that the purpose of said consolidation was to complete said road in Tipton County, and to connect it with the line of said Paducah and Gulf road, and that said road has since been completed to the Town of Covington, in said County, to the City of Memphis, being a distance of thirty-seven miles, twenty-one whereof are in said Tipton County, and that said Norton communicated to his Company the action of said county court at its said October session of 1871, and that in consequence thereof, and in reliance thereupon, said consolidation took place, whereby said Paducah and Memphis Railroad was created and that said latter company thereafter completed the road from Covington to Memphis, and has regularly run and operated the same from the 25th of June, 1873, to this date, and that the plaintiffs in this action, in the ordinary course of trade, and without any notice of ill faith in the procuration of said bonds, gave full value therefor to the said Paducah and Memphis Railroad Company, by furnishing engines to be employed on said road, and that said Paducah and Memphis Railroad Company received said bonds without any notice whatsoever of any fraud in their issuance; then the fact that one or more of the justices of said county court, who originally voted for said subscription of stock, were induced so to do by corrupt means, and all other proofs or matters of fraud, constitute no defense to this action."

To the giving of that charge the County, by its attorney, excepted.

At the request of the County, the court charged the jury that "if the railway procured the issuance of the bonds by bribery, fraud and corruption, that they would be void in the hands of the railway, just as if they had not been issued; that all persons taking them from the company with notice, or under circumstances to put the vendor on inquiry, would stand in no better plight than the railway company would;" and that "if it appears that there was actual fraud in procuring the bonds, then the plaintiffs would be bound to show that they were bona fide holders."

The defendant requested the court to further charge the jury as follows: "That if the plaintiff took them (the bonds) after due, they would stand like the railway company's:" which request was granted, with the modification that unless the jury believed as stated in the charge given at the request of the plaintiffs:

intervenes, which took away all power from one of the contracting parties to enter into the contract, then there could be no contract by ratification, because the party would be under disability of contracting either expressly or by ratification. Therefore, if the contract was void in its making, for fraud, and the facts of the fraud were not known, and [or] known waived, before May, 1870, when the new Constitution was adopted, then there could be no contract by ratification or otherwise, as all power to make such a contract as this was then, by the mandate of the Constitution, taken away from the county court." That instruction was also granted, with this modification: "That, although the general reasoning of this request is correct in legal principle, still, if the jury believe as stated in the charge for the plaintiffs, the defendant will be estopped to set up fraud as a defense, after having induced their purchase by answering to an inquiry of whether they would be paid, that they would be. And if the jury believe that such were the facts in this case, then fraud will not constitute a defense.

That if the influences which procured the contract were afterwards successfully exerted in concealing the fraud and defeating its discovery and efforts to resist the contract, then there can be no such thing as a waiver; that communities may waive fraud, but more indulgence is extended to them than to individuals; that accepting the road and using it, and paying a part of the consideration in ignorance of the fraud by which a vote was produced will not be a waiver." This request was given with the same modifications, however, as made in reference to the last two preceding requests by the defendant.

We are unable to perceive that any error of law was committed to the prejudice of the County. The case went to the jury under circumstances quite as favorable to it as the evidence justified. If the facts disclosed in the instructions were believed by the jury to be established by the testimony, its duty was to return a verdict for the plaintiffs. The charge of fraud, bribery, moral coercion and intimidation applied, it must be observed, to the Mississippi Railroad Company and to the justices composing the county court at the time the original subscription was made, and the bonds issued and delivered. When the court, subsequently, received the written proposition from the railroad company, for an extension of time upon certain conditions, it was distinctly informed that its action would affect and control large business operations in which others were concerned who had no connection with the original subscription, or with the issue of the bonds. The extension of time was accepted upon the terms and conditions set out in the proposition of the company, and without, so far as the record discloses, any dissent among the twenty-two justices present; and, as evidence of its purpose to adhere to the new agreement and provide for the payment of the bonds and coupons, the county court ordered the levy of a tax upon all of the taxable property of the County. We have already seen that at the meeting of the county court held in July, 1870, resolu"That if, before a contract which was void, tions were entered of record declaring that the which is no contract, had become a subsisting bonds had been issued without lawful authorand valid contract, a constitutional provisionity, and directing such steps to be taken as were

That a party may waive the fraud by subsequent acts, but in order to make this doctrine apply, it must appear that the party waiving was fully apprised of the fraud which he waives. He must know of the fraud, and, knowing, waive it;" which was given with this modifica tion: "Although this is generally true, it has no application to this case if the jury believe as in the charge stated in favor of the plaintiff. If one citizen about to buy a demand against another applies to him in good faith to ascertain whether the demand will be paid, and is informed that it will be, and buys in reliance upon such information, the party admitting his obligation will not be permitted to defend, although the admission was made in ignorance of a valid defense.

necessary to protect the people against the proposed burden. With this record before the justices who composed the court in October, 1871, the proposition for an extension of time was accepted, and an assurance of record was thereby given, that the County would meet the bonds according to the new terms. The force of this action of the court was increased in view of section 402 of the Code of Tennessee, adopted in 1858, declaring that "Every county is a corporation, and the justices in the court assembled are the representatives of the county and authorized to act for it."

Whether upon the faith of these proceedings in the county court the Paducah and Gulf Railroad Company consolidated with the Mississippi River Railroad Company, was fairly submitted for the determination of the jury. The new company having become, in virtue of that consolidation, the owner of the assets of the constituent companies, including the bonds in suit, proceeded with the work of construction. There was evidence tending to show that at the time of the consolidation only a few thousand dollars had been expended in building the Mississippi River railroad in Tipton County; that after the consolidation about half a million of dollars had been expended in Tipton County by the Paducah and Memphis Railroad Company; that the road from Memphis to Covington, the county seat of Tipton, a distance of 37 miles (of which 21 miles were in Tipton County), had been built and equipped, and trains run- | ning thereon regularly, ever since June 25, 1873; that the road had been graded, bridged, and made ready for the cross-ties and rails from Covington to 14 miles north of Ripley, in Lauderdale County; that since the consolidation the road had been completed and equipped from Troy to Trumber, a distance of 15 miles, and trains run regularly between those places; that the road had been graded, bridged and crosstied for the rails from Trumber to Dyersburg, and the right of way secured on about 21 miles of the road between Dyersburg and Ripley. This is not all. The stock which Tipton County originally received in payment of its subscription was voted by its official representative in favor of the consolidation, and the County received, in place of its stock in the Mississippi River Railroad Company, stock for like amount in the new company. Besides, the County voted the new stock in favor of the execution of a mortgage for $1,951,000, which was placed upon the property of the company which was formed by the consolidation.

The acceptance by the county court of the terms and conditions set forth in the proposition of September 30, 1871, and its participation, under the circumstances adverted to, by its authorized representatives, in the proceedings which resulted in the consolidation, whereby the situation of the Paducah and Gulf Railroad Company became materially altered, was, in effect, a representation to those interested in that company that the County would not withhold payment of its bonds or coupons, but would meet them according to the terms of the new agreement. By its conduct, it induced those interested in the Paducah and Gulf Railroad Company-then solvent, out of debt and owning and operating a complete railroad from Paducah, Kentucky, to Troy, Tennessee, worth

$1,000,000-to believe that the bonds would constitute a part of the available assets of the new company. The defendants in error received a portion of these bonds as early as March 15, 1873. The integrity of the business transaction by which they acquired them is not questioned by any evidence recited in the record. Nor does it appear that any evidence was offered that impugned in any degree the good faith, in respect of these matters, of those who controlled the Paducah and Gulf Railroad Company, nor of those who controlled the Paducah and Memphis Railroad Company subsequent to the consolidation of 1872. The defendants in error obtained the bonds in suit from the Paducah and Memphis Railroad Company, paying value therefor and, so far as the record discloses, without any reason to suspect their payment would be resisted by the County. In view, then, of the conduct throughout all these proceedings of those who represented the County of Tipton, it is estopped, by every consideration of law, justice and fair dealing, from disputing its liability to defendants in error upon the bonds in suit. The discovery by the County, in February, 1875, of fraud and corrupt practices upon the part of the Mississippi River Railroad Company, in procuring the issue of the bonds in 1869, cannot be permitted to affect the rights of those who had, in good faith, acquired the bonds in reliance upon the explicit assurance which the County, in effect, gave in October, 1871, that it would provide for the payment of the bonds and their coupons. The defendants in error having obtained the bonds under the circumstances which have been detailed, may rightfully invoke, in support of their claims, any facts which would have estopped the County from disputing the claim of the Paducah and Memphis Railroad Company, had the latter company never parted with the bonds.

There are other grounds arising upon the evidence upon which the judgment below might, perhaps, be sustained, and there are other ques|tions suggested in argument upon which we deem it unnecessary to comment.

Mr. Justice Swayne and Mr. Justice Strong participated in the decision of this case in conference before their retirement, and we are authorized to say that they concur in this opinion and judgment.

The judgment is affirmed.

CONGRESS & EMPIRE SPRING COM-| Smith v. Hubbs, 10 Me., 71; Schermerhorn v.

PANY, Plff. in Err.,

V.

DEXTER J. KNOWLTON, JR., ET AL, as
Admrs. of DEXTER A. KNOWLTON, Deceased.

(See S. C., 13 Otto, 49–62.)

Talman, 14 N. Y., 94; Knowlton v. Cong. &
Emp., Spring Co., 57 N. Y., 518; Howson v.
Hancock, 8 T. R., 575.

The alleged right of action for the money sought to be recovered herein, arises out of this illegal and fraudulent scheme, and the plaintiffs, therefore, cannot recover. Ex turpi causa non

Money paid on illegal contract—when recovered oritur actio.

back.

1. Money, paid on an illegal contract which remains executory, can be recovered back in an action founded on a disaffirmance, and on the ground

that it is void.

IV. There is no federal question involved in this suit.

The action was brought by the deceased plaintiff in the Supreme Court of the State of New York. It was tried in that court, and a 2. Payment on shares of stock to be illegally is- recovery had. On appeal by the defendant, sued may be recovered back, the stock not having the court of last resort in that State decided been delivered. [No. 200.] that the plaintiff was not entitled to recover, Argued Jan. 14, 1881. Decided Jan. 31, 1881. and reversed the judgment of the Supreme Knowlton v. C. & E. Spring Co. (supra) It is confidently submitted that this court should, and in accordance with the established cision of the Court of Appeals of New York rule by its own decisions, will follow the dein deciding this case.

ERROR to the Circuit Court of the United

The case is stated by the court. Messrs. Francis Kernan and Chas. S. Lester, for plaintiff in error:

I. The scheme and contract to increase the stock were in violation of the statute under

Court and ordered a new trial.

Bk. v. Skelley, 1 Black, 436 (66 U. S., XVII., which the corporation was organized and against 173); Elmendorf'v. Taylor, 10 Wheat., 152; Scipio public policy. They were illegal and fraudu-V. Wright, 101 U. S., 665 (XXV., 1037); Elmlent. wood v. Marcy, 92 U. S., 289 (XXIII.,710); Fairfield v. Gallatin, 100 U. S., 47 (XXV., 544).

Knmelton v. C. & E. Spring Company, 57 N.

Y., 518-527.

This was also the finding and decision of the U. S. Circuit Court.

The statute expressly required that all stock should be paid for at its par value in money, or in property necessary to the Company in carrying on its corporate business.

2 R. S., of N. Y., 6th ed., v. 504, sec. 38; 505, secs. 40, 41; 507, sec. 49.

Mr. H. M. Ruggles, for defendants in error:

1. There was a total failure of consideration

for the payment made by Knowlton, and the court below might properly have so held. increase of its capital stock, as shown by the The steps taken by the Company towards the record, were initiatory merely.

No stock was created. There having been no The scheme under consideration was in vio- stock created, there was none to forfeit, and the lation of the terms of the statute and the pub-resolution of forfeiture was nugatory. lic policy of the State of New York.

II. The plaintiffs' intestate was particeps criminis and in pari delicto as to this illegal and fraudulent scheme and contract. Indeed he was more guilty than the Corporation.

It certainly cannot be successfully claimed that an officer of a corporation, who, by his advice, votes and action, involves the corporation in an illegal and fraudulent scheme, and who as an individual becomes a party to this scheme with the corporation, is not at least in pari delicto with the corporation. In fact and in law he is the criminal.

Thomas v. Richmond, 12 Wall., 349 and 356 (79 U. S., XX,, 453, 457).

III. On these facts the plaintiffs' intestate was not entitled to recover, either in a court of law or equity, from the Corporation the $13,980, with interest from Feb. 20, 1866.

Where the scheme or contract is malum in se, as in the case at bar, and the parties to it are in pari delicto, the law refuses to aid either of them in reference to it against the other. It leaves them where they have placed themselves by their own acts.

Smith, Cont., 3d Am. ed. (star), 187-191; Burt v. Place, 6 Cow. (N. Y.), 431; Nellis v. Clark, 20 Wend., 24; S. C. in error, 4 Hill, 424;

NOTE.-Whether, when parties are in pari delicto or particeps criminis, equity will relieve, see, note to Sample v. Barnes, 55 U. S. (14 How.), 70.

The money paid to the Company was not affected by it. The subsequent action in regard to the outstanding receipts for payments was a waiver, if one was needed, of any prior default.

The certificates

2. The contract of the Company was ultra vires and void. It had no power to deliver to subscribers full paid stock on receipt of eighty per cent. of its par value. might contain the statement that the shares were full paid, but neither against the Company nor against creditors would such statement be conclusive.

Secs. 10, 11, 14, Act of 1848; Thomas v. R. R. Co., 101 U. S., 78 (XXV., 950); R. R. Co. v. Stewart. 41 Pa., 54; Nav. Co. v. Comrs. of Newbern, 7 Jones (L.), 275; Ang. & Ames on Corp., secs. 255, 527; Hibernia T. Co. v. Henderson, 8 S. & R., 219. Sturges v. Stetson, 3 Phila., 304.

A void contract is not a good consideration for the payment of money, and money paid upon it may be recovered.

Dill v. Wareham, 7 Met., 438.

All the elementary writers agree that while an illegal contract remains executory, money paid or goods delivered in partial performance of it may be recovered.

Cont., 1st ed., 252; Story, Cont., 5th ed., sec. 611; Add. Cont., Am. ed., sec. 1412; 2 Greenl., Ev., sec. 111.

2 Com. Cont., 109; Chit. Cont., 553; 2 Pars.

Addison states the rule thus: "The law, so

long as an illegal contract continues executory, implies from the person who has received the money in furtherance of the execution of the contract, a promise to refund it in favor of the party who paid the money, and who repudiates the illegal transaction.

* *

* *

by the affidavit of the chairman and countersigned by the secretary, and such certificate shall be acknowledged by the chairman and filed, as required by the 1st section of this Act; and when so filed the capital stock of such Corporation shall be increased * to the Aside from this case in the N. Y. Commission amount specified in such certificate, of Appeals, every English and every American and the Company shall be entitled to the privcase sustains the position so stated. ileges and provisions, and subject to the liabilWalker v. Chapman, Lofft, 345; Lowry v.ities, of this Act, as the case may be." Bourdieu, 2 Doug., 471; Tappenden v. Randall, 2 Bos. & P., 466; Hastelow v. Jackson, 8 Barn. & C., 221; Bone v. Ekless, 5 Hurl. & N., 925; Taylor v. Boters, L. R., 1 Q. B. D., 291; Ins. Co. v. Kip, 8 Cow. (N. Y.), 20; Merritt v. Millard, 4 Keyes (N. Y.), 213; Morgan v. Groff, 4 Barb., 526; Skinner v. Henderson, 10 Mo., 207; Adams Er. Co. v. Reno, 48 Mo., 268; White v. Bk., 22 Pick., 184; Lorell v. R. R. Co., 23 Pick., 32; Thomas v. Richmond, 12 Wall., 355 (79 U. S., XX., 456.)

Mr. Justice Woods delivered the opinion of the court:

On January 11, 1866, the Corporation passed a resolution to increase its capital stock by the addition thereto of $200,000, for the purpose of building a glass factory for the manufacture of bottles and providing a working capital. It also resolved that the books of the Company should be opened for subscriptions to the additional stock and that each stockholder should be allowed to take one share of the new stock for every five shares he held of the original stock, and that when he had paid $80 on each share, the Company should issue to him a certificate as for full-paid stock.

At a meeting of the Board of Trustees of the Corporation, held February 8, 1866, a dividend of four per cent on the original stock was declared, payable February 20, and it was resolved that a call of twenty per cent on the new stock should be made, payable February 20, 1866; that the books of the Company should be at once opened for subscriptions to the new stock and that each stockholder should have the priv

This suit was brought in 1869 by the intestate, Dexter A. Knowlton, against the plaintiff in error, in the Supreme Court of the State of New York, to recover the sum of $13,980, with interest from February 20, 1866. In 1876 Knowlton died, and the present defendants in error having been appointed administrators of his estate, the suit was revived and continued in their names. At the time of his death Knowl-ilege of taking one share of the new stock for ton was a citizen of Illinois. His administrators were citizens of that State. On their application the suit was, on March 20, 1877, removed to the Circuit Court of the United States for the Northern District of New York. The parties waived a jury and the case was tried by the court at the October Term, 1877.

The court found the facts of the case to be substantially as follows.

every five shares of the old stock held by him, and that on failure of any stockholder to pay, on or before February 20, 1866, $20 on each share of the new stock taken by him, all his claim to such new stock should be forfeited and the same should be divided ratably among the stockholders who had paid the installment of $20 per share.

A stock subscription agreement was immediThe Congress & Empire Spring Company, ately issued by the trustees in pursuance of the the plaintiff in error, is a Corporation of the said resolutions, by which the subscribers stipState of New York, organized under the stat-ulated to take the number of shares set opposite ute of that State passed February 17, 1848, authorizing the formation of corporations for manufacturing, mining, mechanical or chemical purposes, and subsequent Acts amendatory thereof. The capital stock was $1,000,000, divided into 10,000 shares of $100 each, and was issued in payment of property purchased by the trustees of the Corporation for its use.

their names and to pay for each share $80, in installments, as called for by the directors, and upon failure to pay the installments within sixty days after call, that the money already paid on the stock should be forfeited to the Company. And by the same agreement the Company bound itself to pay interest, up to February 1, 1867, on all sums paid on the new stock, and on Febru ary 8, 1867, to issue for every share of said new stock on which $80 had been paid, a certificate to the holder as for full-paid stock, and it was provided that the holders of such stock should Section 21 prescribes how the notice of a meet-be entitled to vote thereon and the same should ing of the stockholders to consider the proposi- draw dividends and be treated in all respects as tion to increase the capital stock shall be given, full-paid stock. and what vote of the stockholders shall be necessary to carry the proposition.

The mode by which corporations, such as the plaintiff in error, might increase their capital stock is prescribed by sections 21 and 22 of chapter 40, of the Laws of 1848.

Section 22 prescribes how the meeting of the stockholders, called under section 21, shall be organized, and declares that if a sufficient number of votes has been given in favor of increasing the amount of capital stock, "A certificate of the proceedings showing a compliance with the provisions of this Act, the amount of capital actually paid in, * * the whole amount of debts and liabilities of the company, and the amount to which the capital shall be increased * * * shall be made out, signed and verified

This agreement was signed by one C. Sheehan, who subscribed for 690 shares of the new stock, he being the holder of 3,490 shares of the old stock.

Thereupon a contract was made between Sheehan and Knowlton, the intestate, whereby Sheehan agreed to lend his dividend on the old stock held by him to Knowlton, and the latter agreed to assume the new stock, subscribed for by Sheehan, and pay all future calls thereon. Sheehan's dividend on his old stock amounted to $13,988. Knowlton, in consideration of the transfer to him of this dividend, delivered his

On March 8, 1866, Knowlton paid to the Com- As a conclusion of law from these facts, the pany the call of twenty per cent on the new court found that the plaintiffs were entitled to stock, subscribed by Sheehan and sold to him judgment against the Congress and Empire as aforesaid, by the application thereto of Shee-Spring Company for the sum of $13,980, with han's dividend on the old stock, amounting to interest from February 20, 1866, and rendered $13,980, for which the Company gave Knowl- judgment accordingly. ton a receipt.

On March 27, 1868, the executive committee passed a resolution that the Company issue fiveyear coupon bonds sufficient to refund the pay-be cast at the meeting in favor of the increase, ments made on the new stock of the Company which had been retired.