Court Opinion

ID: 3886478
Source: CourtListenerOpinion
Date Created: 2016-07-06 09:16:06.536165+00
Date Added: 2024-06-11T13:51:55.267485
License: Public Domain

July 1, 1903. The opinion of the Court was delivered by
The following statement appears in the record:
"The first above stated action was commenced on the 3d day of February, 1900, for winding up the affairs of the Commercial and Farmers' Bank of Rock Hill, S.C. insolvent, by the appointment of a receiver to collect and distribute its assets, including the fund due from its stockholders; all of said stockholders being made defendants. A *Page 509 
receiver was duly appointed in this action, who is now administering the affairs of said bank.
"The other two actions, in the nature of creditors' bills, were brought about the same time against certain of the stockholders of said bank (named also as defendants in the first action) to recover the amounts of their individual liability to depositors.
"The said three actions were consolidated by an order of the Court, dated the 29th day of May, 1900.
"By amended complaint in the first above stated action, E.B. Mobley, John G. Anderson and N.B. Williams were made defendants therein on the 2d day of May, 1900. These three defendants are not parties to either of the other two actions. As none of the parties to the second above stated action have anything to do with this appeal, they are, to avoid confusion, named as respondents.
"A referee was appointed to take the testimony and report upon all of the issues of law and fact; and these consolidated actions came up for a hearing at the November (1902) term of the Circuit Court for York County, upon so much of said referee's report as related to the liability of stockholders, and exceptions thereto; all other issues being reserved. Upon these issues, his Honor, James Aldrich, filed his decree herein on the 9th day of February, 1903. E.B. Mobley, John G. Anderson and N.B. Williams, defendants in the first action, gave due notice of their intention to appeal from the said decree in so far as it held them liable as stockholders, and subsequently duly served their exceptions. The plaintiffs, Blackmon, Estridge  Co., gave due notice of their intention to appeal from said decree in so far as it held that the Rock Hill Real Estate and Loan Co. was not liable as a stockholder, and thereafter, within the time required by law, served their exceptions."
The decree of his Honor, the Circuit Judge, and the appellants' exceptions will be set out in the report of the case.
While the decree fully and ably disposes of all the questions raised by the said exceptions, we, however, deem it *Page 510 
advisable to add some words in explanation of the principle under which the Rock Hill Real Estate and Loan Company is enabled to escape the statutory liability imposed upon the stockholders of the Commercial and Farmers' Bank, on the ground that its contract for subscription to the shares of stock was prohibited by statute and was, therefore, ultra vires. There is a general discussion of this subject in LancasterCountry v. R.R. Co., 28 S.C. 142, 5 S.E., 338, andWilliamson v. Association, 54 S.C. 595, 32 S.E., 765. In the last mentioned case the Court quotes with approval the following language from B.B. Ry. Co. v. McDonald, 60 Am. St. Rep., 172: "The general rule is that where a private corporation has entered into a contract not immoral in itself and not forbidden by any statute, and it has been in good faith performed by the other party, the corporation will not be heard on a plea of ultra vires" (italics ours). The Court, in the case of Vought v. Eastern B.  L. Assn.,172 N.Y., 508, thus states the principle: "We deem it unnecessary at this time to determine whether the defendant was authorized by that statute to enter into such contracts; for if we assume that the making of them was in excess of the express power conferred upon the corporation by that statute, still, as the contracts involved no moral turpitude,and did not offend any express statute, they were not illegal in a sense that would prevent the maintenance of an action thereon. It is now well settled that a corporation cannot avail itself of the defense of ultra vires, when the contract has been in good faith fully performed by the other party, and the corporation has had the benefit of the performance of the contract. As has been said, corporations like natural persons have power and capacity to do wrong. They may in their contracts and dealings break over the restraints imposed upon them by their charters, and when they do so, their exemption from liability cannot be claimed on the mere ground that they have no attributes or facilities which render it possible for them thus to act. While they have no right *Page 511 
to violate their charters, yet they have the capacity to do so, and are bound by their acts, where a repudiation of them would result in manifest wrong to innocent parties, and especially where the offender alleges its own wrong to avoid a just responsibility. It may be that while a contract remains unexecuted upon both sides, a corporation is not estopped to say in its defense that it had not the power to make the contract sought to be enforced; yet, when it becomes executed by the other party, it is estopped from asserting its own wrong, and cannot plead that the contract was beyond its power" (italics ours). This language is quoted with approval in Eastern B.  L. Assn. v. Williamson,23 Sup. Ct. Rep., 527.
In Central Transp. Co. v. Pullman Pal. Car Co.,139 U.S. 60, it is said: "The Courts, while refusing to maintain any action upon the unlawful contract, have always striven to do justice between the parties, so far as could be done consistently with adherence to law, by permitting property or money parted with on the faith of the unlawful contract to be recovered back or compensation to be made for it. In such case, however, the action is not maintained upon the unlawful contract nor according to its terms, but on an implied contract of the defendant to return, or, failing to do that, to make compensation for the property or money which it had no right to retain. To maintain such an action was not to affirm but disaffirm the unlawful contract."
Lord Mansfield, in Holman v. Johnson, 1 Comp., 341, thus states the rule: "The objection that a contract is immoral or illegal as between the 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 which the defendant has the advantage of, contrary to the real justice as between him and the plaintiff by accident, if I may so say. The principle of public policy is this: Exdolo malo non oritur actio. No Court will lend its aid to *Page 512 
a man who founds his cause of action upon an immoral or an illegal act."
The Court, in Pullman Pal. Car Co. v. Central Transp.Co., 18 Sup Ct. Rep., 808, after quoting the foregoing language from the two cases last mentioned, proceeds as follows: "The cases upholding this doctrine are numerous and emphatic. Indeed, there is really no dispute concerning it, but the matter of controversy in this case is as to the extent to which the doctrine should be applied to the facts herein. Many of the cases are referred to and commented upon in the opinion delivered in the case, in 139 U.S. 24, II. Sup Ct., 487, already cited. The right to the recovery of the property transferred under an illegal contract is founded upon the implied promise to return or make compensation for it. For illustrations of the general doctrine applied to particular facts, we refer in the margin to a few of the multitude of cases on the subject. They are substantially unanimous in expressing the view that in no way and through no channels, directly or indirectly, will the courts allow an action to be maintained for the recovery of property delivered under an illegal contract, where in order to maintain such recovery it is necessary to have recourse to that contract. The right of recovery must rest upon a disaffirmance of the contract, and it is permitted only because of the desire of the courts to do justice as far as possible to the party who has made payment or delivered property under a void agreement, and which in justice he ought to recover. But courts will not in such endeavor permit any recovery which will weaken the rule founded upon the principles of public policy, already noticed."
Under the caption, "Provisions Applicable to Corporations Generally," in the Code of Laws, section 1843 (subdivision E), appears the following: "No part of the capital stock or any of the funds of such corporation shall at any time during the continuance of their charter be used or employed, directly or indirectly, in banking operations, or for any purpose whatsoever inconsistent with the provisions *Page 513 
of their respective charters." Section 1775 of the Code of Laws is as follows: "The stockholders of banks shall be liable to the amount of their respective share or shares, and five per cent. thereof in addition thereto, for all of its debts and liabilities upon note, bill or otherwise."
The foregoing cases show that a contract which is ultravires cannot be made the foundation for the liability of the corporation, and, furthermore, that a corporation cannot be made liable on a contract which the law prohibits it from entering into. When the Rock Hill Real Estate and Loan Company purchased the shares of stock in the Commercial and Farmers' Bank, it was in violation of the statute. The Court will not lend its aid in the enforcement of rights growing out of a contract expressly forbidden by statute, but will leave the parties to the unlawful contract where it finds them.
It is the judgment of this Court, that the judgment of the Circuit Court be affirmed.