The Mutual Insurance Company of Buffalo v. The Board of Supervisors of Erie County Gray v. Hook. ject for which it was created. The charter directs the profits to be estimated (§ 11), how they may be invested (§ 8), and when their accumulation shall exceed $100,000, how the excess shall be applied (§ 13). (Sess. L., supra.) It was then, according to the provisions of the 1st section of the statute above quoted, *448]" liable to taxation on its capital." *By capital, I understand the Legislature to mean the fund upon which the incorporation transacts its business, which would be liable to its creditors, and in case of insolvency, pass to a receiver. In this sense, the capital of this corporation consisted of the premiums for insurance paid, or tracted to be paid, in contemplation of future risks, to be taken by the insurer. The first is analogous to "capital stock paid in;" the second, to "capital stock secured to be paid in," as mentioned in the 3d subdivision of the 6th section of the statute. con GRAY v. HOOK. Illegal contract. -Appointment to office. An agreement between two applicants for an official position, that one of them shall withdraw and aid the other in procuring the appointment, in consideration of one-half of the fees and emoluments of the office. offices, is illegal and void under the common law. though not within the statute prohibiting the sale of The change of such a contract into a covenant does not alter its illegality. vent an inquiry into the legality of its consideration. Every new contract seeking to carry out or enforce any of the unexecuted provisions of a former illegal contract is void. *ACTION of covenant. The plaintiff [*450 being one-half of the costs and expenses insought to recover the sum of $284.83, curred by him in defending certain proceedings instituted by one Tappan relative to the office of inspector of flour in the city and county of New York, to which the The theory upon which these mutual in-plaintiff was appointed by the governor in surance companies were formed, seems to May, 1839. It appeared that the defendant have been that earnings of the corporation, was also an applicant for the office and present and prospective, should constitute withdrew his application in favor of the its capital; accordingly, the 4th section of plaintiff, in consideration of which the plainthis charter requires applications for insur-tiff was to allow the defendant to receive ance amounting to $100,000 before the com- one-half of the fees and emoluments of the pany can be organized. The 7th section office. The plaintiff in 1842 gave his note provides for the payment of premiums or to the defendant for the sum of $376.85 on the receipt of notes for risks taken by the a settlement with him under such agreecompany, at rates fixed by the trustees; and ment, which, having passed into the hands in the 9th section, that notes may be reof one Ketchum, the plaintiff covenanted ceived for premiums in advance, of persons to pay, in consideration of the defendant's intending to receive policies. These notes, covenant upon which this action was whether given for premiums or in advance, brought, to pay one-half of the expenses of became the property of the corporation, to the proceedings instituted by Tappan, which be negotiated or disposed of in the ordinary were then pending. A verdict was rendered course of its business, and they, together in the Common Pleas in favor of the plain.with the sums received for premiums from time to time, constitute its capital. (§ 9.) entered thereon was affirmed by the Sutiff for the sum claimed, and the judgment (Deraismes v. Merchants' Mut. Ins. Co., 1 Comst. 371. See cases in 3 id. 290.) This is preme Court. The defendant brought this appeal. unlimited. But, by the 12th section of the charter, provision is made for the payment of dividends. and for ascertaining the interest of the corporators in premiums actually earned by the company and constituting a part of its capital stock, and it directs that certificates shall be issued as the evidence of that interest. The 13th section provides for the redemption of those certificates, when the net profits of the business shall exceed $100,000. The appellant was, therefore, a moneyed corporation, authorized to derive a profit from its business, with a capital created in the manner above suggested, and, consequently, by the 1st section of the Revised Statutes above referred to, liable to taxation. The assessment of every such corporation, indeed, is made conclusive evidence of its *449] liability to taxation, and *that it was duly assessed, unless the affidavit prescribed by the 9th section of the act is made, and presented in the manner there directed. (1 R. S. 416,8 90.) The judgment of the Supreme Court should be affirmed. Judgment affirmed. [*454 *James T. Brady, for appellant. N. Hill, Jr., for respondent. Mullett, J. Was the original or primary agreement between Gray and Hook, in reference to procuring Gray's appointment to the office of inspector of flour, as offered in evidence by the defendant, illegal and void? The contract, together with the circumstances attending the making of it, and which are useful in its construction, amounted to this: Gray and Hook, both being applicants to the constitutional appointing power for the office of inspector of flour in the city of New York, and considering their chances of obtaining the appointment about equal, made an agreement by which Hook was to withdraw his application and aid Gray in procuring the appointment, in *consideration of which [*455 Gray was to allow Hook to receive one-half of the fees and emoluments of the office as long as Gray held it. This is all of the agreement part of the transaction which was offered to be proved; the remainder of the facts offered in proof relate to what followed Gray v. Hook. this agreement, in the execution or perform- It has been decided by the Supreme Court ance of it. Had the agreement included of New Jersey, that where A. and B. conwhat the offer seems to intimate, and what templated 'applying to the postmaster-genthe conduct of the parties justify us in sus- eral for a contract to carry the mail, and A. pecting, that a part of the agreement was agreed to give B. $1,000, on condition that that Gray should also appoint Hook his he would forbear to propose or offer himself deputy, I should have no doubt that the to the postmaster-general to carry the mail agreement, when executed, would be in di- on a certain route, such agreement was rect violation of the statute against buy- against public policy, and no action could ing and selling offices, notwithstanding the be maintained upon it. (5 Halst. 78.) propositions for the agreement were made The Supreme Court of Pennsylvania has and entertained before Gray received his decided that a contract founded upon a appointment. (2 R. S. 696. §§ 34, 35, 36.) | promise and engagement to procure signaBut there is nothing about the appoint-tures to a petition and obtain a pardon from ment of a deputy expressed in the arrange- the governor, for one convicted of a crime ment which the defendant offered to prove, and sentenced to punishment, was unlawful though the whole transaction, as offered and could not be enforced by an action. (7 in evidence, shows that the appointment Watts, 152.) Also, that a contract to proof Hook as deputy sustains a very sus- cure, or endeavor to procure, the passage picious proximity and relationship to the of an act of the Legislature, by any sinister agreement. The agreement in its original means, or by using personal influence with form, as offered in evidence, is not, therefore, the members, was void, as being inconsistwithin the literal reading of the statute. ent with public policy, and the integrity of But is it not void by the principle of the their political institutions. (5 Watts & common law, as against public policy? Serg. 315.) So an agreement to pay a man Comyn says, "All contracts or agreements for exerting an influence over a railroad which have for their object any thing which company, to induce them to locate their is repugnant to justice, or against the general depot, at a particular place, was decided to policy of the common law, or contrary to be unlawful and void by the Supreme the provisions of any statute, are void; and Judicial Court of Massachusetts. (18 [*457 whenever a contract or agreement is entered Pick. 472.) An agreement by an administrainto with a view to contravene any of these tor to sell the land of an intestate, when a general principles, there is no form of words, surrogate's order for that purpose should be however artfully introduced or omitted, obtained, to a particular person, was dewhich can prevent courts of law and equity clared to be void by the Supreme Court of from investigating the truth of the transac- New York. (3 Cow. 299.) tion, for ex turpi contractu actio non oritur, is a rule both in law and equity." (1 Com. on Cont. 30; 1 Fonbl. Eq., b. 1, chap. 4, § 4; 1 Story's Eq. 296; 4 Hill, 424; 4 Cond. Rep. 304; 11 Wheat. 258.) This general principle is universally recognized by the American courts, and has frequently been applied, in this State, to contracts which had for their object the perversion of the more ordinary operations of the government, such as contracts to prevent fair competition at legal *456] auction sales (3 Johns. 29; *6 id. 194; 8 id. 444); and contracts to prevent the due administration of the insolvent laws. (3 Caines, 213; 2 Johns. 386; 4 id. 410; 9 id. 295; 19 id. 311.) There is quite as much reason for applying this principle to contracts made for the purpose of influencing and perverting the more important and extensive operations of the legislative and executive powers of the government. Every citizen owes to his government and all its officers while executing their official duties, truth and fidelity. All the actions of the government and its officers are based upon certain facts, assumed, or proved, and falsehood and deception in reference to these facts are moral wrongs injurious to the whole State, whose government it is, and, therefore, against public policy. The strength, durability and prosperity of our political institutions depends entirely on the intelligence, integrity and faithful support of the people. No citizen can, therefore, legally stipulate to embarrass the operations of government, by diminishing its means to execute its powers. By the agreement under consideration, Hook was to withdraw his application, which he had already made, and aid Gray in pursuing his, not for a fixed and certain pecuniary consideration merely, but he was to have one equal half of the fees and emoluments of the office, as long as Gray should hold it. Thus stipulating for a dangerous influence over a profitable office which was not intrusted to him, and for the performance of the duties, of which he was under no pecuniary or official obligation. This is the nature of the original agreement, as offered to be proved, excluding all stipulation respecting the deputyship. I think that this contract was void, because it stipulated that Hook should have a pecuniary compensation for withdrawing his application by which he had probably driven off competition, and contributed to reduce the number of applicants to himself and Gray. I have no doubt that it is void, because it stipulated that Hook should have a pecuniary compensation for aiding Gray to obtain the appointment. And I have no doubt that any agreement between two citizens, by which one stipulates to pay the other a proportion of the fees and emoluments of a public office which he is seeking, in consideration that that other will aid him in obtaining it, is void. That the original agreement between Gray and Hook was illegal and void appears to have been the opinion both of the Common Pleas and the Supreme Court in the case under consideration. If the orig Gray v. Hook- Gray v. Schenck. inal agreement between Gray and Hook was illegal and void, it appears to me that the proof given, and that offered on the trial, would sufficiently connect the covenant, on which this action was brought, with the original illegal agreement, to give it the same character. This proof would have shown that by the original agreement Hook was to have one equal half of the fees *458] and emoluments of the office of *inspector of flour as long as Gray held the office; that Gray was appointed to the office about the 27th day of May, 1839. | the balance to Hook on the settlement, and then took the covenant; or whether he took the covenant on giving his note for the balance; or whether he gave Hook the money to take up the note from Ketchum, and then took the covenant; or whether he paid the money on the note to Ketchum at the request of Hook, who was liable as indorser, and thereupon took the covenant, would all amount to the same thing as between Gray and Hook. The covenant would still be for the performance of the old agreement. The change of the contract to a covenant could make no difference in its legality. A seal cannot protect an illegal contract nor prevent an inquiry into the legality of its consideration. (Comyn on Contracts, 30; 2 Wils. 341, 347; 1 P. Wms. 156, 220; 4 Johns. 410: 19 id. 311.) or immoral act, a court of justice will not lend its aid to enforce it; and if the contract be in part only connected with the illegal transaction, and grows immediately out of it, though it be in fact a new contract, it is equally tainted by the illegality of the transaction from which it sprung. (4 Wash. C. C. 297; 11 Wheat. 258; 4 Denio, 63.) The recital contained in the covenants upon which this suit is brought, and which is dated July 1, 1842, and signed by both parties, shows that upon a ettlement of certain accounts and transactions between Gray and Hook in relation to the fees collected in the office of inspector of flour, Gray Nor did the addition of one honest dollar gave to Hook his note (which is produced by cure the illegality of the remainder of the conGray, and bears date March 4, 1841), for sideration. When the contract grows imme$376.85 payable in sixty days, in full settle-diately out of and is connected with an illegal ment of all accounts and balances existing between them, except the expenses and liabilities incurred and to be incurred by Gray in certain proceedings between him and Tappan relating to the said office of inspector of flour, and the fees of said office, for which Hook was liable to pay one-half; and in the body of the covenant it is stated that in consideration of the premises and of the payment of the note by Gray, and of the sum of $1 paid by him, Hook covenants, promises and agrees to pay Gray the full, equal one-half of all liabilities incurred, or which might thereafter be incurred by him by reason of the suit or proceedings brought or to be brought by Tappan against Gray, or by him against Tappan, relative to said office of inspector of flour, or the fees of said office. And the proof offered was that Gray insisted on Hook's giving the covenants to pay half of the expenses in the Tappan proceedings, as Hook was to receive one equal proportion of the fees of the said office of inspector, and that the several liabilities mentioned in the plaintiff's declaration, if any did accrue, arose from an agreement to divide the fees of the said office of inspector, and was a part of the consideration thereof. I think the facts proved, and those offered in evidence, tended strongly to the conclusion that Gray's claim upon Hook for one-half of the expenses of defending the Tappan suits was part of the same agreement by which he gave Hook one-half of the fees and emoluments of the office of inspector; and that such evidence should have been received and submitted to the jury. If this view of the subject should be sustained, the whole transaction would be reduced to this: Gray, on the performance of his part of an illegal parol contract, re*459] ceived from Hook a *covenant for the performance of his part of the same illegal agreement. I have not alluded to the fact of the transfer of Gray's note to Ketchum, nor the payment of the note by Gray, because I cannot perceive that these facts alter the relation between the parties. Whether Gray paid The distinction between a void and valid new contract, in relation to the subject-matter of a former illegal one, depends upon the fact, whether the new contract seeks to carry out or enforce any of the unexecuted provisions of the former contract; or whether it is based upon a moral obligation growing out of the execution of an agreement which could not be enforced by law, and upon the performance of which the law will raise no implied promise. In the first class of cases no change in the form of the contract will avoid the illegality of the first *consideration, while express prom- [*460 ises based upon the last class of considerations may be sustained. Mr. Chitty says the test whether a demand connected with an illegal transaction is capable of being enforced at law is whether the plaintiff requires any aid from the illegal transaction to establish his case. (Chitty on Contracts, 657, and authorities there cited.) In this case the covenant which the plaintiff produced as the foundation of his action, recites and acknowledges its relationship with, and dependence upon, the former illegal agreement respecting the office of inspector. On the whole I think the judgment appealed from is erroneous and ought to be reversed, and a new trial granted. Judgment reversed. GRAY v. SCHENCK. Parties to actions.- Judgment creditor's bill.- Non-resident assignee of mortgage. In a judgment creditor's action to reach moneys due upon a mortgage alleged to have been fraudulently assigned by the debtor, the assignee of the mortgage must be made a party to the bill, though residing out of the State. Gray v. Schenck- Mumford v. The American Life Insurance and Trust Company. TH HE bill in this cause was filed against William Schenck, a judgment debtor of the complainant, and Benjamin Schenck, and alleged that certain moneys were due by the latter to the former on a mortgage, which ought to be applied on the judgment. The answer of Benjamin Schenck alleged an assignment of the mortgage to S. Kidder of Wisconsin, and demanded that he should be made a party to the suit. Kidder was not made a party, but the vice chancellor decreed that the assignment of the mortgage was fraudulent and void, and granted the prayer of the bill. The decree was affirmed by the Supreme Court, and Benjamin Schenck brought this appeal. *461] *N. Hill, Jr., for appellant. M. T. Reynolds, for respondent. Gardiner, J. The objection that Kidder, as the assignee of the bond and mortgage executed by the appellant to his father, was a necessary party to the suit, was distinctly made, in the answer of the former, and presents the only question necessary to be determined. Respect for the learned court who pronounced the decision in this cause has induced an examination of a question which otherwise was supposed to involve no difficulty. Kidder has had no day in court. Upon the ordinary principles upon which justice is administered in courts of equity, he could not be convicted of a fraud, or deprived of his property, without actual or constructive notice of the suit, and an opportunity of making his defense. Any exception to a rule, so manifestly just, must be established by the complainant, as the legal presumption would be against it. Kidder resided in Wisconsin when this suit was commenced, during its progress, and *462] *when it was decided. Mr. Maddock in his treatise states, it is true, in general terms, that" when parties interested are out of the jurisdiction of the court, and it is so stated in the bill and proved, it is not necessary to make them parties." The authority he refers to is Darwent v. Walton (2 Atk. 510). The question there was, as stated by the reporter, "if a bill is brought against one partner, for a joint demand, and the other is not amenable to the court, being out of the kingdom, whether the partner before the court shall pay the whole or a moiety of the debt." It was held that he should pay the whole. Each debtor, it will be perceived, sustained the same relation to the creditor. The obligation of each extended to the whole demand. The party in court could make, and was interested to make, any defense going to the discharge of the joint indebtedness. His only interest in the appearance of the other joint debtor was for the purpose of enforcing contribution. This right was subordinate to, and should yield to the right of the creditor to his demand. This is all that was decided in that case. The Commercial Bank v. Meach (7 Paige, 449), was the case of joint debtors against whom judgment was recovered; and in Jer main v. Langdon (8 id. 41), and Evarts v. Becker (id. 507), the proceedings were under the statute relative to absent defendants. These are all the authorities to which reference is made by the Supreme Court. Mr. Maddock, however, at the same page referred to, in the opinion before us, observes, "that if the absent parties have rights wholly distinct from those of the other parties, the court cannot proceed to a determination against them.' "Hence," he adds, "there sometimes arises an absolute defect of justice, which seems to require the interposition of the Legislature." And Story remarks, that under such circumstances the court cannot properly proceed to the determination of the suit without their being made parties. (Story's Eq., § 81, and cases.) In this case the rights of Kidder were not only distinct from both the defendants, but adverse to that of the judgment debtor. And our Legislature have remedied the inconvenience alluded to by Maddock, by providing a mode in which the absentee may be [*463 made a defendant, and the rights of all parties effectually secured. (2 R. S. 186.) The complainant, therefore, cannot allege necessity to justify a departure from principle. Nor is he supported by any adjudged case which has been brought to our notice. Kidder was then a necessary party; the law enabled the complainant to bring him into court, so as to bind him by the decree, after the time and in the manner prescribed in the statute. Having neglected to do this, the decree of the Supreme Court, so far as it affects his rights, is a nullity, and consequently affords no protection to the mortgagor; who would thus be subjected to a double payment, without indemnity. (Cowen & Hill's Notes, 918, 919; Story, § 81, supra.) This was not the design of the Supreme Court, although it would be the effect of their decision. It must, therefore, be reversed. Decree reversed MUMFORD v. THE AMERICAN LIFE INSURANCE AND TRUST COMPANY. Usury.-Whether a given transaction is a sale of securities or a loan.-Assignor and assignee.-Estoppel. The plaintiff, being the owner of a bond and mort gage, payable in yearly installments, and wishing to raise money to pay a debt which he owed to a bank, made a proposal to the defendants to sell certain installments of the mortgage to become due, offering his own covenant and also the guaranty of the bank as collateral security for the payment of the installments. The proposal was accompanied by an absolute assignment of the whole of the bond and mortgage and the guaranty of the bank. The defendants accepted the proposal and advanced the amount of the installments in certificates of deposit issued by their own corpora tion. But the defendants also took the plaintiff's own bond, conditioned absolutely on the repayment of the sum advanced, and executed an acknowledgment of the receipt by them of the assignment of the installments as collateral security" for the payment of the plaintiff's bond. The transaction was entered on the books of the company by the secretary, who had no plaintiff. The president of the company testified that personal knowledge of the transaction, as a loan to the no departure from the original proposal was intended. Mumford v. The American Life Insurance and Trust Company. Held, that the transaction was a sale of the installments, and not a loan, and, therefore, could not be impeached for usury. Regarding the transaction as a loan, the question of usury discussed by McCOUN, J. Objections to the transaction relating to alleged violations of the charter of the company, and of the restraining laws of the State, also discussed by McCOUN, J. (a) Default having been made by the mortgagor in the payment of the installments on the mortgage in question, the plaintiff in this suit filed a bill to foreclose, alleging under oath that the mortgage had been “duly assigned." The mortgaged premises were sold and purchased for the benefit of the plaintiff. By the foreclosure and sale the rights of the assignor and assignee became fixed, so that the former cannot impeach the assignment for usury or illegality.- Per McCOUN, J., and BRONSON, Ch. J. *465] *THE THE bill in this cause was filed in Chancery for the purpose of annulling an assignment of a bond and mortgage made by the complainant to the defendants, also a bond executed by the plaintiff and a guaranty executed by the Rochester City Bank. The instruments were alleged to be void, on the ground of usury; and were sought to be avoided on the grounds also that the transactions of which they formed a part were in violation of the defendants' charter granted by the State of Maryland, and were a violation of the restraining laws of this State. The vice chancellor of the Eighth Circuit sustained the bill on the ground of usury, and granted the relief prayed for. His decree was affirmed by the Supreme Court, and the defendants brought this appeal. D. Lord, for appellants. *466] *McCoun, J. Our attention is called prepared certain papers at Rochester to be offered to the company. These were, first, a deed of assignment, absolute in its terms, purporting to be founded on the consideration of $19,000, by which he (Wm. W. Mumford) sold and assigned to the trust company the Ingersoll mortgage, describing it particularly, and the bond also, and all the money due and to grow due thereon, whether | principal or interest, with a covenant that the whole amount was due-that no payments had been made, and no set-off existed; and with a personal guaranty for the punctual payment of the interest and the final collection of the principal. 2d. A deed of the Rochester City Bank reciting that Wm. W. Mumford being the holder of the Ingersoll bond and mortgage, and being indebted to the bank, he had proposed to sell and dispose of the bond and mortgage for the purpose of applying the proceeds of the six first installments to his indebtedness, upon receiving from the bank their guaranty of those in- [*467 stallments and the interest to accrue thereon, to enable him to effect the sale; that Mumford, in pursuance of the arrangement, having executed an assignment of the bond and mortgage bearing even date therewith to the trust company; therefore, the bank guaranteed to the company the final collection of the six first installments, with the interest which should accrue thereon, reserving the right, upon any default in payment of principal or interest, to pay the company the amount unpaid, and to have the bond and mortgage assigned to the bank if the bank should so elect. These instruments both bear date the 19th June, 1838, and appear to have been duly executed on that or the next day at Rochester. The execution of the assignment by Mumford was acknowledged before the recorder of Rochester on the 20th June, 1838. the company the six first installments payable by the bond and mortgage, describing them, and describing the property, and saying, that "as a collateral security to the company for the payment of the interest and the final collection of the principal, he is enabled to offer to the company (in addition to his own covenants) the authorized written guaranty of the Rochester City Bank, duly executed and ready to be delivered with the bond and mortgage, and the assignment thereof to the company.' Next, we find Mr. Mumford in the city of New York on the 28th June, submitting a In June, 1838, Wm. W. Mumford, a resident proposition in writing of that date to the of Rochester, and the holder of the Inger-trust company, "to sell and dispose of " to soll bond and mortgage for $19,000, payable in eight annual installments, with interest from the 1st of January, 1838, six of which installments amounted to $14,250; and being indebted at the same time to the Rochester City Bank in about that amount, which the bank was desirous should be paid, he prepared to raise the money for that purpose of the American Life Insurance and Trust Company, then doing business in the city of New York, with which company it appears he had other transactions about the same period of time to a large amount. Whether he raised the money in question by way of a loan, or by a sale of the Ingersoll bond and mortgage accompanied by a guaranty, could make no difference to him, for either would equally well answer his purpose. It is probable that something had previously passed between him and the company on the subject, and, therefore, anticipating a sale, he (a) As to the charter rights of the defendants, and the restraining laws of this State, see Bard v. Poole, 12 N. Y. 495. Mr. Duer, the vice-president and principal acting officer of the company, being examined as a witness on the part of Mr. Mumford, for the purpose of proving the acceptance of his proposal and how it was carried out, testifies that the proposition contained in Mr. Mumford's written application for the sale of the six first installments was accepted by the company, he agreeing to receive in exchange or payment a certain amount in the certificates of deposit of the company, payable in pounds sterling, in the |