defendant for the new shares in instalments, as called for by the directors, and, upon failure to pay any call for sixty days, should forfeit all sums theretofore paid upon the subscription. The plaintiff paid the sum in controversy upon the first call under the subscription, but failed to respond to subsequent calls for more than sixty days. After a resolution had been passed by the directors forfeiting the plaintiff's rights for delinquency, but before any scrip was issued for the new stock, and while the proceedings were inchoate, the stockholders resolved to abandon the project to increase the stock, and, pursuant to this action, the directors adjusted with parties who held receipts for payments under the subscription, by giving them the bonds of the defendant issued for that purpose. No bonds were tendered to the plaintiff; he demanded repayment of the money paid upon the subscription, and, being refused, brought this action.

§ 135. Where by the terms of the contract a payment is to be forfeited if a subsequent instalment is not paid within a limited time, such forfeiture may be enforced although afterwards the whole project had been abandoned, provided the project was not illegal.

If the subscription agreement was valid, the plaintiff can have no redress, but must be held to his stipulation to forfeit the payment for his delinquency in responding to subsequent calls. The defendant had become entitled to the plaintiff's money by the terms of the subscription agreement, at the time it concluded to abandon the scheme for increasing its capital, and, however hard and inequitable it may seem that the defendant should retain this money, while abandoning the project for which it was received, its legal right so to do is clear. On the other hand, if the subscription was executed as part of an illegal scheme, it is void in all of its conditions, and the defendant can take nothing under color of the forfeiture stipulated for. The sole question, in my view, therefore, is, whether the plaintiff will be permitted to recover money paid in partial performance of an illegal transaction. The defendant has no right to the money, unless that of possession, under circumstances which deny to the plaintiff the assistance of the court in reclaiming it. Certain propositions applicable to the present case are not debatable. Courts of justice refuse to entertain any application to enforce a contract or transaction which is immoral, or subversive of public policy, or in contravention of a statute. When the transaction has been consummated, or the contract has been executed, if the parties to it are in pari delicto, neither will be permitted to recover money or property delivered to the other in furtherance of it. When the law which the transaction contravenes is designed for the coercion of one party, or the protection of the other, or where one party is the principal offender and the other acquiesces by constraint of circumstances, the parties are not in pari delicto, and the lesser offender will be relieved, although the illegal transaction has been consummated. So far there is no diversity of opinion among text writers, or in the reported cases. Another proposition of controlling importance in this case, advanced by all the commentators, and sanctioned by many decisions, has been denied by the high authority of the commission of appeals, which is, that, where the contract or transaction is but partially performed, there is a locus pænitentia, and either party may rescind.

§ 136. Where an illegal contract or transaction is only partially performed, there is a locus pœnitentiæ, and either party may rescind the contract.

In deciding the present case, the commission of appeals (Dwight, commissioner, dissenting) have held that money paid by one party in part perform

ance of an illegal transaction cannot be recovered back, where both parties are in pari delicto, and that no distinction exists as to the right of recovery, between cases of partial and of entire performance. Notwithstanding the great respect which I entertain for the authority of the commission of appeals, I am constrained to differ from the conclusion thus reached, and must hold, in the language adopted by Mr. Justice Bradley (Thomas v. City of Richmond, 12 Wall., 349, 355), that "a recovery can be had, as for money had and received, where the illegality consists in the contract itself, and that contract is not executed," and that "in such case there is a locus pœnitentiæ, the delictum is incomplete, and the contract may be rescinded by either party." This statement of law finds support in the early case of Walker v. Chapman, Lofft, 342, where the plaintiff had paid money to procure a place in the customs, but which he did not get, and brought suit to recover back the payment, and Lord Mansfield decided in his favor; and upon the authority of this case, in the subsequent case of Lowry v. Bourdieu, Doug., 468, which was an action to recover a premium paid upon an insurance which was merely a gaming contract, but was brought after the event had happened upon which the insurance was to be paid, Buller, J., said: "There is a sound distinction between contracts executed and executory;" and the plaintiff was defeated because the agreement was not executory. In Tappenden v. Randall, 2 Bos. & Pull., 467, an action was maintained to recover a payment upon an illegal contract, Heath, J., after adverting to the distinction between executed and executory contracts, stated by Mr. Justice Buller, saying: "I think there ought to be a locus poenitentiæ, and that a party should not be compelled, against his will, to adhere to his contract." In Hastelow v. Jackson, 8 Barn. & Cress., 221, Littledale, J., says: "If two parties enter into an illegal contract, and money is paid upon it by one to the other, that may be recovered back before the execution of the contract, but not afterwards;" and a recovery was allowed on this ground. Other cases which proceeded upon the same rule are, Aubert v. Walsh, 4 Taunt., 293; Busk v. Walsh, id., 290; Bone v. Ekless, 5 Hurls. & N., 925. The same doctrine has been recognized in our own courts. White v. Franklin Bank, 22 Pick., 181; Nellis v. Clark, 4 Hill, 424; Morgan v. Groff, 4 Barb., 524. And in the latest English case, Taylor v. Bowers, 34 Law Times R., N. S., 938, decided in the court of appeal, in 1876, the plaintiff was permitted to recover property transferred to defraud creditors, where the scheme was not fully carried out, Mellish, L. J., saying: "If money is paid, or goods are delivered, for an illegal purpose, and that purpose is afterwards abandoned and repudiated, I think the person paying the money or delivering the goods may recover; but if he waits until the illegal transaction is carried out, or seeks to enforce it, he cannot maintain his action."

In opposition to these authorities, there is not a single case, of which I am aware, sustaining the conclusion of the commission of appeals. The cases cited in support of that conclusion, in the opinion of Lott, Ch. C., are, Perkins v. Savage, 15 Wend., 412; Bell, Ex parte, 1 Maule & Selw., 751; Howson v. Hancock, 8 Term R., 575; Bush v. Place, 6 Cow., 431; and The Saratoga County Bank v. King, 44 N. Y., 87. In none of these cases did the question arise, whether the plaintiff could succeed in an action in disaffirmance of an unexecuted illegal contract. In conclusion, I concur in the dissenting opinion of Dwight, Commissioner, that "the rule is well stated in 2 Comyn on Contracts, 109:" "If the contract continues executory, and the party paying the money be desirous of rescinding it, he may do so, and recover back his deposit."

A different rule would hold out an inducement to the parties to an illegal transaction to persevere in their efforts to violate the law.

That the transaction in furtherance of which the payment was made has never been consummated is clear. Before any stock was issued, the scheme to issue it was rescinded by the defendant. The real question is, Was the locus pænitentiæ open to the plaintiff at the time he brought this suit? He had declined to respond to the second call, when the defendant rescinded. Can there be any doubt that, up to the time of the abandonment of the scheme by the defendant, the plaintiff could have resorted to a court of equity, and restrained further proceedings, and vacated the proceedings already taken? The cases are numerous where courts of equity have interfered to prevent the consummation of a wrong, upon the motion of a party who was instrumental in its inception. It is laid down by Judge Story (1 Equity Jur., § 298), that "where the agreements or other transactions are repudiated on account of being against public policy, the circumstance that the relief is asked by a party who is particeps criminis is not, in equity, material. The reason is, that the public interest requires that relief should be given; and it is given to the public through the party. And, in these cases, relief will be granted not only by setting aside the agreement or transaction, but also in many cases by ordering a repayment of any money paid under it." See, also, Neville v. Wilkinson, 1 Brown's Ch. Rep., 1st Am. ed., 548, note a. If the plaintiff had received the fruits of the illegal transaction, in equity, as at law, he could not have recovered his payment, but, until then, not only could he have been heard, but restitution would have been made to him. The locus pœnitentia was open to the plaintiff so long as he was in a position to resort to a court of equity, and surely it was not closed to him by the action of the defendant in rescinding the illegal scheme. After that action on the part of the defendant, the plaintiff took the only steps he could take in repudiation of the transaction by demanding his money and bringing his suit. He is not to be denied relief upon the theory that the delictum was complete.

It is claimed that no payment was in fact made of the sum sought to be recovered by the plaintiff. A dividend of four per cent. had been declared by the defendant to its stockholders, among them to Sheehan, who transferred his interest to the plaintiff, and the dividend, instead of being paid in money, was credited, by agreement, as a payment of the first call under the subscription. Stockholders who did not subscribe for the new stock were paid in money. The evidence does not justify the inference that the dividend was a fictitious or fraudulent one. The defendant has treated the dividend as though actually paid, not only in crediting it as a payment, but in its dealings with the other stockholders, and it is now too late to question its validity. The plaintiff bought it of Sheehan, and paid for it in full. His rights are the same as though he had borrowed the money of Sheehan to make the payment of the call. Judgment is ordered for the plaintiff for $13,980, with interest from February 20, 1866.

UPTON v. JACKSON.

(Circuit Court for Michigan: 1 Flippin, 413-420. 1874.)

Charge by WITHEY, J.

STATEMENT OF FACTS.- This suit is said to be a test case upon the law and fact for a large number of cases pending in this court, brought by the plaintiff as assignee in bankruptcy of the Great Western Insurance Company of Chi

cago, to recover from alleged stockholders the unpaid stock held by them in that now bankrupt corporation. The ability with which it has been tried by the learned counsel must satisfy all parties concerned that their rights and interests have been placed before the court and jury in the fullest measure. Evidence has been put in under objections to its admissibility, subject to such rulings as the court should deem necessary in its instructions to the jury, and I shall further on inform you upon what basis you are to place your finding. The Great Western Insurance Company was chartered by the legislature of Illinois in 1857; organized in 1859, with an authorized capital of $500,000, and a subscribed capital of $100,000. From its organization up to some time in 1860 the company transacted the business of fire insurance, having its office in Chicago. In 1860 its capital was impaired by losses, and the company ceased to do business. In 1869 the legislature of Illinois passed a general insurance law, which, among other things, authorized existing insurance companies to increase their capital stock by amendment of their charters and conforming to certain requirements. With a view to bring this company within the provisions of that law, certain parties sought to acquire control of its charter. To show what was done, the plaintiff has introduced evidence tending to prove that some of the holders of the original stock transferred their stock to two or three of their associates, and these, as directors of the company, made a transfer of the charter to new parties, and thereupon stock in addition to the original $100,000 was issued under the charter which permitted $500,000 capital. An attempt was then made under the law of 1869, by those exercising control, to effect an authorized increase of capital up to $5,000,000. To prove what was done in that behalf, documents properly authenticated under the great seal of the state of Illinois have been put in evidence, being a consent by stockholders to such increase, a copy of the charter as amended, with a declaration of a desire to amend, a certificate of conformity by the attorney-general of the state, and one by the auditor of public accounts as to the condition of the capital, etc. There is evidence that the company, thus reorganized, opened an office in Chicago and transacted the business of fire insurance, issuing a large number of policies from July, 1870, up to the time of the great fire in Chicago October 8 and 9, 1871; that stock was issued and sold up to about $1,000,000; that defendant, a resident of Grand Rapids, Michigan, purchased from an agent of the company, on the 25th day of November, 1870, $1,000 of the new stock; that he paid twenty per cent. assessed thereon, and received a certificate for $1,000, across which was printed the word "non-assessable." After the time of the Chicago fire he paid ten per cent. additional on his stock, and before aware of the insolvent and bankrupt condition of the company.

There is also evidence that the company, while so transacting business, caused circulars, in pamphlet form, to be printed and distributed, representing from time to time the authorized capital, the amount subscribed, the amount paid in, and the names of stockholders and officers. Its policies also contained statements of the actual capital and names of the officers. Defendant continued to hold his stock certificate from the time of its issue, in May, 1870, to the time. of this trial, pending which he offered to surrender it. There is evidence of stockholders' and directors' meeting being held, and that owing to the Chicago fire, in 1871, the company became largely involved upon its policies. In January, 1872, a creditor commenced proceedings in bankruptcy, and in February the corporation was adjudicated bankrupt by the United States district court at Chicago. Plaintiff was appointed assignee, and received conveyance of the

property and assets of the company. Such proceedings were thereafter had that the bankrupt court made a call upon all stockholders for payment of their unpaid stock, of which due notice was given, and a personal demand was made upon defendant. He refused, and this suit is brought to enforce collection. On the other hand, defendant has introduced evidence attacking the proceedings to reorganize the company in 1870, and to show want of authority to issue the stock sold to defendant. It is, that the holders of the original stock never parted with their stock, never by vote or otherwise authorized an increase of stock, and never authorized a transfer of the chartered rights of the company. There is also evidence tending to show that the required assent to an increase of stock was not signed by enough of the stockholders; that it was in part signed by persons owning no stock and by persons holding void stock, and that many of the names signed to the document consenting to an increase of stock were forgeries.

I deem it unnecessary to make any further reference to the testimony; enough has been stated to indicate the material questions arising, and upon which instructions and rulings are required. Substantially, the defense urge that the proceedings to reorganize the company and increase the stock were without right or authority of law, and were fraudulent and void; that the directors could not transfer the charter and rights of stockholders without authority from the shareholders; and it is urged the latter never gave such authority. Again, that the stockholders never, by vote or otherwise, consented to an increase of stock; and that the paper filed in the office of the auditor of public accounts was not signed by shareholders, but was false and forged as to many of the names appearing thereon; and, therefore, that the stock issued and sold to defendant was void.

§ 137. Conduct which amounts to a ratification by shareholders of a transfer by directors of a corporation under an Illinois act of 1869, and operates as an estoppel.

Assuming that the transfer of the charter was made by directors without authority of stockholders, the rule would be against the validity of the transfer, and the transferees would take nothing thereby. But there is evidence tending to show that the shareholders acquiesced subsequently in the transfer by the directors by acting as stockholders in meetings held under the reorganization or new management, and that some of them held office, purchased of the increased stock, and participated in various ways in the business of the company. I instruct the jury that such participation would amount to acquiescence on the part of such stockholders, and be a ratification of the action of the directors, which would estop the shareholders from denying the validity of the transfer. Those stockholders, if any, who remained silent and allowed the proceedings to go forward, and the scheme to be foisted upon the public without objection, permitting the company to be held out as authorized to issue policies, increase its capital and deal with the public, would be equally estopped. The charter of this corporation, as originally granted, limited its capital stock to $500,000. The rule of law is that, in the absence of further legislative sanction, any stock issued in excess of the $500,000 would be unauthorized and void. But when the legislature, in 1869, granted authority to existing insurance companies to increase their stock upon taking certain proceedings, and persons acting under color of authority took proceedings and attempted compliance with the law, and in pursuance of those proceedings actually issued additional stock, claiming to have obtained the right so to do, obtained control