Court Opinion

ID: 6961600
Source: CourtListenerOpinion
Date Created: 2022-07-24 01:46:35.136778+00
Date Added: 2024-06-11T16:08:27.373170
License: Public Domain

Mr. Justice Dickey, dissenting: This statute was not passed for the protection of directors, but for the protection of stockholders and creditors of the bank. In my judgment it can not properly be invoked in defence of a director against the recovery from him, upon his guaranty of payment, of money unlawfully procured from the bank by means of his own unlawful act. It is no doubt laid down as a general rule that “no right of action can spring out of an illegal contract, ” and that “no action will lie upon a contract made in violation of a statute,” and that “a contract founded on an act prohibited by statute is void. ” This general rule, when applied to contracts which are simply prohibited, and are not declared by statute to be void, rests entirely upon the ground that holding such contracts to be void is the best mode which courts can adopt to give effect to the statute, and to accomplish the end intended by the statute, upon the ground that by so doing courts can best enforce obedience to the statute. The result is reached in all such cases by construction, and that construction is adopted which will most effectually accomplish the intention of the law-maker. ■ In Sedgwick on Statutory" and Constitutional Law, it is said: “The principle which enforces obedience to the laws is carried out by declaring contracts growing out of, or based upon, the infringement of a statute, to be void, the courts refusing to aid either party in enforcing the contract; ” and it is added, that “this is the general course of decisions in England and in this country. ” This being the foundation of this general rule, it seems to follow that in cases where holding the contract to be absolutely void will not tend to the enforcement of the statute, this general rule can have no proper application. In Wait’s Actions and Defences, p. 65, it is said of this general rule, it is not “applicable where the contract is prohibited for the mere protection of one of the parties against an undue advantage which the other is supposed to possess. ” And it is added, (p. 68,) that “in every instance courts will look to the language and subject matter of the statute, the wrong or evil which it seeks to remedy or prevent, and the purpose sought to be accomplished by the enactment, and if, from all these, it is manifest that it was not intended to render the prohibited act void, the courts will so hold, and construe the statute accordingly.” Applying these tests, which are entirely in harmony with the principles upon which the general rule rests, it seems obvious that the contract in this case ought not to be declared absolutely void. By the language of the statute the prohibition is expressly directed to the director, and to no one else. The wrong or evil which the statute seeks to remedy or -prevent consists in the practice of directors (having the control of the loans to be made by the bank, and taking advantage of their fiduciary position,) in lending to themselves other people’s money, with an eye to their private interests, rather than that of the stockholders or creditors. The purpose sought to be accomplished by the statute was to put an end to such practices by directors. In view of all these considerations, can it be said it was the intention of the statute - to provide that in case of a violation of the statute, instead of a penalty being imposed upon the offending director, the director should have a shield of immunity thrown around him, protecting him from an action brought to repair the wrong done in violating the statute ? This does not seem possible. To hold this defence good is to hold that the legislature intended by this statute to leave it in the power of the directors of this bank to lend to each other all the money of the bank, and to provide that having so borrowed the same, no action for the debts so incurred could' be maintained against either of them to recover the money back for the use of stockholders or creditors. No such intention should be attributed to the General Assembly. Let it be remembered that in all cases where contracts prohibited by statute have been, on that ground, declared void, the result is reached by construction, and that sucli construction rests upon the principle that such ruling enforces obedience to the statute. If, therefore, the case and the statute be such that such ruling does not tend to enforce obedience to the law, no such construction can be indulged. It seems manifest that it would tend much more strongly to the enforcement of this statute to hold that the contract in question is in its nature voidable, but riot void; that the bank may either repudiate the contract, and avoid the same, or adopt and enforce it, as may be best for the interests of its stockholders or creditors; that as against the director the contract is valid, while as against the bank it is voidable. Upon that view, should the officers of the bank lend to one of the directors, in violation of this enactment, a sum of money for five years, taking notes and personal security for the same, the bank might, under such circumstances, repudiate the contract, and sue for and recover the money at once,' or, if more to its interest, might avail itself of the contract as the best means of recovering its money. This would seem a better mode, if the end sought be to promote the object of the statute,—would seem to be more in consonance with the intention of the law-maker,—and a mode much better calculated to enforce obedience to the statute. There is a general rule that a contract to do that which a statute forbids is void, and so is a contract to omit to do that which a statute requires. This rule may have no exceqriions. The case at bar, however, does not fall within that rule. The statute prohibits the director from incurring the debt. It does not prohibit its payment. It can not be said that Bornman could have violated any statute by paying this debt. His promise to so pay, then, is not a contract to do that which the statute forbids. Without discussing in detail the many cases where prohibited contracts have been held void, it is thought sufficient to say that an analysis of each will show that in most, and it is believed in all, it will be found that the nature of the case and the statute was such that the enforcement of the statute, and the accomplishment of the purpose of the statute, was apparently more effectually promoted by holding the contract in question a nullity. Such cases afford no support for the decision in this case, which, in its effect, tends to encourage the violation of the statute. Again, this contract is prohibited “for the mere protection of one of the parties against the undue advantage which the other is supposed to possess.”- This statute is obviously passed “for the mere protection” of the bank “against the undue advantage which” the director “is supposed to possess.” In such case, it is well said, the general rule is not applicable. A director who has violated this law, in a transaction to which he is a party personally on one side, and on the other as the agent of the other party,, acting for that principal, can not be allowed to say that his principal (the bank) is in pari delicto. Let directors understand that by such transactions they may incur liabilities, but can gain nothing as against the bank,—that they have everything to lose and- nothing to gain,—and then its violation will be rare. But -say to them that by such transactions you can incur no liability to pay the debt, and the inducement to them to do that which the statute forbids is much greater than if the statute had never been passed. Mr. Chief Justice Craig, and Mr. Justice Sheldon, concur in this dissenting opinion.