fraud the creditors of the lessee, saying: "It is true the complainant attempts to show his solvency, but, upon cross-examination, virtually admits that he was insolvent, and that there was a judgment against him; and the conclusion is almost irresistible that he made the transfer in order to hinder and defraud his creditors. The transfer having been made for a fraudulent purpose, and the fraud having been participated in by both parties, a court of equity will leave them to the consequences of their misdeeds. The maxim applies, 'In pari delicto, melior est conditio possidentis." In Brown v. Brown (1895) 66 Conn. 493, 34 Atl. 490, the suit was by one brother against another to compel a conveyance of real estate, which the brothers had induced their mother to execute in favor of the defendant, to be held in trust for the mother during her life, and after her death secretly in trust for both brothers. The trust agreement was verbal, and the purpose of the secret trust was to defeat an attempt of the divorced wife of the plaintiff to realize her allowance, and that of her children, out of the plaintiff's prospective share of his mother's estate. The court held that the plaintiff was in court with "unclean hands," and not entitled to the relief prayed. 2. Qualification of rule. One who, after the failure of a business firm of which he was a member, and the surrender of all he owned to pay off the obligations of the defunct firm, started business anew with merchandise and credit belonging to others, was held not to be in court with "unclean hands" because, to protect such property from the creditors of the old firm, he had deposited the cash of his new business in the name of a confidential clerk, who, in the instant suit, was claiming to be the owner of the new business as against his employer. Lord v. Smith (1908) 109 Md. 42, 71 Atl. 430. An assignment of a claim against the estate of a decedent, for collection, made in the form of an absolute assignment, has been held not, in itself, to evidence a fraudulent intent on the part of the assignor, precluding him, under the principle of "unclean hands," from recovering, in a suit in equity against the transferee of his assignee "of all remedy in equity," for a fraud perpetrated on him by the said assignee and transferee in the subsequent transfer of the claim. Thurston v. McLellan (1909) 34 App. D. C. 294. One who purchased certain real estate through an agent to whom the deed was executed, and who in turn conveyed the property to the principal, was held not to be in court with "unclean hands" in seeking to remove a cloud from his title to the property, occasioned by a judgment debt which, after the purchase of the property, he had learned was outstanding against his agent in the transaction. First Nat. Bank v. Carter (1918) Md. -, 103 Atl. 463. The principle of the maxim has been held to have no application to a case where the legal title to real estate was in the name of a man and his wife, but the wife in equity and good conscience owned the property, and the husband, to protect it from his creditors, conveyed his legal title to her. Butte Invest. Co. v. Bell (1918) Mo. -, 201 S. W. 880, wherein it was also held that the principle of this maxim does not apply to the case of one who, in order to defeat her creditors, took steps to convey her property beyond their reach; but before the actual conveyance she repented, and refused to carry out the fraudulent plan. In Luebke v. Salzwedel (1914) 157 Wis. 601, 147 N. W. 831, wherein it appeared that one who had planned to defeat a possible judgment against him, in a suit instituted by his wife for a divorce, by fraudulently conveying his property to a third person, delivered the deed to another, directing that it should not be delivered to the grantee, it was held in a suit instituted by him against such grantee, who had obtained possession of the deed by fraud and had had it recorded, that he was not in court with "unclean hands" in seeking a cancelation of the deed, the fraudulent conveyance not having been consummated by delivery or recordation by the grantor. In Shapira v. Paletz (1900) - Tenn. -, 59 S. W. 774, a suit to recover the amount of a judgment against certain of the defendants, which judgment the plaintiffs had been compelled to pay as sureties on the replevin bonds of the former, and to subject a certain stock of goods in the possession of one of the defendants to the payment of their claim, it was disclosed that the goods in question were transferred to the defendant referred to, in fraud of creditors of the other defendants, and that the plaintiffs, in a controversy which subsequently arose among the defendants themselves over the property, acted as arbitrators of the dispute. It was contended that the plaintiffs, in view of the fact that they had arbitrated the claims of the defendants, were parties to the fraud perpetrated on the creditors of the defendants, referred to, and were in court with "unclean hands." The court held, however, that such contention was not sustainable; and, as there was no evidence that the plaintiffs participated in the fraudulent transfer, it granted the relief prayed. It was said in Conlon v. Hosier (1917) 165 N. Y. Supp. 746, that in certain jurisdictions the grantor in a conveyance of real estate, which, while in form absolute, is alleged to be in fact a mortgage, and is given under circumstances involving the defrauding of creditors, is barred from relief against the grantee only where the former is unable to make out a prima facie case without developing the fraud; from which it follows that the grantee in such a conveyance may not plead the fraud intended to be perpetrated on the creditors. The contrary, however, was held to be the rule in New York, wherein the question of fraud may be raised by the grantee, notwithstanding it was not pleaded. It seems to be the rule, where the parties to a suit arising out of a conveyance in fraud of creditors of the grantor are not in pari delicto with reference to the fraud, though they are in delicto, that a court of equity will not apply the principle of this maxim, and refuse its aid to the party guilty in the lesser degree. Therefore, in Conlon v. Hosier (N. Y.) supra, it was held that this rule has been applied most frequently on behalf of a transferrer in fraud of creditors, where the defendant, who knowingly advised or induced the fraudulent transfer, without necessarily exercising any undue influence over the transferrer, sustained such a relation toward the latter as that of an attorney or counsel, husband, legal and business adviser other than an attorney, or financial adviser; and that, in the instant case, the complainant, while guilty of a fraudulent intent to defeat her creditors by an assignment of her dower rights, was not in pari delicto with the defendant, who connived with the complainant's attorney in a scheme of the latter, of which the fraudulent assignment was a part, to take advantage of the plaintiff's fraudulent acts; and that the latter was, for that reason, entitled to the relief prayed. A conveyance of real estate in fraud of creditors of the grantor, if it has no immediate connection with the matter in controversy, cannot, in the operation of the principle of this maxim, be successfully advanced in a suit in equity as justification for a denial of the remedy sought by the party charged therewith. Foster v. Winchester (1890) 92 Ala. 497, 9 So. 83; Ihrig v. Ihrig (1916) 78 W. Va. 360, 88 S. E. 1010 (fraudulent assignment of oil lease, to defeat possible judgment creditor, pleaded in defense of suit by fraudulent assignee to have set aside, as cloud on her title, a deed of trust on said leased lands executed by her assignor before the fraudulent assignment, which deed was not properly acknowledged and not, therefore, properly entitled to recordation, though it was recorded; of which recordation, however, plaintiff had no actual notice). Thus, in Foster v. Winchester (Ala.) supra, the court said: "If a party, with intent to defraud his creditors, should convey his property to another, he cannot afterwards compel a restoration of his property, thus fraudulently conveyed; but if, for a repurchase the property from his fraudulent grantee, and the latter refuse a conveyance, a court of equity will compel a specific performance of the subsequent contract, and the grantee would not be allowed to resist a performance on the ground that the original transaction was fraudulent; much less would a third party be allowed to defeat such relief by pleading fraud in the original transaction, it not appearing that the granting of the relief in any manner affected his interest." valuable consideration paid, he should_tions of law prohibiting sale of in VIII. Act contravening statute. a. In general. A court of equity will refuse its aid to a litigant who has been guilty of a violation of a statute, if the act of violation is directly connected with the matter in litigation. Creath v. Sims (1847) 5 How. (U. S.) 192, 12 L. ed. 111 (violation of law forbidding introduction of slaves into state); Uhl v. Reynolds (1901) 23 Ky. L. Rep. 759, 64 S. W. 498 (violation of law requiring actual survey of public land as condition to acquiring land grant); Downey v. Charles F. S. Grove Co. (1909) 201 Mass. 251, 131 Am. St. Rep. 398, 87 Ν. Ε. 597 (violation of statute prohibiting solicitation of purchase of intoxicating liquors); Modern Horse Shoe Club v. Stewart (1912) 242 Mo. 421, 146 S. W. 1157 (violation of charter of club and of law prohibiting sale of liquor without license); Marre v. Marre (1914) 184 Mo. App. 198, 168 S. W. 636 (violation of statute prohibiting intermarriage of persons of white and negro races, in suit for annulment of miscegenetic marriage); Unckles v. Colgate (1896) 148 N. Y. 534, 43 Ν. E. 59, affirming (1893) 72 Hun, 119, 25 N. Y. Supp. 672 (participation in violation of statute against illegal monopolies disclosed in suit for accounting by trustees thereof); Weiss v. Herlihy (1897) 23 App. Div. 608, 49 N. Y. Supp. 86 (using premises for gambling in violation of statute, pleaded in defense of suit for injunction restraining stationing of police officers on permises); Huffman Rugg (1902) 34 Ohio C. C. 589 (viola v. toxicating liquor, except on written prescription of reputable physician, pleaded in defense of suit for injunction restraining sale of premises on which law was violated to recover tax imposed in such case by said law); Sweeney v. Wilkes-Barre (1916) 62 Pa. Super. Ct. 54 (laying of wire and conduit therefor by abutting property owner, for benefit of electric lighting company, under and across street, for electric lighting purposes, without permission of municipality and in violation of statute requiring such permission to use city streets, disclosed in suit by such property owner to restrain interference therewith by municipality). In Beck v. Flournoy Live-Stock & Real Estate Co. (1894) 12 C. C. A. 497, 27 U. S. App. 618, 65 Fed. 30, it appeared that a real estate company leased from a tribe of Indians certain Indian lands, without the sanction or approval of the Commissioner of Indian Affairs of the United States as required by law. The court held that the company was not entitled to an injunction restraining the representatives of the government from disturbing it in its possession and use of the land, and should be left to any remedy which it might have at law. In Danciger v. Stone (1909) 187 Fed. 853, the suit was against certain government officers to compel them to restore liquor alleged by the latter to have been shipped into Oklahoma territory, on orders secured by circulars and advertisements unlawfully sent into the territory, and to restrain the further seizure of such goods. The court held that the use of the mails in distributing the circulars, etc., referred to, was an act within the contemplation of the law, and that the parties, having admitted the violation of the law, were not in court with "clean hands," and the relief prayed was denied. In Carey v. Smith (1852) 11 Ga. 539, it appeared that the parties participated in ultra vires acts of their respective corporations, the plaintiff being a stockholder of a banking corporation and the defendant the assignee of another bank, the charter violations being the issuance by the former bank and the purchase by the latter of bills of the first-named bank, "when both banks were in a state of suspension, and unauthorized, under their charters, to transact business." The plaintiff sought to enjoin the prosecution of an action at law to recover from him the amount of his ultimate liability for the redemption of the bills of his defunct bank, held by the defendant. The court held that, both parties being guilty of illegal conduct, in applying the principle of "unclean hands" it would leave them in the position in which their conduct had placed them. In State ex rel. Mutual Protective League v. Bigler (1907) 169 Ind. 223, 82 N. E. 464, the suit was to compel the issuance to the relator of a license to do business in Indiana as a fraternal beneficial association. A statute of Indiana (Burns's Anno. Stat. 1901, §§ 5050a, 5050b, Acts 1899, p. 177, Acts 1901, p. 312) under which the relator claimed the right to a license provided that fraternal beneficiary associations "shall have a lodge system, with ritualistic form of work," and that "such association shall be governed by this act and shall be exempt from the provisions of the Insurance Laws of this state." Section 5050k of the act provided that "such associations shall not employ paid agents in soliciting or procuring members, except in the organization or building up of subordinate bodies or granting members inducements to procure new members." The act under which the relator was incorporated in Illinois contained a provision similar to § 5050k, supra. The court found that the relator had no lodge system in the state, was employing paid agents to increase its membership, and that the insurance feature of its organization was the leading one. The court held that the relator was not in court with "clean hands," and would not be until it had purged itself of that which was objectionable in its manner of doing business; and denied the relief prayed. In Baker v. Grand Rapids (1906) 142 Mich. 687, 106 N. W. 208, the mem bership of the complainant, a retail coal dealer, in an organization to control the price of coal, such combinations being prohibited by a statute (3 Comp. Laws, §§ 11377-11379), was held to "bear upon the question as to whether complainant came into a court of chancery with clean hands," in seeking to enjoin the defendant municipality from purchasing coal and selling it at cost to the residents of the city, to relieve a scarcity created presumably by the action of the organization of which complainant was a member. But in Bonnie & Co. v. Bonnie Bros. (1914) 160 Ky. 487, 169 S. W. 871, the act of labeling whisky of different ages, blended together, "whisky," instead of "blended whisky," has been held not to be a violation of the National Pure Food and Drugs Act, or to justfy the application of the principle of this maxim. In Goddard v. American Peroxide & Chemical Co. (1910) 67 Misc. 279, 122 N. Y. Supp. 360, the purchase and use of a tradename without procuring a certificate in compliance with the statute, through ignorance of the requirement, this objection having been cured before institution of suit and on learning of requirement, were held not to debar the plaintiff from equitable relief. In Powers's Appeal (1889) 125 Pa. 175, 11 Am. St. Rep. 882, 17 Atl. 254, private individuals, by delay in protesting to a court of equity against a violation of a statute to the injury of such individuals, were held to be estopped from asserting the wrong. In that case it appeared that a boom company maintained a pier on a stream, which pier, it was charged, caused log jams, interfering with the use of the stream for purposes of navigation, in violation of the company's charter. The delay of the plaintiffs of fourteen or fifteen years in protesting to a court of equity against the wrong was considered sufficient to estop them from asserting it, notwithstanding they might have been in court with "clean hands," if the suit had been instituted within a reasonable time after the perpetration of the wrong. b. Act not directly connected with matter in litigation. Though a party to a suit in equity be guilty of the violation of a statute, if the culpable act is not directly connected with the matter in controversy, a recovery may nevertheless be had, the case not being one for the application of the principle of "unclean hands." Thus, in Bentley v. Tibbals (1915) 138 С. С. А. 489, 223 Fed. 247, it was held that the violation by an author of an act of Congress which prohibited the importation into the United States, during the existence of the American copyright in any book, of any copies thereof unless they should have been printed from type set within the limits of the United States, or, if the text was produced by lithographic or photo-engraving process, unless such process should have been wholly performed within the limits of the United States, being an offense against the United States, and one of which the United States alone could take cognizance, was so unconnected with the matter in litigation that the fact that the offense had been committed was not sufficient to justify the court in refusing, at the instance of the said author, to enjoin an infringement of the copyright. In Chicago v. Union Stock-Yards & Transit Co. (1896) 164 III. 224, 35 L.R.A. 281, 45 N. E. 430, the suit was to restrain the city of Chicago from removing railroad tracks of the plaintiffs, connecting their establishment with a railroad. It was contended that the plaintiffs were in court with "unclean hands," for the reason that they had engaged in business for which they were not incorporated. In holding that the ultra vires acts of the plaintiffs were unconnected with the matter in litigation, and could not affect the rights involved, the court said: "Counsel do not claim that a forfeiture of the charter may be declared in this proceeding, but insist that, as it appears in the case that appellee is engaged in illegal acts in the use of its road it does not come into court with clean hands, and is not, therefore, entitled to equitable relief. We cannot accede to this view; but are of the opinion that the maxim invoked cannot have any just application to the facts of this case. If a defendant to a bill in equity brought by a corporation could defeat it by simply showing that the complainant had committed ultra vires acts, then no corporation so guilty could ever obtain equitable relief in any case. The maxim must have the same application as between individuals, and as said in Bispham, Eq. p. 48, it 'only applies to the particular transaction under consideration, for a court will not go outside of the case for the purpose of examining the conduct of the complainant in other matters, or questioning his general character for fair dealing.' The wrong must have been done to the defendant himself, and must have been in regard to the matter in litigation. If appellee has forfeited its charter by acts ultra vires, the state may enforce such forfeiture by an appropriate action; but the company cannot be denied relief in a proper case in a court of equity because of such acts." In Kinner v. Lake Shore & M. S. R. Co. (1902) 23 Ohio C. C. 294, affirmed in (1904) 69 Ohio St. 339, 69 Ν. Ε. 614, an unlawful combination or conspiracy between railroads, to suppress competition in their business in violation of a Federal statute, was held not to be a bar to a suit to restrain one engaged in the railroad-ticket brokerage business from selling tickets of the plaintiff, purchased by him from its passengers. In Lone Star Salt Co. v. Blount (1908) 49 Tex. Civ. App. 138, 107 S. W. 1163, a violation by the plaintiffs, former officers of the defendant corporation, of Anti-trust Laws of the state by contracting to sell the entire output of defendant's salt-producing establishment to a corporation controlling the salt-producing industry of the United States, was held not to preclude them from obtaining equitable relief in a suit as stockholders, after the expiration of the contracts, to restrain the corporation from committing further similar violations of law. |