Bowditch v. New England Mut. Ins. Co.
| Decision Date | 01 March 1886 |
| Citation | 4 N.E. 798,141 Mass. 292 |
| Parties | BOWDITCH and others v. NEW ENGLAND MUT. INS. CO. |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
W.G. Russell and George Putnam, for plaintiff.
W.C Endicott and A.D. Foster, for defendant.
This is an action in the nature of trover, to recover the value of certain negotiable coupon bonds held by the defendant as collateral security for several promissory notes signed by Sidney W. Burgess. Benjamin F. Burgess held the bonds in dispute as executor or trustee under the will of Lysander A Ellis, deceased. At several times he applied to the defendant for loans of money upon the notes of his son Sidney, offering these bonds as collateral security. These applications were submitted to the finance committee, a committee charged with the duty of investing the funds of the company, which passed votes authorizing the several loans, and these votes were afterwards approved by the directors. Thereupon Benjamin F Burgess delivered the bonds to the defendant, and received the amounts of the loans. Benjamin F. Burgess was a member of the finance committee, and was present at all the meetings, but neither spoke nor voted upon the question of allowing said applications. The other members of the committee knew that the loans, though in the name of Sidney W. Burgess, were for the benefit of said Benjamin F. Burgess, or of his firm, composed of himself and Walter Burgess, another son. At the same time said loans were made and said bonds received, Benjamin F. Burgess and his firm were in good financial standing, and the members of the finance committte, except said Burgess, made the loans and took the security without any knowledge or suspicion that said securities were not the property of said Benjamin F. Burgess, or of said firm, and in the belief that said loans were abundantly secured, and were wise and prudent investments of the funds of the company. The presiding justice of the superior court, who heard the case without a jury, has found that, although the loans were, in form, loans upon the notes of Sidney W. Burgess, Benjamin F. Burgess was in fact the borrower of the funds of the corporation, and that said Benjamin F. Burgess took no part, on behalf of the corporation, in the transactions in which said loans were made.
For the purposes of this discussion, we treat the case as if the loans had been made in form and directly to Benjamin F. Burgess. We do not understand the plaintiff to contend that the defendant is affected with the knowledge of Burgess of the fraud in the transfer of the bonds in dispute. Upon this point the case of Innerarity v. Merchants' Nat. Bank, 139 Mass. 332, S.C. 1 N.E. 282, is conclusive against him.
But he contends that the contract between Burgess and the defendant was illegal and void, and that the defendant cannot retain the bonds which were given as security for the void contract. This is the vital question in the case. The statute provides that "no member of a committee or officer of a domestic insurance company who is charged with the duty of investing its funds shall borrow the same, or be surety for such loans to others, or directly or indirectly be liable for money borrowed of the company." Pub.St. c. 119. It is a rule universally accepted that, if a statute prohibits a contract in the sense of making it unlawful for any one to enter into it, such a contract, if made, is wholly void, and cannot be enforced. But it is often a question of difficulty to determine whether a statute forbidding an act to be done, or enjoining the mode of doing it, is prohibitory so as to make any contract in violation of it absolutely void, or whether it is directory in its purpose, and does not necessarily invalidate the contract. Though it may be impossible to formulate a rule which will reconcile all the adjudications, yet the decisions recognize a clear distinction between these two classes of cases. There is a large class of cases, both in this country and in England, in which statutes have enacted, in substance, that goods should only be sold in certain measures or in a certain manner, or after being inspected and branded by public officers; and it has been held that contracts of sale which do not meet the requirements of such statutes are absolutely void. The purpose of such statutes is to protect the buyer from the imposition of the seller, a purpose which would be wholly thwarted unless the contracts are held void, and therefore the intention of the legislature to make them void is inferred. Miller v. Post, 1 Allen, 434, and cases cited; Libby v. Downey, 5 Allen, 299; Sawyer v. Smith, 109 Mass. 220, and cases cited; Benj. Sales, § 530 et seq. So, statutes prohibiting any work on the Lord's day except work of necessity or charity have been construed to make entirely void any contract made in violation of its provisions.
On the other hand, there are numerous cases where statutes forbid certain acts to be done, and, in a sense, forbid certain contracts to be made, and yet it is held that contracts made in contravention of the statutes are not void. When usurious contracts were forbidden by our law under a penalty of forfeiting threefold the amount of interest reserved or taken, the act of making such a contract was illegal. The imposition of the defined penalty showed that the legislature did not intend that the contract should be wholly void, as this would be imposing an added penalty. Merrill v. McIntire, 13 Gray, 157.
In Larned v. Andrews, 106 Mass. 435, it was held that the provisions of the internal revenue laws of the United States prohibiting any persons from carrying on the business of wholesale dealers in merchandise until they shall have paid the special tax therein provided for, did not invalidate the sales made by persons who failed to comply with the statute,...
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