State v. Maury

| New York Court of Chancery | Sep 15, 1851

Johns, Jr., Chancellor.

From the Act of Assembly,&c. which is the foundation of this suit, the bill of complaint filed and the answers of the defendants, must be ascertained the subject of controversy and the respective rights and remedies. These several matters, being understood and defined, will determine the question of jurisdiction, and the appropriate remedy and mode of redressing any violation of the relative rights of the parties.

The first inquiry, therefore, must be directed to the Act of Assembly; as it confers the power and authority, and creates and vests the interests involved in the present suit. “ The Act for the benefit of Sussex county” was passed for the purpose of raising, by a lottery, $25,000, clear of all charges and expenses ; and this amount, as a net sum or proceeds of the lottery, is directed to be paid to the trustees named, or their successors, thereafter to be appointed by the Governor, and by them to be disbursed, according to the appropriation thereof made by the act.

The first section of the act appoints the trustees, and confers upon them the power or authority, at any meeting to be held by them, at Georgetown in the said county, after the passing of the act, and by a majority of the votes of-the said trustees who shall then be assembled, to elect and appoint one or more person or persons, not exceeding five in number, as manager or managers, to institute, carry on and draw a lottery, in one or more classes, for raising a sum, not exceeding twenty-five thousand dollars, clear of all expenses, costs and charges. From this section, I understand the law confers upon the trustees the power of appointment of the manager or managers, and by prescribing the mode of its exercise, by election, thereby excludes every other. And, when thus exercised, the manager or managers thus appointed derive from the Act of Assembly power to institute, carry on and draw a lottery, in one or more classes, for raising the net sum authorized to be raised.

By the 2nd section of the act it is made the duty of the trustees to notify the Governor of the State, for the time being, the name or names of the person or persons who shall be elected and appointed manager or managers, pursuant to this act. From this section and the following, as also from the Act of Assembly not having conferred any authority or control over the manager or managers by the trustees, nor delegated to them any power or authority to institute, carry on or draw the lottery; or, as in other lottery grants, to sell such right or privilege, I consider the manager or managers, when appointed, as authorized by the act, which is a public law, and as deriving from it expressly and directly the power to institute, carry on and draw the lottery ; and, therefore, the manager or managers can be regarded, in the discharge of their duties and the exercise of the delegated power, in no other light than as agents of the State. It is in consequence of their sustaining this relation to the State and the liability of the State for their acts, in the exercise of the authority granted, that provision is made, in the 3rd section, for the protection and indemnity of the State, and to secure to the State, on the part of the manager or managers, the true and faithful performance of the duty of the said manager or managers, by requiring that the said manager or managers, previously to the publication of any scheme and the sale of any tickets in said lottery, shall give bond to the State of Delaware, in such sum and with such security as any one or more of the Judges of the Superior Court shall approve of, conditioned for the true and faithful performance of the duty of the said manager or managers in the sale of tickets, drawing the classes of said lottery, paying the prizes, paying over to the said trustees, or their successors, the net proceeds of said lottery, and managing all the business thereof.

By the 6th section it is 'enacted that all expenses necessarily attending the carrying of this act into effect, so far as relates to the instituting, carrying on and drawing said lottery, shall be paid by the said manager or managers out of the proceeds thereof. The law thus, in this 6th section, expressly confers on the manager or managers full authority to defray all expense that is or may be necessary to carry the act into effect, so far as concerns the lottery.

The 8th section directs the trustees to give bond, conditioned to account for all monies received and disbursed by virtue of this act, and faithfully to perform all the duties and trusts reposed in them; which bonds, and also those given by the manager or managers, are to be delivered to the Secretary of State and filed in his office; and may be sued by any person or persons in the name of the State, for his or their use, who shall be injured by the breach of the condition thereof.

The 9th section enacts that this act shall be deemed and taken to be a public act.

Before adverting to the case made by the bill. and answer it may be well to consider and understand the effect and operation of the Act of Assembly.

It has, by name, appointed certain persons trustees, who, as such, have aright to receive the net proceeds of a lottery and disburse the same to accomplish certain public improvements ; but they are invested with no other authority or control over the lottery except the power of appointing, by election, the manager or managers. They, as trustees, are not responsible for the acts of the managers by them elected and appointed; for such managers are not their agents and cannot be ; for they, as trustees, have no power or authority conferred upon them either to institute, draw or carry on the lottery; and, therefore, they cannot delegate a power which they have not. They' are trustees for the purpose of receiving and disbursing the net proceeds ; and if the bond, as required by the 3rd section, is given, and taken by the person officially authorized,.and in such sum and with such security as such Judge or Judges shall approve, and with condition as the act prescribes therefor, upon a breach of such condition, in the non-payment over to the trustees of the net proceeds, they would, according to the 8th section, have a right to sue in the name of the State. For, the interest confided to the trustees is in the trust fund when received; and that is the only interest they have any concern with.

As I have already noticed, under and by the provisions of the act, the State stands in the relation of principal, expressly and directly delegating power and authority to the manager or managers, when elected and appointed in manner and form prescribed by the law-; and, as a necessary consequence, they become .the agents of the State in the exercise of the delegated power and authority, and the responsibilities and liabilities of principal and agent are the inevitable result. Thence arise interests altogether distinct and separate from the net proceeds, or that fund which the trustees may have a right to look after and take care of.

It may be very proper' for the trustees to pursue their remedies and protect the trust fund; but if they should do so, or neglect to do so, it cannot be that because they can take care of the trust fund that, therefore, the State should abandon all control and have no right or remedy over its own agent. This would seem to be reversing the order of things, and placing the principal in the power of the agent holding and exercising an authority in violation of the trust and confidence reposed; and it cannot be sound doctrine, either here or elsewhere. It must be repudiated, as neither law nor in accordance with equity and good conscience. The trustees cannot revoke or annul a power they have not granted or delegated; nor have they any control over its exercise by the Act for the benefit of Sussex county. Yet, as the power and authority is granted, to be exercised by the agent until he raises a certain sum and defrays all expenses, costs and charges, the acceptance of' such an agency imposes the obligation to account; and, because such account may be required by the trustee of the trust fund, to ascertain the net proceeds, it would seem equally essential that the principal should have a light to demand it, to ascertain whether the power has been exhausted.

.Further, by the terms of the grant the agent is required, before exercising the delegated authority, to give bond for the indemnity and security of his principal. If he fails to give such bond, in manner and form as specially required, it must be clear that for such omission none but the principal can apply the appropriate remedy, so as to restrain the irregular exercise of the delegated power. And this is to be done, certainly, not by treating his agent as a criminal, but by the appropriate remedy, well known and admirably adapted, not to punish but by its restraining influence to prevent injury and protect the right.

This liability of the State as principal for the acts of the manager or managers of this lottery appears to me to sanction the adoption by the State of such proceedings as any individual would be entitled to under 'similar circumstances.

It may be that the agent, is proceeding without having given bond, as required : if so, the principal has his remedy by injunction. But such act of omission does n.ot vacate the previous election and appointment: it only authorizes the suspension of the exercise of the delegated power by the legitimate remedy and by the authority of the proper tribunal. If the Act of Assembly had vacated the election and appointment of the manager or managers, on the omission' or failure to give bond as required by the 3rd section, as has been done with respect to certain officers, then, as the delegated power and authority would have been revoked, there would be good ground for proceeding at common law, either by quo warranta or in a criminal court by indictment. . :

Having thus considered the Act of Assembly and its effect and operation, for the purpose of deciding the question of jurisdiction, it is only necessary to determine what is the object of the suit and the relief prayed. This can be ascertained from the bill, which, after setting forth the Act of Assembly, alleges, as against the trustees, a breach of their duty by exceeding their power in contracting with the manager or managers, after their election and appointment; and, contrary to the provisions of the act, taking bond to secure, not the net proceeds but an annual sum, as the consideration for the right to institute, carry on and draw the lottery; and, as against the managers, the object of the suit is to restrain the further exercise of their power or authority, because they have not given the bond in manner and form as prescribed by the 3d section of the act; and, additionally, on the ground that the power and authority has determined by the sum having been raised which the act authorized to be raised; and, with a view to ascertain whether the power has been exhausted, the bill prays a discovery of the schemes and classes drawn by the manager or managers, alleging that the continuance and further exercise of the authority by the manager or managers is contrary to the said Act of Assembly; all which, although it may be charged as contrary to the said act, and therefore unauthorized, is only equivalent to a charge of a breach of duty and of the trust and confidence reposed in the agent or manager. It is not necessary that I should here decide whether the defendants have fully answered or not, as I am only considering the question of Jurisdiction. That matter-will arise upon another part of the answer.

If, then, I have correctly apprehended the objectof this suit, the subject matter, as against the trustees, is a complaint for a breach of trust; and, as against the manager or managers, not only a breach of their duty in doing what is contrary to the trust and confidence reposed in them as agents, but in omitting, as such agents, to execute the bond and give security for the indemnity of their principal, as by the Act of Assembly is required.'

The answer of the trustees admits the material facts charged, as against them, viz: their appointment, the election of managers, the special contract between them, as trustees, and the managers, the bond taken to secure the annual payments, pursuant to the contract; and only states, what is no doubt true, that they are ignorant of the matters inquired about concerning the management of the lottery.

The answer of the defendant, Maury, the survivipg manager, admits the material facts stated in the bill, viz, the passage of the Act of Assembly and the election and appointment of hijm by the trustees. It claims to derive his authority from the act and not from the trustees, admits the special contract and appends copies as well of bis election and appointment as also of the special contract made by him and the deceased manager with the trustees for a sum annually payable by them to the trustees, as the consideration for the right to draw the lottery, for a certain number of years, &c. It also admits that the bond executed and given was such as the trustees directed and took to secure the payments according to the said contract; a copy of which bond is appended to the answer and sworn to as certified.

On adverting to the bond appended to the answer it appears to be a bond to secure the payments according to contract, &c., and does not contain any certificate of its being taken or approved by any Judge of the Superior Court of the State.

Hence, from the bill and answer, it appears that the object of the suit concerns a matter of trust, against trustees, and also of trust and confidence by a principal against his agent, as manager of a lottery, to be instituted, carried on and drawn under his authority; and especially is the suit for the protection of the principal, by restraining the further exercise of the power or authority granted to the manager, because he has not executed the bond in manner and form as by law required; and, additionally, because he has exhausted his power, and has no authority to continue to exercise it; and to ascertain this fact the bill prays a discovery.

From this statement of the case, I entertain no doubt of the jurisdiction of this Court; and as the matters in the suit instituted relate to and concern transactions of trustees and the rights and liabilities of principal and agent in the exercise of fiduciary powers, requiring a discovery and an adjustment of the account of the agent as manager of a lottery; therefore, I have no difficulty in exercising the jurisdiction. I may add that the jurisdiction of this Court to restrain the unauthorized drawing of lotteries has been fully considered and sustained by the courts of Maryland. Lucas et al. vs. The Lottery Commissioners, 11 Gill & Johns. 490; Lucas vs. Mc Blair et al. 12 Gill & Johns. 1. In Attorney General vs. Forbes, 2 Myl. & Cr. 123, (14 Eng. Ch. Rep.) the general authority of the Court to restrain by injunction unauthorized acts of public functionaries, to the detriment of the public, is discussed and sustained.

With respect to the other ground of objection, that there is an adequate remedy at law,—if I am correct in the view taken of this case, I cannot discover how the principal, under the circumstances existing and admitted in this suit, could have relief at law. The special license having been granted, and the answer disclosing that it has been legitimately conferred, although its exercise may be irregular, it cannot be criminal, nor subject to be controverted by writ of quo warranta; therefore, I consider that sufficient relief can only be had in this Court.

The protest and refusal to answer as made by Maury, after having in his answer admitted his agency as manager, cannot entitle him to the privilege of withholding from his principal a full account of his transactions as manager, in instituting, carrying on and drawing the several classes of the lottery; for this obligation he voluntarily incurred by accepting the appointment and acting under it. The privilege can only be claimed when the object sought by the discovery is to make a criminal charge, and not when the party interrogated has, by his own act, contract or engagement, deprived himself of the right to claim the protection of this rule of equity. If a person will accept an appointment of trust and confidence, as manager of a lottery, he cannot, when called to account, either for irregular or for an unauthorized exercise of authority by virtue of the power delegated, withhold the discovery of his transactions on the ground that there may be a law making it criminal for a person, without special liberty, to set up and draw a lottery. In the present case the complainant makes no charge of any criminal offence, and all its charges are that the transactions, of and concerning which a discovery is sought, were contrary to and without the authority of the act which expressly grants to the defendant the special liberty to institute, carry on and . draw a lottery. To suffer the defendant in this case to shield himself under the equitable rule which allows a defendant to refuse answering that which would subject him to penalty or criminal prosecution would enable the grantees of lottery rights and the managers thereof to abuse the special liberty conferred and to perpetrate the grossest fraud without discovery. For, in this case, I may with propriety remark, as was said by the Vice Chancellor in' the case of Green vs. Weaver, 1 Sim. Rep. 404, (2 Eng. Ch. Rep.) that two propositions may be assumed, viz : (1) that the policy of the law requires that an agent should not only act with fidelity to- his employer, but should be ready at all times to render a full and clear account of his transactions; and (2) that, from the nature of this case, the defendant must possess, and perhaps exclusively possess, the means of stating that account which the policy of the law entitles the plaintiff to demand. I think these propositions are clear in their application to this ease.

That I am right in considering that the general rule of equity is not applicable to the present case will more fully appear from the observations of the Vice Chancellor in the case above referred to, (Green vs. Walker.) in which the defendant refused to answer because the discovery of the facts called for by the bill would subject himself not only to the penalties, but also to give evidence against himself that he had been guilty of a breach of his oath; and, on these grounds, he claimed the benefit of the rule which protects a man from criminating or subjecting himself, by his own discovery, to penalties. After stating the ground upon which the defendant considered he was entitled to refuse the discovery, the Vice Chancellor, Sir J. Leach, makes some observations which I cannot do better than to quote in full. He proceeds to say : “ How, that the “ rule of a court of equity is that a man shall not be com- “ pelled to answer to any facts which may tend to crimi- “ note or subject him to penalties or forfeitures is undeni- “ able; but the due application of this rule to the eircum- “ stances of individual cases has been at all times a matter “ of much controversy; and so much so that I believe not “ less than one hundred cases are to be found in the re- “ ports, in which the question was whether the defendant “ was or not bound to give the discovery sought for. The “ due application of the rule to the present ease is that “ which I have labored to arrive at.

“ If I decide that the defendants are bound to answer it “ may be said that my decision is inconsistent with the “ doctrine laid down by great Judges in former cases. If “ I decide that the defendants are not bound to answer I “ may render those acts of Parliament, especially framed “ for the purpose of protecting principals from the dis- “ honesty of their agents, a cover to their agents in the “ grossest and most scandalous frauds; for, stript of the “ effect of the statutes as inflicting penalties, it would be “ the common course of a court of equity to compel each “ of these defendants to state on oath whether they were “ employed as brokers and agents of the plaintiff; and “ whether they acted in that capacity; and to set forth “ every particular of each of the defendant’s dealings, as “ agent or broker of the plaintiff; and to produce every “ entry in his book and every .document relating to these “ transactions.

“ If a court of equity, in this case, should protect the “ defendants from the discovery, the plaintiff’s proceeding “ at law must be quite nugatory; for the materials of evi- “ deuce must necessarily rest, almost exclusively, in their “ possession. I hope this question may be decided without “ my falling into the dilemma of impeaching any anterior “ decision. I have looked through every case on this subject that was cited; and, most especially, I have applied “ myself to those which were before Lord Eldon, which “ have been much relied on. I have looked through a “ great variety of those cases, and I believe I have consid- “ ered every case that a diligent search in the books has “ enabled me to find, that has any bearing on this question. “ IT pan those cases that I do not now rely on, it may be “ sufficient to say, they established the general principle, “ and must protect the defendant against the discovery. “ But,from the current of authority, I think this result may “ be derived, as established by a series of decisions, travel- “ ing through a long series of years, namely, that a man by “ the effect of his own acts, may exclude himself from the “ benefit of that, rule of a court of equity; or, to adopt'the “ expression of a very great Judge, he may contract him“self out of the protection afforded by the principle of the “ Court. The first case that I allude to as establishing that “ proposition, that a man may so contract himself out of “ the protection of the Court, is the case of the African “ Company vs. Parish, 2 Vern. R. 244, decided in 1691. It “ was a short case, as the majority of Vernon’s cases are. “ It is thus : ‘ The African Company hired the defendant’s “ ship to freight. The defendant, by charter-party, as is “ usual in like cases, agreed that if the defendant traded in “ goods the Company dealt in, he would pay such and such “ particular sums to the Company in respect thereof; that i; is, in the nature of a forfeiture or penalties, and would “ deduct such sums out of the freight that should be coming “ to him. The bill was filed by the Company to discover “ whether the defendant had or had not traded in any such, “ and what, goods: and the defendant pleaded the charter- “ party (on which it appears the sums therein mentioned “ were double the value of the goods themselves, and so “ were in the nature of a penalty) and that he ought not “ to be compelled to make a discovery by answer touching “ the same, so as to subject himself to such penalties. The “ short decision is; the defendant must be bound by his “ own agreement: having agreed that it shall be deducted “ out of the freight, he ought to discover; it having been “ adjudged so several times in cases of the East India Com- “ pony.’ Vow, the note refers to the East India Company’s “ cases, which I have not been able to find. This note, “ short, as it is, will appear a little elucidated by Mr. “ Raithby’s edition of that book; but it is inconsistent “ with the principle held by other Judges. The next case “ that I find is, the East India Company vs. Atkins, 1 Strange “ R. 168. That case was decided about thirty years after • “ wards, in the year 1720; and the language of that case, “ in the judgment, is very important as to a subsequent “ part of the present case. I shall not take up time in “ going through deliberately all these cases, because the “ cases being before counsel, it will be a waste of time. “ The short note is this: ‘ that where a man submits to “ be examined as to matters which are penal to him, equity “ will not interpose.’ The result however, is that in the “judgment in that case it will be found to rest on the rea- “ saning that a man, having contracted to make the discov- “ cry, is bound to do so. The next case that I consider of im- “ portance is that of the South Sea Company vs. Bumpstead. “ 1 Eq. Cas. Abr. 77, and was decided eight years afterward, “ in 1728. The agreement in that case was under a simi- “ Jar contract, by penalty, not to trade beyond a certain “ extent, and the discovery sought was whether he had “ violated that contract. The objection was that he would “ subject himself to penalties. The Court thought that, “ as he had covenanted not to plead or demur, he could “ not then object to the illegality of that covenant, and “ that he was bound to make the discovery; and in the “judgment, there the Court recognizes the authority of the “ East India Company vs. Atkins. The next ease is Wilson “ vs. Prince, 2 Ves., Sr., 244, which appears to have been “ decided in 1746, but is not reported. It was cited in “ argument before Lord Hardwicke, and I give credit to “ the case as cited before Lord Hardwicke.

“ I think, from this series of decisions, there is sufficient “ to authorize one to decide that a man may contract so “ as to incur the obligation to make the discovery of all “ the facts relative to that contract, although the effect of “ that discovery may incidentally subject him to pecuniary “ penalties. The reasoning of Lord Eldon, in the cases of “ the East India Company vs. Neave, 5 Ves. Jr. 173, and Paxton vs. Douglas, 16 Ves. Jr. 239 ; 19 ib. 225, imply that he “ assents to the principle, that a man may by his conduct “ incur an obligation to discover the facts, although that “ discovery may incidentally subject him to pecuniary ob- “ ligations. Paxton vs. Douglass has been a good deal relied on by the other side; and I am free to confess that “ that ease did perplex me excessively by some of the dicta “ laid down by that great Judge. For, he went there to “ the extent of stating not only that a man should not “ make a discovery that would subject himself directly to “ a penalty, or criminal prosecution, but that every ques- “ tian leading incidentally to that conclusion would be “ likewise equally objectionable, blow, when one comes “ to look at that as a proposition unexplained, one cannot “ help seeing that the true principle of a bill in equity is “ that every statement of fact in every bill ought to be in- “ cidentally leading, to the same conclusion ultimately as “ the prayer of the bill does lead to ; for the fact is either “ conducive to the general result, or it is unimportant and “ irrelevant. But I take Lord Eldon to have meant (what, “ perhaps, is not very fully explained in the report, and “ what satisfied my mind a good deal) not that every fact “ which may lead to the effect of subjecting a defendant to “ a penalty, is objectionable; but where the sole gist and “object of the suit is to convict a man in a penalty— “ where there would be no other purpose but to have re- “ lief in a court of equity on the footing of penalty, that, “ as a court of equity does not relieve on penalty, it will “ not give any incidental discovery. That is the way I “ reconcile and get rid of the dicta laid down in Paxton “ os. Douglass. But, however, when one looks at what Lord “ Eldon did in point of declaration in the other cases, and “ most especially in the case of Ex parte Dyster, 2 Rose 349 ; “ 1 Meriv. 155, one cannot help thinking that he could not “ have intended to lay down the doctrine in a general, un- “ restricted manner. The case came on upon a bankrupt “ petition to prove a debt against 'a certain bankrupt’s “ estate. The objection, in answer to the petition, was that “ as the petitioner traded as a principal at the same time “ as he was acting as a broker, and participating in brok- “ erage profits (which the law prohibited) therefore, the “ law would not permit proof to be made of profit acquired “ by such trading. Lord Eldon throws out a suggestion “ that he has nothing to do with the act, so far as it respects “ transactions between the broker and the city of London ; “ and he permitted the debt to be proved. How, it cannot “ be doubted that, if he admitted the debt to be proved in “ that case, the discovery sought by the bill ought to be “ made.

“ Then, the next question is, inasmuch as the objection “ to make the discovery arose, in the cases I have referred “ to, from the stipulations of instruments under seal, can “ the solemnity of the seal make the obligation to discover “ more obligatory in a court of equity than the moral ob- “ ligation resulting from the relation of principal and agent, “ when one reposes and another accepts the confidence so “ reposed ? The reasoning of the judgment in the case of “ the East India Company vs. Atkins, I think, shows con- “ elusively an opinion that such was the moral obligation “ that, on that ground, the discovery ought to be made. “ Although Strange is not a book we can place much con-u fidence in, yet in this particular instance it appears to be “ a very able and sound judgment and well reported. I “ should say that a court of equity knows no difference “ between a mere moral obligation and one resulting frdm “ stipulation by deed.”

These principles, so fully and lucidly discussed by the Vice Chancellor, are clearly applicable to the case before me; and I consider the defendants as bound to make discovery of the matters necessary to enable this Court to determine whether the authority given by the act under consideration has been exhausted. It is, therefore, ordered that the exceptions to the answer of the defendant, Maury, be allowed; that a further answer on the points excepted to be made, and that meanwhile the injunction continue in force.

This case was never further proceeded in, the defendants submitting to the injunction.