McDougald v. Lane

By the Court. Starnes, J. delivering the opinion. By written agreement between the Counsel in this cause, fit was stipulated, that the argument should be confined to certain specified points; and that a decision on any other of the grounds of error presented by this record, should be waived. The points presented are the following : 1. The refusal of the Court to compel the plaintiff’s Counsel to testify as a witness. 2. So much of the decision as sustained the demurrer to the 4th and 7th pleas. 3. The admission of the record of the suit against the banin evidence, and over-ruling exceptions to the exemplification, thereof. 4. The error alleged in the charges given and refused. 5. In refusing to compel thea plaintiff to 'deposit the billa •upon which suit had been brought. [1.] We think that the Court erred in not permitting Mr* — 452 — Dougherty to be sworn, for the purpose of proving the service of a set of interrogatories upon him. It cannot accurately be said, that the information here sought, was in the nature of “ a matter or thing acquired from his client, or during the existence and by reason of the relationship of client and Attorney,’” according to the terms of our Statute of 1850. The fact sought to be proven was, that a copy of the interrogatories had been left at Col. Dougherty’s office, GO days before the Court. Now, it did not certainly appear, that this fact could have been known to Col. Dougherty only by reason of his relation as Attorney to his client. His clerks or others, in or about the office, might have had as accurate knowledge of the fact as Col. D. If so, it need not have been by reason of his relationship to his client, that the knowledge was obtained by him; and if not, he was not rendered incompetent by the Statute. [2.] The next point made, is as to the decision of the Court below, upon the demurrer to the 4th plea. In which decision, the Court held that the 'bills issued by the Planter’s & Mechanic’s Bank of Columbus, were not illegal and void, notwithstanding that twenty-five per cent, of the capital stock of said bank had never been paid in specie at any time, before or after said bills were issued; and that they constituted a good demand against the -stockholders. We are impressed with the opinion, that this question is a very simple one, and that any other doctrine than that held by the Court below, would be a monstrous outrage on reason and justice; because, unless the complicity of the bill-holder with the banking corporation, illegally emitting bills, was shown, to sustain such a plea would be to allow such a corporation to take advantage of its own most gross and fraudulent wrong. This is reason enough for our opinion. It may be true, and probably is so, that this bank was not legally organized, because that twenty-five per cent, in specie, was never paid in, as the terms of the charter required. It may be true, that for this reason, a stockholder might have — 453 — resisted the payment of an instalment of stock, or a debtor his liability to the bank, (if the rights of third persons were not affected thereby,) and that the State might, at any time, have proceeded to revoke the corporate franchises of this bank. But this is a very different question from the right of a corporation to avail itself of a denial, that it ever possessed corporate franchises, in order to evade payment of just debts, which had been contracted with an innocent creditor, by virtue of its assertion and declaration, that it possessed these very corporate rights. In such a case, where the issue was between a corporation and those who innocently held, for a valuable consideration, its promises to pay, it certainly would be estopped to deny its authority to contract, in any Court of Justice in wide Christendom. It is not, however, every case in which a debtor to a corporation, thus illegally or irregularly organized, would be allowed to resist the payment of a debt, in good faith contracted with him; nor every case in which the State might rightfully forfeit a charter, where the bank had not proceeded to organize regularly, or had obtained its charter deceptively. In some such cases, it has been held, that the charter “ could not, in a collateral action — in an action brought by the company, to compel the performance of contracts entered .into with it, be declared void.” The reason given is, that “the State may waive the right to exact the forfeiture, or declare the charter void, because obtained by deception.” The President of the Kishacoquillas & Con. Turnpike Co. vs. Mac. Conaby, (16 Serj. & B. 144.) A decision, similar in principle, has been made by the Supreme Court of New York, in the case of Spear vs. Crawford. (14 Wend. 24.) In a somewhat similar case, Minor et al. vs. The Mechanic's Bank of Alexandria, (1 Pet. 65,) Judge Story held, that “it would be difficult to maintain that a collusive subscription got up between the original subscribers and the commissioners, for the purpose of evading such a clainq could be permitted to be set up to the injury of the subsequent purchasers of — 454 — the stoelc, who became bona fide holders, without participation in or notice of the fraud.” In such event, he says, “ the law would hold the parties bound to their subscription and compellable to comply with all the terms and responsibilities imposed upon them thereby, in the same manner as if they were bona fide subscribers.” If such reasoning and such decisions be correct, and so we believe them to be; if the debtor to a corporation, in an action by the corporation against him, for the debt, cannot be allowed, collaterally, to set up such illegal or deceptive organization; and if such an organization cannot be pleaded to the injury of a stockholder, subsequently and in good faith purchasing; a fortiori, it cannot be set up by the corporation itself, when sued by a bill-holder, in good faith. If the corporation cannot set up such a plea in such a case, then it is liable to pay the bills so held; and if it be liable, the stockholder who is bound for the ultimate redemption of the bills, must, in his turn, be liable: because his liability is an incident to the liability of the corporation. It can be shown, we think, that the decision by the majority of the Court, in the case of Hayne vs. Beauchamp, (5 Smead & M. 515,) is not in conflict with the views we have just presented. But we will not pause to criticise that case. If it be not in accordance with these our views, it is, in our opinion, wrong. Many other cases were cited by the Counsel for the plaintiff in error, for the purpose of showing' that the stockholder was not liable to pay these bills, because of the fraudulent organization of this bank. Such cases as Dana vs. B’k U. S. 5 Watts S. 245. Crooker vs. Crane, 21 Wend. 212. Highland Turnpike Co. vs. McKean, 11 John. 98. Hibernia Turnpike Co. vs. Henderson, 8 Serj. & R. 219. Craig et al. 4 Pet. 410. Collins vs. Blanton, 2 Wils. 347. But these cases fall far short of establishing any such doctrine. They do show, that a Court of Justice will not lend its aid to a man who founds his cause of action upon an immoral or illegal act, if he were a party to that wrongful act. But — 455 — none of the cases go the length of holding, directly or in principle, that an innocent holder of a bank bill, issued by a bank asserting .the right to the exercise of a corporate franchise, shall not be allowed to collect the same out of that corporation, if, indeed, the bank was fraudulently exercising such franchise. The rule sustained by those cases is, that an action will not, under such circumstances, be sustained against the bank, -if the creditor was particeps criminis, or in any way concerned in the fraud. “If, from the plaintiff’s own stating or otherwise, the cause of action appear to arise ex turpi causa, or the transgression of a positive law of his country, there, the Court says, ho has no right to be assisted. It is upon that ground the Court goes, not for the salce of the defendant, but because they willnot lend their aid “to such a plaintiff.” Lord Mansfield, in Holman vs. Johnson, (Cowp. 343.) [3.] It is also our opinion, that the Court was right in sustaining the demurrer to the 7th plea, and in holding that the liability of the stockholder for the redemption of the bills as provided for by the charter, was not secondary and collateral to that of the directors, for excess of debts contracted. By the 4th regulation of what the Legislature declared should be “ fundamental articles of the Constitution of said corporation,” it was provided, that “incase of excess, the directors under whoso administration it shall happen, shall be liable for the same in their private and individual capacities, and may be sued for the same in any Court of record in the United States, by any creditor.” The directors arc thus made liable, equally, jointly and severally, with the corporation, to pay such excess. They may be sued, therefore, in the first instance, and they may be sued at the same time with the bank, or afterwards. But there is nothing in the charter, requiring that they shall he first sued, or, indeed, that they shall be sued at all. The provision is, that they “ shall be liable, in their private and individual capacity, and may be sued for the same,” &c. It is, therefore, left optional with the bill-holder, whether or not he will sue — 456 — the director. And the language of the charter makes it necessary that the bill-holder shall sue and exhaust the property of the corporation only, before he can sue the stockholder. [4.] The exemplification of the record in the case of this plaintiff, against Robert B. Alexander, assignee, was properly admitted as evidence of the identity of the bills upon which suit was brought. It does not furnish full and satisfactory proof' to this effect, it is true, but it seems indisputable that, when it is taken in connection with all the circumstances before the Jury, and especially with the fact, that the bills came from, the custody of the Counsel who was the Attorney of record in the Court below, some presumptive evidence was thus afforded that the bills just declared upon, were the same which had been before the Court in the first case — the strength of' which evidence was for ’the Jury to determine. [5.] The point next made, is upon the charge of the Court, to the effect, that though Mr. Bonner (the real owner of the bills in question) might have been aiding in the organization of said bank in 1887; and although such organization might not have been in conformity to the charter, yet, if no bills were then issued, and if he were not a director at the time the bills were issued on which suit is brought, the plaintiffs are entitled to recover. What we have have already said, is sufficient to suggest the error of this charge. The course of reasoning which has been pursued, and which has shown, that an innocent bill-holder, not participating in the fraudulent organization of the bank, is entitled to recover against the same, notwithstanding such fraudulent organization, has also clearly shown, that if the bill-holder did take part in such unlawful organization, he cannot enforce an action on his bills; for a Court of Justice will not lend its aid to “ such a plaintiff.” If, therefore, Seymour R. Bonner participated in the illegal organization of this bank in 1837, and in an unlawful and deceptive return to the Governor, as to the amount of specie which had been paid in, thus aiding and enabling unlawful issues to be made; and if he knew that such issues, subsequently made, were unlaw — 457 — ful, because that twenty-five per cent, of the capital stock had not been paid in specie before said returns were made, he' should not be allowed to recover on these bills, and the Court should have given the Jury instruction to this effect. [6.] The last point which we have been asked to decide in this case, is made upon the ruling of the Court on the motion to require the plaintiff’s Attorney to deposit the bills sued on in Court. Such an order would have been premature,, we think, if granted before final judgment or payment of the bills. The reasons assigned for it apply only to such a state of the case; and no reason can be given, we think, why such an order would have been sooner required, whilst there are many reasons why the plaintiff should have the control of his bills, until final judgment on them, or payment of them. We therefore approve the decision of the Court on this point. Let the judgment be reversed, for the reasons stated.