Case Name: Lloyd Q. Richardson v. John Welch and Charles A. Floyd
Court: Michigan Supreme Court
Jurisdiction: Michigan
Decision Date: 1882-01-05
Citations: 47 Mich. 309
Docket Number: 
Parties: Lloyd Q. Richardson v. John Welch and Charles A. Floyd.
Judges: The other Justices concurred.
Reporter: Michigan Reports
Volume: 47
Pages: 309–312

Head Matter:
Lloyd Q. Richardson v. John Welch and Charles A. Floyd.
Contracts in adverse interest — Subrogation—Accounting—JFi'aud.
The action of the superintendent of a boom company in taking an interest in a contract made with the company is not absolutely void nor void by statute. It is at most a constructive fraud on the company which the company can authorize, ratify or condone, and it is no more than voidable. The bargain is good as between the parties and can be avoided by the company alone, if the latter is the only party affected by it.
Whether a company cannot claim to he subrogated to the rights of an officer who has taken an interest in a contract made with it, — Q.
Contracts that are legal, except as against persons in adverse interest, cannot be attacked by persons not injured by them.
Creditors alone can attack conveyances that are fraudulent as against creditors; the same general rule applies to private frauds.
Where one of several joint parties to a contract has received the profits of it, he is estopped from denying his liability to his associates on the ground that the contract was voidable as against the other party to it.
Persons who have the money of other people in their keeping are not relieved from accounting even in cases where public interests are concerned, if no question of public policy is involved.
Appeal from Saginaw.
Submitted October 26, 1881.
Decided January 5, 1882.
Bill for accounting. Complainant appeals.
Decree entered.
Tarsney, Tennant <& Weadook and H. H. Hatoh for complainant.
The illegality of an executed contract does not relieve a party from accounting for tbe profits: Merritt v. Millard 4 Keyes 213; Gray v. Hook 4 Comst. 449; Brooks v. Martin 2 Wal. 70; Sharp v. Taylor 2 Phil. Ch. 801; Hardy v. Stonebraker 31 Wis. 645; Dyer v. Homer 22 Pick. 253; Harvey v. Varney 98 Mass. 118; Lemon v. Grosskopf 22 Wis. 447; Clemens v. Clemens 28 Wis. 637; if a cause of action arising from a contract illegal in itself is not connected with, the illegal act, it will not be affected thereby: Phalen v. Clark 19 Conn. 421; Bartle v. Coleman 4 Pet. 184; Faikney v. Reynous 4 Burr. 2069; Armstrong v. Toler 11 Wh. 258; the test is whether any aid from the illegal transaction is required to establish the cause-of action: Simpson v. Bloss 7 Taunt. 245; Chit. Cont. 657; a conveyance fraudulent as to creditors may be perfectly good as between the parties: Hess v. Final 32 Mich. 515; Nichols v. Patten 18 Me. 229; Bly v. Second Nat. Bank 79 Penn. St. 453; Gullatt v. Thrasher 42 Ga. 429; Vischer v. Yates 11 Johns. 23; McAllister v. Hoffman 16 S. & R. 147; Anderson v. Morcrieff 3 Desaus. 132; the contract in. this case was not within the rule which prohibits a person in. relations of trust from making contracts adverse to his-employer’s interest; see People v. Overyssel 11 Mich. 229; Sheldon v. Rice’s Estate 30 Mich. 301; Hoffman v. Harrington 28 Mich. 106; Winslow v. Crowell 32 Wis. 655; Willson v. Owen 30 Mich. 476; Murray v. Vanderbilt 39 Barb. 141; Sharp v. Taylor 2 Phil. Ch. 801; Thomson v. Thomson 7 Ves. 470; Farmer v. Russell 1 B. & P. 296; Tenant v. Elliott id. 3; McBlair v. Gibbes 17 How. 235.
Wisner <& Draper for defendants.
A contract clashing-with interests which the maker is bound to protect is void as against public policy: Pomeroy on Cont. § 285; and the-other parties may defend against an action upon it on that ground: Lyon v. Waldo 36 Mich. 345; Mut. Ben. Association v. Hoyt 46 Mich. 473.

Opinion:
Campbell, J.
Richardson brought his bill to procure a. partnership accounting, arising out of a log-running contract, for running logs for the Riñe Boom Company in 1879. In, 1878 and 1879 Welch obtained a contract, and Richardson and Floyd were to have equal shares in the pi'ofits, the>. former advancing money, and the latter performing services. The business for 1878 was all closed. Welch received the? proceeds of the work in 1879, but quarreled with Richardson, and now defends on the ground that the partnership arrangement was void because made with Richardson when superintendent of the boom company, and kept from the knowledge of that company. The net profits of the partnership for 1879 were $10,195.77. The court below dismissed the bill.
It appears affirmatively that no fraud was actually intended or practiced; that the complainant had nothing to do with determining who among the various bidders should have the contract; that the work was done more satisfactorily than ever before; and the interests of the contractors and of the boom company would in the main, if not entirely, be advanced by the same course of business.
It is not denied that there was impropriety in the conduct of Richardson in becoming interested in such a contract with his own company -without their knowledge. It is not now necessary to consider how far this might have stood in the way had this been a suit against the boom company to recover pay for the work done. But payment has been made in full by that corporation, and no'complaint has been interposed to recover it back in whole or in part for the irregularity now asserted. It appears very clearly that the company has lost nothing and has in no way been injured. The defendant Welch, who has received money which he agreed to pay over to the complainant, is now seeking to defend, not for any actual or constructive fraud against himself, but because the complainant has done something which inflicted a theoretical but not an actual injury on a stranger to the partnership.
There is no ground for claiming that the action of Richardson was illegal in the sense of violating any public statute, or that it was absolutely void. At most it was a constructive fraud against his employers who might either have authorized it, or ratified it, or condoned it. It was certainly no more than voidable and had there been actual fraud whereby Richardson would have profited at the expense of the company it is possible the corporation might have claimed to be subrogated to his rights in the partnership. In such a case it is not very clear that Welch could have •avoided recognizing such claims. The bargain could only have been avoided by the boom company, as they were the only persons affected by the supposed fraud if it existed. It was good as between the parties.
The rule is general that when contracts are legal except as against persons in adverse interest, courts will not listen to complaints of persons not injured. Conveyances fraudulent as against creditors can only be attacked by creditors, and the principle is general as applied to private frauds. It is no doubt competent for courts of equity to use some discretion when asked to become instruments in helping parties to the fruits of fraud. But in the present case no actual fraud appears, and the fruits of the fraud, if it existed, are all in the hands of Welch. Under such circumstances he is estopped from using his own participation in the bargain as a pretext for defrauding his associates. It cannot help the boom company to have him retain money which does not belong to him, nor can it hurt that company to have bim pay it to Richardson. We have found no support for such a doctrine as he contends for. Even in cases where public and not merely private interests were involved, courts have refused to relieve parties who had the money of other people in their hands, against accounting, when there was no question of public uolicy to be involved in that transaction. See Willson v. Owen 30 Mich. 474, and eases there cited.
The defense is not well founded and cannot be sustained.
Complainant is entitled to a decree declaring the assets of the partnership in Welch's hands on the 1st day of January, 1880, to have been for proceeds of the business less expenditures $10,195.77 and personal property $1200 which he has converted. Complainant is entitled to one-third of this siim total after deducting $1000 for Floyd's services, to which Floyd is entitled, or one-third of $10,395.77, being $3465.25 with interest from January 1, 1880.
A decree must be entered on this basis with costs of both courts, and the cause remanded for the enforcement of the decree.
The other Justices concurred.