The Saratoga County Bank v. . King , 1870 N.Y. LEXIS 130 ( 1870 )

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.]

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] It is conceded by both parties, that the covenant contained in the bill of sale, and the proviso attached to the obligation for $2,000 are illegal and void. There is no doubt that the concession is correct. Agreements restraining the use of any occupation or trade beyond a locality of very moderate extent, are illegal and void on grounds of public policy. It is insisted by the plaintiffs, that the vendors have delivered to the defendants a large amount of valuable property, for which the defendants are liable as purchasers, and that the consideration for the promise to pay being ample, and the value of the property sold being stated by the schedules attached to the bill of sale, the promise to pay must be separated from the illegal covenant and proviso, and a recovery be had for the amount of the obligation and interest.

The rule, adopted by courts of justice in many reported cases, of separating the good from the bad, enforcing the good and meritorious, and discarding the illegal and void portions of a contract or transaction is invoked by the plaintiffs.

It is claimed that the proviso and that portion of the contract restraining the vendors from carrying on their trade or manufacture only are void, while the sale of the property and the obligation of the vendees to pay for it are valid and obligatory; that it is the duty of the court to separate the good consideration from the void provisions of the transaction. The authority principally relied on to sustain the plaintiffs' claims are Leavitt v. Palmer (3 N.Y., 19); Curtis v. Leavitt (15 N Y, 14); Tracy v. Talmage (14 N.Y., 188). In the two cases first cited, it was held that a lender of money could recover on the original contract of loan, although certain obligations given by a bank for the payment of the loan, payable at a future day, contrary to the provisions of a statute commonly known as the restraining act, and also trust deeds providing for the security of such obligations, were illegal and void. In the case of Tracy v. Talmage, the State of Indiana was held entitled to recover the value of a large amount of the bonds of that State, as upon an original sale, disregarding or separating this right of action from void obligations (of the same character as those mentioned in the cases of Leavitt v. Palmer andCurtis v. Leavitt) delivered by a bank in payment for the purchase price of the bonds. In the cases cited, the lenders of the money and the vendor of the bonds were not guilty of any violation of the law. The obligations, payable at a future day, were illegal and void because prohibited by statute, and the banks issuing the obligations were the only violators of the law. If the banks could escape payment on the ground of the illegality of their own contracts, the law would overreach itself, and the guilty party would be benefited at the expense of the party against whom there was no prohibition as to the form of the contract.

In the cases referred to in the 3d and 15th N.Y. Reports, the right of action for the original loan devolved upon a receiver by operation of law, and in the case of Tracy v. Talmage the State of Indiana was the claimant to recover the value of its bonds. To the same effect is the case of The Oneida Bank v.The Ontario Bank (21 N.Y.R., 490). These cases proceed upon the right of the lender or vendor to disaffirm or rescind the illegal contract, and recover upon the implied promise of the borrower or vendee to pay for the money or property had. The case under consideration differs wholly from those relied on by the plaintiffs' counsel and cited above.

The parties here are in equal fault. The vendors violated the rule of public policy just as much as the vendees. It is probable that neither party knew that their contract was illegal. There is nothing immoral in it. It is simply a forbidden contract by the rules of the common law, as operating too great a restraint upon the right to exercise a trade or manufacture, and in that way working a general injury to the community, and hence void on grounds of public policy. But this probable want of a guilty knowledge will not save the action.

It must also be observed that plaintiffs have not the power or capacity to rescind the whole contract, by offering to return the notes delivered for the money paid by the vendees on the original sale.

In the cases of Leavitt v. Palmer and Curtis v.Leavitt, the Court of Appeals refused to recognize as valid the trust deeds, which provided for the security or payment of the void obligations, and not for the original loans. The court could not separate the good from the illegal, because the deed provided for the payment or security of obligations forbidden by law, and was thereby tainted in every part. So in the present case, the contract and the obligation in suit are affected by the illegal element which has been incorporated therein.

There are other cases referred to by counsel, where recoveries have been sustained for the original consideration, although connected with illegal or forbidden transactions; but they are cases wherein the plaintiff was not considered a wrong-doer, or was the victim of the defendant, so that a denial of relief would be an encouragement to the wrong-doer, and thus the law be made to work its own defeat. These cases are fully reviewed in the various opinions delivered by the learned judges in the three cases first above cited, and it is not necessary to repeat the review here. They can be illustrated by a short reference as to the character of the questions involved. A person paying for insurance on a lottery policy may recover the money paid. A vendor of goods, knowing that they were purchased with the intention of smuggling them, in violation of the revenue laws, may recover the price from the vendee. The offence is that of the vendee, and unless the vendor aids in violating the law, as by packing the goods so as to assist the criminal intent, he is not a participator, although cognizant of the intentions of the vendee in making the purchase.

The inflexible rule is, that no remedy can be had in a court of justice on an illegal contract or transaction, where both parties are in pari delicto.

The vendors, Platt Holroyd, are clearly in as much fault as the defendants, in regard to the transaction now under consideration. They have enjoyed the performance by the defendants of all that portion of the contract which provided for the payment $9,100, unconditionally. This is by far the larger part of the consideration. The principle of law denying them, or their assignees, the plaintiffs, any remedy, on the ground that the vendors participated in the illegal contract, produces in this case a just and equitable result. If the contract were invalid, the plaintiffs would fail to recover; and being illegal, they are denied the interposition of the courts to obtain redress. The defendants would also fail in any action which they might bring for damages, or to restrain the vendors for a breach of the contract.

From these views it will be seen that the evidence offered as to the actual value of the property sold was, as the referee decided, wholly immaterial.

The judgment must be affirmed with costs.

All for affirmance, except HUNT, C., who did not vote.

Judgment affirmed with costs.