Utica Insurance v. Kip , 8 Cow. 20 ( 1827 )

Curia, per Woodworth, J.

The plaintiffs, cpntend, 1. That the restraining act.does, not extend to. apy. incorporated company 2. If it. does so extend, on.the,ground that a body corporate is.in law a person, it does.not affect the, incorporated company as, such) unless it.has, as such, become.a subscriber ; 3. That the restraining act does npt .reach incorporations in general.; and.especially it.does not extend, to the Utica Insurance Company, because the provisions of their charter- are, sufficient to take them, out of that act; 4, That if the. preceding propositions cannot, be maintained, the plaintiffs are, nevertheless, entitled to judgment; because the restraining act avoids the security .>nly, but- leaves the contract of loan,, upon the-advancement. of the mpney, untouched and capable of enforcement as - a valid' contract.

The plaintiffs’ counsel, in support of the three first points, in the course :of a very lucid and able examination of them, attempted., to; prove that .the cas.e.of The People v. The Utica Insurance Company, (15 John, 334.) is -founded in error; and ought, not to;be recognized, as.:a. correct exposition of the. law, in relation to the .powers and authority of the plaintiffs, under- their act., of incorporation-, I have no Hesitation in saying, that’ if the question- were now res integra, ray conclusion would be in- opposition to that case. When the point is necessarily brought in review, it will be re-considered'. Until then, it is more fit to waive further remarks. This cause may be decided on a different groundas will, I think, be obvious on a brief examination, of the fourth" head of inquirywhether the contract of loan, as distinguished from the security taken, is valid:

It is conceded in the opinion of chief justice Thompson; (15 John. 334,) that the surplus Binds of the plaintiffs may be loaned at interest. The act of incorporation allows the investment of their funds, which the business of insurance may not actually employ. Whether" the loan is secured by a bond or a note, would seem- to be a circumstance resting in their discretion.

But admitting, that taking a note" by way of discount; was" an illegal exercise of the right to loan; and further, that it is prohibited by the restraining act; and the security declared void ;" still the-contract'of lending, which, per se; affords a good cause of action for money lent and advanced; and is distinct from that” founded in the note, does'not appear to be within the purview of that" act. The check against the continuance of banking operations, would, I apprehend, be complete, the moment an- association had ascertained that no security could be taken, and their only remedy would be against the individual to whom the money was lent. It was unnecessary for the act" to go farther than to avoid the note of security taken-; thereby depriving the association of the means’ of effectual operation; True, it was competent for the legislature to have avoided the* contract also. Bht they have not -done so: The evil was amply guarded- against without going to that .extent: Had the act contained such a" provision, if might have well been complained of as severe and'arbitrary. We will suppose, for the sake of "argument, that the Utica Insurance "^Company were possessed of a fund for” the purpose- of con* travenitig the act;' surely the" legislature had no-means to prevent the use of "that fund in a lawful manner. The mere act of loaning money belonging to a party, which then was, and still is a lawful act, cannot be affected by the fact that. the fund was raised for an unlawful purpose, This consideration goes to show, that-the legislature would not, (for it was unnecessary,) and I think have not, by the statute, made any provision to affect the contract of loan The company have authority to make loans; the note, in this case, was a security for the loan; the restraining act, at most, only avoids the note ; and therefore leaves a good consideration for the money lent. ■

This suit cannot be said to arise out of an illegal transaction, which defeats a recovery. The illegal contract, if any, was not the loan, for the plaintiffs had a right to loan the money to the defendant; but it was the agreement to secure the loan by a note discounted. Avoiding what was illegal, does not avoid what was lawful. The action for money lent, is rather a disaffirmance of the illegal contract. The plaintiffs claim nothing under it. In 2 Com. on Contr. 109, this distinction is' taken: “ Where the action is in'/ affirmance of an illegal contract, the object of.which is to enforce the performance of an engagement prohibited by ; law, such an action can in no case be maintained ; but where the action proceeds in disaffirmance of such a contract, and instead of endeavoring to enforce it, presumes it to be void, and seeks to prevent the defendant from re- .' taining the benefit which he derived from an unlawful act, there it is consonant to the spirit and policy of the law, that the plaintiff should recover.”

In the case of Munt v. Stokes, (4 T. R. 561,) the reasoning of Lord Kenyon goes to show, that where the original contract was not malum in se, but malum prohibitum, although the security was void by the statute, an action might be maintained to recover the money back; and jus- j tice Buíler observed, that in the case of illegal contracts, j if one party comes to rescind the contract, he may recover1 back so much as has been paid. In *Parker v. Rochester, (4 John. Ch. Rep. 332,) chancellor Kent, in speaking of notes discounted by this company, says, “ there can be no doubt that the makers and indorsers are holden in equity and good conscience to pay them; for they were given for a fair and valuable consideration.”

The case of The Utica Insurance Company v. Scott, (19 John. 1,) was an action on a note®discounted by the plaintiffs. The question as to the legality of the contract of loan, was not the point before the court; for there was no count on the loan. The court, however, considered the question; and recognized the distinction1 between the security, and the contract of lending. They say, “ the lending money is not declared to be void; and, therefore, wher¿ver money has been lent, it may be recovered, although the security itself be void.”

. Here the plea states, that the money loaned was the consideration for the note, which the plaintiffs discounted for the benefit of the defendant. I think the plea bad in substance. The plaintiffs are entitled to judgment on the demurrer, with leave to the defendant to amend.

Judgment for the plaintiffs.