Stone v. Freeman — 298 N.Y. 268

Majority

p. 268

MURRAY B. Stone, et al., Doing Business as Stone & Stone Co., Appellants, v. Jack Freeman, Doing Business as Hom-O-Zone of Manhattan, Respondent.

Argued October 14, 1948;

decided November 24, 1948.

p. 269

Abraham Shamos, Alan Nordlinger and ‘Norman Hammer for appellants.

Headnote

I. Tbe transactions alleged in tbe counterclaims were illegal and contrary to public policy. (Sirkin v. Fourteenth St. Store, 124 App. Div. 384 ; Matter of McNally, 252 App. Div. 550 ; Matter of Browning, 176 Mise. 308.) II. Tbe illegality of the agreements as pleaded precludes resort to tbe courts by tbe parties thereto, whether such resort be for tbe purpose of enforcing performance of tbe agreements or for tbe purpose of recovering back performance already rendered. (Tates v. Foot, 12 Johns. 1 ; Ruckman v. Pitcher, 1 N. Y. 392 ; Knowlton v. Congress & Empire Spring Co., 57 N. Y. 518 ; Perkins v. Savage, 15 Wend. 412 ; Staples v. Gould, 9 N. Y. 520 ; Sharp v. Wright, 35 Barb. 236 ; Haynes v. Rudd, 102 N. Y. 372 ; Union Exchange Nat. Bank v. Joseph, 231 N. Y. 250 ; Daimouth v. Bennett, 15 Barb. 541 .) III. Tbe exception to tbe rule that no cause of action can arise from an illegal transaction — which exception is said to permit recovery by a principal from bis agent of moneys entrusted to tbe agent for an illegal purpose but not yet expended by tbe agent for that purpose — is not recognized in this State, and, in any event, is not applicable to this case. {Yates v. Foot, 12 Johns. 1 ; Staples v. Gould, 9 N. Y. 520 ; Leonard v. Poole, 114 N. Y. 371 ; Kearney v. Webb, 278 Ill. 17 ; Smith v. Blachley, 188 Pa. 550 ; Haynes v. Rudd, 102 N. Y. 372 ; Union Exchange Nat. Bank v. Joseph, 231 N. Y. 250 ; Daimouth v. Bennett, 15 Barb. 541 ; Baldwin v. Potter, 46 Yt. 42 ; Rolfe v. Delmar, 30

p. 270

Robt. 80; Negley v. Devlin, 12 Abb. Prac. [N. S.] 210; De Oroot v. Van Duser, 20 Wend. 390 ; Holmcm v. Johnson, Cowp. 343.)

Leo Gittin for respondent.

Defendant in Ms counterclaim properly demands that plaintiffs, bis agents, retnrn bis fnnds beld by plaintiffs regardless of illegality of tbe proposed transaction. (Leonard v. Poole, 114 T. 371; Murray v. Vanderbilt, 39 Barb. 140 ; Morgan v. Groff, 4 Barb. 524 ; Gilbert v. American Sur. Go., 121 F. 499 ; Kearney v. Webb, 278 Ill.'17; Evans v. City of Trenton, 24 N. J. L, 764 ; Norton v. Blink, 39 Obio St. 145; Smith v. Blachley, 188 Pa. 550 ; School Dist. No. 39 v. Casey, 243 Ill. App. 434 .) '

Tbe snit is by a broker or agent for bis commissions earned in arranging a sale by defendant, who is a jobber of clotbing, to tbe French Purchasing Mission,, in New York City, in 1946. However, tbe sole question here is as to tbe sufficiency of two counterclaims. For present purposes, those counterclaims may be treated as one, since each alleges these same things: that defendant (vendor) agreed to pay, and did pay to plaintiff (broker) certain sums, on plaintiff’s agreement that be would divide those sums with an employee or representative of tbe French Supply Council (vendee), but that plaintiff paid to that French representative part only of the latter’s agreed share, wherefore defendant in these counterclaims, sues for return of the part so assigned to the French representative but not paid to Mm. The question of law is aptly stated in appellants’ brief thus (p. 2): “ May a seller of goods, who has agreed with his broker that the broker shall divide his commissions with tbe buyer’s purchasing agent and has paid tbe broker moneys intended to be so divided, recover back from the broker a portion of such moneys intended to be paid to the buyer’s purchasing agent but not yet so paid? ” Both courts below answered that question in the affirmative. We answer it in the negative.

These counterclaims plainly allege a conspiracy (see Penal Law, § 580) to violate section 439 of the Penal Law, which makes it a misdemeanor to give or offer such a commission or bonus to a purchasing agent. The contract or arrangement between plaintiff and defendant was thus illegal, criminal and unenforcible

p. 271

(see Sirkin v. Fourteenth St. Store, 124 App. Div. 384 ). It is the settled law of this State (and probably of every other State) that a party to an illegal contract cannot ask a conrt of law to help him carry out his illegal object, nor can snch a person plead or prove in any conrt a case in which he, as a basis for his claim, mnst show forth his illegal purpose (Reiner v. North Amer. Newspaper Alliance, 259 N. Y. 250 ; Municipal Metallic Bed Mfg. Corp. v. Dobbs, 253 N. Y. 313 , 316; Morgan Munitions Corp. v. Studebaker Corp., 226 N. Y. 94 ; Flegenheimer v. Brogan, 284 N. Y. 268 ; Carmine v. Murphy, 285 N. Y. 413 ; Furman v. Furman, 287 N. Y. 772 ; Baksi v. Wallman, 297 N. Y. 456 ). For no conrt should he required to serve as paymaster of the wages of crime, or referee between thieves. Therefore, the law ‘ ‘ will not extend its aid to either of the parties ’ ’ or “ listen to their complaints against each other, hut will leave them where their own acts have placed them ” (Schermerhorn v. Talman, 14 N. Y. 93 , 141). Conforming to that settled rule, this conrt and its predecessor have several times held that when an agent receives money to he spent for illegal purposes, his principal may not recover hack so much of that money as the agent has failed so to spend, particularly when the illegal purpose has been partly or wholly attained and a part of the money expended, therefor (Perkins v. Savage, 15 Wend. 412 ; Staples v. Gould, 9 N. Y. 520 , 522; Leonard v. Poole, 114 N. Y. 371 , 378). Both Staples v. Gould (supra) and Leonard v. People (supra), say that a broker or agent who knowingly participates in a criminal scheme is a principal, and in pari delicto with the one who employs him, so that neither may sue the other. Such is the New York law and it disposes of this case. Insofar as the Restatement of the Law of Agency (§ 412) is to the contrary, we do not concur in it.

We point out that we are passing on the precise question here involved, and no other. This is not a case where a mere agent or depository, receiving money for his principal, refuses to pay it over, on the ground that it was the fruit of an illegal contract between his principal and another (see Murray v. Vanderbilt, 39 Barb. 140 , 152; Merritt v. Millard, 4 Keyes 208; Woodworth v. Bennett, 43 N. Y. 273 , 276; and the reference to such a situation, by way of dictum, in Leonard v. Poole, supra, 114 N. Y. at p. 379). Nor are we deciding what the result would he had this

p. 272

defendant repented of his wrong, and demanded back Ms money, before any attempt had been made by plaintiff to bribe the purchasing agent (see Morgan v. Groff, 4 Barb. 524 ; Spring Co. v. Knowlton, 103 U. S. 49 , 59; Schley v. Andrews, 225 N. Y. 110 , 114).

The orders should be reversed, with costs in all courts, each certified question answered in the negative, and the motion to dismiss granted as to both the first and second counterclaims in the amended answer.

LougheaN, Ch. J., Lewis, CoNway, Dye and Fuld, JJ., concur.

Orders reversed, etc.

Cases cited

Yates v. Foot 12 Johns. 1 N.Y. p. 269
Ruckman v. Pitcher 1 N. Y. 392 N.Y. p. 269
Knowlton v. Congress & Empire Spring Co. 57 N. Y. 518 N.Y. Comm'n App. p. 269
Perkins v. Savage 15 Wend. 412 N.Y. Sup. Ct. p. 269, p. 271
Staples v. Gould 9 N. Y. 520 N.Y. at 522 p. 269, p. 271
Sharp v. Wright 35 Barb. 236 N.Y. Sup. Ct. 1861-09-16 p. 269
Haynes v. Rudd 102 N. Y. 372 N.Y. 1886-06-01 p. 269
Union Exchange National Bank v. Joseph 231 N. Y. 250 N.Y. 1921-05-31 p. 269
Daimouth v. Bennett 15 Barb. 541 N.Y. Sup. Ct. 1853-07-12 p. 269
Leonard v. Poole 114 N. Y. 371 N.Y. 1889-06-04 at 378 p. 269, p. 271
De Groot v. Van Duzer 20 Wend. 390 N.Y. Sup. Ct. p. 270
Murray v. Vanderbilt 39 Barb. 140 N.Y. Sup. Ct. 1863-01-28 at 152 p. 270, p. 271
Morgan v. Groff 4 Barb. 524 N.Y. Sup. Ct. 1848-11-06 p. 270, p. 272
Reiner v. North American Newspaper Alliance 259 N. Y. 250 N.Y. 1932-06-01 p. 271
Municipal Metallic Bed Manufacturing Corp. v. Dobbs 253 N. Y. 313 N.Y. 1930-04-08 at 316 p. 271
Morgan Munitions Supply Co. v. Studebaker Corporation of America 226 N. Y. 94 N.Y. 1919-03-21 p. 271
Flegenheimer v. Brogan 284 N. Y. 268 N.Y. 1940-11-26 p. 271
Carmine v. Murphy 285 N. Y. 413 N.Y. 1941-05-29 p. 271
Furman v. Furman 287 N. Y. 772 N.Y. 1942-02-26 p. 271
Baksi v. Wallman 297 N. Y. 456 N.Y. 1947-05-22 p. 271
Schermerhorn v. Talman 14 N. Y. 93 N.Y. at 141 p. 271
Merritt v. Millard 4 Keyes 208 N.Y. p. 271
Woodworth v. Bennett 43 N. Y. 273 N.Y. 1871-01-24 at 276 p. 271
Spring Co. v. Knowlton 103 U. S. 49 SCOTUS at 59 p. 272
Schley v. Andrews 225 N. Y. 110 N.Y. 1919-01-07 at 114 p. 272