Blossom Farm Products Co. v. Kasson Cheese Co.
133 Wis. 2d 386, 395 N.W. 2d 619 (1986)
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Rule of Law:
A contract, though legal on its face, is unenforceable on public policy grounds if the promisee knowingly facilitates the promisor's improper or illegal use of the subject of the contract.
Facts:
- Blossom Farm Products Company (Blossom) sold a product called Isokappacase to Kasson Cheese Company, Inc. (Kasson).
- Isokappacase could be used in small quantities as a legal 'starter media' for cheese, or in large quantities as a 'yield enhancer' to increase cheese production.
- If used as a yield enhancer, federal and state regulations required the final product to be labeled as 'imitation cheese' or 'cheese analog.'
- Kasson purchased Isokappacase from Blossom in extremely large volumes, indicating its use as a yield enhancer.
- Kasson used the product as a yield enhancer but improperly labeled and sold its final product as real cheese, which commanded a much higher price.
- Blossom was aware that Kasson's purchase volume was approximately 100 times greater than what would be needed for use as a starter media.
- Blossom knew that Kasson could not remain economically viable purchasing such large quantities of Isokappacase if it were correctly labeling and selling the end product as lower-priced imitation cheese.
- Blossom continued to supply the product to Kasson despite this knowledge, and Kasson eventually failed to pay for a shipment worth $138,306.
Procedural Posture:
- Blossom Farm Products Company sued Kasson Cheese Company, Inc. in a Wisconsin trial court to recover $138,306 on an open-account contract.
- The trial court found the contract to be illegal and unenforceable and entered a judgment dismissing Blossom's suit.
- Blossom (appellant) appealed the trial court's judgment to the Wisconsin Court of Appeals, and Kasson (appellee) filed a cross-appeal.
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Issue:
Is a contract for the sale of a legal product unenforceable on public policy grounds when the seller knows the buyer intends to use the product for an improper purpose and facilitates that use by continuing to supply the product in large quantities?
Opinions:
Majority - Scott, C.J.
Yes. A contract is unenforceable on public policy grounds where the seller, with knowledge of the buyer's intended improper use of the goods, facilitates that improper use. The court will not enforce a promise that is connected to conduct that is offensive to public policy. The court applied the framework from the Restatement (Second) of Contracts, which states that while a seller is not typically barred from recovery due to a buyer's improper intentions, they are barred if they act for the purpose of furthering that improper use. Here, there was sufficient evidence that Blossom had knowledge of Kasson's improper conduct. Blossom knew the massive volumes of Isokappacase could only be used as a yield enhancer, and it tacitly knew Kasson was mislabeling the final product because the economics would not work otherwise. By continuing to supply vast quantities of the product, Blossom engaged in a course of dealing that facilitated Kasson's violation of food labeling laws, which protect the public. Therefore, enforcing the contract would violate public policy.
Analysis:
This decision clarifies the 'knowledge and furtherance' doctrine for rendering a contract unenforceable on public policy grounds. It establishes that a supplier cannot claim ignorance when the objective facts, such as purchase volume and market economics, make the buyer's illegal purpose obvious. The court's adoption of the Restatement's balancing test provides a modern framework that moves beyond a rigid 'illegal contract' analysis to a more nuanced public policy evaluation. This precedent serves as a warning to suppliers that they risk the unenforceability of their contracts if they knowingly facilitate a buyer's illegal scheme, effectively making them complicit.
