Leonard v. Poole — 23 N.Y. St. Rep. 753

Majority

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William D. Leonard, as Receiver etc. of James R. Keene, Appl’t v. Abram Poole, Impleaded, et al, Resp’ts.^[1]

(Court of Appeals, Second Division,

Filed June 4, 1889.)

Headnote

1. Contract—Illegal agreement—Where court will not compel an ACCOUNTING.

Where parties have agreed to engage and have actually engaged in an unlawful plot to advance the price of lard, the aid of the court cannot be successfully invoked by them to adjust their differences.

2. Same—When all principals.

Persons who, knowingly, promote and participate in carrying out a criminal scheme, are all principals, and the fact that one of the parties-acts, in some respects, in subordination to the others, and is to profit less than the others, or not at all, by the consummation of the scheme, does not render that person less a principal.

April 11, 1887, this case was first tried at special term, Judge Truax presiding. The facts then found were identical with those found on the last trial, except he had a finding of fact, Xo. 33, which read : “ That the transactions carried on resulted in a loss.” As matter of law it was then held (1) That the action against Elmore A. Kent, was barred by the statute of limitations; (2) That Abram Poole was liable to account to the plaintiff. (Opinion pages 142 to 144). Upon that decision an interlocutory judgment was entered, appointing a referee, before whom Poole was ordered to account. He appealed to the general term, where the interlocutory judgment was reversed. 23 J. & S., 213. Opinion.

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pages 145 to 148; 13 N. Y. State Rep., 305. The action was again tried at special term, Judge Freedman presiding, who dismissed the complaint upon the merits, with costs. Decision pages 124 to 133. No opinion; which was affirmed by the general term. Page 139; no opinion. From this judgment the plaintiff appeals to this court.

No exceptions to the rulings on the trial or to the findings of fact, or to the refusal to find facts, are argued by the appellant orally, or on his brief.

Between August 13, 1879, and February 9, 1880, Elmore A. Kent and Abram Poole were partners, under the name of E. A. Kent & Co., and engaged in buying and selling produce on commission at New York and Chicago. Between the same dates, Henry C. Butcher, Howard Butcher, and Henry P. Darlington, were partners, under the name of Wshington Butcher’s Sons, and engaged in the same business at Philadelphia and Chicago. Between the same dates, Darius Miller and Nathan G. Miller were partners, under the name of D. & N. G. Miller, engaged in the same business at New York, and New Britain, Connecticut. Between the same dates, James R; Keene was engaged in business at New York. The firms, and said Keene, executed and delivered to E. A Kent & Co., the following contract, on the day of its date.

“The undersigned, each for himself, and not for the others, hereby agree to form a pool or combination for the purpose of buying and selling one hundred and twenty thousand tierces of lard, and to receive and pay for the amounts set opposite their respective names, to wit: James R. Keene, forty thousand tierces; Washington Butcher’s Sons, forty thousand tierces; D. & N. G. Miller, twenty thousand tierces; E. A. Kent & Co., twenty thousand tierces- and the said parties, each for himself, authorizes and empowers E. A. Kent & Co., in consultation, and with the approval of James R. Keene, N. G. Miller and Henry C. Butcher (parties hereto), to purchase and sell at their discretion, or that of a majority of them, the aforesaid quantity (one hundred and twenty thousand tierces), each agreeing to be responsible for the amount set opposite their respective names, and no more, any profit or loss arising from said purchases and sales, to be divided pro rata among the subscribers hereto.

And the said parties hereby agree to furnish on demand to E. A. Kent & Co. a margin of not less than one dollar per tierce for each and every tierce purchased, and further additional margins if required by any decline in the market value thereof. And whereas James R. Keene is the present owner of fifty thousand tierces of lard, Washington Butcher’s Sons of forty thousand tierces, and D. & N. G. Miller of sixteen thousand tierces: Now, for and in consideration of the sum of one dollar to each of the aforesaid

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parties paid by E. A. Kent & Co., and for other valuable considerations, receipt of which is hereby acknowledged, the aforesaid James R. Keene, W. Butcher’s Sons and D. & N. G-. Miller, agree and bind themselves to hold, tie up, and effectually withdraw from market so that the. same cannot be sold during the continuance of this agreement without the written consent of all the parties hereto, the aforementioned number of tierces of lard, to wit, James R. Keene, 50,000; W. Butcher’s Sons, 40,000; D. & N. Gr. Miller, 16,000; and from time to time, when demanded by E. A. Kent & Co., to furnish the said E. A. Kent & Co. with evidence satisfactory to them that the said number of tierces of lard are withheld from market and in possession of the aforesaid parties respectively. And it shall be the duty of said E. A. Kent & Co. to obtain such evidence of possession whenever required by either of the parties hereto. It is further understood and agreed that this agreement, in all its provisions and requirements, shall remain in full force and effect until the aforesaid one hundred and twenty thousand tierces of lard have been accumulated and sold, unless sooner dissolved by the consent in writing of all the parties hereto.

New York, August 13, 1879.

James R. Keene................... 40,000 tierces of lard.

Washington Butcher’s Sons........ 40,000 tierces of lard.

D. & N. Gr. Miller.................. 20,000 tierces of lard.

E. A. Kent & Co.....................tierces of lard.

The court finds that at the date of this contract it was agreed between the signers, that E. A. Kent & Co. wére not to be interested as principals in the transaction, but were to make the purchases and sales as brokers. The court also finds, that shortly after the above contract was executed, the following contract was executed and delivered by the signers thereto to E. A. Kent & Co. The existence of which was unknown to James R. Keene.

‘ ‘ For and in consideration of the payment to us, the undersigned, one-half each by E. A. Kent & Co., of any and all profits realized from the purchase and sale of twenty thousand (20,000) tierces lard, or any part thereof, E. A. Kent & Co.’s shares of a total of one hundred and twenty thousand (120,000) tes. lard, as set forth in a certain agreement made on the 13th day of August, by and between E. A. Kent & Co., D. & N. G. Miller, Washington Butcher’s Sons and James R. Keene: We, the undersigned, respectively, D. & N. G. Miller and Washington Butcher’s Sons’, hereby guarantee and assume all loss as against said E. A.

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Kent & Co., on ten thousand (10,000) tes. each, arising from said transactions.

“ WASHINGTON BUTCHER’S SONS,

“D. & N. G. MILLER.

“Witness: E. A. Kent.”

For the purpose of carrying out their contract, Keene, Washington Butcher’s Sons and D. & N. G. Miller furnished large sums of money to E. A. Kent 6c Co., with which they, from time to time, between August 13, 1879, and January 31, 1880, bought and sold on the produce exchanges of New York and Chicago, futures and options in lard, and also bought large quantities of lard, some of which was, from time to time, sold. The sales of option, futures and of lard were made in a way to, and for the purpose of causing the price of lard to fall, so as to enable the pool to purchase it at satisfactory prices, withdraw it from the market, and thereby greatly increase the market price.

Many purchases and sales were made upon the approval of James R. Keene, N. G. Miller and Henry C. Butcher, or a majority of them; but many were made by E. A. Kent & Co., without such approval, and upon their own judgment.

During the period covered by these transactions, E. A.' Kent & Co., from time to time, delivered to James R. Keene statements of the purchases and sales made for the parties interested.

Many of the purchases and sales entered upon these’ statements were not descriptive of actual transactions, but described alleged sales by themselves to themselves, upon which alleged transactions commissions were charged, which facts were not disclosed by the statements, nor in any other way. January 31, 1880, the defendants furnished said Keenewith a summary statement of the alleged tranactions, which showed $133.09 due from them to him (aside from a difference in interest), and February 6, 1880, they sent him a check for this amount, and February 9, 1880, they sent him a check for $127.95, the alleged difference in interest. These checks were retained and collected, but were not accepted in settlement. The court found that the statements were fraudulent, and that a much larger sum was due Keene, from the defendants, than was shown by their statements; but that the parties, having engaged in an unlawful conspiracy, the court would not adjust their differences,v and dismissed the complaint, with costs, and the judgment entered upon the decision was affirmed by the general term.'

Stephen H. Olin, for plt’ff-appl’t; Joseph H. Choate, for def’ts-resp’ts.

When the transactions, out of which this action arose, were being carried on, the statutes of this state provided that if two or more persons conspire to commit any act injurious to trade or commerce, each of them is guilty of a misdemeanor. 2 R. S., 692, section 8, subd. 6. The same provision is made in the Penal Codé, § 168. The scheme entered into by the parties to the contract of August 13, 1879, was an indictable misdemeanor. 2 R. S., 692, § 8; People v. Fisher, 14 Wend., 9 ; Hooker v. Van dewater, 4 Denio, 349 ; Stanton v. Allen, 5 id., 434 ; Arnot v. Pittston & Elmira Coal Co., 68 Pa. St., 173 .

The scheme which the parties to the contract for a time pursued and sought to consummate, was identical with the one described in the contract, and equally criminal. That Keene, Washington Butcher’s Sons and D. and 1ST. GL Miller agreed to engage, and actually engaged in an unlawful plot to advance the price of lard, cannot be successfully denied, and the courts of this state would not entertain an action to adjust their differences. This proposition is well settled, and we do not understand that the learned counsel for the appellant gainsays it, nor does he assert that the rule would not be applicable to a case arising between those parties and out of these transactions. The learned counsel for the appellant insists that Kent & Co. were not principals, but were mere agents for the principals; and that they cannot avoid payment upon the ground that the transactions were illegal. When persons knowingly promote and participate in carrying out a criminal scheme, they are all principals, and the fact that one of the parties acts, in some respects, in subordination to the others, and is to profit less than the others, or not at all by the consummation of the scheme, does not render such person less a principal. This rule is elementary and does not require ■ elaboration, or the citation of authorities. Throughout the period covered by the transactions these defendants bought and sold lard, and futures and options in lard, and actively engaged in the attempt to carry out the unlawful enterprise. If, at the close of their transactions, Keene and his associates had been found to be owing Kent & Co., we think it very clear that the illegality of the enterprise would have been a perfect defense to an action brought by Kent & Co. to recover the sum due. Bartlett v. Smith, 13 Fed. Rep., 263 ; Cobb v. Prell, 15 id., 774, Irwin v. Williar, 110 U. S., 499 . In the case last cited Mr Justice Matthews, in speaking for a unanimous court, said: “ In Roundtree v. Smith ( 108 U. S., 269 ), it was said that brokers who had negotiated such contracts, suing not on the contracts themselves, but for services performed and money advanced for defendant, at his i equest, though they

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might, under some circumstances, be so connected with the immorality of the contract as to be affected by it, they are not in the same position as a party sued for the enforcement of the original agreement. It is certainly true that a broker might negotiate such a contract without being privy ■ to the illegal intent of the principal parties to it, which renders it void, and in such a case, being innocent of any violation of law, and not suing to enforce an unlawful contract, has a meritorious ground for the recovery of compensation for services and advances.

But we are also of the opinion that when the broker is privy to the unlawful design of the parties, and brings them together for the very purpose of entering into an illegal agreement, he is particeps criminis, and cannot recover for services rendered or losses incurred by himself on behalf of either in forwarding the transaction.” 110 U. S., 509 . Several cases have been cited, holding that money or property deposited with a third person, which was derived from or through an unlawful enterprise, maybe recovered; and that the illegality of the transaction out of which the money or property arose cannot be successfully asserted as a defense by a mere agent or depositary. This rule is well settled, but it is not germane to this case.

Other cases are cited, holding that when the parties to an illegal transaction have accounted as between themselves, and agreed that a definite sum belongs to each, that an action may be maintained upon the accounting, or new promise, and the sum once admitted to be due, recovered. Admitting these cases to be well decided, they do not aid the appellant. These parties have had no accounting. No admission has been made that a specific sum is due to any one of them. No promise has been made since the completion of the illegal scheme upon which a recovery is sought. On the contrary, this action is for an accounting between the parties. It is alleged in the complaint that the amount which the plaintiff is entitled to recover is unknown, and can only be ascertained by an investigation of the illegal transactions between the parties. The judgment prayed for is: “ That an account may be taken of all the dealings and transactions, purchases and sales of lard made and conducted by said defendants, E. A. Kent & Co., under the agreement hereinbefore mentioned,” etc.

The relief sought would require the court to investigate all of the various transactions of .these parties from the beginning, to the end of their unlawful enterprise, and adjust the differences between them. This is precisely what courts have always refused to do. The fraud, which the trial court found was practiced by these defendants upon their associates cannot be too strongly condemned, but

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courts are not organized to enforce the saying that there is honor among law-breakers; and the desire to punish must not lead to a decision establishing the doctrine that lawbreakers are entitled to the aid of courts to adjust differences arising out of, and requiring an investigation Of, their •illegal transactions.

The judgment should be affirmed, with costs.

All concur.