Tracy v. Talmage (14 N.Y. 162, 1856)

SELDEN, J.

To avoid confusion, I shall consider this casein the first instance as though the Morris Canal and Baning Company, instead of the State of Indiana, was the clainint upon the record. The general ground upon which the claim is resisted is, that' it arises upon an illegal corn tract. Three grounds of illegality are alleged: 1. That the purchase of state stocks by the North American Trust and Banking Company for the purpose of re-sale, upon speculation, was beyond the scope of its corporate powers, and, therefore, illegal, and that the Morris Canal and Banking Company knew that such was the object of the purchase; 2. That the North American Trust and Banking Company had no power to issue negotiable promissory notes upon time; that such notes, therefore, and the contract of sale which provided for receiving them in payment, are illegal and void; 3. That the certificates or post notes delivered in payment for the state stock, being calculated and intended for circulation, were issued in violation of the restraining act; and that the Morris Canal and Banking-Company was particeps criminis.

In examining the first of-these grounds, I shall not notice the position taken by the counsel for the receiver, that a mere excess of authority on the part of a corporation in making a contract, is equivalent in its effect to the violation of a positive penal enactment; because, so far as the alleged illegality consists in the purpose for which the ■ stocks were purchased, the case can, I think, be disposed of upon principles which do not involve that question. That the North American Trust and Banking Company made the purchase with a view to a re-sale, and not to a deposit with the comptroller, seems to be established by the proof; and that such a purchase and re-sale were unauthorized and beyond the scope of the corporate powers of the company, was settled by this court in the case of Talmage v. Pel (3 Seld., 328). '

It is contended by the counsel for the claimant, tlát there is no evidence that the vendors, 'the Morris Canal /hd Banking Company, had any knowledge of the object ofthe vendees in making the purchase. I shall, however, as/ime ^ that they had such knowledge; because, in the view /take of the subject, it cannot affect the result. The question presented upon this branch of the case is, whether the bare ' knowledge by a vendor that the purchaser intends to make "an unlawful use of the article sold, will prevent a recovery for the purchase money. Although I deem this question clear upon principle, I shall, nevertheless, rest my opinion in regard to it mainly upon the authorities.

A question somewhat analogous arose in the court of king’s bench, in England, in the case of Faikney v. Reynous (4 Burr., 2069). The plaintiff .and one of the defendants had been jointly concerned in stock-jobbing; and the plaintiff, in contravention of an express statute, had advanced ¿£3000, in compounding certain differences, for one-half of which the defendants had given the bond upon which the action was brought. Upon demurrer to a plea, setting up these facts, the court held the plaintiff entitled to recover. Although that case differs from the one under consideration, in its facts, yet the principle upon which the case was decided, viz., that a party to a contract, innocent in itself, is not responsible for or affected by the use which the other may make of the subject of the contract, is equally applicable here. Lord Mansfield said, in speaking of the act of the defendant in giving the bond: “ This is not prohibited. He is not concerned in the use which the other makes of the money; he may apply it as he thinks proper. But certainly this is a fair, honest transaction between these two."

There is a class of English cases which seems to me identical in principle with the present, and concerning which the decisions have been unvarying. I refer to the cases of goods purchased for the express purpose of being smuggled into England, in violation of the revenue laws, and where the object of the purchase was known to the vendor. The first of these cases is that of Holman v. Johnson (Cowp., 341), where the plaintiff, residing at Dunkirk, had sold to the defendant a quantity of tea, knowing that the latter intended to smuggle it into England, but had himself no concern in the smuggling. The action was brought for the price of the tea, and it was held, upon these facts, that the plaintiff could recover. The principle of the case is the same as that adopted in Faikney v. Reynous (supra), that mere knowledge by the vendor of the unlawful intent did not make him a participator in the guilt of the purchaser. Lord Mansfiled, who delivered the opinion in this case also, says: “ The, seller indeed knows what the buyer is going to do with the goods; but the interest of the vendor is totally at an end, and his contract complete by the delivery of the goods.”

Where, however, the seller does any act which is calculated to facilitate the smuggling, such as packing the goods, in a particular manner, he is regarded as ymrticeys criminis, and cannot recover; as is shown by the subsequent cases of Biggs v. Lawrence (3 Term R., 454), Clugas v. Penaluna (4 id., 466), and Waymell v. Reed (5 id., 590). These were all cases where the plaintiff had sold goods to the defendant, knowing that they were to be smuggled into England; and' in each of them the plaintiff was nonsuited. But they all differed from the case of Holman v. Johnson, in this, that the plaintiff had in each case done.some act, in addition to the sale, in aid and furtherance of the defendant’s design to violate the revenue laws, and the decision was in each case placed distinctly upon this ground. The language of Buller, J.. in the case of Waymell v. Reed, is very explicit He says: “ In Holman v. Johnson, the seller did not assist the buyer in the smuggling. He merely sold the goods in the common and ordinary course of trade. But this case does not rest merely on the circumstance of the plaintiff’s knowledge of the use intended to be made of the goods; for he actually assisted the defendants in the act of smuggling, by packing the goods up in a manner most convenient for that purpose.”

In each of the three cases last cited, special care is taken to guard against any inference that it was intended to impair the force of the decision in Holman v. Johnson. Indeed, that decision seems to have been uniformly followed by the courts of England from that day to the present. In 1835 the question again arose in the case of Pellecat v. Angell (2 Crompt., Mees, & Ros., 311), and the court held that the plaintiff could recover the price of goods sold to the defendant, although he knew at the time of the sale that they were bought to be smuggled into England. Lord Abinger says : “ The distinction is, where he takes an actual part in the illegal adventure, as in packing the goods in prohibited parcels, or otherwise, there he must take the consequences of his own act.” Again he says: “The plaintiff sold the goods; the defendant might smuggle them if he liked, or he might change his mind the next day; it does not at all import a contract, of which the smuggling was an essential part.” It is true, the Chief Barón in one part of his opinion seems to lay some stress upon the fact that the plaintiff was a foreigner; but it is clear that this can have nothing to do with the principle upon which those cases rest, which is, that the act of selling is not in itself a violation of the law; and the mere fact of knowledge of the unlawful intent of the vendee does not make the vendor a participator in the guilt. The language of the associates of the Chief Baron goes to show that the domicil of the plaintiff had no influence upon the decision. Bolland, B., says: “I think the distinction pointed outby the Lord Chief Baron, between merely knowing of the illegal purpose, and being a party to it by some act, is the true one,” Alderson, B., says: “ If the plea disclosed circumstances from which it followed, that permitting the plaintiff to recover would be permitting him to receive the fruits of an illegal act, the argument for the defendant would be right; but that ground fails, because the mere sale to a party, although he may intend to commit an illegal act, is no breach of law.” That the place of residence of the vendor has nothing to do with the question, and that the principle of the case of Holman v. Johnson is sound, is further shown by the case of Hodgson v. Temple (5 Taunt., 181), decided by the court of common pleas in England. There, as it would seem, all the parties resided in London. The plaintiffs, who were distillers, had sold spiiitous liquors to the defendant with full knowledge that the latter intended to retail them, in express violation of the revenue laws. It was insisted, in defence to an action brought for the purchase money of the liquors, that the plaintiffs were particeps criminis, and could not recover. But Mansfield, Ch. J., said: “ This would be carrying the law much further than it has ever yet been carried. The merely selling goods knowing that the buyer will make an illegal use of them, is not sufficient to deprive the vendor of his just right of payment; but to effect that it is necessary that the vendor should be a sharer in the illegal transaction.”

Oppossed to this series of cases, holding one uniform language, and sanctioned by such names as Mansfield, Buller, Kenyon, Abingerand others, I know of but a single English case, viz , that of Langton and others v. Hughes. (1 Maule & Sel., 593). By a statute of 42 Geo. III., brewers were prohibited from using anything but malt and hops in the. brewing of beer. The plaintiffs, who were druggists, had sold to the defendants, who were brewers, certain drugs, knowing that they were to be used contrary to the statute. In the 51 Geo. III., another statute was passed prohibiting druggists from selling to brewers certain articles, and among them those sold to defendants. The sale in question was made before the latter statute, but the suit was brought afterwards. The court held that the plaintiff could not recover. It is difficult to ascertain from the opinions the precise ground upon which the court intended to rest its decision. The ease was so clearly within the terms of the statute of 51 Geo. III., that the judges were evidently induced to resort to a somewhat strained construction of the previous statute, and even to an attempt to connect that with the statute passed after the sale, for the sake of sustaining the defence. Le Blanc, J., after stating the question, says: “That depends upon the provisions of 42 Geo. III., coupling them in their construction with those of 51 Geo.' III.” It is apparent, I think, upon a review of the whole case, that it was not very well considered, and - that the decision was really produced by the reflex influence' of the latter statute. This case, therefore, which does not appear to have been followed either in England or in this country, and which is virtually overruled by the subsequent case of Pellecat v. Angell (2 Crompt., Mees. & Ros., 311), can have but little weight in opposition to the numerous authorities to which I have referred, going to establish the contrary principle.

There is another class of English cases which have been sometimes supposed to conflict with the doctrine advanced in Faikney v. Reynous and Holman v. Johnson (supra), but which, when the precise ground upon which they were decided is considered, will be found to support rather than to detract from the doctrine. That ground is this : that it was the express object of the plaintiffs in those cases, in selling the goods or lending the money, that they should be used for an unlawful purpose, and that such purpose entered into and formed a part of the contract of sale or loan. A brief reference to those cases will show that this is the principle upon which they rest. The first case of this class is that of Lightfoot et al. v. Tennant (1 Bos. & Pull., 551). The action was upon a bond given for goods sold, and the defendant pleaded that the plaintiff sold the goods “ in order that” they should be shipped to the East Indies without the license of the East India Company, in violation of an express statute. The issue upon this plea was found for the defendant, and a motion for judgment non obstante veredicto was denied. Eyre, Ch. J., argues, that the jury bavin" found that the plaintiff sold the goods “in order that” they should be shipped, &c., it cannot be said that he had no interest in their future destination ; that he may well have sold the goods for an enhanced price, relying exclusively upon the profits to be realized from the illicit trade for payment. He says: “It is a .possible case, that a tradesman may wish to speculate in this contraband trade, and to do it by dividing the profits with some man of spirit and enterprise, but without capital. Such a man would stipulate that the goods which he sold should be put on board a ship under a foreign commission, and should be sent to Calcutta to be there sold. His share of the profits would be found in the price originally fixed on the goods, but his hopes of payment would rest entirely on the returns of this contraband trade.” Again he says: “ But the jury having found for the plea, the court cannot say that the plaintiff had nothing to do with the future destination of the goods; unless it was impossible to state a case in which they could have anything to do with it.” The decision in this case clearly is based upon the fact,-that the future use to be made of the goods entered into and formed a part of the contract of sale. There are two other English cases belonging to the same class. The first is that of Cannan v. Bryce. (3 Baru. & Ald., 179). The defendant had lent money to a firm, which afterwards became bankrupt, for the purpose of paying a balance due upon certain illegal stock-jobbing transactions, and which had been applied to that object. He having afterwards received money belonging to the bankrupts, the assignees brought their action to recover those moneys, and it was held that the defendant could not set off" his demand for the money loaned. The other case' is that of McKinnell v. Robinson (3 Mees. & Wels., 434), which, was an action of assumpsit for money lent. The defendant pleaded that the money was lent in a certain common gambling room, for the purpose of the defendant’s illegally playing and gaming therewith; and on demurrer the plea was held good. In each of these cases it will be seen that the illegal use was the express object for which the money was lent; and this is relied upon by the court in both cases in giving their judgment. In the case of Cannan v. Bryce, Abbott, Ch. J., says: “It will be recollected that I am speaking of a case wherein the means were furnished with a full knowledge of the object to which they were to be applied, and for the express purpose of accomplishing that object:” and in the case of McKinnell v Robinson, Lord Abinger, in stating the principle by which the case was governed, says: “ This principle is, that the repayment of money lent for the express purpose of accomplishing an illegal object, cannot be enforced.”

It is worthy of note that the three cases last referred to present the views respectively of the heads of the three principal English courts, viz., Abbott, chief justice of the king’s bench, Eyre, chief justice of the common pleas, and Abinger, chief baron of the exchequer; and their concurrence in resting their decisions upon the fact that the illegal object was in the contemplation of both parties, and formed a part of the original contract, goes strongly to confirm the doctrine of the cases of Faikney v. Reynous, Holman v. Johnson, &c. (supra). Indeed the wdiole current of English authority goes to support those cases, with the single exception of Langton et al. v. Hughes (supra). They have also frequently been referred to by the courts in this country as containing sound doctrine. (De Groot v. Van Duzer, 17 Wend., 170; Merchants' Bank v. Spalding, 12 Bar. S. C. R., 302; Armstrong v. Toler, 11 Wheat., 258.) In the latter case, Chief Justice Marshall refers to the case of Faihiey v. Reynous in the following terms : “ The general proposition stated by Lord Mansfield, in Faihiey v. Reynous, that if one person pay the debt of another at his request, an action may be sustained to recover the money, although the original contract was unlawful, goes far m deciding the question now before the court. That the person who paid the money knew it was paid in discharge of a debt not recoverable at law, has never been held to alter the case.”

The principles established by this strong array of authorities are in entire accordance with the case of Talmage v. Pell (3 Seld., 328), decided by this court. It was a part of the contract in that case, between the banking company and the commissioners of the State of Ohio, that 'the bonds should remain in the hands of the agent of the state, to be sold on account of the banking company; and this fact is referred to and relied upon by Gardiner, J., by whom the opinion of the court was delivered. He says: “I am, for the reasons suggested, of the opinion that this bank had no authority to traffic in stocks as an article of merchandise, or to purchase them for the purpose of selling, as a means of obtaining money to discharge existing liabilities; that as the object of the purchase in this case was known to both parties, and made a part of their contract, the debt for the purchase money cannot be enforced by the vendors, and that the collateral securities must stand or fall with the principal agreement.” The case contains no intimation whatever that the mere knowledge, by the agents of the State of Ohio, that the banking company purchased the bonds with a view to a resale, would have defeated a recovery. On the contrary, such an inference was carefully guarded against by the learned judge who delivered the opinion, as appears from the extract just given.

I consider it, therefore, as entirely settled by the authorities to which I have referred, that it is no defence to an action brought to recover the price of goods sold, that the vendor knew that they were bought for an illegal purpose, provided it is not made a part of the contract that they shall be used for that purpose; and, provided also, that the vendor has done nothing in aid or furtherance of the unlawful design. If, in this case, the bank had had no right to purchase state stocks for any purpose, then the contract of sale would have been necessarily illegal, and the vendo) would, perhaps, be precluded from all remedy for the purchase money. But here the purchase and sale for a lawful object was a contract which each party had a perfect right to make. Suppose the banking company, although intending at the time of the purchase to use the stocks for trading purposes, had, the next day, abandoned this intention and deposited them with the comptroller; would this change of purpose reflect back upon the contract of purchase, if it was corrupt, and divest it of its illegal taint ? This could hardly be pretended; and, if not, then the consequence of the doctrine contended for here, would inevitably be, that the vendor of the stocks, without having participated in any illegal act, or even illegal intent, but having simply known of such an intent subsequently abandoned, would be punished with a total loss of the property sold, and that for the benefit of the party alone guilty, if guilt could be predicated of such a transaction.

I am not aware of any principle which could justify this. The law does not punish a wrongful intent, when nothing is done to carry that intent into effect; much less, bare knowledge of such an intent, without any participation in it. Upon the whole, I think it clear, in reason as well as upon authority, that in a case like this, where the sale is not necessarily per se a violation of law, unless the unlawful purpose enters into and forms a part of the contract of sale, the vendee cannot set up his own illegal intent in bar of an action for the purchase money.

It follows, from this, that the sale of the stocks would have created a valid and legal obligation on the part of the banking company to pay the purchase money, but for the form of the security agreed to be taken in payment; and this brings me to the consideration of the second ground of defence, viz., that the North American Trust and Banking Company had no authority to issue negotiable promissory notes, payable at a future day; and, consequently, that the contract which provided for their issue and for receiving them in payment, was illegal and void.

In considering this branch of the case, I shall not examine at length the questions so ably argued at bar, in regard to the nature of corporations and the limitations of their powers, but shall assume it to have been established, for the purposes of this ease, at least, that associations under the general banking law, even prior to the act of 1840 (Laws of 1840, 306, § 4), had no power to issue negotiable notes upon time; placing this assumption, however, not upon the safety fund act of 1829 (Laws of 1829, 167), but upon the general principle of law which limits corporations .to the exercise of powers expressly given to them, or such as are necessarily incident thereto, and upon the statute confirmatory of that principle. (1 R. S., 600, § 3.)

It follows, that in issuing the certificates or post notes delivered to the Morris Canal and Banking Company in consideration of the stocks transferred, the North American Trust, and Banking Company exceeded its corporate powers. That those certificates were negotiable promissory notes, is clear. (Bank of Orleans v. Merrill, 2 Hill, 295; Leavitt v. Palmer, 3 Comst.., 19; Talmage v. Pell, 3 Seld., 328.) Does this act of the Trust and Banking Company, thus transcending its legitimate powers, so taint and corrupt the contract of sale as to deprive the vendors of the stocks of all remedy for the purchase money? The counsel for the claimants sought upon the argument to maintain that the sale of the stocks and the receipt of the certificates were distinct transactions; and, hence, that the debt created by the sale would remain, notwithstanding the illegality of the securities. In this, however, he is not sustained, I think, by the evidence. The proof seems to be clear, that the agreement to receive the certificates or post notes was simultaneous with and formed a part of the contract of purchase It becomes necessary, therefore, to meet the question, whether the consent and agreement of the vendors to receive the certificates in payment, will prevent a-recovery in any form for the stock sold.

It results, from what has been previously said, that there was nothing in the contract of sale, considered by itself, separately from the agreement in relation to the security, to impair the validity of the debt; but, on the contrary, that the sale of the stocks created as valid and meritorious a consideration for the obligation assumed by the Trust and Banking Company as if the money had actually been deposited according to the tenor of the certificates. The objection to the claim, therefore, rests upon the nature of the securities alone, and acquires no additional force from the want of power in the Trust and Banking Company to traffic in stocks.

It has long been settled that contracts founded upon an illegal consideration, or which contemplate the performance of that which is either malum in sc, or prohibited by some, positive statute, are void. But the application of this rule to contracts made by corporations, the sole objection to which consists in their being ultra vires, is comparatively modern. The doctrine rests mainly upon three recent' • English cases, viz., East Anglian Railway Company v. Eastern Counties Railway Company (7 Eng. Law and Eq. R.,. 505); McGregor v. The Official Manager of the Deal and Dover Railway Company (16 id., 180); and The Mayor of Norwich v. The Norfolk Railway Company (30 id., 120).

That a contract by a corporation, which it has no legal capacity to make, is void and cannot be enforced, it would seem difficult to deny; and this principié alone is abundantly sufficient to sustain the cases above cited, which were all actions founded upon and affirming the'validity of the illegal contract. But it is quite another question whether such a contract is so tainted with corruption, that the party dealing with the corporation will be refused all remedy in a suit proceeding upon the ground of a disaffirmance of the contract, and asking only such relief as equity demands: Whether a contract of this nature can fairly he brought, consistently with either reason or adjudged cases, within the range of the maxim, ex turpi causa non oritur actio, cannot be considered as settled by the cases referred to; especially, as in the last of those cases the court was equally divided, and it was only disposed of by one of the judges withdrawing his opinion .with a view to an appeal.

Prior to the case of East Anglian Railway Company v. Eastern Counties Railway Company (supra), the rule which denied all relief, in equity as well as at law, to any party to an illegal contract, had been generally applied only to ' cases where the contract was either malum in se or specifically prohibited by statute. It was wholly unnecessary to the decision of that case to resort to any extension of that rule; because, to enforce a contract against a party, which that party was incompetent in law to make, would, indeed, be, in the language of some of the cases, “ to make the law an instrument in its own subversion.” The courts, however, in that as well as the two subsequent cases, do appear to. have been inclined to hold that contracts of corporations, which are iiltra vires merely, come within the general rule which denies all aid to either party to a contract made in violation of law. But it will not be necessary here to pass upon the correctness of this doctrine advanced in those cases, as, in the view I take of this case, it falls clearly within an exception to that rule; and, for the purposes of this question, I shall concede: 1. That the issuing and delivery by the North American Trust and Banking-Company of its promissory notes payable on time, was ultra vires; and that the effect of this upon the contract was the same as if it had been specifically prohibited -under a penalty; and 2. That the notes issued were calculated and intended for circulation as money, and were, therefore, issued contrary to the inhibitions of the restraining act. These concessions are made for the purposes of this case only, and without intending definitely to decide the points conceded.

There are one or two classes of cases to which it will be necessary to refer in order to afford a clear view of the question here presented. The first consists in a series of cases in which a distinction has been taken between those illegal contracts where both parties are equally culpable, and those in which, although both have participated in the. illegal act, the guilt rests chiefly upon one. The maxim, ex dolo malo non oritur actio is qualified by another, viz., in pari delicto melior est conditio defendentis. Unless, therefore, the parties are in, pari delicto as well as particeps criminis, the courts, although the contract'be illegal, will afford relief, where equity requires it, to the more innocent party.

It was insisfed by the counsel for the receiver, upon the argument, that in no case would relief be afforded to any party to an illegal contract, unless he applied for such relief, or, at least, had elected to disaffirm the contract while it remained executory. This position cannot, I think, be sustained. Tt overlooks distinctions which are clearly settled. The cases in which the courts will give relief to one of the parties on the ground that he is not in pari delicto, form an independent class, entirely distinct from those cases which rest upon a disaffirmance of the contract before it is executed. It is essential, to both classes, that the contract be merely malum, prohibitum. If malum in se, the courts will in no case interfere to relieve either party from any of its coGoequences. But where the contract neither involves moral turpitude nor violates any general principle of public policy, and money or property has been advanced upon it, relief will be granted to the party making the advance: 1. Where he is not in pari delicto; or, 2. In some cases where he elects to disaffirm the contract while it remains executory. In cases belonging to the first of these classes, it is of no importance whether the contract has been executed or not; and in those belonging to the second, it is equally unimportant that the parties are in pari delicto. This will clearly appear upon a brief review of some of the leading cases.

'■ The first case which I deem it material to notice is that of Smith v. Bromley (Doug., 670, in note). The plaintiff’s brother having become bankrupt, and a commission having been taken out against him, the plaintiff advanced ¿£40 to the defendant, who was the principal creditor, to induce him to sign the certificate. The action, which was brought to recover this money, was sustained. In reply to the argument that the plaintiff was seeking to. recover back money paid upon.an illegal contract, Lord Mansfield said: “If the act is in itself immoral, or a violation of the general laws of public policy, then the party paying shall not have this action ; for when both parties are equally criminal against such general laws, the rule is potior est conditio defendentis. But there are other laws which are calculated for the protection of the subject against oppression, extortion, deceit, &c. If such laws are violated, and the defendant takes advantage of the plaintiff’s condition or situation, then the plaintiff shall recover; and it is astonishing that the reports do not distinguish between violations of the one sort and the other.” Two things are to be noted in this extract. That a distinction is taken between contracts malum prohibitum merely, and such as are immoral or contrary to general principles of policy; and also that stress is laid upon the fact that the law contravened in this case was intended to protect one party from oppression by the other. The first is a valid distinction, which runs through all the subsequent cases—the last was merely incidental to the particular case, and not essential to the principle. The first cases in which the principle was applied, were naturally those where the statute violated was intended for the special protection of the party seeking relief from some undue advantage taken by the other, because those were the cases in which the injustice of applying the same rule to both parties would be the most glaring. But it soon came to be seen that the principle was equally applicable to cases where the law infringed was intended for the protection of the public in general.

The case of Jaques v. Golightly (2 W. Bl., 1073) was an action brought to recover back money paid for insuring lottery tickets. The defendant kept an office for insurance contrary to the statue 14 Geo. III., ch. 76. It was urged that the plaintiff being particeps criminis, and having knowingly transgressed a public law, was not entitled to relief; but the action was sustained by the unanimous opinion of the court. Blackstone, J., said : “ These lottery acts differ from the stock-jobbing act of 7 Geo. II., ch. 8, because there both parties are made criminal and subject to penalties.” The rule here suggested for determining whether the parties are in pari delicto, seems reasonable and just. There are, undoubtedly, other cases in which the parties are not equally guilty; but it is safe to assume, that whenever the statute imposes a penalty upon one party and none upon the other, they are not to be regarded as par delictum. In Browning v. Morris (2 Cowp., 790), Lord Mansfield, after referring with approbation to the case of Jaques v. Golightly, reiterates the argument of Blackstone, J., in that case. He says : “ and it is very material that the statute itself, by the distinction it makes, has marked the criminal, for the penalties are all on one side—upon the office-keeper.”

The question next arose in the case of Jaques v. Withy (1 Hen. Black, 65), which is identical with the case of Jaques v. Golight decided by the same court fifteen years before. The action was brought to recover back money paid for insurance to .the keeper of a lottery insurance office, and it was held to lie. It will be seen that these two eases are not like that of Smith v. Bromley where an undue advantage was taken of the peculiar situation of the plaintiff; and that although some effort is made in Jaques v. Golightly, and by Lord Mansfield in Browning v. Morris (supra), to bring them within the reasoning of that case, they are really placed upon the broad ground that the parties are not in pari delicto, and, as evidence of this, the court rely upon the fact that the penalty was imposed upon the defendant alone. A similar question came before the court of king’s bench in the case of Williams v. Hedley (8 East., 378), where the previous cases were ably and elaborately reviewed by Lord Ellenborough. The action was brought to recover back money which had been paid by the plaintiff to compromise a qui tarn action pending against him for usury. The principle of the' decision cannot be better stated than by transcribing the head note of the reporter, which is this: “ Money paid by A to B, in order to compromise a qui tam action of usury brought by B against A on the ground of a usurious transaction between the latter and one E, may be recovered back in an action by A for money had and received. For the prohibition and penalties of the statute of 18 Eliz., ch. 5, attach only on the informer or plaintiff or other person suing out process in the penal action making composition,'" &c., contrary to the statute, and not upon the party paying the composition ; and, therefore, the latter does not stand, in this respect, in pari delicto, nor is he particeps criminis with such compounding informer or plaintiff.”

. These are the leading English cases on this subject; and it is jslain that they do not rest solely upon the ground that the statute infringed was intended to protect one party from acts of oppression or extortion by the other; and equally plain that relief is granted in this class of cases entirely irrespective of the question whether the contract be executed or executory. It was, in fact, executed in all these cases.

The series of cases here referred to have never been overruled." On the contrary, they have been expressly sanctioned and approved in several American cases. In Inhabitants of Worcester v. Eaton (11, Mass., 368), Chief Justice Parker, after referring to the cases of Smith v. Bromley and Browning v. Morris (supra), and to the distinction there taken, says • ■ . This distinction seems to have been ever afterwards observed in the English courtsand being founded in sound principle, is worthy of adoption as a principle of common law in this country.” The case of White v. Franklin Bank (22 Pick., 181), proceeds upon the same distinction. It is impossible, as it seems to me, to distinguish this case in principle from that now before the court. The Revised Statutes of Massachusetts (ch. 36., sec. 57) prohibited banks from making any contract “ for the payment of money at a future day certain,” under a penalty of a forfeiture of their charter. The plaintiff had deposited money with the defendant in February, to remain until the 10th day of August; and the action was brought to recover this money. It was objected that the contract was illegal and the parties particeps criminis, but the defence was overruled. This is by no means an anomalous case, as the counsel for the receiver upon the argument of this case seemed to suppose. On the contrary, it belongs clearly to the same class with the English cases just reviewed. Wilde, J., who delivered the opinion of the court, after referring to those cases, and quoting the remarks of Chief Justice Parker in Inhabitants of Worcester v. Eaton, given above., says: “ The principle is in every respect applicable to the present case, and is decisive. The prohibition is particularly leveled against the bank, and not against any person dealing with the bank. In the words of Lord Mansfield, ‘the statute itself, by the distinction it makes, has marked the criminal.’ The plaintiff is subject to no penalty, but the defendants are liable for the violation of the statute to a forfeiture of their charter,”

Again, in the case of Lowell v. Boston and Lowell Railroad Company (23 Pick., 24), where the objection was raised that the parties were particeps criminis, the same justice says: “In respect to offences in which is involved any moral delinquency or turpitude, all parties are deemed equally guilty and courts will not inquire into their relative guilt. But where the offence is merely 'malum, prohibitum, and is in no ° respect immoral, it is not against the policy of the law to inquire into the relative delinquency of the parties, and to administer justice between them, although both parties are wron "-doers.” The same • doctrine was reiterated in Atlas

Bank v. Nahant Bank (3 Met., 581). The principle of these cases was also adopted by our own supreme court in the case Mount v. Waite (7 John., 434). The action was to recover back money which the plaintiffs had paid to the defendants for insuring lottery tickets contrary to the policy of a statute passed in 1807. Kent, Ch. J., says: “ The plaintiffs here committed no crime in making the contract. They violated no statute, nor was the contract malum in se. I think, therefore, the maxim as to parties in pari delicto does not apply, for the plaintiffs were not in delicto.”

This case is the last of the class to which I. shall refer; and I think it would be difficult to find a series of cases, running through almost a century, more uniform and consistent in tone and principle and in the distinctions upon which they are based. They have never, so far as I am aware, been overruled; and I know of no principle which would j ustify this court in disregarding them. The doctrine seems to me eminently reasonable and just, and I discover no principle of public policy to which it stands opposed. On the contrary, I concur in the sentiment which Judge Wilde, in White v. Franklin Bank, expresses, thus: “To decide that this action cannot be maintained, would be to secure to the defendants the fruits of an illegal transaction, and would operate as a temptation to all banks to violate the statute by taking advantage of the unwary and of those who may have no actual knowledge of the existence of the prohibition, and who may deal with a bank without any suspicion of the illegality of the transaction on the part of the bank.”

This language is as applicable to the case before us as to that in which it was used. It is said that all persons dealing with banks and other corporations are presumed to know the extent of their powers. This is no doubt technically true, and yet we cannot shut our eyes to the fact, that in very many cases it is a mere legal fiction. If we take the present case as an example, it is plain that it would not haye been easy for the Morris Canal and Banking Company, with the charter of the Trust and Banking Company and the restraining act both before them, to determine whether the issue of these certificates in payment for state stocks would violate either; and yet, upon the doctrine here contended for, an honest mistake in this respect would visit upon the former company a forfeiture of the entire amount of stocks transferred, which the latter company, if disposed, might pocket. Such a principle would afford the strongest possible inducement for banks to transgress the law. All that they could get into their hands, by persuading others to take their unauthorized paper, would be theirs. Under such a rule, arguments to make it appear that they have power to do what they really have not, might be made to constitute the most available portion of their capital; and unauthorized dealing in large amounts, with foreign states or corporations not familiar with our laws, the most profitable branch of their business. These considerations go, in my judgment, to strengthen and confirm the doctrine of the cases referred to, which hold that relief may be granted to the more innocent, when the parties are not in pari delicto.

The rule laid down in those cases for determining which is the more guilty party is directly applicable to the present case, so far as the transaction is held to fall within the provisions of the restraining act. It has been conceded, as was contended by the counsel for the receiver upon the argument, that the issuing of the certificates in this case was a violation of §§3, 6 and 7 of the act concerning unauthorized banking. (1 R. S., 712.) It will be seen, by referring to those sections, that the penalties are imposed exclusively upon the corporation violating the provisions of the act, and upon its officers and members. So' far, therefore, as the defence is based upon a violation of the restraining act, there is that statutory designation of the guilty party upon which most of the cases to which I have referred are made to rest. But it is obvious that the general principle for which I contend applies equally to that branch of the defence which rests upon the ground that the act of the banking company, in issuing the notes, was ultra vires and against public policy. The imposition of the penalties for a violation of the restraining law upon the corporation 'alone, does not make it the guilty party, but it is simply evidence that the legislature so regarded it; and the reasons are equally strong for fixing the principal guilt upon the same party where its acts •merely violate the principle of public policy. Although persons dealing with corporations are, for certain purposes, presumed to know the extent of their corporate powers, yet this is by no means a safe rule by which to measure the moral delinquency of the respective parties. To me, therefore, it seems plain, that whether we regard the act of the Trust and Banking Company in issuing the certificates in question a's a violation of the restraining law, or as simply ultra vires, or as against public policy, the corporation is to be regarded as comparatively the guilty party.

I wish here briefly to refer to another class of cases decided in this state, and knowm as the Utica insurance cases, not as authority for my conclusion, but by way of illustrating the distinctions to which I have adverted. The first of these is The Utica Insurance Company v. Scott (19 John., 1). The action was upon a promissory note discounted by-the insurance company in the ordinary way of discounting by a bank. It was held that the insurance company had no power to discount notes; and that in so doing it had violated the restraining act. But the court say : “ In analogy to the statute against gaming, the notes and securities are absolutely void, into whatever hands they may pass v..but there is a material distinction between the security and the contract of lending., The lending of money is not declared to be void, and, therefore, whenever money has been lent, it may be recovered, although the security itself is void.” Judgment was, however, given for the defendant in that case, because the action was brought upon the note alone. The next case was that of The Utica Insurance Company v. Kip (8 Cow., 20). This, also, was an action upon a note discounted by the insurance company; but the declaration also contained a count for money lent. The plaintiff recovered; and the court say: “ The illegal contract, if any, was not the loan, for the plaintiffs had a right to loan the money to the defendants; but it was the agreement to secure the loan by a note discounted., Avoiding what was illegal, does not avoid what was lawful. The action for money lent, is rather a disaffirmance of the illegal contract.” Similar decisions were made in three subsequent cases, viz: The Utica Insurance Company v. Cadwell (3 Wend., 296); Same v. Kip (3 id., 369); and Same v. Bloodgood (4 id., 652).

These cases have never been overruled; and yet, I think I may say, they have generally been regarded with some suspicion as to their soundness. In New Hope Company v. Poughkeepsie Silk Company (25 Wend., 648), Nelson, J., in speaking of them, says: “ Whether the doctrine of these cases is well founded and may be upheld upon established principles or not, or whether the result was not ultimately influenced by the peculiar phraseology and powers of the charter of The Utica Insurance Company, in respect to which they arose, it is not necessary at present to examine. I am free to say, in either aspect, I should have great difficulty in assenting to them.” ' There is, undoubtedly, “ great difficulty” in reconciling these cases with the settled rules in regard to illegal contracts; and the difficulty consists precisely in this, that the court, in the Utica insurance cases, have given to the guilty party the benefit of a principle which is only applicable to the more innocent. In the first case in which the insurance company recovered, viz., The Utica Insurance Company v. Kip, the court cite and rely upon the following passage from Comyn: “ Where the action is in affirmance of an illegal contract, the object of which is to enforce the performance of an engagement prohibited by law, such an action can in no case be main'tained; but where the action proceeds in disaffirmance of such a contract, and instead of endeavoring to enforce it, presumes it t;o be void and seeks to prevent the defendant from retaining the benefit vJiich he derived from an unlawful act, there it is consonant to the spirit and policy of the law that he should recover.” (2 Comyn on Contracts, part 2, ch. 4, art. 20.) Comyn cites, as authority for this passage, the case of Jaques v. Withy (1 Hen. Bl., 65), which is one of the cases to which I have referred, in which the plaintiff recovered on the ground that he was not in pari delicto with the defendant-; and on turning to that case it will be seen that the passage is copied verbatim from the argument of Sergeant Adair, counsel for the plaintiff. It is thus made apparent that the doctrine of the Utica insurance cases is built, in part, at least, upon the principles and arguments which lie at the foundation of the class of cases just passed in review. More can scarcely be needed to justify the doubt which has been cast upon these insurance cases. How principles, appropriately used to sustain a recovery against a party, upon the express ground that he is the party upon whom the prohibition and penalties of the law attach, can be made available to justify a recovery by a party so situated, is certainly difficult to comprehend.

But, notwithstanding the misapplication to these cases of the principles for which I contend, the cases themselves afford strong evidence of the appreciation, by the court, of the soundness of those principles. Indeed, few, as it seems to me, will be found to deny either the justice or policy of the rule which refuses to permit the guilty party to retain the fruits of an illegal transaction at the expense of the more innocent. But were it otherwise, the rule, as I have shown, is indisputably established; and that the present case falls within that rule is entirely clear. We have next, then, to ascertain the relief to which the Morris Canal and Banking Company would, if the claimant upon the record, be entitled. ,

The illegal contract itself is of course void, and no part of it can he enforced. It is impossible, I think, to sustain the reasoning adopted in the Utica insurance cases; by which that part of the contract which embraces the loan (in this case, the sale) is separated from the portion relating to the security, and upheld as a distinct and valid contract. The contract there, as here, was entire ; and it is contrary to all the rules which have been applied to illegal contracts to discriminate between their different parts, and hold one portion valid and the other void. Recoveries are not had in such cases upon the basis of the express contract, which is tainted with illegality; but upon an implied contract, founded upon the moral obligation resting upon the defendant to account for the money or property received. The claim presented hy the State of Indiana to the referees was in general terms, and broad enough to embrace a demand arising upon an implied contract to pay for the bonds transferred ; and it has been repeatedly held that a corporation may become liable upon such a contract founded upon a moral obligation, like that existing in this case. (Bank of Columbia v. Patterson, Adm., 7 Cranch, 299; Danforth v. Schoharie Turnpike Company, 12 John., 227; Bank of U. S. v. Dandrige, 12 Wheat., 64.)

It follows, from these principles, that if the Morris Canal and Banking Company was the claimant upon the record, it would be entitled to recover, not the specific balance due upon the certificates, nor the price agreed to be paid for the stocks, but so much as the stocks transferred were rea> sonably worth at the time of such transfer, with interest, deducting therefrom whatever has been actually paid in any form by the North American Trust and Banking Company for the same, and leaving, however, the contract of sale, so far as it has been executed by payment, or its equivalent, undisturbed.

The only remaining question is, whether the State of Indiana has succeeded to the rights of the Morris Canal and Banking Company in this respect. If, as it seems to have been held by the supreme court both at special and general terms, the Canal and Banking Company acted in the sale of the stocks as the agent of the State of Indiana, then, of course, the latter, as the principal, is the proper party here. But aside from this, I cannot doubt that a court of equity would hold,'upon the face of the transaction, that it was the intention of the Morris Canal and Banking Company to transfer to the state its entire claim against the Trust and Banking Company, growing out of the sale of the stocks, and would, if necessary, compel any formal defects in such transfer to be supplied; and as the proceeding here is of an equitable nature, the court, upon well settled principles, will regard what ought to be done as having been done.

The judgment of the supreme court should be modified in accordance with these principles, and the proceedings remitted.

Mitchell, J., delivered an opinion in favor of affirming the judgment of the supreme court at general term. He was of the opinion that the evidence did not establish that the Morris Canal and Banking Company, or the State of Indiana had knowledge when the bonds were sold that the Trust and Banking Company purchased them for an illegal purpose, or with intent to make an illegal use of them; and that the last named company, at the time of the purchase, in 1839, had authority to make and issue notes or certificates payable at a future day. He held, that associations organized under the general banking law were not subject to the provision contained in the safety fund act (Laws of 1829, 1G5, §3M, prohibiting moneyed corporations subject to the provisions of that act from issuing bills or notes, payable on time; and that such associations might lawfully issue such notes for a legitimate purpose, until prohibited by the act of 1840. (Laws o/1840, 506, §4.)

Denio, Ch. J., was also in favor of affirming the judgment, on substantially the same grounds as those stated by Judge Mitchell.

Comstock, Hubbard, T. A. Johnson and Wright, Js., concurred in the foregoing opinion delivered by Judge Selden, and were in favor of modifying the judgment in accordance with the principles stated in that opinion.

A. S. Johnson, J., dissented. He was in favor of reversing the judgment rendered at general term and affirming that rendered at special term.

Judgment modified,.

At the ensuing September term of the court the counsel for the receiver, the remittitur having been stayed, made a motion for a reargument of the foregoing case. On such motion Messrs. N. Hill, Samuel Beardsley and G. C. Bronson, of counsel for the receiver, submitted the following printed argument:

Until the decision of this case, it was supposed t.o be well settled that a loan of money, which the lender knows is to be applied to an illegal purpose, is an illegal contract, and that a sale of goods, which the seller has notice the purihaser intends to use in an illegal way, is also illegal; that where land is demised, knowingly to be used for an illegal purpose, the agreement for the payment of rent is illegal and void; and that the same rule applies where personal property is knowingly let to be used in violation of law. These are general rules, to some of which exceptions have been allowed by certain cases commonly known as revenue cases, which will he hereafter considered. But the authorities in favor of the general principle have been supposed to be entirely decisive. (Chit, on Contracts, 420-423, 695; McKinnell v. Robinson, 3 Mees. & We's., 435; Rede v. Briggs, 3 Denio, 107; Ruckman v. Bryan, id., 840; Griffith v. Wells, id., 226; Cannan v.Bryce, 3 Barn. & Ald., 179; Langton v Hughes, 1 Maule & Selw., 593; Lightfoot v. Tenant, 1 Bos. & Pul, 356; Story on Confl. of Lmws, 2d ed., §§ 253, 254; Talmage v. Pell, 3 Seld., 328 Bank of Michigan v. Niles, 1 Doug., Mich., 401; S. C., Watkins’ Ch., Mich. 99; The Gas Company v. Turner, 5 Bing., N. C., 666; S. C., 6 id., 324 Cundell v, Dawson, 4 M., G. & S., 376; Brown v. Duncan, 10 Barn, & Cress. 93; Smith v. Mawhood, 14 Mees, & Weis., 452; White v. Buss, 3 Cush., 448 Hodgson v. Temple, 5 Taunt., 181; 23 Am. Jurist, 1, and onward.)

But the opinion of the court in this case seems to be in direct conflict with the principle which has been stated; for his Honor, Judge Selden, ill pro- ' nouncing that opinion, says: “It is no defence to an action brought to recove: the price of goods sold that the vendor knew that they were bought for an illegal purpose, provided it is not made a part of the contract that they shall he used for that purpose; and, provided also, that the vendor has done nothing in aid or furtherance of the unlawful design,” beyond the mere sale with knowledge of the illegal intent of the purchaser.

We commenced by stating general rules of law applicable to contracts, and not exceptional cases, as smuggling contracts made in a foreign country, or domestic contracts, wliere property is sold to be used in violation of a mere revenue law, the sale not being expressly prohibited; and we understand Judge Selden to affirm a general principle, and not an exception to one, Special contracts, like those last mentioned, if maintainable at all, must stand upon principles peculiar to themselves, but which have no application to the case in which the opinion of Judge Selden was given.

The first case referred to by his honor as an authority for liis opinion, is Faikney v. Reynous (4 Burr., 2069). In that case, the plaintiff and another person had met with heavy losses in stock-jobbing transactions in which they had been jointly engaged. An act of parliament prohibited the payment of all such losses, thereby making it illegal to do so; yet the plaintiff had paid the amount thus lost, for one-half of which the defendant and another person gave the bond on which this action was brought; and it was held that the plaintiff might recover. Judge Selden says the question in that case was “ somewhat analogous ” to the one on which bis opinion was pronounced, although lie does not explain in what the analogy consists. In the case before him, the question was, whether a sale of property, knowing it was bought for an illegal purpose, was a legal contract. The purchaser, as it was assumed the seller knew, intended thereafter to “ make an illegal use of the property purchased.” But in Faikney v. Reynous the plaintiff had previously made the illegal payment; and the question was whether a bond, to reimburse what had already been advanced illegally, was valid.

It was not contemplated in that case that the plaintiff should thereafter make any illegal use of the money to be paid on the bond, or of any other money. He had already broken the law by making the illegal payment, and the only design of the bond was to restore to him what lie had voluntarily and illegally parted with. Thus, in Faikney v. Reynous, the question was whether it was legal to engage to repay money previously advanced in violation of law; whereas in this case the question was whether an agreement to sell and transfer property, knowing it ivas bought to he used thereafter for an illegal purpose, was a lawful contract.

IVc can see no analogy between these cases, nor can we sec upon what principle the judgment in the first is an authority for the last. It might be added, if that were necessary, that Faikney v. Reynous is of no authority for any purpose, having been overruled and wholly discredited. (23 Amer. Jur., 18-21; Paley's Agency, by Dunlap, 118-120, and notes; see, at large, the article above referred to in the Amer. Jurist; Aubert v. Maze, 2 Bos. & Pul., 371; Mitchell v. Cockburn, 2 Hen. Black., 379; Exparte Bell, 3 Vesey, Jun., 372; Exparte Daniels, 14 Vesey, 191; Ottley v. Brown, 1 Ball & Beat., 360; Cannan v. Bryce, 3 Barn. & Ald., 179; Bensleyv. Bignold, 5 Barn. & Ald., 335.)

Judge Selden next refers to a class of cases which he regards as “ identical in principle,” — these are his words, — with the case before him; that is, Holman v. Johnson (Cowp., 341); Biggs v. Lawrence (3 Durn. & East., 454); Clugas v. Penaluna (4 Durn. & East., 466); Wamell v. Reed (5 Durn. & East., 599) Pellicat v. Angell (2 Crompt., Mees. & Ros., 311).

These cases show that a sale of property out of England, the seller not being a British subject, is valid, although he knows that tile purchaser intends to smuggle the property into England. But this, as the cases also show, is because the contract, being made in a foreign country and by a seller not a British subject, is in no sense made.under or in reference to the law of England. Had the seller been a subject of the British crown, the contract, although made in a foreign country, would have been illegal, as it also would have been if made in England, whether the seller were a subject or an alien.

These foreign contracts, resting on the grounds stated, would seem to me to be in no respect “ identical in principle” with domestic contracts.

The next case referred to by Judge Selden is Hodgson v. Temple (5 Taunt., 181). That was a contract made in England, under English law; and it must be admitted that the language of Sir James Mansfield, Ch. J., as there stated, is broad enough to include such a case as that in which the opinion in question was given, and if applicable to such a case, is an authority more or less controlling for that opinion. Chief Justice Mansfield is reported to have said that “ the merely selling goods, knowing that the buyer will make an illegal use of them, is not sufficient to deprive the vendor of his just right of payment ; but to effect that it is necessary that the vendor should be a sharer in the illegal transaction.”

How, in order to understand the true meaning of this remark, and to allow it all the force which it is justly entitled to, i¡¡ is necessary to see what the case was in which it was made ; for a remark, although general in its terms, must be understood as having particular referen