Court Opinion

ID: 3943393
Source: CourtListenerOpinion
Date Created: 2016-07-06 10:06:43.753687+00
Date Added: 2024-06-11T09:26:30.867672
License: Public Domain

I regret my inability to agree with the majority in the disposition made of this appeal. The primary question presented is whether or not the court erred in sustaining the general demurrer to the plaintiff's cause of action, as set out in its original and first supplemental petitions. Appellant, plaintiff in the court below, instituted a suit to recover of appellee upon a note for $485.90, executed to the Amarillo National Life Insurance Company. The note is as follows:
"485.90.       Sandia, Tex., October 19, 1913.
"On or before the 19th day of July, 1914, without grace, I promise to pay to the order of the Amarillo National Life Insurance Company, at its office in Amarillo, Texas, the sum of four hundred eighty-five and 90/100 dollars, with interest thereon from date until paid. at the rate of five per centum per annum. This note is given on account of the premium due October 19, 1913, on said company's policy No. 3368, insuring my life and if it shall not be paid in full at its maturity all insurance under said policy shall cease and determine ipso facto and immediately, save as therein otherwise provided. In such event this note shall cease to be binding except for the amount of the premium unpaid and unearned at the date of default, together with interest thereon; but for that amount and interest it shall remain a valid obligation.       [Signed] J. D. Kring."
Plaintiff's original petition alleges:
That it is a corporation, having its principal office and place of business in Sacramento, Cal., but has a permit to do business in this state and is lawfully doing business in Texas, maintaining an office and place of business in Amarillo, Potter county, Tex. "That heretofore, to wit, on or about the 19th day of October, 1912, the Amarillo National Life Insurance Company, a corporation, having its principal office and place of business at Amarillo, Potter county, Tex., duly organized and chartered and doing business under the laws of the state of Texas, was in the business of insuring the lives of individuals in said state, receiving premiums therefor on the policies of insurance so issued by it."
The pleading then sets out the issuance of a policy to appellee, giving the amount, and alleges the execution of a premium note, in the sum of $485.90; that on the 19th day of October, 1913, the second annual premium being due, the note above set out was executed and delivered to the Amarillo National Life insurance Company, and continues as follows:
"That thereafter the plaintiff herein, the California State Life Insurance Company, took over the assets and liabilities of the said the Amarillo National Life Insurance Company, and became the legal owner and holder of the note above described, having assumed the obligations imposed by all policies of insurance issued by the Amarillo National Life Insurance Company," etc.
The petition further alleges that plaintiff is the owner of the note sued on by reason of the fact that it purchased the same from the Amarillo National Life Insurance Company. By appropriate allegations it is shown that $364.42 of said note, with interest thereon, from October 19, 1913, was earned premium at the time of the filing of the suit; that said amount is long since past due, and defendant, though often requested, has wholly failed to pay the same. By supplemental petition appellant alleges, in part, as follows:
"For special answer, if required, to the allegations in said first amended original answer, plaintiff admits that the Amarillo National Life Insurance Company was a corporation, duly organized and existing by virtue of the laws of the state of Texas, wih its principal office and place of business in Potter county, Tex., and that at the times complained of had full charter powers of conducting the business of a life insurance company, in soliciting insurance on the lives of individuals, and of collecting premiums on such of its policies as were issued; that the California State Life Insurance Company is a foreign corporation, organized and existing under and by virtue of the laws of the state of California, with a permit to do business in Texas, and that it had such permit to do business in Texas prior to the sale of the Amarillo National Life Insurance Company to it, but plaintiff alleges that, at the time of such purchase of said Amarillo National Life Insurance Company by it, it had few, if any, policies of insurance in force in the state of Texas, having only one agent in the state, and that such policies as had been issued by it and as were in force and effect had virtually all expired at the time of the purchase of said Texas corporation; that about the 18th day of March, A.D. 1916, the plaintiff, by purchase, took over the Amarillo National Life Insurance Company's life insurance business, with all its assets and liabilities pertaining to such insurance business, assuming liability on its existing policies of insurance and having transferred to it all notes and choses in action of said Texas corporation pertaining to said insurance business, among which was the note of the defendant herein sued upon; that such contract of sale of the said the Amarillo National Life Insurance Company was in all things according to law, and such contract was approved by the department of insurance and banking of the state of Texas; and plaintiff alleges the fact to be that the policy of insurance as issued to defendant was in all things according to the charter rights and powers of said the Amarillo National Life Insurance Company, in accordance with its life insurance business," etc.
The note above set out was payable to the order of the Amarillo National Life Insurance Company, and bore no indorsements whatever.
Article 7797, Vernon's Sayles' Civil Statutes, defining a "monopoly," is:
"A monopoly is a combination or consolidation of two or more corporations when effected in either of the following methods: (1) * * * (2) Where any corporation acquires the shares or Certificates of stock or bonds, franchise or other rights, or the physical properties, or any part thereof, of any other corporation or *Page 377 
corporations, for the purpose of preventing or lessening, or where the effect of such acquisition tends to affect or lessen competition, whether such acquisition is accomplished directly or through the instrumentality of trustees or otherwise."
Article 7807, Id., provides:
"Any contract or agreement in violation of the provisions of this chapter shall be absolutely void and not enforceable either in law or equity."
The allegations in appellant's pleadings, as I understand them, leave no room for doubt as to the nature of the transaction through which appellant acquired the note. I am unable to find the faintest hint that it was a reinsurance undertaking. The allegations are:
"That thereafter the plaintiff herein, the California State Life Insurance Company, took over all the assets and liabilities of the said the Amarillo National Life Insurance Company; * * * that plaintiff is the owner of the note sued on by reason of the fact that it purchased the same from the Amarillo National Life Insurance Company; * * * that it had such permit to do business in Texas prior to the sale of the Amarillo National Life Insurance Company to it, but plaintiff alleges that at the time of such purchases of said Amarillo National Life Insurance Company by it," etc.
There is this further specific allegation:
"That about the 18th day of March, A.D. 1916, plaintiff, by purchase, took over the Amarillo National Life Insurance Company's life insurance business, with all its assets and liabilities pertaining to such insurance business," etc.
These statements, in my opinion, show simply a sale upon the one part and a purchase upon the other, and I am unable to find the word reinsurance or any synonym of it anywhere in the pleading. If I am correct in this construction, then article 7797, supra, has been violated, and it requires no argument to show that the effect of such a sale tends to affect competition. The unavoidable conclusion is that, when the Amarillo National Life Insurance Company sold all of its life insurance business, it, by virtue of that fact, was at an end. Appellant having acquired the note in virtue of a contract clearly within and inhibited by the statute, it is, in the language of the statute, "absolutely void and not enforceable, either in law or equity." Article 7807, supra; Langford et al. v. Powell et al., 196 S.W. 662. Having sued as the legal owner and holder of the note under an assignment from another corporation, in violation of the statute appellant is not entitled to recover in the capacity of owner, and this defect may be raised by general demurrer. Fuqua v. Pabst Brewing Co., 90 Tex. 298,38 S.W. 750, 35 L.R.A. 241. The note being payable to the order of the Amarillo National Life Insurance Company, and bearing no indorsement of the payee, and being otherwise nonnegotiable (by reason of its provision as to unearned premium), before appellant can recover it must both allege and prove the assignment to show its ownership. Ross v. Smith, 19 Tex. 171,70 Am.Dec. 327; Merrill v, Smith, 22 Tex. 53; Ball v. Hill, 38 Tex. 241
. In order to prove ownership, appellant must, of course, show the illegal transaction set out in its pleadings and through which it acquired title to the note. The test whether a cause of action, connected with an illegal transaction, can be enforced at law, is whether the plaintiff requires any aid from the illegal transaction to maintain his case. Read v. Smith, 60 Tex. 382; Wiggins v. Bisso, 92 Tex. 219,47 S.W. 637, 71 Am.St.Rep. 837; Oliphant v. Markham, 79 Tex. 543,15 S.W. 569, 23 Am.St.Rep. 363. It is true that the appellee in his relation to the contract of sale, by which appellant purchased the Amarillo National Life Insurance Company, is a third party.
"The defense of illegality, although open to the parties and those claiming under them, cannot as a rule be invoked by third persons. This rule is, of course, subject to an exception, where it is attempted to assert rights based on a contract where the illegality of the contract appears from the plaintiff's own showing or where the interests of the person asserting the invalidity are affected." 13 C.J. 508, § 458.
Since the statute expressly declares contracts of the character shown in the plaintiff's pleadings to be absolutely void, and since in order to recover as the assignee of the note appellant must assert ownership under the contract, the writer thinks the case comes within that class which may be attacked by third parties. Cumberland Tel.  Tel. Co. v. City of Evansville (C. C.) 127 F. 196. The absolute ownership of the note being still in the Amarillo National Life Insurance Company, appellee could insist that no one but the owner be permitted to collect it from him. Until appellant shows its legal right to recover by its pleading, a general demurrer should be sustained. 8 C.J. 885, § 1157; Colbertson v. Beeson, 30 Tex. 76; Drinkall v. Movius State Bank, 11 N.D. 10,88 N.W. 724, 57 L.R.A. 341, 95 Am.St.Rep. 693.
Special Chief Justice ROLLINS quotes from 13 C.J. 511, § 467, as follows:
"That property has been acquired in violation of some law does not rob it of its character as such, nor prevent its becoming the subject of legitimate contracts which may be enforced in courts of law."
The language quoted is a part of the syllabus of Wayman Investment Co. v. Wessinger  Wagner, 13 Cal.App. 108, 108 P. 1023. That is a case where the lessee of a building *Page 378 
which had been erected in violation of an ordinance establishing fire limits, and making the act of its erection punishable by fine, sought to have his lease contract declared void and escape the payment of rent because the consideration of the contract was illegal. There was a judgment for the lessor in the trial court, and the California Court of Appeals, in affirming the judgment, said:
"Although there may be some illegal features indirectly connected with a transaction involved in a suit, yet the plaintiff may recover if his cause of action is otherwise legitimate, and he can make out his case without calling to his aid the illegal agreement. The test of whether the demand can be enforced at law is whether the plaintiff requires the aid of the illegal contract to establish his case."
That case is authority in this only in the announcement of the above rule. Since it is not necessary for the lessor, in order to recover the rent, to prove any fact or circumstance with regard to the erection of his building, as a whole the case has no application here. The writer has no quarrel with the rule of law quoted by Special Chief Justice ROLLINS. Although the lessor in that case had, in violation of the fire ordinance, erected a wooden or prohibited building on his lot, it was nevertheless his property as against the world, and there was no statute declaring, as in the instant case, that the contract was "absolutely void and not enforceable, either in law or equity." Nor is the rule quoted from the case of Wegner Bros. v. Biering, 65 Tex. 506, by both of my Brethren, to the effect that, "when the contract has been executed without the aid of the courts by the voluntary act of the parties, the profit or the estate realized is not contaminated," applicable. Admitting that the note itself upon which the suit is based herein is not contaminated, as will be hereinafter discussed, appellant cannot recover upon it because he did not acquire it legally, and, as shown by his pleadings, requires the aid of such illegal contract to establish his case. My contention is that when a statute denounces a contract as absolutely void, declares it to be unenforceable in the courts, and makes the entering into such a contract a crime providing a penalty, it cannot become an executed contract as a matter of law; and when, in addition to all of this, it falls clearly within that class of contracts held illegal as against public policy, it is void, and not merely voidable, as asserted by Associate Justice BOYCE. Reed v. Brewer, 90 Tex. 144, 37 S.W. 418.
"Where a statute expressly declares that certain kinds of contracts shall be void, there is then no doubt of the legislative intention and an agreement of the kind voided by statute is unlawful. The same is true where the contract is in violation of a statute, although not therein expressly declared to be void. It is immaterial whether the thing forbidden is malum in se or merely malum prohibitum." 13 C.J. 420, § 351.
The presumption of innocence, which Associate Justice BOYCE thinks should apply, in my opinion does not obtain here, and the holdings to that effect in the cases cited by him were under altogether different circumstances. In my opinion the presumption of innocence should not obtain when the accused has confessed his crime in writing; nor should the courts, in the face of such confession, endeavor to draw from it inferences of fact tending to show a possibility of innocence as against an unequivocal confession, setting up the details of his offense, such as we find in the appellant's pleadings. A culprit should not be permitted to urge a general plea of not guilty and call upon the courts to imagine the existence of facts not set out in his statement and contrary thereto which, if true, would possibly acquit him; nor should he be permitted to retain and enjoy the fruits of his contract illegally obtained, simply because he was not caught in the act and was not challenged until he had the goods safely in hand and was in a position where he could claim that the contract was an executed one. This would be placing a premium on alertness and agility in lawbreaking.
As between the two insurance companies, the contract may in one sense be considered as executed, but judicial aid should not be extended either party in the enforcement of any alleged rights acquired under it, especially when the plaintiff must depend upon the illegal contract as one necessary ground of recovery. Both the statute and consideration of public policy demand this of the courts. McMullen v. Hoffman, 174 U.S. 639,19 Sup.Ct. 839, 43 L.Ed. 1117; Gray v. Oxnard Bros. Co., 59 Hun, 387, 13 N.Y.S. 86. The tendency under the contract between the insurance companies would unquestionably be toward the creation of a monopoly and combine. A recovery upon the note is one step toward the consummation of this illegal design. Denial of relief in the case will discourage the formation of such contracts and tend strongly toward reducing the number of such transactions to a minimum." Brent v. Gay, 149 Ky. 615,149 S.W. 915, 41 L.R.A. (N.S.) 1034; Continental Wall Paper Co. v. Voight  Sons, 148 F. 939, 78 C.C.A. 567, 19 L.R.A. (N.S.) 143; Id., 212 U.S. 227, 29 Sup.Ct. 280, 53 L.Ed. 486. In my opinion, the Northern Securities Cases, 197 U.S. 297, 25 Sup.Ct. 493, 49 L.Ed. 763, and 193 U.S. 197, 24 Sup.Ct. 436, 48 L.Ed. 679, relied upon and cited by Judge BOYCE, is not authority here. The general principle that in suits upon fraudulent con, tracts the court will grant relief to neither party, but will leave them in the condition in *Page 379 
which it finds them, evidently controlled the disposition of that case, and the effect of the opinion, denying the plaintiff the right to recover the certificates of stock, was in line with that principle. By reason of the fact that the Texas anti-trust statute declares a contract under which appellant acquired the note to be absolutely void, appellant is not the owner in any sense of the note; The statute is an absolute bar to such ownership, and, since the facts set up in its pleadings show that it is not the owner, the court did not err in sustaining the demurrer. The weight of authority is that, if money or property other than choses in action is the consideration for such an illegal contract, such property cannot be recovered if the contract is fully executed, because the court will leave the parties in the position in which it, finds them. Reed v. Brewer, supra; Hall v. Edwards, 194 S.W. 674, 678; Beer v. Landman,88 Tex. 450, 31 S.W. 805. To permit one party to an illegal contract to recover upon a note executed by a third party, and the possession of which passed by the contract, is simply judicial recognition of the contract and enforcing rights acquired under it. The position of the parties should not be changed. I admit that, if the note was indorsed by the Amarillo National Life Insurance Company, possession by appellant would be prima facie evidence of ownership and it would not "require the aid of the illegal contract to establish its case." I also admit, as stated by Judge BOYCE, that it was not necessary for the pleader to state in detail the circumstances of the transfer of the note, but in this case the circumstances are stated. Being merely the assignee of a nonnegotiable instrument it would have been sufficient if appellant had alleged that it was such assignee, in which event the demurrer would not lie, but, when the pleadings set out in detail the circumstances of the transfer, and it appeared therefrom that the note was acquired illegally, the demurrer was properly sustained.
Entertaining the views above expressed, I respectfully dissent from the majority holding and insist that the judgment should be affirmed.