Grain Co. v. Stonebraker , 202 Mo. App. 81 ( 1919 )

ON MOTION FOR REHEARING. Respondent's learned counsel has filed a motion for a rehearing, which challenges our holding that if the account stated is based in part upon illegal transactions then the whole is tainted with illegality and no recovery may be had thereon. But after a careful consideration of the motion we are constrained to adhere to the conclusion reached in the opinion touching this matter.

It is argued for respondent that the rule is that where it is shown in defense to an action upon an account stated, that fraud, accident or mistake entered into the settlement, the account may be corrected and a recovery had by the plaintiff upon the balance thus found due; and that this is likewise true as to illegality affecting only certain items going to make up the account stated, the burden being upon defendant to show the illegality of the particular transactions thus drawn in question.

It is well settled that an account stated, though presumptively a binding obligation on the part of the debtor, into which the prior transactions involved are merged, is not absolutely conclusive, but the settlement thereby evidenced may be impeached for fraud, accident or mistake inhering therein. [See Barr v. Lake, 147 Mo. App. 252, 126 S.W. 755, cases cited.] But such grounds for impeachment of an account stated must relate to the settlement itself, or the account stated, and not to matters of anterior liability, except in so far as evidence touching the latter may constitute a foundation for the introduction of evidence to substantiate such defense. [1 Corpus Juris., p. 711, sec. 337; 1 Cyc. 456; Koegel v. Gibbons, 79 Mo. 77.] As to correcting the account stated, under such circumstances, for errors or omissions in the settlement, and allowing a recovery upon the account as corrected, it is said that "in the absence of allegation and proof of fraud or mistake which taints the entire account, the court, will not open and unravel it as if no accounting had been made, but the settlement will be binding except for the errors shown. When, however, the fraud or mistake taints the entire transaction, the court will direct the whole account to be opened and taken de novo, and the relief will not be limited to the right to surcharge and falsify." [1 Corpus Juris., p. 721, sec. 373.]

But where the account stated is based in part upon transactions which are illegal and void, and this is shown in defense to the action thereon, we regard it as clear that the consideration for the debtor's express or implied promise to pay the balance appearing to be due is then tainted with illegality, preventing a recovery in such action. We do not think that under such circumstances the taint or illegality may be removed by correcting the account stated, reducing it by the amount shown to be based upon such illegal transaction. Where the action is upon an open account such course may be pursued, i.e., illegal items may be eliminated and recovery had upon the remainder of the account. But, as said, when the suit is upon an account stated, the right of action is predicated upon the new promise of the debtor to pay the balance alleged to have been agreed upon as being due upon a settlement between the parties (Barr v. Lake, supra), and if the consideration therefor is tainted with illegality the situation is the same, so far as concerns this question, as it is where a debtor gives his note for a prior indebtedness comprised in part of illegal items. [Bick v. Seal,45 Mo. App. 475.]

In 1 Corpus Juris., p. 701, sec. 311, it is said:

"Since the statement of accounts must rest upon a subsisting indebtedness, it follows that a claim which is void by reason of illegality will not support an account stated, as where the account stated is with regard to claims founded on the illegal sale of liquors, or where it includes usurious interest; and the alleged debtor is not estopped from showing illegality in particular items of an account stated or by reason of his having retained the account rendered without objection. So an action upon a stated account will fall if one of several claims of indefinite amount included in it must be omitted for illegality."

And the rule is similarly stated in 1 Cyc., p. 458.

In Nash-Wright Company v. Wright, 156 Ill. App. 243, l.c. 265, 266, it is said:

"Appellee contends that as this case was tried solely on the count declaring on the account stated and the count on the note, there can be no recovery if any part of the transactions which make up the account and form the consideration for the note is illegal. We are of the opinion that there is no difference in this respect between an account stated and a promissory note, each embracing numerous transactions. In each, the former transactions are merged in the new obligation. [Throop v. Sherwood, 4 Gilm, 92, 98.] In each, the action is based, not on the original transactions but on the new promise. That this is express in the case of a note and may be only implied in the case of the account stated, seems to us to be immaterial. Our Supreme Court has expressly held that at common law there can be no recovery on a note or on any other promise any part of the consideration for which is illegal. [Deothart v. Congdon,197 Ill. 345; First Nat'l. Bk. v. Miller, 235 Ill. 135; Ramsay v. Whitbeck, 183 Ill. 550.] That this same principle prevails as to the implied promise arising out of an account stated is held in Kennedy v. Broun, 13 C.B., n.s. 677, at 741.

"The case might have been tried on the other common counts and proof made of each transaction that entered into the account. If that had been done, a recovery for so much of the indebtedness, if any, as might be found to be legal, would have been justified. But plaintiff's case was rested on proof of the delivery of the statement of the balance due and defendant's failure to object thereto — proof only of an account stated."

Respondent's learned counsel challenges the correctness of the decision in the case from which we have just quoted, asserting that it is not supported by the ruling in Kennedy v. Broun, cited therein. In the last mentioned case it is simply held that in an action upon an account stated, "If any one of the claims of undefined amount is to be omitted, the statement of the account is disproved, and the account founded upon such statement of account fails." But the ruling in Nash-Wright Co. v. Wright, supra, appears to us to be sound upon principle and in keeping with the established rule of decision in this State as reflected in Bick v. Seal, supra, and in Parke, Davis Co. v. Mullett, 245 Mo. 167. l.c. 173, 149 S.W. 461, and the cases there cited and followed.

It will be noted that as to the effect of the taint of illegality, the language of the opinion in the Nash-Wright case, quoted above, makes no distinction between a definite and an indefinite portion of an account stated which is thus affected. Whether such distinction is important is not of consequence upon the record now before us. In the instant case there is evidence tending to show that an indefinite and unascertained portion of the balance shown by the account stated originally arose out of transactions illegal under our statute. While the burden was upon the defendant to prove that illegality inhered in the transactions upon which the account stated was based in whole or in part, we do not think that he was required to show the amount thereby affected and that if he failed in this plaintiff was entitled to recover the whole, as is contended by plaintiff. Upon the contrary we are of the opinion that the evidence for the defendant sufficed to make out a prima-facie defense as to plaintiff's entire cause of action on the account stated.

In this view there should be no such difficulty in instructing the jury upon a retrial as respondent seems to fear. Taking the case made by this record, it appears without dispute that the transactions out of which the account stated arose were had partly in this State and partly outside of the State; and the evidence for defendant tends to show that he intended no delivery of grain by or to him in any of the transactions, whether had within or without the State, but intended merely to gamble on the rise and fall of the market. If the jury find that such was defendant's intention, then it follows that the account stated is tainted with illegality and plaintiff cannot recover. And if evidence not present in this record be adduced on a new trial, we perceive no reason why the case may not be intelligently submitted to the jury, for its finding upon the facts, in keeping with the views expressed in our opinions herein.

With the concurrence of the other judges the motion for a rehearing is overruled.