In Irwin, the court considered a case in which the defendant lawyer had engaged in a form of champerty, agreeing to acquire a one-half interest in the plaintiff's claims.Summary of this case from Mason v. Orthodontic Centers of Colorado, Inc.
Argued May 13, 1902
Decided June 10, 1902
J. Stewart Ross for appellant. W. Wickham Smith for respondent.
Thus far in the progress of this action it has been held, mainly on the authority of Hirshbach v. Ketchum ( 5 App. Div. 324), that the complaint does not allege a cause of action. It states in substance that plaintiff, a customs broker, undertook to collect the claims of importers against the government for excess of duties paid to said government; that with the knowledge and assent of his customers he made an agreement with defendant, an attorney and counselor at law, authorized to appear in the United States courts, whereby plaintiff was to procure employment for defendant in the prosecution of such claims for excess of duties, upon contingent fees of 50 per cent, to be equally divided between plaintiff and defendant; that in pursuance of such agreement plaintiff procured the placing with defendant of the claims of Weil Co., in which matter $37,350.91 was recovered, of which the defendant received $18,620.45, one-half of which was, under the agreement, due to plaintiff, but which defendant refused to pay.
The ground upon which defendant rested his demurrer was that he personally was prohibited by statute from making such an agreement and that as the plaintiff participated with him in making a contract which offends against the statute, the courts will not enforce it. If this were true defendant would be enabled by an open violation of law to double the profits which his illegal contract promised him. If this view of the law be correct, it would seem to follow that the statute encourages rather than discourages the vice at which it aims. But the law of this state is quite otherwise and more in accord with sound reason, as we shall point out.
Quite long ago it was settled by this court that the common law relating to champerty and maintenance no longer obtains in this state. ( Sedgwick v. Stanton, 14 N.Y. 289.) Later, in Fowler v. Callan ( 102 N.Y. 395), this court, Judge FINCH writing, said: "It does not affect the validity of the contract between the attorney and his client that, measured by the old rules relating to champerty and maintenance, it would have fallen under their condemnation, for neither doctrine now prevails except so far as preserved by our statutes."
The only statutes in this state relating to the subject of champerty or maintenance now in force are to be found in sections 73 and 74 of the Code of Civil Procedure. Section 73 prohibits an attorney or counselor from buying a claim with the intent and for the purpose of bringing an action thereon, while section 74 reads as follows:
"An attorney or counselor shall not, by himself, or by or in the name of another person, either before or after action brought, promise or give, or procure to be promised or given, a valuable consideration to any person, as an inducement to placing, or in consideration of having placed, in his hands, or in the hands of another person, a demand of any kind, for the purpose of bringing an action thereon. But this section does not apply to an agreement between attorneys and counselors, or either, to divide between themselves the compensation to be received."
It will be observed that this statute does not provide that such a contract shall be wholly void, nor does it in terms purport to operate upon a layman who may be persuaded to procure business for an attorney because of the latter's promise to divide the profits with him. Its prohibition is directed against the attorney and counselor, who is an officer of the court, and the very next section (75) provides that "an attorney and counselor who violates either of the last two sections is guilty of a misdemeanor." Here again we note that the penalty inflicted is upon the attorney and counselor alone and not upon his accomplice or possibly intended victim.
But defendant urges that, notwithstanding the language of the statute is applicable to an attorney and counselor alone, nevertheless the contract upon which plaintiff relies was, so far as defendant is concerned, a prohibited contract, and, therefore, the courts will not aid either party to the contract as against the other, but will leave them in whatever predicament they may find themselves at the time one or the other of the parties seeks the assistance of the courts.
This is undoubtedly the rule where the parties to the contract are in pari delicto as well as particeps criminis, but it was long ago held in this state, in a very careful opinion written by Judge SELDEN in Tracy v. Talmage ( 14 N.Y. 162), that the court will, under certain circumstances, relieve a party to a contract which the other party was prohibited by statute from making. The principles established in that case have been frequently indorsed and never challenged in this court, and are applicable to the situation presented by this complaint.
In that case the North American Trust and Banking Co. had, in violation of its charter, issued and delivered its promissory notes. The effect of the contract was held to have been the same as if the issuing of the notes had been specifically prohibited under a penalty. The bank attempted to avoid payment on the ground that the contract being prohibited by statute was illegal, and therefore, non-enforceable. The court, after a very careful review of the authorities, pointed out that where the contract is malum in se, thus involving moral turpitude or violating some principle of public policy, the courts will in no case interfere to relieve either party from any of its consequences. But where the contract is merely malum prohibitum the court will interfere if the guilt rests chiefly upon one, although both have participated in the illegal act. "The maxim (said Judge SELDEN) ex dolo malo non oratur actio is qualified by another, viz., in pari delicto melior est conditio defendentis. Unless, therefore, the parties are in pari delicto as well as particeps criminis, the courts, although the contract be illegal, will afford relief where equity requires it to the more innocent party."
In that case the court reached the conclusion that while the other party to the contract with the bank was a party to a contract made in violation of statute, nevertheless it was not equally culpable with the bank, and, therefore, was entitled to the assistance of the court to relieve it. Judge SELDEN carefully considered the question whether both parties to the contract were to be regarded not only as particeps criminis, but also in pari delicto. He then cited Jacques v. Golightly (2 W.B. 1073) — which was an action brought to recover back money paid for insuring lottery tickets, the defendant having kept an office for insurance contrary to statute — wherein it was urged that the plaintiff being particeps criminis and having knowingly transgressed the public law, was not entitled to relief. The action was sustained, however, by a unanimous court, BLACKSTONE, J., saying, "These lottery acts differ from the stock jobbing act of 7 Geo. II, Ch. 8, because there both parties are made criminal and subject to penalties." Judge SELDEN then said: "The rule here suggested for determining whether the parties are in pari delicto seems reasonable and just. There are, undoubtedly, other cases in which the parties are not equally guilty; but it is safe to assume that whenever the statute imposes a penalty upon one party and none upon the other, they are not to be regarded as par delictum." This statement by the learned judge was followed by the consideration of many authorities in England and in this country, every one of which tended to support the test applied by the court for the purpose of determining whether the parties were in pari delicto.
The application of that test to this case establishes the plaintiff's right to recover, for this statute was leveled against attorneys and counselors, to the ranks of which this defendant belonged, and, therefore, it operated directly upon him, but did not in terms prohibit plaintiff from making such a contract; therefore, it must be held upon the authority of Tracy v. Talmage ( supra) and the many cases cited there, that this plaintiff is not in pari delicto with the defendant, and, hence, the courts may interfere in his behalf. And, clearly, the courts should do so, for, according to the complaint it appears that his customers consented that he should make an arrangement with an attorney by which a share of the profits resulting should go to him, and as the proceedings were to be instituted in the United States courts, or before some department of the United States government, it was not necessary that he should employ one who was an attorney and counselor at law in the courts of this state, against whom the statutes of this state would operate, but instead he might have employed attorneys and counselors in the United States courts who were not members of the bar of this state, in which event our statute would not have operated on either party to the contract.
The complaint does not allege that defendant is an attorney and counselor at law of this state, and the demurrer might well be overruled upon that ground; but we have preferred to rest our decision upon the broader ground that this defendant cannot invoke his violation of law for the purpose of retaining moneys which he agreed plaintiff should have, and but for which agreement would not have come into defendant's possession.
The doctrine of Tracy v. Talmage ( supra), so far as applicable to this case, has since been followed in a number of well-considered cases, such as Curtis v. Leavitt ( 15 N.Y. 1); Sackett's Harbor Bank v. Codd ( 18 N.Y. 240); De Groff v. American Linen Thread Co. ( 21 N.Y. 124), and Oneida Bank v. Ontario Bank ( 21 N.Y. 490).
Our attention has not been called to any authorities in this court criticising in anywise the position taken in Tracy v. Talmage ( supra). Leonard v. Poole ( 114 N.Y. 371) is a very different case, for the persons interested in those transactions were all of them, under the statutes of this state, engaged in a conspiracy to commit an act injurious to trade or commerce, and the contract under which they were proceeding was malum in se, and, hence, presented a situation in which the courts would refuse relief to any of the parties to it, as was said in Tracy v. Talmage.
The same is true of Goodrich v. Houghton ( 134 N.Y. 115), for there the plaintiff and defendant had jointly purchased a lottery ticket, which purchase was forbidden by law.
The judgments below should be reversed, with costs in all the courts, the demurrer overruled and the defendant allowed to answer within twenty days on payment of costs.
GRAY, O'BRIEN, BARTLETT, HAIGHT, MARTIN and VANN, JJ., concur.
Judgment reversed, etc.