Adams v. Robertson

37 Ill. 45

• Court: Illinois Supreme Court
• Decided: April 15, 1865
• Status: Published

Opinion

Opinion op the Court :

This is a suit in equity, brought to foreclose a mortgage and divide the proceeds arising from the sale between the appellants and the Prairie City Bank, one of the appellees. It appears that Robertson was indebted to the bank in the sum of $11,500, specified in four bills of exchange drawn and accepted in the State of Indiana, and payable in the State of Hew York. The bank in discounting two of the bills reserved interest at the rate of seven and one-half per cent. The laws of Indiana allow interest to be reserved at the rate of six per cent., and the laws of Hew York prohibit ihe taking of a greater rate of interest than seven per cent., under the penalty of the forfeiture of the debt. Robertson was also indebted to the appellants, who were transacting business under the name and firm of Graham & Buckingham, in the sum of about $2,000. On the 20th day of March, 1856, Robertson executed an absolute deed of several tracts of land to Barbour, as president of the bank, and Barbour, on the same day, executed a defeasance undertaking to fceonvey the lands to Robertson, upon payment of what he owed the bank, and what he might owe Graham & Buckingham.

The appellants insist that the bank has, under the laws of Hew York, forfeited so much of the debt due to it as was specified in the two bills of exchange upon which seven and one-half per cent, interest was reserved; and that they were void for the reason that the bank had no power to reserve a higher rate than six per cent, interest. The appellants also insist that they are entitled to share equally in the benefits of the security taken from Robertson. The bank insists that it has a priority. The bank filed a cross bill against Robertson for a foreclosure of his equity of redemption, and obtained a decree under which the premises were sold and purchased by the appellee, Early, for the benefit of the bank and of the appellants, according to their respective interests, as they might be determined by the court.

Great conflict of opinion has prevailed in respect to the laws affecting the validity of contracts made in one country, but to be performed in another. The laws of the country where a contract is made are obligatory upon the parties; and upon principle no contract declared void by those laws ought to be enforced in any other country. As an exception to the rule, it has been held that no nation is bound to take notice of or protect the i’evenue laws of another country; but this exception has no foundation in principle, although it is perhaps so firmly established that courts cannot now overturn it. fío man ought to be heard in a court of justice to enforce a contract founded in or arising out of moral or political turpitude, or in fraud of the just rights of the country in which the contract was made. Story’s Conf. Laws, p. 345. The laws of every country allow parties to enter into obligations with reference to the laws of the country where such obligations are to be performed; and although such obligations may not be in accordance with the laws of the country where they are made as regards obligations to be performed in that country, they may be strictly in accordance with such laws as to obligations to be performed in other countries. The right to enter-into contracts with reference to the laws of another country is one allowed by nations for the convenience of those transacting business within their respective territorial limits, to enable them to obtain such rights as they could have secured in the country wnere the contract is. to be performed, by a just observance of its laws. Isfo nation can be justly required to allow persons subject to its laws to enter into contracts without reference to and not in accordance either with its own laws or with the laws of the country where the contract is to be performed. A limitation in tbe laws of all nations of the right to enter into contracts to be Performed in other countries, requires that they shall be, in accordance with the laws of the country where they are made, or else in accordance with the laws of the country where they are to be performed. The laws of a country have no extra-territorial force, and do not prohibit persons from doing any act or making any contract in another country. The courts of one country may refuse to enforce contracts made in another country where they are immoral or unjust, or where the enforcing of them would injure the rights, interest or convenience of that country or its citizens; but the laws of a country, as such, have no operation or effect upon acts done or contracts made beyond its territorial limits. The rights enforced by courts where contracts are made in one country to be performed in another, are those given by the law of the country where the contract was made, and such rights are enforced in the country where the contract is to be performed, not as a matter of right, but as a matter of comity extended towards the country, where the contract was made. Persons making contracts with reference to the laws of the country where such contracts are to be performed, may expressly or impliedly stipulate for the rights and benefits given by the laws of that' country, as a part of the contract, and the laws of the country where the contract is made secures to the parties the rights and benefits thus agreed upon in the same manner as if the laws in reference to which they contracted were incorporated into the contract.

In determining the consequences attendant upon making a a contract in one country to be performed in another, which is not in accordance with the laws of either country, we should ascertain which country’s laws have been violated. As, for example, the laws of Illinois allow parties to contract for interest at the rate of ten per cent., while the laws of New York allow only seven per cent. Persons who make contracts in Illinois for interest at the rate allowed by its laws, violate no law of the State of New York, and are not subject to the penalties imposed by the laws of that State upon persons who enter into contracts within its territorial limits in violation of such laws. A creditor who has made no contract in New York does not violate its laws by receiving money from his debtor in that State, or undertaking in another State to receive it there. The laws of Indiana allow persons to contract for interest at the rate of six per cent., in case the contract is to be performed in that State, and at the rate of seven per cent, if the contract is to be performed in New York, but prohibit contracting for a.greater rate of interest in either case. Persons entering into contracts in Indiana reserving a greater rate of interest than is allowed by its laws in such cases, thereby violate laws of the State, and incur the penalties imposed for such violation. The courts of neither State will enforce the contract, because the rights asserted under it are in violation of the laws of the State where it was made. The fate of such a contract depends upon the laws of the place where it was made, being subject to the legal consequences attendant upon the violation of those laws. Andrews v. Pond, 13 Pet., 65. In Smith v. McAllister (17 Ill. Rep., 328,) this court held that pleas setting forth that the bills of exchange upon which suit was brought were made in Illinois and payable in the State of New York, under a contract not in accordance with the laws of either State, ought not to have been stricken from the files for immateriality. While the reversal of the judgment in the court below upon that ground was undoubtedly correct, upon a careful review of the subject, we are not satisfied with all the reasons given on that occasion. We are of the opinion that the consequences of entering into the contract in that case should have been determined by the law of the place where the contract was made.

The appellants cannot object to the bank’s taking the bills of exchange in question and security for their payment, nor question its authority so to do. Ro illegal interest was taken from them, and none is sought to be taken from them. They are not at liberty to assert Robertson’s rights.

The presumption arising from the defeasance executed by Barbour is that the bank and the appellants were to share equally in the benefits of the mortgage security. 1 Story’s Eq., 64; 9 Paige, 360. It is unnecessary for us to consider whether parol evidence is admissible to rebut such presumption and establish an agreement giving the bank a priority without a reformation of the defeasance, as the bank may in its defence to the appellants’ bill show that the instrument does not truly express the agreement of the parties owing to fraud, accident . or mistake. The counsel of the bank urged in argument that it was' not known to its board of directors that the conveyance was taken as security for the debt due to the appellants; that Graham, who was one of the directors, was present at a meeting of the board- when it was determined to take the security, and did not disclose that it was to be taken for the benefit of his firm; that Barbour, without its knowledge, executed the defeasance in its present form; and that, supposing the security was taken for its own benefit, the bank surrendered to Robertson the bills of exchange which it then held, and thereby discharged the liability of the endorsers thereof. There is no doubt of the fact that the appellants were in some manner to participate in the benefits of the security. Robertson, Barbour, the written memorandum made at the time, and the defeasance drawn from it, all agree that the appellants were in some manner to be interested in the security. The board of directors consisted of nine persons, five of whom it is presumed were a quorum. The arrangement to take the security was made between Robertson and the directors before they convened in the bank to act upon it formally. It is evident that Barbour, 'Graham and Farrington, three of the directors, knew the precise nature of the arrangement, and it is highly profitable 'that Turner, another director, was also aware of it. Before any fraud should be presumed, we ought to be informed who were present at the meeting of the board of directors, and there should be some inquiry whether those present did not understand that the appellants were to share in the benefits of the security. Barbour, the president, was present, and laid the matter before the board as an arrangement already agreed upon, and only wanting its formal sanction. The details of the arrangement were not stated by Barbour, and under the circumstances we may reasonably infer that the" members of the board who were present understood them. If the details were understood, there was no occasion for explanations, and a sufficient reason why none were made is furnished by the presumption that none were necessary. The answers of the bank admit that by the original agreement with Robertson, the appellants were to have an interest in the security, and do not assert that any fraud was practiced upon the directors by not disclosing that fact to them. Barbour is an intelligent and highly respectable witness, and it might have been shown by him what directors were present at the meeting, and whether they were acquainted with the nature of the arrangement which they sanctioned. We cannot infer that a fraud was committed upon the directors by the non-disclosure of the interest of appellants in the security, where no such fraud is asserted in the answer, and where no inquiry has been made of those whose testimony might establish or refute it. The allegations that the defeasance was fraudulently drawn by Barbour, so as to give to the appellants and the bank equal rights in the security, and that Barbour misled the board of directors in regard to its terms, are not sustained by the evidence. It is evident that Barbour drew the defeasance in accordance with what he understood was the agreement, and he afterwards informed his co-directors that Robertson had executed the deed according to the understanding between the parties. As M r. Beach, the cashier, knew nothing of the debt to the appellants, or of any arrangement by which they were to have an interest in the security taken, he naturally supposed it was solely for the benefit of the bank. His error in this respect arpse from his want of information. Graham was not present when the deed was executed, or at any of the conversations between Barbour and his co-directors subsequent thereto, and the bank cannot abridge the appellants’ rights on the ground that its directors were misled by its president. The appellants did not mislead the bank, and they are not responsible for the conduct of its officers.

The bank further alleges that the defeasance was by mistake so drawn as not tó express the true agreement" between the parties. "Written instruments are made to express the agreements of parties, and the safety of community re-, quires allegations of mistake in them should be regarded only where the evidence is clear, free from suspicion, and entirely saisfactory. Parties after the lapse of time, and under other circumstances, may differ widely as to the terms of an agreement, and experience has demonstrated the necessity of preserving them in a repository' more safe than the recollection of witnesses. A written instrument is made a repository for that purpose, with a distinct understanding that its contents are to be the sole and only evidence of the agreement, and that if difference should arise as to what they were, the instrument containing them is to be the criterion by which the rights of the parties are to be determined. We have in the case under consideration precisely the difference which the law so wisely endeavors to avoid in the use of written instruments. Robertson, after the lapse of years, and now he is endeavoring to extricate his sureties from liability, upon his obligations to the bank, says that the defeasance does not express the true agreement between the parties. With the defeasance in his possession he discovered no mistake therein until he failed to exonerate his endorsers from their liability. Barbour, who executed it, says that it was drawn in accordance with the verbal agreement.

The evidence shows that Robertson was desirous to have the bills of exchange held by the bank, and then past due, renewed, and that he was to give personal security for the payment of the bills taken in renewal to the satisfaction of the bank. Graham, who owned a majority of the stock of the bank, desired to secure the debt due to his firm, and was willing to have the bank renew Robertson’s bills upon satisfactory personal security, if his own debt was secured. A memorandum of the arrangement was made, from which the defeasance was drawn, and although it was not signed, it was preserved by the bank, and would at least test the accuracy of Barbour’s recollection in regard to the transaction. The bank has not produced the memorandum, and has given no satisfactory reason for withholding it. Under these circumstances, we are of opinion that the evidence is not of a character or sufficiently clear and satisfactory to establish a mistake in drawing the instrument selected by the parties to express their agreement.

The court below will ascertain the amount due the appellants for principal and interest, and direct the lands held by Early in trust for the parties, according to their respective rights, to be sold without redemption. From the proceeds there will be deducted the complainants’ costs in this court and in the court below, and the costs of sale; also the taxable costs of the complainant in the cross bill filed by the bank, and the costs of the sale made under the decree therein; the costs to be paid to the parties respectively entitled to the same. The residue of the proceeds will be divided pro rata between the appellants and the bank. Should a surplus remain after such division, the same will be paid over to Robertson, or to such person as may hold and be entitled to his equity. .

Inasmuch as there is no claim for an account of rents and profits of these lands set out in the complainants’ bill, we cannot direct any decree to be made in respect to them.

The decree of the court below is reversed and the cause remanded, with instructions to enter a decree in conformity with this opinion.

Decree reversed.