183 Ind. 371 | Ind. | 1914
Lead Opinion
— Suit by appellee against appellants, Hector M. Gilchrist and Dewitt C. Griffith, to have annulled on the ground of fraud a certain deed wherein he had conveyed certain described real estate to Gilchrist, and to recover the possession of said real estate and to quiet title thereto.
“This Agreement, made this 9th day of October, 1905, by and betAveen Dewitt C. Griffith of the first part, and Aretas W. Hatch of the second part, Witnesseth: Whereas, said first party has this day sold and transferred to the second party shares of the capital stock of Mount Pleasant Oil Company, a corporation under the laws of Indiana, aggregating Ten Thousand Dollars ($10,000) par value, and the second party has paid to the first party the sum of Ten Thousand Dollars ($10,000) for said shares; and it was, and is, part of the consideration for said transaction that said parties enter into and bind themselves by this agreement. Now therefore, in consideration of the premises and of the mutual agreements herein contained, it is agreed between the parties hereto as follows: First, Said first party shall retain the ownership of a majority of the shares of the capital stock of said company and the second party shall retain the shares so purchased by him as aforesaid, until this arrangement shall be terminated by the mutual consent of the parties hereto; and while they so hold said stock, said parties hereto shall vote the same for the election of such other 'director or directors as they |nay agree upon. Second, Said parties hereto shall cause said directors to elect said Hatch the secretary and attorney of said company and said Platch hereby agrees to accept such offices and perform the duties thereof;. and the salary of such offices shall amount to-, per annum. Said Hatch shall be elected and shall serve from year to year so long as this agreement shall continue in force and the parties hereto shall elect directors who will continue Hatch in said offices. Signed in duplicate the day and year first hereinabove written. D. O. Griffith, A. W. Hatch.”
It further appears that Griffith was then indebted to appellant Gilchrist and it was therefore agreed that appellee should pay for his stock by conveying to Gilchrist a certain
The first paragraph alleges that Gilchrist had knowledge of the fraud practiced by Griffith and that he took the property in payment on an existing debt and for no other consideration. The second paragraph charges that Gilchrist conspired with Griffith to perpetrate the fraud and actually participated therein.
There are exceptions to this rule, however, and if we concede, without deciding, that the contract before us is against good morals, it does not necessarily follow that appellee,
In the case of Porter v. Jones (1869), 46 Tenn. 313, 321, the reason for the exception and the test thereof are thus well stated: “while the rules of law which courts are bound to enforce in civil cases, have reference primarily, to the protection and -enforcement of private rights, they are also subservient to the governing principle, that the safety and best interests of the community are paramount to any private interest. Therefore it is, that there are many cases in which, were the rights or interests of the parties only concerned, courts would absolutely refuse them aid; yet, as the public good demands a decision upon their claims, the courts will entertain the cause and* make the decision. The decree is made upon the facts ánd the law of the private’right; but the community is a quasi party to the cause; and for the protection of the community, courts may overlook the individual turpitude which has forfeited the private right, and make such decision, consistent with the public interests, as they would have made had +he party been innocent. Prom
Our attention is called to the case of Swain v. Bussell (1858), 10 Ind. 438, as decisive of this case but we do not so construe it. The plaintiff, Swain, alleged in his complaint that he deeded his property to the defendant in consideration of 1,533 shares in the Shelby ville Real Estate Company”; that the scheme of said company was to distribute its lands among the shareholders by lot; that the defendant represented to plaintiff that such scheme was not a lottery but an honest transaction. The trial court sustained a demurrer to the complaint and, on appeal, its action was affirmed, this court holding, in effect, that the particular description of the “Real Estate Company” and its purposes showed clearly that the scheme was a lottery and negatived
But in this case, however, although the transaction between appellee and Griffith, and the contract itself, are set out in detail for the purpose of showing the deception
The facts pleaded in the case at bar are sufficient to show the existence in each party to the controversy of a claim adverse to that of the other side and there can be no doubt that the ultimate issue was that of title. That this was the construction placed on the complaint by the trial court is clearly manifest in its conclusions of law stated on the facts as found specially and in its judgment rendered on such
Prom these and other circumstances which it is not necessary to enumerate here, the trial court drew the inference that Gilchrist had such knowledge of the transaction between Griffith and Hatch as will now prevent him from assuming the role of innocent purchaser. It is not the province of this court to weigh the evidence as it appears in the transcript but only to determine whether there is any evidence from which the trial court might properly draw its conclusion. Ye think the circumstances of this case present a situation in which the following language from the opinion in Elliott v. Baker (1907), 194 Mass. 518, 520, 80 N. E. 450, is applicable: “This is peculiarly a case for the application of the rule that the justice who hears the witnesses has opportunities for testing their reliability and veracity which no appellate tribunal can acquire. It is stated in the memorandum of the justice that he ‘ cannot believe, though it is denied by all of them, that there was not some secret understanding or arrangement between Lamson, Poster and Nickerson in regard to the situation.’ This finding must have been based not alone upon what was said, but upon a scrutiny of the witnesses, inferences drawn from their appearance, and the atmosphere they created in testifying, which cannot be reproduced in a printed report.”
Concurrence Opinion
Concurring Opinion.
— Concurring in the opinion by Mr. Justice Spencer, I am constrained to suggest additional legal grounds for affirmance, which impress me.
Conceding for the purpose of argument, that the contract in question, if it were free from fraud or misrepresentation in its inducement, might be prohibited on grounds of public policy, it would be so because of a public interest, but the public as such can have no interest in the inducement itself. That pertains to the parties alone, and if the contract is procured by fraud or misrepresentation as to the thing itself, which is the inducement to the contract, such as misrepresentation of the value, or fraud which forms the main consideration for it, then it appears to me that that portion of the contract is so far severable from the remainder, where the whole contract is not one involving a course of conduct 'or action, in itself violative of some public policy, that the individual should not be punished because he has been overreached by false representation or fraud, because if that be true, then such rule would put a premium upon such conduct, and lead to greater abuses, than to arrest it where the injured party would have stopped, had he not been led into it by the fraud, which is a separable incident of the transaction, from the portion which is prohibited on grounds of public policy.
As an incident of this view, so long as the prohibited portion of the contract is unexecuted, or the illegal part put in operation, so as to put both parties in pari delicto, as to the unlawful thing, there ought, in my judgment to be, and the law recognizes, not the right to enforce the contract, but the right of the party who has been defrauded into its execution, to avoid it, a very different thing from a contract
It is said in 9 Cyc. 522, note, “This rule has been applied, for example, where a person was induced by the fraud of another to make a conveyance of property in pursuance of an agreement which was illegal on the ground of champerty, and sought to get the conveyance set aside in chancery. It was held that as the grantor had been induced to enter into the agreement by the fraud of the grantee, he was entitled to relief. Reynell V. Sprye [1852], 1 DeG. M. & G. *660, 21 L. J. Ch. 633, 50 Eng. Ch. 510. So where a debtor offered his creditors a composition of five shillings on the pound, and one of the creditors refused to assent unless the debtor would pay him £50 additional in fraud of the other creditors, and the debtor paid him the money and he assented to the composition agreement, it was held that the debtor could recover the money. The parties were regarded as not in equal guilt, because the one had the power to dictate and the other no alternative but to submit. Atkinson v. Denby [1861], 6 H. & N. 778. So where a husband falsely represented to his wife that she was liable for certain debts, and that the creditors would take her property, and influenced by this, and intending to defraud such creditors, she transferred her property to him, it was held that the deed would be set aside. Boyd v. De la Montagnie [1878], 73 N. Y. 498, 29 Am. Rep. 197.”
"Where one enters into a contract, which is contrary good morals and public policy, and is induced to. enter into the contract by the fraud of the other party, such fraud is anterior to, and independent of the contract. The fraud is a tort. As was said by the Supreme Court of the United
There is another rule in regard to a contract against good morals or public policy which is applicable to this case. It is stated as follows in 9 Cyc. 554: “By the weight of authority, where money has been paid in consideration of an executory contract or purpose which is illegal, the party who has paid it may repudiate the agreement at any time before it is executed, and reclaim the money, for there is a locus pcenitentice. And on the same principle, goods that have been delivered under an illegal agreement or for an illegal purpose, may be reclaimed, and recovered back, so long as the agreement or purpose remains unexecuted. "Where a person has paid money to another upon the illegal consideration of procuring him a public office or stopping a prosecution, he may repudiate the agreement while it remains executory and recover back the money. So where one deposited a sum of money in a bank, to be paid to a sheriff when he should secure the pardon of the owner’s brother, who was then in the penitentiary, it was held that he could recover the money so long as it remained in the possession of the bank. The rule seems to be, that it is only where there has been no part performance that the action will lie. * * But there are rulings to the contrary which enable the party to sue if the agreement is not completely executed.
The rule is disclosed in the following cases: DeLeonis v. Walsh (1903), 140 Cal. 175, 73 Pac. 813, 815; Wasserman v. Sloss (1897), 117 Cal. 425, 49 Pac. 566, 38 L. R. A. 176, 59 Am. St. 209, and cases cited; Ware v. Spinney (1907), 76 Kan. 289, 298, 91 Pac. 787, 13 L. R. A. (N. S.) 267, 13 Ann. Gas. 1181, and authorities cited; Hardy v. Jones (1901), 63 Kan. 8, 64 Pac. 969, 88 Am. St. 223, and note 225; Kiewert v. Rindskopf (1879), 46 Wis. 481, 1 N. W. 163, 32 Am. St. 731; Souhegan Nat. Bank v. Wallace (1881), 61 N. H. 24; Sampson v. Shaw (1869), 101 Mass. 145, 3 Am. Rep. 327; Mueller v. Stoecker Cigar Co. (1911), 89 Neb. 438, 131 N. W. 923, 34 L. R. A. (N. S.) 573; Leadbetter v. Hawley (1911), 59 Or. 422, 505, 506, 117 Pac. 289; McCall v. Whaley (1908), 52 Tex. Civ. App. 646, 115 S. W. 658, and cases cited; Congress, etc., Spring Co. v. Knowlton (1880), 103 U. S. 49, 26 L. Ed. 347. In Leadbetter v. Hawley, supra, the plaintiff being a stockholder in the Crown-Columbia Pulp and Paper Company, and the owner of $50,000 of its bonds, delivered them to the defendant, who claimed to be also a stockholder in that company, on the agreement that the defendant should retain the ownership of his stock, and vote the same as directed by the plaintiff, or would allow the plaintiff to vote it at all the stockholders’ meetings of the corporation for the protection of the interest and holding of plaintiff in the corporation, to all of which the defendant agreed, but that afterwards the plaintiff discovered that the defendant did not own any stock in the company, and by reason of his misrepresentations on this subject, had deceived and defrauded the plaintiff. The court on page 424 said, “A contract becomes executed when all is done that
In Souhegan Nat. Bank v. Wallace, supra, it was held that an agent who has money furnished him for the purpose of secretly securing the return of stolen securities, is liable for the balance of such money remaining unexpended in his hands. In this case the court said: “And adopting even the defendant’s theory, that the money was knowingly advanced by the plaintiffs for an illegal purpose, he can not be permitted to retain the benefit which, in his representative capacity he seeks to derive from the wrongful act of his intestate; for it is consonant to the letter as well as to the spirit of the law, that, as such alleged purpose was not fully executed, there was a locus paenitentiae as to the unexpended balance of the money of which the plaintiffs might legally and properly avail themselves. ’ ’
In Ware v. Spinney, supra, the court said: “The illegality that defeats a recovery of the money is not in the intent alone. It has been well said: 'persons may not be punished either in civil or criminal courts for unlawful intentions. It is the consummation of these unlawful intentions that places á party without the law. If the unlawful intention or transaction is not carried out, if nothing is done under it, my servant has my property, and I am entitled to its return. As in the present ease, he is acting under a special agency which I have a right to revoke at any time before perform
In Mueller v. Stoecker Cigar Co., supra, 442, the court said: “It seems to be the general holding of the courts that, so long as an illegal contract remains executory and the illegal purpose has not been put into operation, the one who has paid money thereon to the other party may repudiate the contract and recover back the money. Stover v. Flower [1903], 120 Iowa 514 [94 N. W. 1100], and cases cited; McCall v. Whaley [1908], 52 Tex. Civ. App. 646, 115 S. W. 658.”
In Aughey v. Windrem (1908), 137 Iowa 315, 321, 114 N.
There .are many other eases. The case of Taylor v. Bowers [1876], L. R. 1 Q. B. 291, was an action to recover the value of property assigned for the purpose of defrauding creditors. A verdict was rendered for plaintiff with leave to move to enter a verdict for the defendant. A rule was obtained on the ground that the plaintiff could not by the allegations of his own fraud get back the goods from the defendant. The Queens Bench sustained the verdict, the Chief Justice, Cocbburn, delivering the opinion. The defendants then appealed to the court of appeals, where the judgment was affirmed. Both courts agreed that an illegal contract partially performed might be repudiated and the money paid upon it recovered. Lord Justice Mellish, in the court of appeals, said: “if the illegal transaction had been carried out, the plaintiff himself in my judgment, could not have recovered the goods. But the illegal transaction was not carried out; it came wholly to an end. To hold that the plaintiff is enabled to recover does not carry out the illegal transaction, but the effect is to put everybody in the same situation as they were before the illegal transaction was determined upon, and before the parties took any steps to carry it out. That, I apprehend, is the true distinction in point of law. If money is paid or goods delivered for an illegal purpose, the person who had so paid the money or delivered the goods may recover them back before the
In Morgan v. Groff (1848), 4 Barb. 524, it is held that money paid on an illegal contract, which remains executory, can be recovered back in an action founded on a disaffirmance, and on the ground that it is void. To the same effect are: Utica Ins. Co. v. Kip (1827), 8 Cow. 20; Merritt v. Millard (1868), 4 Keyes 208; White v. Franklin Bank (1839), 39 Mass. 181; Lowell v. Boston, etc., R. Co. (1839), 40 Mass. 24, 34 Am. Dec. 33.
In Thomas v. Richmond (1870), 12 Wall. 349, 20 L. Ed. 453, the court cites with approval the note of Mr. Frere to the case of Smith v. Bromley (1781), 2 Doug. 696, to the effect that a recovery can be had, as for money had and received, when the illegality consists in the contract itself, and the contract is not executed; in such case, there is a locus paenitentiae, the delictum is incomplete, the contract may be rescinded by either party.
Mr. Parsons, in his work, 2 Parsons, Contracts 746, says: “All contracts which provide that anything'shall be done which is distinctly prohibited by law, or morality, or public policy, are void, so he who advances money in consideration of a promise or undertakes to do such a thing may, at any time before it is done, rescind the contract, and prevent the thing from being done, and recover back his money.” To the same effect, see, 3 Addison, Contracts (Am. ed.) §1412;
It may be conceded that our own cases have gone very far in refusing aid to one who has been a party to an illegal contract, where it has been even partly executed. As suggested above, appellee is not shown to have done anything with respect to the illegal portion of the contract. It is in fact alleged that no part of it had been carried out. In one sense the contract is an entire one, as embracing both a legal and an illegal consideration, but as indicated by the decisions, they may be disassociated where the parties are not equally guilty of wrong. Such cases as Overshiner v. Wise-hart (1897), 59 Ind. 135, and Hutchins v. Weldin (1888), 114 Ind. 80, 15 N. E. 804, do not reach the question here, because in the former, the party seeking relief had been an active participant in an undertaking wholly fraudulent, and in the Hutchins case the court plants the decision on the ground that the plaintiff got all that he bargained for. So in Swain v. Bussell (1858), 10 Ind. 438, Swain got exactly what he bargained for, and was bound to know that the whole transaction was prohibited. In Board, etc. v. Garrigus (1905), 164 Ind. 589, 73 N. E. 82, 74 N. E. 249, it is pointed out that there is a distinction between cases where both parties are equally guilty of wrong, and where one has been overreached by another into the making of the contract, and also between actions to enforce, and those to rescind. In our own court, such cases are: Spaulding v. Nathan (1898), 21 Ind. App. 122, 51 N. E. 742; American Mut. Life Ins. Co. v. Mead (1906), 39 Ind. App. 215, 79 N. E. 526. The strongest case perhaps in this State, presenting the question of partial execution is Chicago, etc., R. Co. v. Southern Ind. R. Co. (1906), 38 Ind. App. 234, 70 N. E. 843, but it will be observed that the action was to enforce, and not rescind, and in that case as in the Mead case, the doctrine of Kain v. Bare (1892), 4 Ind. App. 440, 31 N. E. 205, and Regensburg v. Notestine (1891), 2 Ind. App. 97,
The evidence discloses that appellant took a conveyance for property worth $10,000 or more, without any examination of it, from which the inference of his relation to the transaction in its entirety, may be readily drawn. He knew of the existence of the oil stock, and had full knowledge that it was practically of no value, and that having assented to the property being incorporated, he knew that- there ivas nothing to do but take what he could get, without any questions asked, or inquiry made, as his evidence practically discloses. It also appears that appellee received $250 a month for two months, and it is alleged he rendered full value for it. Conceding that this salary was received under the contract, if the services rendered Avere o£ that value as services, and there is no intimation to the contrary, and it also appears that he was never secretary or director, no estoppel can be predicated on that fact, for no one can be estopped by receiving what he is entitled to, or as in this case, the fair value of services rendered, in addition to the fact that it will be presumed to be a fair value. Drury v. Hayden (1884), 111 U. S. 223, 4 Sup. Ct. 405, 28 L. Ed. 408; Elliott v. Sachett (1883), 108 U. S. 132, 2. Sup. Ct. 375, 27 L. Ed. 678; Smith v. Kidd (1877), 68 N. Y. 130, 23 Am. Rep. 157.
I am impelled by these additional reasons to concurrence in affirmance of the judgment.
Note. — Reported in 106 N. E. 694, 699. As to actions on illegal contracts, see 8 Am. Dec. 691. See, also, under (1, 4) 9 Cyc. 550; (3) 31 Cyc. 333; (5) 9 Cyc. 551; (6) 29 Gyc. 1037; (7) 29 Cyc. 1035; (8) 3 C. X 725; 2 Cyc. 672; (10) 3 Cyc. 360.