Smyth Bros.-McCleary-McClellan Co. v. Beresford
1920 Va. LEXIS 99, 104 S.E. 371, 128 Va. 137 (1920)
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Rule of Law:
A contract will be presumed to have a lawful purpose unless illegality is proven or clearly appears on its face. Courts will not void a contract for inadequate consideration unless the disparity is so gross as to shock the conscience and effectively serve as proof of fraud.
Facts:
- Smyth Bros., a large horse dealing firm in Richmond, Virginia, sought to sell horses to European governments at the start of World War I.
- After initial failures to secure contracts, representatives of Smyth Bros. met Seton R. Beresford, an Englishman with business connections in New York.
- Beresford agreed to help and subsequently introduced Smyth Bros. to Harold E. Kelham, a buyer for Dalton, Parsons and Company, which held contracts to supply horses to the French and Belgian governments.
- Smyth Bros. and Beresford entered into an oral contract whereby Smyth Bros. agreed to pay Beresford a commission of five dollars for every horse sold to Kelham.
- Following the introduction, Kelham entered into contracts with Smyth Bros. and purchased a large number of horses.
- Smyth Bros. paid Beresford commissions amounting to approximately $18,000 for the first three shipments of horses.
- In December 1914, Smyth Bros. expressed dissatisfaction with the commission arrangement and attempted to unilaterally modify or terminate the contract, though they continued to sell horses to Kelham.
Procedural Posture:
- Seton R. Beresford filed an action of assumpsit against Smyth Bros. in the Law and Equity Court of the city of Richmond to recover unpaid commissions.
- Smyth Bros. filed a demurrer to the plaintiff's declaration, arguing that the contract was against public policy and therefore void.
- The trial court overruled the demurrer.
- The case proceeded to a jury trial, which resulted in a verdict for Beresford in the amount of $90,250.
- Smyth Bros. made a motion to set aside the verdict, which the trial court overruled, entering judgment on the verdict.
- Smyth Bros. (as plaintiffs in error) appealed the judgment by securing a writ of error from the Supreme Court of Appeals of Virginia.
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Issue:
Does a contract for a contingent commission to procure purchasers for horses intended for war purposes violate public policy where the agreement includes a promise of 'personal assistance,' but does not explicitly call for the use of improper personal influence on government agents?
Opinions:
Majority - Saunders, J.
No. A contract for a contingent commission to procure purchasers does not violate public policy merely because it includes a general promise of 'personal assistance,' as illegality will not be presumed. The court reasoned that there is a strong presumption of legality in contracts; illegality must be proven or be obvious from the contract's terms. An undertaking to 'procure purchasers' is a legitimate business activity. The phrase 'personal assistance in every way' does not inherently imply an unlawful intent to use improper influence on government agents; it can be interpreted as a lawful proffer of help to ensure the success of the business venture. The court found no evidence that improper means were ever contemplated or used. Additionally, the court rejected the argument that the commission was unconscionable, holding that courts will not inquire into the adequacy of consideration between competent parties unless the inequality is so gross as to 'shock the conscience' and amount to proof of fraud, which was not established here.
Analysis:
This decision reinforces the high threshold for invalidating a contract on public policy grounds, emphasizing a strong judicial presumption in favor of legality. It clarifies that ambiguous contractual language, such as a promise of 'personal assistance,' will be interpreted in a manner consistent with a lawful purpose absent clear evidence to the contrary. The case also solidifies the doctrine that courts will not disturb a bargain due to inadequate consideration unless it meets the stringent 'shock the conscience' standard. This upholds the principle of freedom of contract, limiting judicial intervention to cases involving clear illegality or extreme, fraudulent unfairness.
