Court Opinion

ID: 9808765
Source: CourtListenerOpinion
Date Created: 2023-08-31 20:49:54.801424+00
Date Added: 2024-06-11T12:18:19.471477
License: Public Domain

BaeNiiill, J.,
dissenting: On'the motion to nonsuit, considering the evidence in accord with the controlling rule, these facts stand out:
1. Plaintiff was cashier of the Beaufort branch of the First-Citizens Bank & Trust Company. Over a period of time he, with the approval of the proper bank officials, had made loans to the defendants. He also from time to time paid checks of the defendants when they had no credit balance in the bank. He did not charge these to the defendants’ account so as to show an overdraft but carried them as “cash items” and they are referred to in the record as “throw-out” checks. The transactions *685in respect to the checks were had without the knowledge of plaintiff’s superiors.
2. On 28 February, 1940, defendants had in the bank two notes, one for $1,500 and one for $2,250. The bank also held several hundred dollars of “throw-out” checks. On that date they executed and delivered to the bank their note for $4,700. The proceeds of this note were credited to their account. A few days later their account was charged with the outstanding items, including the two smaller notes or checks therefor, leaving a credit of $6.25.
3. On 26 May, 1940, plaintiff entered a credit of $3,000 on the $4,700 note. This credit is reflected on the books of the bank. No payment was in fact made. To “cover up” and conceal this false entry, plaintiff juggled and misapplied other assets of the bank. On 3 July, 1940, he entered another credit of $1,700. This was concealed on the books of the bank in the same manner by misappropriation of other assets. He then abstracted and embezzled the $4,700 note which, according to the records of the bank, had been, but was not in fact, paid.
4. On 25 August, 1940, plaintiff had in his possession this embezzled note. At that -time the bank had paid and was holding “throw-out” checks of the defendants totaling $800 or more. Plaintiff demanded a note in renewal of these combined items. Thereupon, the note sued upon was executed, the consideration thereof being the embezzled note and the “throw-out” checks. The $4,700 note was canceled and delivered to defendants.
5. Plaintiff admits that he furnished no part of the consideration of the note and that it represents the consolidated items — the “throw-out” checks and the $4,700 note: Pie testified: “At the time the $5,976 note was given, I felt that Mr. Wright was not going to get a note discounted to take care of those items and I made the note payable to myself because I knew that I or the bonding company would have to reimburse the bank for the money I had let Mr. Wright have, I might say illegally.”
So then plaintiff’s case comes to this. Peing in possession of a note unlawfully abstracted from the assets of the bank and having allowed defendants to overdraw their account, he demands and accepts a note in renewal of these items. He now sues on the note thus received to recover the amount thereof.
Will the courts aid him in his effort to convert the fruits of his embezzlement into cash and thus to reap 'the benefits of his unlawful conduct ? In my opinion the answer should be no. Certainly this should be true as to so much of his demand as is represented by the $4,700 note. A somewhat different situation arises as to the checks.
It is argued that the note offered in evidence constituted prima facie evidence of the indebtedness and therefore the motion to dismiss as in *686case of nonsuit cannot be sustained. But we must remember that we are considering tbe motion last made after plaintiff admitted be furnished no part of tbe consideration and bad disclosed tbe real nature of tbe transaction.
When tbe note was offered in evidence, tbe signatures of defendants were not proven. Hence, tbe unidentified note constituted no evidence. But, passing that question, when tbe plaintiff went on tbe stand and testified, be disclosed tbe illegal nature of tbe consideration and rebutted tbe prima facie effect of tbe note itself as effectively as if be bad then admitted that tbe note bad been paid in full.
Tbe court will not become a party to tbe enforcement of an illegal contract or a contract based on an unlawful consideration, 2 Pom. Eq. Jur. (5th), 117; 3 Pom. Eq. Jur. (5th), 645, or one which is against public policy, 3 Pom. Eq. Jur. (5th), 652, or opposed to good morals, ibid., 714. Tbe proposition is universal that no action arises, in equity or at law, from an illegal contract. Ibid., 728; Covington v. Threadgill, 88 N. C., 186; Fashion Go. v. Grant, 165 N. C., 453.
“Tbe Court will permit nothing to be done which will enable a party to collect from tbe other tbe fruits of bis wrong. When be sues to recover, tbe law will not give him judgment.” Basket v. Moss, 115 N. 0., 448 (459); Pierce v. Cobb, 161 N. 0., 300; Tobacco Association v. Bland, 187 N. 0., 356; Waggoner v. Publishing Go., 190 N. C., 829; Merrell v. Stuart, 220 N. C., 326.
Tbe note in controversy is nothing more than a link in tbe chain of illegal transactions of plaintiff in misapplying and misusing tbe funds of tbe bank. Now that bis misappropriations have been disclosed, be seeks to preserve bis ill-gotten gains by recovering from defendants.
On bis own. testimony tbe whole transaction is steeped in fraud and illegality. Tbe conclusion that be is now attempting to preserve tbe fruits of bis unlawful conduct by recovering on a transaction which was illegal in its inception is inescapable. If be is permitted to do so, be will profit by bis own wrong. In my opinion tbe court should decline to entertain bis action, certainly to tbe extent tbe note represents tbe amount due or alleged to be due on tbe embezzled obligation of defendants.
But plaintiff contends that in any event be should be permitted to recover under tbe doctrine of subrogation; that bis surety reimbursed tbe bank for tbe losses resulting from bis defalcations; and that be has secured and is now repaying in monthly installments tbe amount thus expended by tbe surety company.
Tbe uneontroverted evidence is to tbe effect that tbe bonding company made settlement on tbe basis of a statement of shortages furnished by tbe bank auditor, and this statement shows that tbe $4,700 note was not *687included. In fact, plaintiff’s shortage in large measure resulted from the misapplication of a $5,000 check. His misuse of assets of the bank is related to the $4,700 item in this manner: he took certain other assets and used them to acquire the obligation of defendants. In the settlement the surety paid the loss resulting from the original abstractions.
These facts do not invoke the application of the doctrine of subrogation even though the shortage arising out of the misappropriation of the note was a part of the settlement made by the surety company. The debt the surety company paid was the debt of the plaintiff. In reimbursing the surety company, plaintiff is paying his own debt and not the debt of the defendants. On his own admissions, he has no interest in the note sued upon and his payment to the surety company creates no right of subrogation.
It may be that the Wrights are indebted to the bank, or, perhaps, by subrogation, to the surety company. But the fact that neither the bank nor the surety company will sue is insufficient to vest in plaintiff the right to do so.
Even if we concede that in paying the surety company plaintiff is discharging an obligation on which defendants are primarily liable, he cannot resort to the equitable doctrine of subrogation. Whatever interest he has in the subject matter of this action, either direct or by subrogation, is traceable directly to his unlawful misuse and misapplication <?f funds of the bank which had been entrusted to his care. It is impossible to divorce the consideration of the note from its illegal inception. 12 Am. Jur., 646, sec. 152.
“He who comes into equity must come with clean hands” is a maxim so universally recognized and applied that no citation or authority is required.
“The Courts will not paddle in muddy water, but in such cases the parties are remitted to their own folly.” Waggoner v. Publishing Go., supra; Merrell v. Siuart, supra.
Now I come to the “throw-out” checks which under the testimony of all parties form a part of the consideration of the note. The only dispute as to these items relates to the amount. But what became of them after the note of 25 August was executed remains, on this record, somewhat a mystery. They were not charged to the account of the defendants. It is not shown affirmatively that plaintiff paid the bank the sum expended in honoring them. They did not remain in the bank. But it does not appear that they were delivered either to plaintiff or to defendants.
When plaintiff honored these checks he became personally liable thereon. G. S., 53-89. If he in fact discharged this obligation in good faith out of his own funds and not by juggling accounts and entries, it *688may seem to be a hardship to deny him a recovery. But he has elected to combine the legal with the illegal and immoral as the consideration of a new promise upon which he now seeks recovery. The court will not entertain the suit for the purpose of undertaking to separate the good from the bad. Instead it will leave him where his wrongful or illegal conduct has placed him.
As observed by Lord Chief Justice Wihnoi, “No polluted hand shall touch the pure fountain of justice; and those so entering the temple will be expelled with the anathema ‘Procul, 0 procul este, profani/ " See Rock v. Mathews, 35 W. Va., 531.
“No principle is better settled than this: That if a single contract be made on several considerations, any one of which is illegal, then the whole promise is void, because every part thereof is induced and therefore affected by the illegal consideration.” Covington v. Threadgill, 88 N. C., 186; Wittkowsky v. Baruch, 127 N. C., 313 (318).
For the reasons stated, I vote to reverse.
'W'iNBORNE, J., concurs in dissent.