Last week, I wrote about a proposal by the Nevada Secretary of State to ban the establishment of a corporation for an ”illicit purpose“. Currently, Nevada specifically authorizes the formation of corporations to transact any “lawful” business and for “legitimate” purposes, NRS 78.030(1), while California permits corporations to be formed for “lawful” purposes, Cal. Corp. Code § 202(b)(1).
“The illegality of contracts constitutes a vast, confusing and rather mysterious area of the law.”
Strong, The Enforceability of Illegal Contracts, 12 Hastings L.J. 347 (1961)
What is an “unlawful” contract? If your answer is contrary to law, you would only be one-third correct in California. Civil Code Section 1667 provides that something is “not lawful” if it is:
- Contrary to an express provision of law;
- Contrary to the policy of express law, though not expressly prohibited; or
- Otherwise contrary to good morals.
The question of lawfulness is existential because Section 1550 of the Civil Code provides that a “lawful object” is “essential to the existence of a contract”. In addition Section 1596 reinforces this by requiring “The object of a contract must be lawful when the contract is made . . .”. Civil Code Section 1595 defines the “object of a contract” as “the thing which it is agreed, on the part of the party receiving the consideration, to do or not to do”.
“O Tempora, O Mores!”
M. Tullius Cicero, Orationes in Catilinem 1.1
Invalidating a contract as contrary to “good morals” is likely to be a moving target as the “times they are a-changin’”. As Justice Mathew Tobriner observed in the famous ”palimony” case against the late actor, Lee Marvin: “The mores of the society have indeed changed so radically in regard to cohabitation that we cannot impose a standard based on alleged moral considerations that have apparently been so widely abandoned by so many.” Marvin v. Marvin, 18 Cal. 3d 660, 684 (1976)