Bovard sold Defendant corporation, American Horse Enterprises, Inc., to James Ralph, who signed several promissory notes in connection with the sale. Plaintiff sued when Defendant failed to pay on the notes. During the course of the trial, the evidence revealed that Defendant is in the business of manufacturing drug paraphernalia, primarily bongs and roach clips, used to smoke marijuana.
Synopsis of Rule of Law.
Whether a contract is contrary to public policy is a question of law to be determined from the circumstances of the particular case.
Plaintiff agreed to sell Defendant corporation to Ralph in exchange for several promissory notes. Ralph defaulted on the notes and Plaintiff sued. The testimony at trial revealed that the corporation manufactured drug paraphernalia, primarily bongs and roach clips, used to smoke marijuana. The manufacture of drug paraphernalia was not itself illegal at the time the parties entered into the contract.
Is the contract for the sale of the corporation void as against public policy?
Yes. Determining whether a contract is in violation of public policy involves a degree of subjectivity. Even though the manufacture of drug paraphernalia is not itself unlawful, enforcing this contract is clearly against public policy. A refusal to enforce the contract will put manufacturers of drug paraphernalia on notice that the judicial system will not protect them.
A court will not enforce a contract to undertake illegal activities, nor will a court enforce a contract to undertake legal activities if they are contrary to public policy.