Case Name: McMANUS, Appellant, v. FULTON, Respondent
Court: Montana Supreme Court
Jurisdiction: Montana
Decision Date: 1929-03-11
Citations: 85 Mont. 170
Docket Number: No. 6,377
Parties: McMANUS, Appellant, v. FULTON, Respondent.
Judges: Associate Justices Matthews and Ansstman concur.
Reporter: Montana Reports
Volume: 85
Pages: 170–214

Head Matter:
McMANUS, Appellant, v. FULTON, Respondent.
(No. 6,377.)
(Submitted January 15, 1929.
Decided March 11, 1929.
Opinion on. Motion for Rehearing filed June 8, 1929.)
[278 Pac. 126.]
Mr. Louis P. Donovan and Mr. William Scallon, for Appellant, submitted a brief; Mr. Donovan argued the cause orally.
Messrs. Freeman, Thelan & Freeman, Mr. J. A. McDonough and Mr. Art. Jardine, for Respondent, submitted a brief; Mr. McDonough argued the cause orally. Mr. Henry G. Smith and Mr. G. A. Spaulding, of counsel.

Opinion:
MR. CHIEF JUSTICE CALLAWAY
delivered the opinion of the court.
During the March term, just ended, the judgment of the trial court was reversed by a three to two decision. Two opinions were filed. Considering the case upon motion for a rehearing and as a result of an extensive study of the authorities one of the justices has changed his mind, now being of the opinion that the judgment ought to be affirmed. In coming to this conclusion he but followed the commendable rule of judicial conduct expressed a thousand years ago by Khalif Omar, instructing his first Kadi: "If today thou seest fit to judge differently from yesterday, do not hesitate to follow the truth as thou seest it; for truth is eternal, and it is better to return to the true than to persist in the false. ' '
The plaintiff brought this suit to recover from the defendant the sum of '$56,5811 for breach of contract. The amended complaint sets forth two causes of action. In the first it is alleged, inter alia, that in the month of April, 1925, in the city of Chicago, state of Illinois, the defendant employed the plaintiff to sell on commission certain shares of the capital stock of the Fulton Oil Company, a Montana corporation, and agreed that plaintiff should receive a commission of twenty-five cents a share "for every share sold and paid for by the purchasers at the rate of one dollar ($1.00) per share or over, or take his commission in shares of said stock, the number of shares to be fixed by taking them as of value of sixty (60) cents per share"; that pursuant to the agreement the plaintiff proceeded to sell the shares of stock placed in his hands for sale and did sell and deliver to purchasers 12,200 shares which were paid for by purchasers at the rate of one dollar per share, and in some cases more, and that all of the money realized from the sale of the shares, at the prices thereof, was transmitted from Chicago to the defendant in Montana; that in May, 1925, the plaintiff elected to take his commission in shares of stock in the Fulton Oil Company, being then entitled pursuant to the terms of the contract to 5,083 shares; that after plaintiff became entitled to the shares the company declared and paid a dividend of one dollar per share; that plaintiff has repeatedly demanded of defendant delivery of the shares, but defendant has not delivered the same, or any part thereof; that the shares at the time of filing the complaint were of the value of $30,498.
In the second cause of action it is alleged, inter alia, that in the month of April, 1925, the plaintiff, at the special instance and request of the defendant, "made in the city of Chicago, state of Illinois, rendered services to the said defendant in the said city of Chicago," in connection with negotiating for the sale of stock in the Fulton Oil Company to one McGrinley and one Ponting, in consideration whereof the defendant then and there agreed and promised to deliver to the said plaintiff 3,000 shares of the capital stock of the company; that after plaintiff became entitled to the shares, the company declared and paid a dividend of one dollar per share; that demand has been made by plaintiff on defendant to deliver the shares to plaintiff, but defendant has not delivered the same or any part thereof, that at the time of filing the complaint the shares were then of the value of $18,000.
Judgment against defendant for $35,581 on the first cause of action and for $31,000 on the seeond cause of action is asked.
The defendant, by amended answer, denied that he had made the contracts sued upon, or that plaintiff had rendered any services to the defendant, and averred that the alleged contracts made the bases of plaintiff's causes of action "are, were and would have been, absolutely void, as contrary to the express provisions of law, contrary to the policy of express law, contrary to good morals and public policy, and absolutely void and unenforceable because any and all such agreements are, were and would have been in absolute violation of the laws of the state of Illinois," and particularly an Act approved June 10, 1919, known as the Illinois Securities Act, a copy of which was attached to and made a part of the amended answer. Defendant then pleaded facts showing that the shares of stock of the Fulton Oil Company are of the character of securities designated as Class D in the Illinois Securities Act, and alleged, inter alia, that the value of the stock of the Fulton Oil Company depended entirely upon prospective income within the meaning of the Illinois Securities Act, for the reason that its income was to be derived from the drilling of oil and gas wells on 160 acres of then undeveloped oil land in Toole county, Montana, and the corporation then had no other assets save and except an oil and gas lease on the land; that the Fulton Oil Company never at any time complied with any of the requirements of the Illinois Securities Act which plaintiff at all times well knew; that plaintiff claimed to be a broker engaged in the selling of stocks and securities with his office at Chicago, Illinois; that plaintiff never at any time complied with any of the requirements of the Act; that all the sales of stock made by plaintiff were made in the state of Illinois; that it was unlawful and contrary to the Illinois statute for plaintiff or anyone else to negotiate any sale of any stock of the Fulton Oil Company within that state.
Defendant pleaded want of consideration for the plaintiff's alleged second cause of action, in that the agreement set forth in the plaintiff's complaint contemplated and required the offering for sale and the sale of stock in the Fulton Oil Company as a general course of conduct in violation of the Illinois Securities Act.
Plaintiff replied, admitting that a true copy of the Illinois Securities Act was attached to the amended answer and that the plaintiff made sales of stock, but denying the other affirmative allegations of the amended answer.
The case came on for trial before the court sitting with a jury.
It appeared from the evidence that' W. H. Essex, W. E. Bice and the defendant Fulton were the owners of an oil and gas lease upon 160 acres of land in Toole county, Montana, and that for the purpose of exploring and developing the land for oil and gas in accordance with the lease, they organized, under the laws of Montana, a corporation under the name of Fulton Oil Company, with a capitalization of $200,000, divided into 200,000 shares of the par value of one dollar each. Upon the completion of the corporation, Essex, Bice and defendant assigned the lease to Fulton Oil Company, in consideration of the issuance to them, or to those whom they might designate, of a total of 115,000 shares of the capital stock of the company, for which, in addition to the assignment of such lease, they agreed to pay the company in cash thfe sum of $30,000, to enable it to proceed with work upon the property. In carrying out the agreement the defendant proceeded to Chicago and in April, 1925, with the aid and assistance of the plaintiff, sold 50,000 shares of stock in the company to McGinley and Ponting at Chicago, for the sum of $30,000. On April 24, 1925, the plaintiff at his office in Chicago, in defendant's presence, dictated the following statement, which was signed by. defendant and delivered to plaintiff: (addressed to plaintiff) "We hereby agree to pay you Three Thousand (3,000) shares of the stock of this company for the service you have rendered in negotiations between ourselves, McGinley and Wayne Ponting. Fulton Oil Company, by W. M. Fulton." While the sale to McGinley and Ponting was pending, plaintiff and defendant actively were engaged in selling, or attempting to sell, stock in the company to others in Chicago. It was agreed that plaintiff was to sell 15,000 shares of the stock of the company upon a twenty-five per cent commission. In a letter written by plaintiff to defendant on June 25, 1925, this was referred to as "the proposed sale by you for the accounts of Essex, Rice and Fulton of ten thousand shares of their personal stock in the Fulton Oil Company, and five thousand shares of treasury stock in said company." It seems that the proceeds of the sales were to be remitted to defendant who was to retain plaintiff's commissions subject to plaintiff's orders; plaintiff was privileged to demand the cash or the equivalent amount in stock of the company at sixty cents per share. Plaintiff made sales to his relatives and clients, totaling 12,200 shares, the proceeds of which were all sent to defendant, and plaintiff would have completed the contract and sold the entire 15,000 shares allotted to him, within the time agreed upon, but for the fact that the defendant refused to permit him to sell more of the stock. The commissions claimed by plaintiff, being twenty-five per cent of the money remitted by him to defendant, amounted to $3,060; and plaintiff elected to convert this amount into stock at sixty cents per share, and accordingly demanded of defendant 5,083 shares of the Fulton Oil Company. Other facts are referred to in the remarks of the trial court, and in. this opinion. Upon the conclusion of the evidence introduced by the parties, the plaintiff moved for a directed verdict, whereupon the court said:
"The motion of the plaintiff for a directed verdict is denied. I feel, however, that the case as it now stands and at the close of the evidence, .presents a question of law that is decisive of the case, — the special defenses set up by the defendant have been sustained by the evidence. The contract as entered into by the parties clearly shows that it was entered into and was to have been performed in the state of Illinois; that under the laws of the state of Illinois it was unlawful for any person or solicitor, agent or broker, to sell stock known as Class 'D' stock within the state of Illinois without complying with the Illinois Securities Act; that that Act was passed by the legislature of Illinois as a police measure for the purpose of protecting the people of the state of Illinois from the sale of certain securities which were recognized by the legislature as being questionable; that Mr. Fulton and Mr. McManus, at the time they entered into their contract, were both equally guilty of violating the laws of the state of Illinois; that being so, even though Mr. Mc-Manus faithfully carried out his part of the contract, performed services which were of immense value to Mr. Fulton and his associates, he finds himself in a position where the law will not permit him to come into court and offer testimony, which testimony would have to be that they had entered into an illegal contract, which was a criminal act as fixed by the laws of the state of Illinois. The action comes into this court and the defendants have pleaded the Illinois law, they have introduced in evidence the decisions of the court of Illinois, from which I cannot help but come to the conclusion that Mr. McManus was acting as solicitor and agent in selling the Fulton Oil stock in that state and that the contract was illegal from its inception. * s " "
Judgment followed for the defendant from which plaintiff has appealed.
This is an action at law for the recovery of a money judgment, based upon two express contracts, and the cause was tried upon that theory. No question of a collateral contract is or can be involved. This the pleadings demonstrate conclusively.
The sole question for decision is, upon the pleadings and the law, may the plaintiff maintain this action?
As the trial court found, the contract between plaintiff and defendant was entered into and was to have been performed in the state of Illinois. All the stock sent plaintiff for sale was received by him in Illinois and all sold by him was delivered to purchasers in that state. Admittedly, all the stock sold by plaintiff was of the character denominated Class D by the Illinois Securities' Act, hereafter referred to as the "Act." (Laws of Illinois 1919, p. 353; Laws of Illinois 1921, p. 357.) The Act defines Class D stock as that which is of a speculative character and provides in section 9 that no security of that class shall be sold or offered for sale until there shall have been filed in the office of the secretary of state of Illinois certain statements and documents, which are described in sixteen subdivisions of that section. One of the documents to be filed is a contract (subdivision 14 of section 9): "If the securities be intended to be offered and sold by the issuer [under the Act the Fulton Oil Company is an "issuer"] through solicitors, agents or brokers, an irrevocable contract executed by each such solicitor, agent or broker authorized to offer or sell such securities by or on behalf of the issuer to the effect that the issuer will receive in cash not less than 80% of the proceeds of each sale of the securities without deduction for any commission or expenses, directly or indirectly, and without liability to pay any sum whatsoever as commission or expenses or for services in and about such sale."
Section 29 provides that any solicitor, agent or broker selling or offering to sell any securities in Class D without compliance with the provisions of this Act, shall be deemed guilty of a misdemeanor and upon conviction thereof, shall be punished by a fine of not less than $100 nor more than $5,000 for the first offense, and not less than $1,000 nor more than $10,000 for the second or any subsequent offense, or by imprisonment in the county jail not more than one year, or may be punished by both such fine and imprisonment in the discretion of the court.
Section 36 provides: "It shall be unlawful for any officer, director, solicitor, broker or agent, to sell or offer to sell any securities in Class 'D' in any other manner or form than specifically set forth in the information required to be filed in section 9 of this Act, and any offer or sale upon any other terms or conditions other than that set forth, shall be considered prima facie evidence that such officer, director, trustee, solicitor or agent offered or sold same for the purpose of defrauding the investor to whom such security was offered or sold."
Section 37 provides that every sale and contract of sale made in violation of any of the provisions of this Act shall be void at the election of the purchaser and the seller of the securities so sold and each and every solicitor, agent or broker of or for such seller, who shall have knowingly performed any act or in any way furthered such sale, shall be jointly and severally liable, upon tender to the seller or in court of the securities sold, to the purchaser for the amount paid, the consideration given, or the value thereof, together with his reasonable attorney's fees in any action brought for such recovery. In the same section it is provided that in any action, civil or criminal, where the seller or issuer relies for his defense upon any exemption, the burden of proof to establish the exemption shall be upon the issuer or seller.
Subdivision 4 of section 37 provides that for the purpose of the Act all persons, solicitors, agents, brokers, officers and directors of the seller who shall sell or offer for sale in violation of the provisions of the Act or who shall in any manner authorize, aid or assist in any unlawful sale or offering for sale, shall be deemed equally guilty and may be tried and punished in the county in which the unlawful sale or offering for sale was made, or in the county in which the securities so sold or offered for sale were delivered or proposed to be delivered.
Neither the Fulton Oil Company nor the plaintiff complied in any degree with the requirements of the Act. As the trial court remarked, plaintiff and defendant when they entered into the contracts jwere equally guilty of violating the laws of the state of Illinois..
"A contract directly and explicitly prohibited by constitutional statute in unmistakable language is absolutely void. That has never been judicially doubted and is unanimously conceded." (6 E, C. L. 701.)
"A contract expressly prohibited by a valid statute is void. This proposition has no exception, for the law cannot at the same time prohibit a contract and enforce it. The prohibition of the legislature cannot be disregarded by the courts. (Botkin v. Osborne, 39 Ill. 101; Wells v. People, 71 Ill. 532; Board of Education v. Arnold, 112 Ill. 11, 1 N. E. 163; Penn v. Bornman, 102 Ill. 523; Cincinnati Mutual Health Assur. Co. v. Rosenthal, 55 Ill. 85, 8 Am. Rep. 626; Borough of Milford v. Milford Water Co., 124 Pa. 610, 3 L. R. A. 122, 17 Atl. 185; Berka, v. Woodward, 125 Cal. 119, 73 Am. St. Rep. 31, 45 L. R. A. 420, 57 Pac. 777; Levinson v. Boas, 150 Cal. 185, 11 Ann. Cas. 661, 12 L. R. A. (n. s.) 575, 88 Pac. 825.)" (DeKam v. City of Streator, 316 Ill. 123, 146 N. E. 550; Duck Island H. & F. Club v. Edward Gillen Dock, D. & H. Co., 330 Ill. 121, 161 N. E. 300.)
But plaintiff's counsel, in an endeavor to escape the force of this principle, stress the fact that section 37 as enacted in 1919 declared every sale and contract of sale made in violation of the provisions of the Act as void, whereas in 1921 the section was amended to read that "every sale and contract of sale made in violation of the provisions of this Act shall be void at the election of the purchaser." This change, they argue, by a process of reasoning which we are not able to follow, relieves the contracts sued upon from the taint of illegality. The provisions that the sale shall be void at the election of the purchaser does not in anywise detract from the criminal character of the prohibited act on part of the seller. It simply gives to the purchaser a right to content himself with his purchase, or to disaffirm it and recover the price paid, as he may elect. Denunciation of the act of selling securities D without complying with the law is not ameliorated in the slightest degree by the privilege given to the purchaser. Illinois simply made plain what otherwise would have been left to construction. (Blanks v. American Southern Trust Co., 177 Ark. 832, 9 S. W. (2d) 310.)
Under the law a contract between the seller and the purchaser was voidable at the option of the purchaser; but that has no relation whatever to a contract between the issuer and the agent, solicitor or broker, or between the agents of the issuer; such, in the absence of a compliance with the Act, is wholly void. Sales of Class D stock without complying with the Act are still prohibited, and issuer and broker are subjected to the same severe penalties for violation of the law. (People v. Glassberg, 326 Ill. 379, 158 N. E. 103.)
The plaintiff, it appears, was a broker maintaining an office in Chicago, but, in a general sense, anyone who offers to sell or sells securities is a solicitor within the meaning o£ the Act. See People v. Curtis, 233 Ill. App. 13, in which the court affirmed the conviction of Curtis, who was fined $2,000 and costs for unlawfully selling and offering to sell Class D securities without compliance with the provisions of the law, and "without the issuer of such securities then and there having first filed in the office of the secretary of state ® i;: the statements and documents required * ° ° to be filed."
"Where a statute designed for the protection of the public prescribes a penalty, that penalty is the equivalent of an express prohibition and a contract in violation of its terms is void. (Levinson v. Boas, supra; Berka v. Woodward, supra; Goldsmith v. Manufacturers' Liability Ins. Co., 132 Md. 283, 103 Atl. 627.) And with respect to such contracts, as the supreme court of Illinois said in Penn v. Bornman, 102 Ill. 523, "the distinction in some of the old eases between malum prohibitum and malum in se has long since been exploded, both in this country and England. (Cannon v. Bryce, 3 Barn. & Ald. 179 (5 Eng. C. L.); Aubert v. Maze, 2 Bos. & Pul. 371; Bank of United States v. Owens, 2 Pet. 539 [7 L. Ed. 508].) "
A contract to do an act contrary to the public policy of a state is void. (Shaffner v. Pinchback, 133 Ill. 410, 23 Am. St. Rep. 624, 24 N. E. 867; Lake Fork Drainage District v. People, 138 Ill. 87, 27 N. E. 857; Bishop v. American Preservers' Co., 157 Ill. 284, 48 Am. St. Rep. 317, 41 N. E. 765; Adams v. Brennan, 177 Ill. 194, 69 Am. St. Rep. 222, 42 L. R. A. 718, 52 N. E. 314; Douthart v. Congdon, 197 Ill. 349, 90 Am. St. Rep. 167, 64 N. E. 348; DeKam v. City of Streator, supra.)
"Whenever a statute is made for the protection of the public a contract in violation of its provisions is void," said Judge Kerrigan in Branderburgh v. Miley Petroleum Exploration Co., 16 Fed. (2d) 933, holding that a contract employing salesmen to sell corporate stock is void, when salesmen are not licensed to sell under the California Securities Act. (And see Butler v. Agnew, 9 Cal. App. 327, 99 Pac. 395; McKinlay v. Javan Mines Co., 42 Idaho, 770, 248 Pac. 473.)
Speaking of this Act, the supreme court of Illinois said: "The clearly indicated purpose of the legislature was to protect the public from deceit and prevent fraud in the sale and disposition of stocks, bonds and other securities within the state. The authority of the legislature to adopt a statute of this character is found in the police power, for the promotion of the general welfare by the prevention of frauds. This Securities Law is aimed at the sale and disposition of fraudulent securities, of securities of fictitious value, of securities by persons or under circumstances likely to result in loss to the purchaser through his being cheated. Sales by unknown and non-resident vendors and sleek peripatetic salesmen, with glib tongues and indurated consciences, of stock or other securities for the purpose of developing wildcat oil fields in distant states, mythical rubber plantations in Guatemala or imaginary copper mines in Mexico, for extracting gold from sea water and light from cucumbers and developing power from the rise and fall of the tides, and for hundreds of visionary schemes, domestic and foreign, designed to secure a great return from a small investment in a short time fall within the terms of the Act. No one will question its application to such cases, even though eventually many of the enterprises may prove successful." (Stewart v. Brady, 300 Ill. 425, 133 N. E. 310.)
"The great weight of authority is that where a party comes into court seeking to enforce a contract which is against public policy or is prohibited by public law, the court will refuse to aid either patty and will leave them where they have placed themselves, and in refusing to enforce such contracts the court does not act for the benefit, or for the preservation of the alleged rights, of either party, but in the maintenance of its own dignity, the public good and the laws of the state." And cases cited.. (Estate of Smythe v. Evans, 209 Ill. 376, 70 N. E. 906.)
As we said in Glass v. Basin & Bay State Min. Co., 31 Mont. 21, 77 Pac. 302, quoting from Dean Lawson's article in Cyc., page 546: "No principle of law is better settled than that a party to an illegal contract cannot come into a court of law and ask to have his illegal objects carried out, nor can he set up a case in which he must necessarily disclose an illegal purpose as the groundwork of his claim. The rule is expressed in the maxims, 'Ex dolo malo non oritur actio,' and 'In pari delicto potior est conditio defendentis.' The law, in short, will not aid either party to an illegal agreement. It leaves the parties where it finds them. Therefore neither a court of law nor a court of equity will aid the one in enforcing it, or give damages for a breach of it, or set it aside at the suit of the other, or, when the agreement has been executed in whole or in part by the payment of money or the transfer of other property, lend its aid to recover it back." In accord are Snell v. Dwight, 120 Mass. 9; Watson v. Murray, 23 N. J. Eq. 257; King v. Winants, 71 N. C. 469, 17 Am. Rep. 11; Vandegrift v. Vandegrift, 226 Pa. St. 254, 18 Ann. Cas. 404, 75 Atl. 365; Kennedy v. Lonabaugh, 19 Wyo. 352, 30 Ann. Cas. 1913E, 133, 117 Pac. 1079; Hoffman v. McMullen, 48 U. S. App. 596, 83 Ed. 372, 45 L. R. A. 410, 28 C. C. A. 178; McMullen v. Hoffman, 174 U. S. 639, 43 L. Ed. 1117, 19 Sup. Ct. Rep. 839, and scores of others.
Being void in Illinois where made, the contracts will not be enforced in Montana. (Bank of Commerce v. Fuqua, 11 Mont. 285, 28 Am. St. Rep. 461, 14 L. R. A. 588, 28 Pac. 291; and see 12 C. J. 449; Akers v. Demond, 103 Mass. 318; Kennedy v. Cochrane, 65 Me. 594.)
But it is argued that plaintiff completed the contract on his part, and instead of taking his commissions when he had possession of the money, sent the money to defendant, and that defendant, having received the benefit of plaintiff's activities, should be compelled to account; that a great wrong will be done unless the courts of Montana compel defendant to account. This argument overlooks the fundamental principle just enunciated that the contract being void in Illinois will j not be enforced in Montana. But as to plaintiff's not having! retained his commissions when he had possession of the money:! let it be remembered that he is suing upon express contracts.' Upon one lie claims lie is entitled to the stock; upon the other he had the option to take his twenty-five per cent commission in cash or in stock at sixty cents a share; he preferred the stock rather than the money. He now sues upon the contract for the value of the stock, not the commission money. Here the language of Judge Caldwell, speaking for the circuit court of appeals of the eighth circuit, is directly applicable: "But, conceding that the contract is illegal and void, the appellant asserts that it has been performed, and that the appellee is bound to account for moneys received under the contract according to its terms. This contention rests on a misconception of the character of this suit. The appellant's claim is grounded on the illegal and void contract, and this suit is, in legal effect, nothing more than a bill to enforce specific performance of that contract. Courts will not lend their aid to enforce the performance of a contract which is contrary to public policy or the law of the land, but will leave the parties in the plight their own illegal action has placed them." (Citing cases.) (Chicago, M. & St. P. Ry. Co. v. Wabash, St. L. & P. Ry. Co., 61 Fed. 993.)
In an able opinion the supreme court of New Mexico used the following language, apt in this case: "The vice of appellees' contention consists in looking to the position of the defendant and in making the weakness of the defendant's position the point of decision, whereas the real question to be decided is pot what the right of the defendant, who is not seeking relief, may be, but the question is, shall the court enforce at the instance of the plaintiff an illegal contract made in violation of a statute, which renders it criminal and declares a public policy against.such transaction as the one brought to the attention of the court in this case was.
"The plaintiff seeks affirmative relief and seeks relief upon the very contract, which is illegal and not otherwise than upon the contract. The question is not what the defendant may plead, but what relief can the plaintiff have on the contract if the facts brought to the attention of the court by the answer be true.
. "Appellees insist, however, that equity, in the enforcement of a superior public policy, will apply the doctrine of estoppel, contended for by appellees, to preclude the appellants from setting up the illegality of the transaction of which they seek to take advantage, and will wink at the malum prohibitum of Reinhart's conveyance, in order to prevent the malum in se of the defendant's attempted fraud. Appellees rely chiefly upon the ease of Brooks v. Martin, 2 Wall. 70 [17 L. Ed. 732], in support of the proposition, and attempt to apply to this case the principles of that ease, holding that an accounting may be had and enforced of the proceeds of an illegal partnership. This case has, however, been criticized, and the general statements made in the opinion have been repudiated in most of the American eases, and it has been limited by the United States Supreme Court to the very facts of that case in McMullen V. Hoffman, 174 U. S. 639 [supra]." (Third Nat. Bank v. Smith, 17 N. M. 166, 125 Pac. 632.)
In Hoffman v. McMullen, 83 Fed. 372, 45 L. R. A. 410, supra, Judge Hawley said: "In dealing with illegal contracts, courts do not and cannot look alone to those who are parties to the illegal transaction. The law regards the welfare of society as paramount, and in enforcing the law, courts will not impair its efficiency or cripple its operations by considerations affecting the interests of those who are particeps criminis. The principle of public policy is this: Ex dolo malo non oritu/r actio. No court will lend its aid to a man who founds his cause of action upon immoral or illegal acts. If, from the plaintiff's own showing or otherwise, the cause of action appears to arise ex turpi causa, or out of a transgression of a positive law of the country, then the court says he has no right to be assisted. It is upon that ground that the court goes; not for the sake of the defendant, but because it will not lend its aid to such a plaintiff."
Mexican International Banking Co. v. Lichtenstein, 10 Utah, 338, 37 Pac. 574, arose over the sale of lottery tickets. "The employment of an agent to sell tickets in a lottery is void. (See Mechem, Ag., sec. 38.) Therefore, the relation never in fact exists. As we have already stated, both parties are principals. They are both in equal fault; and it would appear to be a monstrous doctrine if participants in crime may invoke the power of the civil courts to determine which of them is entitled to a particular share of the spoils resulting from their criminal adventure." (Martin v. Seabaugh, 128 La. 442, 54 South. 935; Storz & Iler v. Finklestein, 46 Neb. 577, 30 L. R. A. 644, 65 N. W. 195; Central Trust & Safe Deposit Co. v. Respass, 112 Ky. 606, 99 Am. St. Rep. 317, 56 L. R. A. 479, 66 S. W. 421.)
"Between those who are equally in the right, or equally in the wrong, the law does not interpose." (Sec. 8753, Rev. Codes 1921; Melville v. Butte-Balaklava Copper Co., 47 Mont. 1, 130 Pac. 441.)
In Morrison v. Bennett, 20 Mont. 560, 40 L. R. A. 158, 52 Pac. 553, Morrison and Davis sued Bennett for an accounting and dissolution of partnership. They alleged that the three had formed a partnership for the purpose of owning, caring for and racing a certain mare known as Lady Wallace, on equal terms and shares, and that they entered upon and continued to transact the business of the partnership and were at the time of the suit partners on equal terms in the business; that Bennett, without plaintiffs' consent, had applied to his own use from the receipts and profits of the business the sum of $1,000 which he continued to withhold to their detriment and damage. The defendant denied the partnership and alleged the ownership in common of the mare. Horse-racing was not contrary to statute nor was it illegal at common law, but the evidence showed that the object of the parties was iniquitous, that the methods agreed upon were dishonest, immoral, deceitful and corrupt. In that case the plaintiffs insisted that if the agreement of partnership was unlawful and immoral the "purpose of such partnership must also be admitted to be accomplished and executed." This court, speaking through Mr. Justice Hunt, said: "The $1,000 was paid to one of the partners. And it is to carry out the partnership agreement to divide profits that this action is brought. 'There is nothing collateral in respect of which, the agreement being out of the question, a collateral demand arises.' (Snell v. Dwight, 120 Mass. 9.) In this last case cited the court ably review the decision in Brooks v. Martin, 2 Wall. 70 [17 L. Ed. 732], cited to us by appellants herein, and properly, we think, treat it as an authority relating to subsequent or collateral contracts and transactions, in which the original illegal acts and contracts are held to form no part of the consideration. The supreme court of North Carolina, in King v. Winants, 71 N. C. 469 [17 Am. Rep. 11] — a similar case to the one at bar— distinguish Brooks v. Martin, supra, as did Snell v. Dwight, supra, and, after so interpreting it, decided that they would not examine into, settle up and enforce, an illegal contract itself between the parties to it. (See, also, C. M. & St. P. Ry. Co. v. Wabash, St. L. & P. Ry. Co., 61 Fed. 993, 9 C. C. A. 659; Beach on Contracts, sec. 1522.) " The court then adopted from Gray v. Hook, 4 N. Y. 449, and Woodworth v. Bennett, 43 N. Y. 273, 3 Am. Rep. 706, the following: "The distinction between a void and valid new contract in relation to the subject-matter of a former illegal one depends upon the fact whether the new contract seeks to. carry out or enforce any of the unexecuted provisions of the former contract, or whether it is based upon a moral obligation growing out of the execution of an agreement which could not be enforced by law, and upon the performance of which the law will raise no implied promise. In the first class of cases, no change in the form of a contract will avoid the illegality of the first consideration, while express promises based upon the last class of considerations may be sustained." Continuing, the learned justice said: "It is unnecessary to go further. By the evidence here offered for plaintiff they seek to enforce directly an immoral contract, and to secure the fruits of such a contract. It cannot be done. (Beach on Contracts, see. 1431.) "
Morrison v. Bennett is sustained by the almost unanimous view of the courts. It is controlling here, and we have no disposition to depart from the sound doctrine it proclaims.
. But it seems to be contended that plaintiff might prove his case without reference to the illegality of the contract,— by the simple expedient of saying nothing respecting compliance with the Illinois law. In other words, if plaintiff told the truth, but not the whole truth, concealing the fact that the contract was illegal and in violation of the Illinois .Act, he might recover notwithstanding the court was advised of the Act, the violation thereof being pleaded. The law does not tolerate such sophistry and subterfuge. "Whenever the illegality appears, whether the evidence comes from one side or the other, the disclosure is fatal to the case. (Coppell v. Hall, 74 U. S. 542, 19 L. Ed. 244; Berka v. Woodward, 125 Cal. 119, 73 Am. St. Rep. 31, 45 L. R. A. 420, 57 Pac. 777.) " (Levinson v. Boas, supra.) "The question is not what the defendant may plead, but what relief the plaintiff can have on the contract if the facts brought to the attention of the court by answer be true." (Bank v. Smith, supra.) "If, from the plaintiff's own showing or otherwise, the cause of action appears to arise ex turpi causa, or out of a transgression of a positive law of the country, then the court says he has no right to be assisted." (Hoffman v. McMullen, 83 Fed. 372, 45 L. R. A. 410.)
When Hoffman v. McMullen reached the United States supreme court, Mr. Justice Peckham speaking for the court, said: "The authorities from the earliest time to the present unanimously hold that no court will lend its assistance in any way towards carrying out the terms of an illegal contract. In case any action is brought in which it is necessary to prove the illegal contract in order to maintain the action, courts will not enforce it, nor will they enforce any alleged rights directly springing from such contract. In cases of this kind the maxim is potior est conditio defendentis. Upon the point as to the ability of the plaintiff to make out his cause of action without referring to the illegal contract, it may be stated that the plaintiff for such purpose cannot refer to one portion only of the contract upon which he proposes to found his right of action, but that the whole of the contract must come in, al though the portion upon which he founds his cause of action may be legal. (Booth v. Hodgson, 6 T. R. 405; Thomson v. Thomson, 7 Ves. Jr. 470; Embry v. Jemison, 131 U. S. 336, 359 [33 L. Ed. 172, 9 Sup. Ct. Rep. 776.]) In the ease before us the cause of action grows directly out of the illegal contract, and if the court distributes the profits it enforces the contract which is illegal." (McMullen v. Hoffman, 174 U. S. 639, 43 L. Ed. 1117, 19 Sup. Ct. Rep. 839; Kennedy v. Lonabaugh, 19 Wyo. 352, 30 Ann. Cas. 1913E, 133, 117 Pac. 1079.)
In proving a case a party must make a full and fair disclosure of all the facts governing the transaction; he cannot prevail by presenting only such facts as favor him when if all the facts were presented he could not prevail.
Section 7506, Revised Codes 1921, provides: "If any part of a single consideration for one or more objects, or of several considerations for a single object, is unlawful, the entire contract is void."
Three recent cases arising under "Blue Sky" laws are of particular interest. A case directly in point is Zerr v. Lawlor (Tex. Civ. App.), 300 S. W. 112, where as here, plaintiff attempted to collect twenty-five per cent commissions when the law permitted but twenty per cent. He failed. In Dixie Rubber Co. v. Catoe, 145 Miss. 342, 110 South. 670, it was held that a contract between a corporation, which had not complied with the law, and a salesman respecting the sale of the corporation's stock was unlawful, void and unenforceable. The court said: "It seems plain that appellant would have been required to prove the contract between it and appellee Cadenhead, by which the latter received the commissions, and rely on its illegality under the law for its right to recover. The illegality of the contract would have been met at every turn in the case from start to finish; it could not have been put out of sight. It would have been the very life of the case. It could not have been shown,, except by virtue of the contract itself, that appellee Cadenhead had the illegal commissions in his possession. And the only ground on which appellant could have claimed the right to recover the commissions would have been that the contract itself by which the commissions had been paid, was illegal. Every move in the case would have depended on the illegal contract. So we are of opinion that, if appellant had sued appellee Cadenhead for the $44,000 commissions, there could have been no recovery because of the illegality of the contract by which the commissions had been paid or received."
In List v. Republic Bond & Mortgage Co. (Cal. App.), 271 Pac. 529, it appeared that sales of stock had been made in violation of the Corporate Securities Act of California. In the course of its opinion denying relief to the plaintiff, a broker suing for commissions, the court s'aid: "Notwithstanding, then, the good faith of the plaintiff in demanding his share of the commissions on what he believed was a legitimate sale, he cannot be permitted to recover for any services he may have rendered in even unconsciously aiding the officers of the company in consummating an unlawful or void sale, denounced by the statute as the commission of a felony." (And see Superior Reducing & Refining Co. v. Handlaw, Hearne & Co., 100 W. Va. 547, 131 S. E. 857.)
It is said that justice demands a judgment for plaintiff. What is justice? queried Socrates. Whatever it may be, it is not the fiat of the individual judge following his own philosophy, but is in a legal sense "that end which ought to be reached in a ease by the regular administration of the principles of the law involved as applied to the facts." (Meeks v. Garter, 5 Ga. App. 421, 63 S. E. 517; Sioux Falls v. Marshall, 48 S. D. 378, 45 A. L. R. 447, 204 N. W. 999; Nelson v. Wilson, 81 Mont. 560, 264 Pac. 679.)
The moral issue between plaintiff and defendant, if such it may be termed, is no concern of ours. Under the pleadings, and theory of the case pursued by the litigants and the trial court, it cannot be determined in this action. Whether (the contract being legal) the defendant made himself personally liable because of the letters he wrote plaintiff need not now be considered. That plaintiff understood that he was selling the stock for the Fulton Oil Company, and for Essex, Rice and Fulton, and not for Fulton alone, the record shows conclusively.
The remarkable argument is made that those to whom Mc-Manus sold stock are not complaining. The necessary inference must be that the satisfaction or dissatisfaction of a purchaser is a determining factor in considering the effect of the public policy of a sovereign state. It is tantamount to asserting that the Blue Sky Law of Illinois (and on a parity of reasoning the Blue Sky Law of Montana) is not effective unless a purchaser of prohibited stock raises the cry that he has been defrauded. Surely this curious position does not call for further comment.
It is said the defense is dishonest. Granted, but Lord Mansfield said: "The objection that a contract is immoral or illegal, as between plaintiff and defendant, sounds at all times very ill in the mouth of the defendant. It is not for his sake, however, that the objection is ever allowed, but it is founded in general principles of policy. No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act." (Homan v. Johnson, 1 Cowp. (Eng.) 348.)
A void contract cannot be enforced, no matter what hardship it may work or how strong the equities may appear. (Howard v. Farrar, 28 Okl. 490, 114 Pac. 695.)
There is no new nor collateral contract in this case. The plaintiff must stand or fall upon contracts between himself and defendant confessedly illegal and void under the laws of Illinois.
We conclude in the words of the supreme court of the United States: "We must, therefore, come back to the proposition that to permit a recovery in this case is in substance to enforce an illegal contract, and one which is illegal because it is against public policy to permit it to stand. The court refuses to enforce such a contract and it permits defendant to set up its illegality, not out of any regard for the defendant who sets it up, but only on account of the public interest. It has been often stated in similar cases that the defense is a very dishonest one, and it lies ill in the mouth of the defendant to allege it, and it is only allowed for public considerations and in order the better to secure the public against dishonest transactions. To refuse to grant either party to an illegal contract judicial aid for the enforcement of his alleged rights under it tends strongly towards reducing the number of such transactions to a minimum. The more plainly parties understand that when they enter into contracts of this nature they place themselves outside the protection of the law, so far as that protection consists in aiding them to enforce such contracts, the less inclined will they be to enter into them. In that way the public secures the benefit of a rigid adherence to the law." (McMullen v. Hoffman, 174 U. S. 639, 43 L. Ed. 1117, 19 Sup. Ct. Rep. 839.)
The motion for a rehearing, having served its purpose, is denied. The opinions filed March 11, 1929, are now withdrawn.
The judgment is affirmed.
Associate Justices Matthews and Ansstman concur.