Opinion ID: 1924942
Heading Depth: 1
Heading Rank: 2

Heading: Whether the Contract is Void as Against Public Policy.

Text: Paragraph 2 of the 1947 contract provides in substance that when and if the additional shares are acquired, the parties agree that on all matters regarding bank policy, including the election of directors but excluding matters relating to passing on lease [loans], they will vote unanimously so that all the stock of said parties will vote on such questions as determined by the unanimous decision of such persons. It is the appellants' position that Paragraph 2 binds the parties in the performance of their duties as directors of the bank, in that they cannot act without the unanimous consent of all concerned, and they cite several authorities which they claim sustain their contention that agreements which restrict the free exercise of discretion by corporate directors are invalid. [2] Their argument is that there is no limitation in Paragraph 2, either express or implied, to the effect that the parties are to be bound only as shareholders and not as directors, and they also emphasize that the paragraph applies to all matters regarding the policy of the bank including the election of the board of directors. The trial court found that Paragraph 2 pertains to the parties only in their capacity as stockholders, and that it does not bind any director or officer of the corporation. We determine that the trial court correctly interpreted Paragraph 2 as applying to the parties only in their capacity as shareholders. The question therefore becomes whether an agreement among majority shareholders to vote their shares unanimously is void as against public policy. We need not reach this question, however, for no one is seeking to uphold or enforce the provisions of Paragraph 2, and even if the paragraph were held to be invalid, the entire contract would not fail if that paragraph could be severed from the remainder of the agreement. The general rule on severability is stated as follows in Restatement, 2 Contracts, pp. 1119, 1120, sec. 603: A bargain that is illegal only because of a promise or a provision for a condition, disregard of which will not defeat the primary purpose of the bargain, can be enforced with the omission of the illegal portion by a party to the bargain who is not guilty of serious moral turpitude unless this result is prohibited by statute. . . . In 17 C. J. S., Contracts, p. 1220, sec. 289, the general rule is stated to be that . . . a lawful promise made for a lawful consideration is not invalid merely because an unlawful promise was made at the same time and for the same consideration. In Marshall v. Wittig (1933), 213 Wis. 374, 379, 251 N. W. 439, a case cited by neither party, a corporate stockholder commenced an action to recover on a note signed by the defendant pursuant to an agreement between defendant and the corporation whereby he agreed to purchase a certain amount of stock in the corporation. The trial court gave judgment for the plaintiff. The defendant contended on appeal that because of words in the portion of the note which provided for confession of judgment agreeing to release the right of appeal, the agreement was contrary to public policy and therefore not enforceable. It was held on appeal that even if serious fault exists because of the use of such words, they are so circumstanced that they are severable and may be ignored. This court stated that judgment notes are valid legal contracts and that (p. 379): In no event can the words complained of have the effect insisted upon of rendering the note void in the absence of fraud or some undue advantage taken of the appellant, for there would still remain a lawful contract with valid and legal covenants to be enforced. In 3 Williston on Contracts, sec. 1779, it is said: `When some covenants of an indenture are legal and others illegal, the legal covenants may be enforced.' In a contract containing a questionable provision which may be destroyed without defeating the primary purpose of the bargain, and where there is an absence of moral turpitude, a recovery would still be allowed. Restatement of the Law of Contracts, sec. 603; Zaremba v. International Harvester Co. 162 Wis. 231, 155 N. W. 114. In view of our determination that Paragraph 2 may be severed from the remainder of the contract without doing violence to the other terms of the agreement, we need not discuss appellants' contention that said paragraph is against public policy.