Knapp v. River Raisin & Grand River Railroad

1 Walk. Ch. 35

• Court: Michigan Court of Chancery
• Decided: July 15, 1842
• Status: Published

Opinion

The Chancellor.

By the twenty-second section of the act incorporating the railroad company, and authorizing the establishment of the bank, one tenth part of the amount of each share of bank stock is required to be paid in specie at the time of subscribing, and the balance in such instalments, and at such times, as the directors should require, they giving sixty days’ notice thereof, and no one instalment to exceed five dollars on a share. It is also provided, by the same section, “that no note or other evidence of debt shall be discounted or received by the directors, in payment of any instalments called in or required to be paid, with intent to provide the means of furnishing such payment, or with intent of enabling any stockholder to withdraw any part of the money paid in by him on his stock.” This express prohibition against discounting a note to enable a stockholder to pay in his stock, was designed to secure the bill-holders of the bank, and its other creditors, against losses which they might otherwise sustain by the substitution of stock notes in the place of actual capital. The discounting of the note and certificate of deposite for the purposes stated in the bill, viz. to enable Knapp to purchase Miller’s stock, and pay the bank what was still due on it, (but $15 having been paid on a share,) and to enable Payne to subscribe and pay for the three hundred shares which were not taken when the bank was put into operation, was a clear and palpable violation of this part of the act, and a fraud upon the law under which the bank was established. Knapp must have known at the time that the officers of the bank had no right, under its charter, to discount the note and certificate for such a purpose. The whole transaction appears to have been gone into to give him the ownership and control of the bank. But it is wholly immaterial whether he had such knowledge or not. The act of incorporation is a public law, of which he was bound to take notice. Are the complainants, on this statement of their case, entitled to relief in this Court? In Woodworth v. Jones, 2 Johns. Cas. 417, the parties had been guilty of maintenance, in buying and selling a pretended title to land, and it was held equity would not relieve either of them, but would leave them to their remedy, if any, at law. Such must be the decision in this case. To give relief under the facts and circumstances stated in the bill, would, it seems to me, be a perversion of justice, and an encouragement to bankers to commit frauds upon the public, through the improper management of the moneyed institutions under their control.

In Bolt v. Rogers, 3 Paige R. 157, Chancellor Walworth says: “Wherever two or more persons are engaged in a fraudulent transaction to injure another, neither law nor equity will interfere to relieve either of those persons, as against the other, from the consequences of their own misconduct.”

The bill cannot be sustained as a bill of discovery merely. When a bill is filed for relief, the discovery is ancillary, and a demurrer that is good to the relief is also good to the discovery. The rule is well established in England, that, if the complainant is entitled to discovery only, and the bill goes on to pray relief in addition to the discovery, the whole bill may be demurred to. Coop. Eq. Pl. 188; 3 Ves. R. 7; 10 Id. 553. The rule is otherwise in the state of New York. The English rule, however, I think preferable, as it keeps up a proper distinction between bills for relief and bills for a discovery only. The Court should not be required to examine the complainant’s case twice over; first, to ascertain whether he is entitled to relief, and, if not, then to see whether the bill can be retained as a bill for a discovery only.

But again. Would this Court aid a party at law, to whom it had expressly refused to give relief in this Court, —not for want of jurisdiction, but on account of the illegality of the transaction ? There can be but one answer given to such a question.

Demurrer allowed, and bill dismissed with costs.