Court Opinion

ID: 3611220
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:55:20.458415+00
Date Added: 2024-06-11T13:46:56.273011
License: Public Domain

I find it difficult to see upon what principle the referee gave judgment for the plaintiff in this action. His opinion shows that the operations of the defendant to increase its capital stock were all illegal and fraudulent in every form, and that the plaintiff was the inventor and promoter of the fraud, and the evidence in this respect justifies the conclusion. The defendant, being a corporation, is an intangible thing, incapable of thought or action, except that, in the fiction of the law, it may acquire rights, or incur responsibilities, as those who are appointed to control it may, in their judgment, determine. In this case the plaintiff was a corporator, a trustee, and the vice-president of the defendant's company when the various transactions were had now in controversy. There appears to be no ground for recovery, upon the assumption that the effort of the defendant to increase its stock was valid. The judgment must have proceeded upon the ground, and it is so argued by counsel for the plaintiff, that all proceedings had in that regard were illegal, fraudulent and void. We now assume, as we must do, that such is the fact, and add, as is also the fact, that the plaintiff was the originator, advocate and party to the fraud.
It is very obvious, from the whole case, that the dividend sought to be recovered in this action was declared in aid of the unlawful effort to increase the capital stock of the corporation, and was employed as a part of the means by which the illegal transaction was to be consummated. While the findings of the referee are not very explicit upon any subject, it is quite apparent from the evidence, that the dividend would not have been then declared, except with reference to the *Page 537 
increase of the capital stock under the scheme invented by the plaintiff. The incident is very striking, that the dividend of twenty per cent represents the exact difference between the par value of the increased stock and the sum to be actually paid for it. It cannot, I think, be doubted, that the dividend was made in aid of the illegal scheme to increase the capital stock of the corporation, and it may be unfortunate for the plaintiff, that his action is brought to recover the exact amount of that dividend declared upon the stock of Sheehan, borrowed of him for the purpose of furthering the unlawful increase of the capital stock of the defendant. I do not think it of much consequence to the present question that the defendant abandoned the effort to increase its stock as originally proposed by the plaintiff. The infirmity, if there be any in the plaintiff's case, is, that he was a party to an illegal transaction, and the money sought to be recovered was connected with the illegality, and intended to aid in promoting the fraudulent enterprise. It is urged, on behalf of the plaintiff, that he was not in pari delicto; that the corporation was the more guilty party; that he was but one of a number of directors and did not control the action of the company, and that he repented in due season. I find it difficult to see the force of this argument. He was one of several officers of a corporation engaged in an illegal act, and he may be no worse off in the law, even if he was the inventor of the illegal scheme, but he was in complicity with all his associates in the direction of the corporation. The invisible and intangible legal existence, called the corporation, had neither body, soul or sense, and in itself was utterly incapable of conceiving a fraud or doing an illegal act. It could only be moved to wrong by the acts of its managers, and if they all concocted or connived, and sought to consummate an illegal transaction, they all come within the unbending rule that every court declines to give its aid, in any form, to parties thus conditioned, either to enforce an executory contract or disturb one executed. Such parties are left in the position they have placed themselves. It is said the plaintiff repented *Page 538 
in season. Repentance for transgression of any kind is always to be commended, but in cases like this the courts do not accept it to relieve the sinner. If he has been concerned in an illegal enterprise, abhorred by the law, and parted with his money on such a hazard, no amount of repentance will induce a court to give its aid to rescue it from the toils by which it is detained. The learned counsel for the plaintiff obviously felt the force of this rule of law, when he suggested that the corporation was the more guilty party. No guilt can be imputed to the corporation, save that imposed by the plaintiff and his associates. And, again, it is said that the plaintiff rescinded his illegal contract and was entitled to recover back what he had paid. There is no such rule in a case like this. A party defrauded may, on the discovery of the fraud, rescind a contract to recover back what he has paid upon it. But one of several parties to a fraud, after he has parted with his money to promote the fraudulent scheme, may not, at any time, rescind and recover it back.
As before suggested, it is very earnestly insisted that in this case the plaintiff's illegal contract remained executory, and that he rescinded or repented in due time before it was completely executed, and was therefore entitled to recover back so much as he had already paid in furtherance of the illegal transaction. I am quite aware that cases can be found in the books where this distinction has been acted upon, but they will be found, on examination, mainly exceptional in their character. In our law, the general rule is, that no court will give its aid to any party engaged in an illegal transaction, to recover anything which has been devoted to such a purpose. Where the illegal and immoral scheme has been fully consummated, no one doubts the application of the rule. It has been, however, and is now suggested, that if a party only goes half way and then repents, he may have relief in the courts, on the ground of his repentance, before the eleventh hour. This view can only proceed upon the ground that the law indulges in some mathematical exactness in the degrees of criminality, and that the smaller sinner may be saved, while *Page 539 
the larger one meets with a different destiny. It therefore appears to me that, in cases like the one at bar, there can be no logical or legal distinction made between a contract executory or executed, as I think my brother LOTT has shown by a special reference to adjudged cases, which I do not think necessary now to review or consider. The principle which underlies the whole question is, to my mind, very apparent.
We are referred to cases where corporations have done acts, such as the making of contracts, and the issuing of bills as money, entirely beyond their authority, but in fact prohibited by positive law, and where a remedy, by third parties, has been had against them in the courts; but they give no support to the plaintiff's claim in this case, for here the illegal or guilty act of the corporation was also the illegal or guilty act of the plaintiff, by whom, with his associates, the corporation was debauched. The case of Thomas v. The City of Richmond (12 Wallace [U.S.], 349) was a case where a third party had received bills, issued as currency in violation of law, and the plaintiff was not permitted to recover. Mr. Justice BRADLY, in that case, says (p. 356): "The issuing of bills as a currency by such a corporation, without authority, not only contrary to positive law, but, being ultra vires, is an abuse of the public franchises which have been conferred upon it; and the receiver of the bills, being chargeable with notice of the wrong, is in paridelicto with the officers and should have no remedy, even for money had and received, in which he has aided in inflicting the wrong. The protection of public corporations, from such unauthorized acts of their officers and agents, is a matter of public policy in which the whole community is concerned, and those who aid in such transactions must do so at their peril." It need not be suggested with how much greater force this doctrine applies against one of the guilty officers of the corporation. Without pursuing the subject further, I think the judgment of the court below should be reversed and a new trial granted. *Page 540