Perkins v. Savage

By the Court, Nelson, J. By the act incorporating the Utica and Schenectady Rail Road Company, the sum of Jive dollars on each share of the stock subscribed for, was required to be paid at the time of making the subscription ; and in case of a subscription to more than the amount of the stock authorized to be created, it was the duty. of the commissioners named in the statute to apportion the stock among the subscribers in such manner as should be deemed most advantageous to the interests of the corporation. Laws of 1833, page 462, <§>45. The question presented in the case is, whether the contract offered to be proved by the defendant, and which was rejected by the circuit judge on the trial, was made in violation of any of the provisions, or of the spirit and policy of the statute incorporating the Utica and Schenectady Rail Road Company. If it was so made, I am of opinion the plaintiff cannot recover. 5 Johns. R. 334. 6 Cowen, 431. I assume, that in the offers made, the defendant proposed to prove not only the contract which was rejected, but that the subscriptions exceeded the amount of the capital stock. The case is not very explicit upon this point, • but enough appears to warrant the inference. The money sought to be recovered was advanced to the defendant, in pursuance of the contract, and if is by virtue of its terms, either express or implied by law, that the action must be sustained, if it can be at all. This is not an attempt by the plaintiff to avail himself of a locus penitentice, to retrace his steps-, and disaffirm an unlawful agreement, while it is yet executory; the illegal purpose or' act has been executed, and the effect of a recovery is to enable him to realize a part of the fruits of it, by enforcing a performance by the defendant. The defendant was — 415 — bound to invest the whole of the money in stock; or if he fail. | ed in this, the balance was to be refunded, and a transfer of Hhe stock procured, made to the plaintiff. The obligation to Ido both arises out of the contract, and it is in vain to distin- /' guish between this action and one to recover the value of the ¡ stock, if there had beén a refusal to transfer it. If, under the express or implied obligation to refund the balance of money unexpended, the plaintiff can sustain the action, it is impossible, I think, to contend against a compulsory transfer of the stock upon the same principle. In each case the validity of the contract is recognized, and its provisions enforced. It is supposed, however, by the counsel for the plaintiff, that if the contract is conceded to be illegal, as against the policy of the act of incorporation, still- the only consequence is to avoid it; and that the money placed in the hands of the defendant, in pursuance thereof, may be recovered back. He has referred to a number of cases, for the purpose of supporting this proposition. Utica Ins. Co. v. Kip, 8 Cowen, 20. Lacaussade v. White, 7 T. R. 535. Tassenden v. Randall, 2 Bos.&Pul.46. Taylor v. Lendy, 9 East, 49. Smith v. Blackmore,4Taunt. 474. Cotton v. Thurland, 5 T. R.405. Vischer v. Yates, 11 Johns. R. 23. 7 Price’s R. 540. Hastelon v. Jackson, 8 Barn. & Cres. 221. The case of the Utica Ins. Co. v. Kip, does not touch the question here, for the loan of the money sought to be recovered was deemed a perfectly legal transaction. The security only contravened the restraining act; and the case of Vischer v. Yates was reversed in the court for the correction of errors. 12 Johns. R. 1. None of the cases in the English courts referred to, come up to this one, and some of them are irreconcilable with each other. This proposition is laid down by Mr. Selwyn, vol. 1, 74, and is fully supported by authority, viz. where money is paid by one of two parties to an illegal contract, to the other, in a case where both parties may be considered as particepscriminis, an action cannot be maintained after the contract is executed, to recover the money back again, for in pari delicto potior est conditio defendantis. 8 T. R. 777 ; Doug. 467,697; Cowp.792. The same general position may be found in 2 Comyn on' Contracts, 108,and also in Saund. on Pl. & Ev. 677. This — 416 — author says, “ If the illegal contract be executed, and both partjes are pari ¿ejHcto, no action lies to recover money paid under it.” The same principle has been recognized and apin the recent cases in the English courts, as it also has been by the chief justice in this court. 8 Taunt. 492. 1 Maule & Selw. 500, 751. 6 Cowen. 432. The case in Maule & Selw. 500, is a very strong one. The sole management of á house in London was under the control of W. B., one of the firm. He and one S. agreed to become partners in the business of making policies of insurance on marine risks, to be signed by S. in his own name. In the course of this business, which was illegal, W. B. advanced, out of the funds of his house, without the knowledge of his co-partners, some £9000, on account of payments to be made on these policies. W. B. died, and S. became a bankrupt. The question was, whether the surviving partners could prove this demand under the ■ commission of bankruptcy, and it was referred to the judges of the K. B. for their opinion. The judges held that it was impossible to separate the guilty from the innocent partners, and that no action could be maintained to recover back the advances. Lord Ellenborough said it was unnecessary to go through' the cases cited; that it was “ clearly an attempt to recover back money advanced for the furtherance, and in the very execution of an illegal contract; and if recoverable, so might money advanced for the purpose of-carrying on a smuggling transaction.” 3 Barn. & Ald. 170. If, then, the contract in this case shall be pronounced illegal, either as against the provisions or the policy of the statute, it seems to me quite clear, within the principle above stated, and as explained and illustrated by the- cases referred to, the plaintiff cannot recover. We have before said the defendant offered substantially to prove that an amount.exceeding the capital stock was subscribed, and therefore the duty devolved upon the commissioners under the fifth section of the act to distribute the stock among the subscribers, at their discretion, and in a manner most advantageous to the interest of the company. This is a very important provision. The successful- operation, and, indeed, future existence of the cor — 417 — poration, depended upon its faithful observance for by the 2d section, the construction' of the rail road must be 'commenced, and at least $100,000 expended within two years, and the whole line finished within ten, from the passage of the act, or it became null and void. How could the commissioners carry into effect the intent and purpose of the 5th section, without some knowledge of the character and condition of the subscribers, and how could they obtain that knowledge unless the subscriptions represented truly the interest of those subscribing ? If any were made for the benefit of persons unknown, precisely to the extent of such subscriptions, the exercise of their judgment and discretion would be-defeated in the matter. The data would be deceptive upon which they were to act. . If all the subscriptions were fictitious, (and if one subscription may be so, so may all,) the section would become virtually a dead letter. It would depend upon chance whether the institution fell into the hands of its friends or enemies. It is true, the commissioners, by an examination of the persons actually subscribing, might ascertain the persons they represented ; but it is apparent the act contemplated no such proceeding. The only meeting of the commissioners mentioned, after the subscriptions, is the one in July, in the city of New-York, to make the apportionment.Nor had the commissioners authority to compel witnesses to attend, nor funds to defray expenses. Subscriptions no doubt may be made by means of an agentand, in ordinary transactions, it is usually not material, as respects the rights of the principal, that his name should be made known at the time, . But this general rule must be taken subject to the provisions of* the statute, and the 5th section manifestly contemplates Such disclosure to enable the commissioners to execute it. If ibis is the true exposition of the act, then the very object of the contract was to violate a most material provision of it. The contrivance has directly that tendency and effect. The correspondence openly avows it, and exults in anticipated success. “ If (says the plaintiff in his letter of June 6,) there is a heavy subscription, perhaps it might be better that we get names to apply for say, 10, 20, 30 and 40 shares, as cir — 418 — cumstances warrant; small subscriptions by persons along tjie jjne 0f the road are probably the best, inasmuch as most of the politicians have used up many names of consequence to us. I am happy to hear you have made ready; when the arr¡veS; \ wiH apply the powder and take good aim at the game.” In Stokes v. Twitcher, 8 Taunt. 492, it was decided that the plaintiff could not recover back money paid to the defendant (£60) as an apprentice fee for her son, though paid without consideration ; the indenture being void under the statute which required it to be stamped, and the duty to be paid. .The decision was placed upon the.ground that the circumstances of the case show, that there was an attempt by both parties to violate the statute, and thereby defraud the revenue; and the rule which we have supposed governs the case under’ consideration, was applied. The case of Cannan v. Brice, 3 Barn. & Ald. 179, is still stronger. It was there decided that money lent and applied by a borrower for the express purpose of settling losses on illegal stock jobbing transactions, to which the lender was not a party, could not. be recovered back by him. Chief Justice Abbott denies that there is any distinction in a court of law between acts malum prohibitum and malum in se; that there every act is to be considered unlawful which the law has prohibited. The act to prevent stock jobbing, expressly prohibited both the payment and receipt of any money for compounding or making up any difference for not transferring stock, or not performing any contract in that respect stipulated to be performed. The loan of the money was not within the act; but as it was unlawful to pay, it was unlawful, within the policy of the law, to-furnish the means of payment," with a full knowledge of the object to which the money was to be applied, and for the express purpose of that object. And he likened it to the case-of the druggist, who sold to a brewer for the purpose of being mixed with beer, certain drugs which the latter was prohibited by an act of parliament from mixing with beer. It had been decided that the druggist could not recover for the price of the drugs sold for that unlawful purpose. The cases abundantly show the contract under consideration to be illegal, whether considered a violation of a positive provision of — 419 — the statute, or of the spirit and policy of it. Indeed, this principle is broadly stated in many of the cases already referred to for the purpose of showing the action could not be sustained if the contract was illegal, both parties being in pari delicto. New trial granted.