Court Opinion

ID: 5458634
Source: CourtListenerOpinion
Date Created: 2022-01-09 19:27:12.579935+00
Date Added: 2024-06-11T08:32:46.818477
License: Public Domain

By the Courts C. L. Allen, J.
The first question which arises for the consideration of the court in this case is whether the contract on which the plaintiffs claim to recover is in violation of the statute, and void. By the 23d section of the act in-relation to turnpike companies, (1 R. S. 582,) it is declared that no director of the corporation “ to which he shall belong shall be concerned, directly or indirectly, in any contract for the making or working of the road, or any part thereof, during the time he shall be a director.” By the 47th section of the act for the incorporation of companies to construct plank roads, (Laws of 1847, pp. 231, 352,) section 23 above recited, among others, is made to apply to the companies organized under that act. By' these two sections, then, directors are expressly prohibited from being directly or indirectly concerned in any contract for the making of the road, or any part thereof. It is not disputed, but expressly proved, that Jacob D. Kingsland of the firm of Kingsland & Co., and Lyman Woodworth, were both directors of this company on the 2d of September, 1850, when the contract was made with them to construct that portion of the road for which the plain*404tiffs claim now to recover; and that they remained such directors down to the time of the alleged settlement in July, 1851. The contract, therefore, was expressly within the prohibition of the statute, and the question is whether it is not therefore void. The section is only prohibitory in its terms. It does not declare in so many words, that all such contracts shall be void. But this is not necessary. Every act done against a prohibitory statute is not only illegal but absolutely void, and the court cannot assist an illegal transaction, in any respect, or permit it to be set up as a protection. (Hallett v. Novion, 14 John. 273, 290.) In Griffith v. Wells, (3 Denio, 226,) the court held that though the excise law did not in terms prohibit the sale of strong or spirituous liquors without a license, nor declare the act illegal, but only inflicted a penalty upon the offender,, yet that where a statute inflicts a penalty for doing an act, though the act be not prohibited, the thing is still unlawful; for it cannot be intended that a statute would inflict a penalty for a lawful act. All such contracts are void, though the statute does not declare them so. It is sufficient that the statute forbids. (Story on Con. §§ 613,614, &c.)
It has been decided repeatedly that all contracts contrary to the provisions of a statute are void, and it is a general rule that courts will not aid either party in enforcing an illegal executory contract; nor, if executed, will they aid either party in setting it aside, or in recovering back what has passed under it. (Nellis v. Clark, 4 Hill, 424. Hook v. Gray, 6 Barb 398; S. C., 4 Comst. 449. 20 John. 397, 4 Denio, 63.) In Rfifonington v. Toionsend, (7 Wench 276,) it was decided that a foreign incorporated banking company which violated the restrainingláct, could not recover the amount of a check discounted by them; the court remarking that any contract founded upon an Unlawful act, whether it be malurh prohibitum, or malum in se, cannot be enforced by action.- A party to an illegal transaction may object its illegality when it is sought to be enforced against him, though he %cannot enforce it. (Tylee v. Yates, 3 Barb. S. C. Rep. 222.) The charter1 of the city of Eew-York provides, that no member of the common council shall be directly or indirectly interested in any *405contract with the city. An alderman became interested in a contract for supplying coals to the city and took a note of the contractor for his share of the profits ; held void in the hands of the assignees for the benefit of the alderman’s creditors. (Bell v. Quin, 2 Sand. 146.)
But it is argued that the disability clause in the statute was meant for the sole benefit of the stockholders, and that they have waived it; that a majority could waive it, but all in fact have done so, most of them expressly, and the rest by silent assent and non-objection.
It is true that a party may waive a statutory proceeding for his own benefit, as for instance, notice made preliminary to an ejectment. (2 Barb. S. C. Rep. 316. 3 Comst. 197.) But I have yet to find a case where directors or even the stockholders of a corporation may waive the provisions of a prohibitory statute, enacted for good reasons, expressly forbidding the directors of a company from participating in the benefits of a contract for building their road. If directors may enter into contracts with themselves, fair competition may be prevented, and the stockholders may thus be compelled to pay much more for the construction of their road than they would if the contracts were thrown open and awarded to the lowest bidders.
The case of Bell v. Quin, (2 Sand. 247,) certainly does not sanction any such idea, but the whole amount of reasoning in the opinion of the court entirely repudiates it, and so do the cases cited by the court. The cases of Armstrong v. Toler, (11 Wheat. 258,) and Jackson v. Walker, (5 Hill, 27,) establish the position that where the legislature have said the thing shall not be done, that is enough. The court in the latter case declined to discuss the policy of the law; deeming themselves entirely concluded by the letter and commands of the statute.
But how, or in what manner, it may be asked, have the directors or stockholders waived the provisions of the statute, and where is the evidence of it ? It is said most of them have done it expressly. If it is supposed the evidence is to be found in the proceedings of the 9th of July, 1851, it will be seen on looking at the resolution of that date that after liquidating the *406amount, which the evidence shows was done for the purpose of ascertaining what sum was to be put into the mortgage, Kings-land & Co. and Woodworth executed a memorandum, by which they acknowledged that this was a settlement for “ building the road as per contract, to be paid by amortgage as per contract.” And the evidence shows further, that the directors were only willing to give such mortgage without any bond, and they refused afterwards to accept the assignment of the $2200 stock, unless Kingsland & Co. and Woodworth would take such mortgage on the road without a bond. There was in fact no settlement beyond a liquidation of the amount due; for the company ex-j>ressly refused to give a bond, or to accept the assignment of the stock, unless Kingsland & Co. and Woodworth would take the mortgage. The plaintiffs would not receive the mortgage. There was therefore only an attempt to close the matter, which was not successful.
The cases in 4th Comstock and 11th Wheaton establish the doctrine that where a contract grows out of, or is connected with, an illegal act, the court will not lend its aid to enforce it, and if it be in fact connected with the illegal transaction, it is tainted with the illegality of the transaction -from whence it sprung. (And see 2 Sandf. 146, and 4 Denio, 63.)
Again, -it cannot be said that the settlement with Lyman Woodworth on the 24th of February, 1852, wUs a waiver: Kings-land &. Co. were not parties to this settlement. It was a transaction between the company and Lyman Woodworth individually. Besides, if it means any thing, it shows the intention of the company to fairly liquidate the amount for which they were to execute the mortgage according to the contract, and nothing further.
If I am correct in thus coming to a conclusion, that the contract was void and illegal, because prohibited by statute, then it -follows that the agreement to take the $2,200 of stock was [equally invalid, as being part of the contract to build. It has been repeatedly held, that where there are two considerations to an agreement, if either of them be unlawful the agreement is void. If one be valid and the other void only, the valid consid*407eration may sustain, the promise. But a void consideration may not be an unlawful one, (Mackie v. Cairns, 5 Cowen, 547. 6 Id. 431.) In this case the statute expressly prohibits the contract ; it is void; it is illegal.
But I am of opinion, that the agreement of the company to purchase the stock of Kingsland <fc Co. and Woodw'orth is against public policy, and that the directors had no power to make such- purchase. The powers conferred by the revised statutes relative to plank roads, are the same as those in relation to turnpike companies. (1 R. S. 579, § 14.) By the general powers in 1 R. S. 599, sec. 1 of the 3d title, they have the power to hold, purchase and convey, such real and personal estate as the purposes of the corporation shall require, not exceeding the amount limited in their charter. These powers do not authorize*^ them to purchase them own stock, although they may perhaps be authorized to take it in payment of a debt due them. If they can do so, it would be a dangerous power, in relation to the plank road companies; for by the 44th section of the act, the stockholders of every company are made liable in their individual capacity, for the payment of the debts of the company, for an amount equal to the amount of the stock they severally have subscribed. And section 65 declares that the debts and liabilities of any company shall not exceed in amount, at any time, 50 per cent of the amount of its capital actually paid in ; and if such debts and liabilities shall at any time exceed such amount, the stockholders who were such at the time any excess ■ of debts or liabilities shall be created or increased, shall be jointly and severally individually liable for such excess, in addition to their other individual liability. Bissell, Day, (Moulding and Peabody were stockholders in this case, but were not directors.
Section 38,1 R. S. 589, (§ 117, id. 4th ed. p. 1407,) declares that the business and affairs of the company shall be managed by a board of directors ; but that section, in my judgment, does . not confer upon them the power to incur a debt by purchasing their own stock at par, when its value may be far below that figure, or to purchase at all and mortgage their road and make their stockholders personally liable. It was never the intention *408or meaning of the statute that the affairs of the company should be “ managed and conducted” in that way. The legislature does not empower the directors thus to barter away and waive the rights of the stockholders.
But it is insisted that if the written contract was wholly void the plaintiffs are entitled to recover on the subsequent express promise to pay for their work and materials and stock, as a new and valid contract. It has been already remarked that where a contract grows out of, or is connected with, an illegal act, or if it is in part connected with it, it is tainted with the illegality of the transaction from which it sprung, and no recovery can be had. (11 Wheat. 258. 4 Comst. 449.) Every new agreement entered into for the purpose of carrying into effect any of the unexecuted provisions of a previous illegal contract is void. Now what is the express promise on which the plaintiffs rely, for a recovery in this case ? Nothing but the resolution declaring the acceptance of the road, and the amount due Kingsland & Co., and Woodworth, as-in full of all claims, to the day of its passage, on the 9th of July, 1851. Both parties declaring that this settlement is for building the road as per contract, to be paid by a mortgage as per contract, clearly intending to carry out the original contract and nothing more, and carefully guarding against the idea of' a new debt or a new liability. It was in fact a more liquidation of the amount found due under the contract, and a resolution to execute th<| mortgage secured by it. There was no promise to pay, independent of it, and the plaintiffs cannot establish their claim without its aid. The same objections apply to any argument based Upon an implied assumpsit.
These views dispose of this case in favor of the defendants. But if the contract should be deemed a valid one, I do not see how the plaintiffs can recover in the present action, or sustain the verdict of the jury. They do not ask the court to compel an execution of the mortgage. They do indeed aver that the defendants have neglected and refused to execute the mortgage, as provided in the contract, for said debt, and they ask for one-fifth part of the amount for which the mortgage was to be executed, with interest; or they claim to recover under what has been *409called their common counts, for work, labor and services, and materials found, and an account stated. But this agreement is denied, and not proved. The agreement, if legal and binding-, was for a mortgage only. The evidence shows repeated offers on the part of the defendants to execute the mortgage, without a bond, and a refusul to receive the stock assigned, unless Kings-land & Co. and Woodworth would take the mortgage as offered. This was refused. The averment of refusal to convey is not only not proved; it is actually disproved. It is said in answer to this that the defendants never drew up a mortgage and tendered it to the plaintiffs. The plaintiffs did not put their refusal to accept on the ground that there was no tender. The offer was refused, because the directors could not execute a bond with the mortgage and make the corporation or the corporators personally liable for the debt.
[Fulton General Term,
January 2, 1854.
Hand, Cady and C. L. Allen, Justices.]
No tender of a mortgage was necessary; the plaintiffs having absolutely refused to receive one. No demand of a mortgage and refusal to execute has been pretended. (Crary v. Smith, 2 Comst. 60. Connelly v. Pierce, 7 Wend. 129. Fuller v. Hubbard, 6 Cowen, 13. Blood v. Goodrich, 9 Wend. 68.)
In every view which I have taken of this case, I can discover no ground on which a recovery can be sustained. There must be judgment for the defendants, with costs.