Loading ...
Sorry, an error occurred while loading the content.

proof of scienter

Expand Messages
  • paradoxmagnus@earthlink.net
    Anyone have this case. Since the DOJ cites it, it appears to be real. Ryan v. Motor Credit Co., 130 N.J. Eq. 531, 23 A.2d 607 (Ch. 1941), aff d, 132 N.J. Eq.
    Message 1 of 3 , May 3, 2005
    • 0 Attachment
      Anyone have this case.  Since the DOJ
      cites it, it appears to be real.
       
      Ryan v. Motor Credit Co.,
      130 N.J. Eq. 531, 23 A.2d 607 (Ch. 1941), aff'd, 132 
      N.J. Eq. 398, 28
      A.2d 181 (1942) (violation of usury laws).
      I'm looking into proof of scienter (knowing).  The defense has been
      recognized in that and other cases involving strict-liability
      statutes.
       
      Thanks


      Patrick in California
    • tthor.geo
      From the citation, it s a New Jersey case, also reported in Atlantic Reporter, 2nd Ed. You SHOULD be able to order it from your friendly neighborhood Law
      Message 2 of 3 , May 4, 2005
      • 0 Attachment
        From the citation, it's a New Jersey case, also reported in Atlantic
        Reporter, 2nd Ed. You SHOULD be able to order it from your friendly
        neighborhood Law Library [probably free or cost-of-fax/delivery]. It's
        NOT going to do you a lot of good in California.

        California's Usury law [which still exists] is in The Civil Code, @
        sections 1963 and following [I think, it's been @ 3 yrs since I looked
        for it]. Deering's Codes annotations are more citizen-friendly than
        West's.

        <paradoxmagnus@e...> wrote:
        > Anyone have this case. Since the DOJ
        > cites it, it appears to be real.
        >
        > Ryan v. Motor Credit Co.,
        > 130 N.J. Eq. 531, 23 A.2d 607 (Ch. 1941), aff'd, 132
        > N.J. Eq. 398, 28
        > A.2d 181 (1942) (violation of usury laws).
        >
        > I'm looking into proof of scienter (knowing). The defense has been
        > recognized in that and other cases involving strict-liability
        > statutes.
        >
        > Thanks
        >
        >
        > Patrick in California
      • leos
        New Jersey Supreme Court, Equity and Law Reports ... RYAN v. MOTOR CREDIT CO., INC., 130 N.J. Eq. 531 (1941) 23 A.2d 607 WILLIAM RYAN, complainant, v. MOTOR
        Message 3 of 3 , May 7, 2005
        • 0 Attachment
          New Jersey Supreme Court, Equity and Law Reports

          --------------------------------------------------------------------------------


          RYAN v. MOTOR CREDIT CO., INC., 130 N.J. Eq. 531 (1941)
          23 A.2d 607
          WILLIAM RYAN, complainant, v. MOTOR CREDIT COMPANY, INC., and GENERAL
          ACCEPTANCE CORPORATION, defendants.
          Docket 120/268
          Court of Chancery and Prerogative Court.
          Decided November 26th, 1941.

          1. Whatever vice is inherent in an original usurious loan
          transaction follows and attaches to all substituted obligations.

          2. Commercial paper evidencing loans by a small loan company
          licensed under chapter 62, P.L. 1932, issued in violation of
          the provisions of that act, is void and unenforceable, and the
          fact that the parties did not willfully or intentionally violate
          the act is immaterial.

          3. A bill of discovery will not lie to enforce a penalty or a
          forfeiture. It is against the general principles of equity to aid
          in the enforcement of penalties and forfeitures.

          4. One who comes into a court of conscience to enforce a
          forfeiture must come with skirts free from blame in the
          transaction.

          5. Penal laws, strictly speaking, are those imposing punishment
          for an offense against the state, and the test whether a law is
          penal is whether the wrong sought to be redressed is a wrong to
          the public or a wrong to the individual.

          6. A statute may be both penal and remedial.

          7. A statute which will support an indictment for a crime is
          penal in character.

          8. Chapter 62, P.L. 1932, is remedial as to the borrower and
          penal as to the lender.

          9. The statute of limitations (3 Comp. Stat. p. 3170 § 21) is
          a bar to any action by a borrower against a lender for a penalty
          under chapter 62, P.L. 1932, arising out of any transaction
          completed more than two years before the beginning of the suit.

          10. Excess loans by a small loan company licensed under the
          Small Loan Act (chapter 62, P.L. 1932) being prohibited by the
          statute, are void and unenforceable.

          11. It is a rule of both law and equity that no one can found a
          cause of action on an illegal contract or interpose its
          illegality as a defense to such action.

          12. As a general rule equity will not aid one party or another
          to an illegal transaction where they stand in pari delicto, but
          will leave them just where it finds them. Where, however, the
          party seeking relief is not a free moral agent, and his consent
          to the illegal transaction is obtained through duress, menace, or
          undue influence, he is
          Page 532
          not regarded as in pari delicto with the person obtaining his
          consent by the employment of such means, and will not be
          precluded from invoking affirmative relief in equity to set aside
          contracts or instruments so executed, or to defeat an attempted
          enforcement of them against him. This constitutes an exception to
          the general rule. In such cases relief is granted not to the
          party, but to the public through the party because the public
          interest requires that relief be given. This is done, not out of
          regard for the defendant in the action, but because of the
          courts' unwillingness to use the powers granted them for the
          furtherance of lawful ends in aiding schemes in their nature
          venal, or for the purpose of relieving parties from the liability
          which such schemes create.

          13. The exception and not the rule is usually applied to cases
          arising out of usurious contracts and contracts violative of the
          Small Loan Act because in those cases it is presumed that the
          borrower is always the oppressed victim of circumstance, the
          slave of the lender, and is not, therefore, in pari delicto.

          14. But this presumption is rebuttable by proof that the
          parties are actually in pari delicto. Whether or not they are
          so is a question of fact to be determined by the jury, or by the
          court when sitting without a jury.

          15. Presumptions are merely substitutes for evidence. Both
          presumption and fiction are resorted to simply for the
          furtherance of justice. Neither will be permitted to work any
          wrong to the individual or the state.

          16. The provisions of the Small Loan Act imposing penalties
          upon the lender, giving certain rights to the borrower, and
          voiding contracts violative of that act, were designed to prevent
          oppression of the weak and poor; they were not designed to
          encourage fraud or as rewards for the perfidy of the borrower.
          Therefore, where excessive loans are made by a licensee to a
          borrower with the deliberate purpose of defeating the statute,
          the lender and the borrower freely conspiring to that end, no
          restraint or oppression of the borrower by the lender being
          involved, and no advantage of the borrower taken by the lender,
          the parties to the transaction are both particeps criminis and
          in pari delicto, and the rule and not the exception applies.

          17. In an action based upon an illegal contract it is not
          necessary that the rule of law expressed in the maxims "In pari
          delicto potior est conditio defendentis, et possidentis," or
          "ex turpi causa non oritur actio" be pleaded by the defendant;
          it may be invoked by the court on its own motion.

          18. A plea that the complainant does not come into a court of
          equity with clean hands is inclusive of the doctrine and rule
          expressed in the above maxims.

          19. Where the officers of a small loan company licensed under
          chapter 62, P.L. 1932, entered into over 400 illegal loan
          transactions with a borrower in violation of the prohibitions of
          the statute, with the deliberate purpose on the part of both
          lender and borrower to set at naught its provisions, such
          contract constitutes a fraud on the statute, the parties are in
          pari delicto and this court will neither
          Page 533
          aid the lender in its effort to recover upon its contracts of
          loan, nor reward the borrower for his perfidy by imposing
          statutory penalties upon the lender for the benefit of the
          borrower. In such case the court will leave the parties exactly
          where they have placed themselves by their own fraudulent acts.

          On bill, &c. On final hearing.

          Messrs. Fast & Fast (Mr. Israel B. Greene, of counsel), for
          the complainant.

          Mr. Charles Blume (Mr. James D. Carpenter, Jr., of
          counsel), for the defendants.

          BERRY, V.C.

          This controversy arises under the Small Loan Act, chapter 62,
          P.L. 1932 p. 94, and not under R.S. 17:10 referred to in the
          brief filed on behalf of complainant, as all of the transactions
          here involved occurred prior to the effective date of the
          Revision.

          By this bill the complainant seeks a forfeiture of certain
          notes and other obligations in writing executed by the
          complainant in favor of the defendants (one or both), the
          surrender and cancellation of certain written instruments
          evidencing such obligations, and the recovery of a penalty from
          the defendants because of their alleged violation of certain
          provisions of the Small Loan Act.

          The controversy arises out of the following circumstances:

          The complainant is a dealer in second-hand automobiles and had,
          for about ten years previous to the filing of the bill of
          complaint, been engaged in the purchase and sale of automobiles
          in Essex County, New Jersey, carrying on his business on several
          different parking lots in Newark and Irvington. The defendant
          Motor Credit Company, Inc., is a New Jersey corporation licensed
          to operate under the Small Loan Act and is a subsidiary of the
          co-defendant General Acceptance Corporation which owns all of its
          stock. The two corporations have common or interlocking officers
          and directors.

          In the course of its business the defendant Motor Credit
          Company, Inc., loaned money on the security of automobiles,
          Page 534
          and from time to time took into its possession cars pledged for
          such loans. It found a ready outlet for many of these cars
          through the complainant who, in order to finance his purchases
          from this defendant, obtained loans from it from time to time,
          pledging the cars so purchased as security for such loans.

          In 1935 these business transactions materially increased, and
          in order to circumvent the prohibition of the statute which
          limited the amount which any one individual could owe to a small
          loan company at any one time to $300, the complainant and the
          defendant Motor Credit Company, Inc., entered into an arrangement
          whereby the complainant obtained the necessary loans in the names
          of nominees, relatives, friends, employees or fictitious persons.
          In some instances the papers evidencing such loans were signed by
          the various nominees, but in many instances the complainant
          himself signed the papers using fictitious names or forging the
          names of others. Names for this purpose were sometimes selected
          at random from telephone directories, from tombstones or taken
          from the thin air. The result was that in the spring of 1937,
          when an accounting was had between the parties, the complainant
          owed the defendant Motor Credit Company, Inc., on account of such
          loans, a sum in excess of $28,000. The evidence indicates that in
          the two years preceding the filing of this bill the loans from
          Motor Credit Company to complainant were in excess of $75,000,
          and he claims to have paid to the defendants on account of these
          various loans more than $50,000. A schedule of the loans during
          this period, made up from the defendants' records, was offered in
          evidence and marked Exhibit C-18. From this and other evidence
          it appears that there were 472 dummy loans made by the defendant
          Motor Credit Company, Inc., to complainant during 1935, 1936 and
          1937. Many of these loans were obtained by either the complainant
          or his nominees signing the papers in blank and leaving them with
          the Motor Credit Company, Inc., to be filled in at a later date
          as occasion should require. Bills of sale which were supposed to
          accompany these transactions and to be filed in the Motor Vehicle
          Department were not, in many instances, furnished,
          Page 535
          and generally speaking, there was no attempt at actual compliance
          with the requirements of the statute. In May, 1937, the
          defendants, apparently anticipating some trouble over these
          excessive loans, had an accounting with the complainant at which
          it was determined that there was a balance of principal of
          $28,918.95 due Motor Credit Company, Inc. These claims were then
          all assigned by Motor Credit Company, Inc., to the General
          Acceptance Corporation, the parent company, and the complainant
          gave the latter company his promissory note for the amount of
          such balance and a blanket mortgage covering all the automobiles
          on his various parking lots, with the understanding that
          thereafter he was to pay six per cent. interest on the amount of
          the balance instead of thirty per cent. as theretofore. In
          computing the balance due the defendant Motor Credit Company,
          Inc., no credit was given to the complainant for excess interest
          theretofore paid on the various loans. Whatever vice was inherent
          in the original loan transactions followed and attached to all
          substituted obligations, securities or agreements. Boyd v.
          Engelbrecht, 36 N.J. Eq. 612; Kobrin v. Hull, 96 N.J. Eq. 41;
          Berk v. Isquith Productions, Inc., 98 N.J. Eq. 608. The
          complainant also executed an agreement guaranteeing the General
          Acceptance Corporation against any loss on foreclosure of the
          chattel mortgage and the sale of the automobiles. After the
          execution of these papers the complainant sold many of the cars
          covered by the chattel mortgage and applied the proceeds to the
          payment of the principal on the mortgage, thus reducing the
          principal thereof to approximately $15,000 or $16,000. In
          October, 1937, the General Acceptance Corporation instituted
          replevin proceedings against the complainant and took possession
          of all unsold automobiles on complainant's lots. Thereupon
          complainant filed this bill to restrain the prosecution of the
          replevin suit and for other relief. The purpose of this suit is
          admittedly to recover as a penalty moneys paid to the defendants
          by the complainant on account of the various loans to him and his
          nominees in violation of the Small Loan Act, and the forfeiture
          of the balance due on these loans.
          Page 536

          The bill charges numerous violations of the provisions of the
          Small Loan Act, chief of which, however, are the violations of
          sections 13 and 15 of chapter 62, P.L. 1932. Section 13 of that
          act authorizes a loan company licensed thereunder to make loans
          in sums not exceeding $300 to any one person, and to charge
          interest thereon at a rate not exceeding two and one-half per
          cent. per calendar month, or thirty per cent. per annum. That
          section also provides that "if any interest, consideration or
          charges in excess of those permitted by this act are charged,
          contracted for or received, the contract of loan shall be void
          and the licensee shall have no right to collect or receive any
          principal, interest or charges whatsoever, and the borrower shall
          be entitled to recover from the lender any or all sums paid or
          returned to the lender by the borrower on account of or in
          connection with such loan."

          Section 14 prohibits a licensee from taking any note or other
          instrument in which blanks are left to be filled in after
          execution.

          Section 15 prohibits a licensee from permitting "any person as
          borrower or as endorser, guarantor or surety for any borrower, *
          * * or otherwise to owe directly or contingently or both to the
          licensee at any time the sum of more than $300 for principal."

          Section 18 prohibits the charging or receiving of interest in
          excess of six per cent. (the usual legal rate) on loans in excess
          of $300, and provides that any such loan on which greater
          interest is charged or received shall be unenforceable.

          The bill prays for the surrender and cancellation of
          complainant's note, the chattel mortgage and the guarantee
          agreement, a decree enjoining the defendants from collecting any
          moneys of complainant on either the chattel mortgage or the
          guarantee agreement, and from prosecuting the replevin action in
          the Essex County Circuit Court; from selling, encumbering or
          disposing of the automobiles taken in replevin; a discovery of
          the moneys lent to, contracts and engagements entered into
          between complainant and defendant, and the interest charged; a
          decree for an accounting of the money and assets of the
          complainant paid or delivered to, or taken by, the defendants,
          and directing the defendants to
          Page 537
          return to the complainant all moneys paid or property delivered
          to them contrary to the provisions of the Small Loan Act.

          In support of complainant's prayer for surrender and
          cancellation of the chattel mortgage and note executed by him at
          the time of the accounting between the parties, he alleges that
          when he signed these papers they were in blank, that he did not
          know what he was signing and that his signatures were obtained by
          subterfuge. The facts are to the contrary. Ryan knew what he was
          doing at all times and the papers were not signed in blank. The
          evidence on this point is quite conclusive.

          The defendants deny having violated any of the provisions of
          the Small Loan Act, allege that they had no knowledge of the fact
          that the various loans involved were made to the complainant in
          the names of nominees, dummies or fictitious persons, and assert
          that the transactions which form the basis of this complaint were
          the result of a conspiracy to defraud the defendants entered into
          by the complainant and one Devine who was the manager of the
          defendant's Newark office. Defendants insist that they are
          without fault in the premises and that all of the transactions
          involved, so far as they know, were strictly within the law.
          Defendants also plead the Statute of Limitations, section 21, 3
          Comp. Stat. p. 3170, and that complainant comes into court with
          unclean hands. The defendants also counter-claim on the guarantee
          agreement executed by the complainant for approximately $16,000,
          and ask that the complainant be decreed to account and that the
          issues in the replevin suit be disposed of in this court. In this
          latter request the complainant joins.

          Notwithstanding defendants' denial of any knowledge of any
          violation of the provisions of the Small Loan Act, and its
          charges of conspiracy between complainant and its manager Devine,
          there is no doubt whatever in my mind but that the transactions
          here involved were all within the knowledge of both defendants,
          and that the practice resulting in them was instituted by one or
          more of the head officers of the defendant companies and approved
          by them. I came to this conclusion during the course of the final
          hearing, and have
          Page 538
          no hesitancy in now holding that the excessive loans and charges
          made by the defendants and the other violations of the provisions
          of the Small Loan Act were with the full knowledge of the
          defendants, that they knowingly and willfully participated in
          these transactions, and conspired with the complainant to
          circumvent the statute. In this conclusion I am fortified by the
          verdict of a jury rendered in February last in a suit in the New
          Jersey Supreme Court entitled "General Acceptance Corporation, a
          body corporate, and Motor Credit Company, Inc., a body corporate,
          plaintiffs, against Continental Casualty Company, a body
          corporate, defendant," which was tried during January and
          February of this year at the Essex Circuit. The docket number of
          that case is 111829 and it is entered on page 186 of docket 72 in
          the office of the clerk of the New Jersey Supreme Court. The
          defendants' knowledge of the illegal transactions between
          complainant and its Newark office was in issue in that suit, and
          by the verdict of the jury that issue was decided adversely to
          the plaintiffs who are the defendants here. But whether or not
          the provisions of the statute here involved were willfully or
          intentionally violated by the defendants is, perhaps, immaterial
          in this controversy. Consolidated Plan of New Jersey v.
          Shanholtz, 7 N.J. Mis. R. 876; affirmed, 107 N.J. Law 517;
          Richmond v. Conservative Credit Systems, 10 N.J. Mis. R. 14
          (reversed on other grounds, 110 N.J. Law 73); Cotton v.
          Commonwealth Loan Co. (Ind. App. Court), 184 N.E. Rep. 578;
          Colonial Plan v. Tartaglione (R.I. Sup. Court), 147 Atl.
          Rep. 880. I have already held, in an opinion filed herein on
          July 12th, 1938, that a bill of discovery will not lie to enforce
          a penalty or a forfeiture, and that it is against the general
          principles of equity to aid in the enforcement of penalties and
          forfeitures. And it is a rule of equity that "one who comes into
          a court of conscience to enforce a forfeiture must come with
          skirts free from blame in the transaction." Wilson v. Bird,
          28 N.J. Eq. 352.

          There is no doubt but that the transactions here involved were
          in violation of sections 13, 14, 15, 18, 19, and perhaps other
          sections, of chapter 62, P.L. 1932. By section 19 violations of
          sections 1, 11, 12, 13, 14 and 18 are made misdemeanors;
          Page 539
          and contracts, in the making or collection of which any act shall
          have been done which constitutes a misdemeanor, are void and
          unenforceable.

          The complainant contends that the act is not penal, but
          remedial only, and that, therefore, the Statute of Limitations
          pleaded by the defendants is not applicable. In People v. Coe
          Manufacturing Co., 112 N.J. Law 536, our Court of Errors and
          Appeals held that "penal laws, strictly speaking, are those
          imposing punishment for an offense against the state, and the
          test whether a law is penal is whether the wrong sought to be
          redressed is a wrong to the public or a wrong to the individual."
          The title of the act (chapter 62, P.L. 1932) includes the words
          "prescribing the * * * penalties for the violation thereof." In
          this respect the title differs from that of the 1914 act
          (chapter 49, P.L. 1914 p. 75), which contains no reference to
          "penalties." In 21 R.C.L. 206, tit. "Penalties" ¶ 1, the text
          reads as follows:

          "The words `penal' and `penalty' * * * strictly and primarily *
          * * denote punishment, whether corporal or pecuniary, imposed and
          enforced by the state for a crime or offense against its laws.
          But they are also commonly used as including an extraordinary
          liability to which the law subjects a wrongdoer in favor of the
          person wronged, not limited to the damages suffered."

          In Black on Interpretation of Laws 469, the text reads:

          "It has been held that usury laws, when they prescribe the
          forfeiture of all interest upon contracts affected by unlawful
          charges of interest, are penal laws and to be strictly
          construed."

          But, as will be seen, also from that text, a statute may be
          both penal and remedial. And see Ordway v. Central National
          Bank of Baltimore, 47 Md. 217; Bones v. Booth, 2 Black. W.
          1226; 96 Eng. Rep. 721.

          In Morin v. Newberry, 65 Atl. Rep. 156, the Supreme Court
          of Errors of Connecticut held that:

          "General Statute 1902, section 4134, providing penalties for
          loaning money on chattel mortgage notes in which the sum of money
          loaned is stated as greater than that actually loaned, or in
          which the interest rate charged is greater than
          Page 540
          allowed by law, and making such mortgages and notes void, being
          distinctly penal, should receive strict construction."

          The penalties in chapter 62, P.L. 1932, are similar to those
          specified in the Connecticut statute, and there are additional
          penalties - money paid - which may be recovered by the borrower.
          If the Connecticut statute is "strictly penal" the New Jersey
          statute is at least penal in part, even though remedial in part.
          And any statute which will support an indictment must be penal in
          character. State v. Guida, 119 N.J. Law 464. In my judgment
          the act is remedial as to the borrower and penal as to the
          lender. Cf. Ellis v. Beale, 18 Me. 337.

          The Statute of Limitations (3 Comp. Stat. p. 3170 § 21)
          pleaded by the defendants in bar of complainant's cause of action
          reads as follows:

          "That all actions or informations which shall be brought or
          exhibited for any forfeiture upon any penal statute made or to be
          made, whereby the said forfeiture is or shall be limited to the
          State of New Jersey only, shall be brought or exhibited within
          two years next after the offense committed or to be committed
          against such penal statute, and not after; and all actions or
          informations, which shall be brought or exhibited for any
          forfeiture upon any penal statute, made or to be made, the
          benefit and suit whereof is or shall be by the said statute
          limited or given to any person or persons who shall prosecute for
          the same, or to the State of New Jersey, and to any other who
          shall prosecute in that behalf, shall be brought or exhibited by
          any person or persons who may lawfully sue for the same as
          aforesaid, within one year next after the offense committed or to
          be committed against the said statute; and in default of such
          suit, then the same shall be brought or exhibited for the State
          of New Jersey, at any time within one year after the termination
          of the aforesaid year, and not after; and all actions or
          informations which shall be brought or exhibited for any
          forfeiture or cause upon any statute, made or to be made, the
          benefit and suit whereof is or shall be limited or given to the
          party aggrieved, shall be brought or exhibited within the space
          of two years, next after the offense committed or to be
          committed, or cause of action accrued, and not after; provided
          always, that where any action or information is or shall be
          limited by any statute to be brought or exhibited within a
          shorter time than is limited by this section, then the said
          action or information shall be brought or exhibited within such
          shorter time so limited by such statute."

          In view of the provisions of that act I am inclined to the view
          that the statute is a bar to any right of action arising
          Page 541
          out of any transaction which was completed prior to a date two
          years before this bill was filed, but I need rest no part of my
          decision in this cause on that statute or defense as will
          hereinafter appear.

          It will be noted that excess loans in violation of section 15
          do not, under the act, constitute misdemeanors and they are not
          expressly declared void; but, being prohibited by the statute,
          they are undoubtedly void and unenforceable. Brittin v.
          Freeman, 17 N.J. Law 191, 205; Brooks v. Cooper, 50 N.J. Eq. 761;
          Sagal v. Fylar, 89 Conn. 293; 93 Atl. Rep. 1027.

          As section 18 of the statute prohibits a charge of more than
          six per cent. interest (the usual legal rate) on loans in excess
          of $300, it is clear that, as the Motor Credit Company, Inc.,
          charged and collected interest at the rate of two and one-half
          per cent. per calendar month on such of the loans here involved
          as were paid, both sections 13 and 18 of the act were violated.
          Section 13 provides that if interest in excess of that allowed by
          the act is charged or received, the contract of loan shall be
          void, the licensee shall have no right to collect or receive any
          principal, or charges whatever, and the borrower shall be
          entitled to recover from the lender any or all sums paid or
          returned to the borrower on account of or in connection with such
          loan. In view of these and other provisions of the act, it
          follows, I think, that the defendants' counter-claim should be
          dismissed, and, unless the complainant is barred from relief by
          considerations to be hereinafter discussed, he is entitled to a
          decree enjoining the defendants from prosecuting any claim
          against him on any of the outstanding contracts, the chattel
          mortgage, the note which it was given to secure, or the guarantee
          agreement. Cotton v. Commonwealth Loan Co., supra; Easy Term
          Loan Co. v. Silberman, 100 N.J. Law 67; Independent Loan Co.
          v. Tyson, 117 N.J. Law 259; Consolidated Plan of New Jersey v.
          Shanholtz, supra; Richmond v. Conservative Credit System,
          supra; Union Loan Association v. Woodie, 13 N.J. Mis. R. 214;
          177 Atl. Rep. 438; Trustees v. Stoll, 13 N.J. Mis. R. 490; 179
          Atl. Rep. 372; Westville and Hamden Loan Co. v. Pasqual
          (Conn.), 145 Atl. Rep.
          Page 542
          758; Burque v. Brodeur (N.H.), 158 Atl. Rep. 127. Many of
          the New Jersey cases here cited arose under the 1914 act which
          was somewhat modified by the 1932 act. The purpose of the
          legislature in adopting the 1932 act seems to have been to modify
          the severity of the punishment for violations of the 1914 act,
          and some of the penalties prescribed by the 1914 act were
          altogether abolished. Under the 1914 act every violation of its
          provisions by the lender constituted a misdemeanor, and every
          contract resulting from such violations was not only void, but
          the borrower had a right to recover from the lender everything
          that he had paid on account thereof; and that action might be
          taken at any time either during the continuance of or after the
          termination of the contract. Under the 1932 act, however, it is
          only in certain instances mentioned in section 13 that the
          borrower has any right of recovery, although the right of the
          lender to enforce payment of his loans is defeated whenever the
          contract is tainted by illegality.

          The real controversy in this suit is that touching the right of
          the complainant to recover from the defendants such sums as he
          has heretofore paid to them, or either of them, on account of the
          472 illegal contracts of loan made by the parties.

          During the course of the final hearing I suggested that the
          rule of law expressed in the well-known maxims, "In pari delicto
          potior est conditio defendentis, et possidentis," or "ex turpi
          causa non oritur actio," might bar both parties to this suit
          from any relief; that it appeared from the evidence that the
          parties were in pari delicto; and that in such circumstances it
          was the policy of the law to leave the parties in the position in
          which they had placed themselves.

          It is a rule both of law and of equity that no one can found a
          cause of action on an illegal contract, or interpose its
          illegality as a defense to such action. Ellicott v.
          Chamberlain, 38 N.J. Eq. 604; Cone v. Russell & Mason, 48 N.J. Eq. 208;
          Brooks v. Cooper, supra; Brindley v. Lawton, 53 N.J. Eq. 259;
          Prindiville v. Johnson & Higgins, 93 N.J. Eq. 425;
          Slater v. Gittleman, 104 N.J. Eq. 172; Cameron v.
          International Alliance, &c., 118 N.J. Eq. 11, 20; Cameron
          Page 543
          v. International Alliance, &c., 119 N.J. Eq. 577, 590; Collins
          v. International Alliance, &c., 119 N.J. Eq. 230, 239; Church
          v. Muir, 33 N.J. Law 318; Price v. Polluck, 37 N.J. Law 44;
          Hope v. Linden Park Blood Horse Association, 58 N.J. Law 627;
          Wooden v. Shotwell, 24 N.J. Law 789, 792; Van Pelt v.
          Schauble, 68 N.J. Law 638; Woodson v. Hopkins, 85 Miss. 171; 7
          L.R.A. 645; Ex parte Dyster, 2 Rose 349, 359; Petrie v. Hannay,
          3 T.R. 418, 422; Montefiore v. Montefiore, 1 Black. W. 363;
          Fival v. Nichols, 2 C.B. 501; 135 Eng. Rep. 1042 (1846);
          Griswold v. Waddington, 16 Johnson's Rep. (N.Y.) 485;
          Holman v. Johnson, 1 Cowp. 343; 98 Eng. Rep. 1120; Broom's
          Legal Maxims 473, 480; 1 Story Eq. Jur. (11th ed.) 310 ¶
          298; 1 Pom. Eq. Jur. 746 ¶ 401, p. 750 ¶ 402; 2 Pom. Eq.
          Jur. (4th ed.) 1992 ¶ 940; 13 C.J. 492 tit. "Contracts" ¶
          440; 12 Am. Jur. 713 tit. "Contracts."

          It is true that the defendants have not specifically invoked
          the rule of law expressed in these maxims, the objection having
          been raised by the court, as I believe was eminently proper (2
          Pom. Eq. Jur. 1995; Slater v. Gittleman, supra); but they have
          set up the defense that the complainant does not come into this
          court with clean hands, and plead his alleged fraud as evidence
          of that fact. The doctrine of clean hands, as I understand it,
          includes the doctrine expressed in the maxims above quoted.
          Barnes v. Starr, 64 Conn. 136; 28 Atl. Rep. 980, 984.

          If the maxims "he who comes into equity must come with clean
          hands," or either of the maxims above quoted, has any application
          to this case, then the complainant is not entitled to any relief
          in this court either by way of surrender and cancellation of his
          written obligations, or by the recovery of the penalty imposed by
          section 13 of the Small Loan Act, because his hands are equally
          as unclean as those of the defendants; and the contracts here
          involved are illegal and unenforceable. However, it is contended
          on behalf of the complainant that these maxims have no
          application to the instant case and in support of that contention
          it is argued that the Small Loan Act is remedial in purpose, is
          to be liberally construed in favor of the borrower, and strictly
          construed
          Page 544
          against the lender so as to effectuate such remedial purpose.
          There are undoubtedly numerous decisions of other jurisdictions
          which support this argument. Ordway v. Central National Bank,
          supra; Reagan v. District of Columbia, 41 App. D.C. 409;
          Winnick v. Aetna Acceptance Co., 275 Ill. App. 438; Cash
          Service Co. v. Ward (W. Va.), 192 S.E. Rep. 344; Westville
          & Hamden Loan Co. v. Pasqual, supra; Smetal Corp. v. Family
          Loan Co. (Fla.), 161 So. Rep. 438; Grace v. McElroy, 1
          Allen (Mass.) 563; Solomon v. Dunne, 264 Ill. App. 415;
          Liberty Finance Co. v. Catterton (Md), 158 Atl. Rep. 16.

          And that is the rationale of the New Jersey decisions.
          Consolidated Plan of New Jersey v. Shanholtz, supra; affirmed,
          107 N.J. Law 517; Richmond v. Conservative Credit System,
          supra; Union Loan Association v. Woodie, supra; Independent
          Loan Co. v. Tyson, supra.

          Such statutes are also held to be police regulations (In re
          Home Discount Co. (Ala. D.C.), 147 Fed. Rep. 538); and
          expressive of a public policy of the state. Independent Loan
          Co. v. Tyson, supra; Winnick v. Aetna Acceptance Co., supra;
          Westville & Hamden Loan Co. v. Pasqual, supra; Lowe v.
          Loomis (Wis.), 14 S.W. Rep. 674; Smetal Corp. v. Family
          Loan Co., supra.

          The small loan business is termed by counsel for the
          complainant a solution to a social problem, enabling the
          destitute and necessitous borrower to obtain small loans on
          reasonable terms - theretofore impossible because of the rapacity
          of unconscionable money lenders - and to have resulted from
          research by the Russell Sage Foundation. But whatever their
          source or intent, the small loan laws, in my judgment, merely
          provide a cloak of respectability for the modern Shylock and
          legalize unconscionable exactions in interest charges from those
          least able to pay them.

          It is further argued that the Small Loan Act was enacted in the
          interest of the necessitous borrower, intended to afford the
          borrower of small loans the maximum of protection against the
          greed of the unconscionable money lender, and even from his own
          frailties, because necessitous persons "from the pressure of
          their distress are ready to come in to any terms with
          Page 545
          their eyes open not only to break the law but complete their
          ruin" (Browning v. Morris, 2 Cowp. 791; 98 Eng. Rep. 1364);
          that the act places no duty whatever upon the borrower; does not
          prohibit or restrain him from doing anything; that the penalties
          of the act are directed solely against the lender; that the law
          should presume every payment made to such a lender as having been
          made through oppression and undue advantage, and that in
          interpreting and enforcing the provisions of the Small Loan Laws,
          and in granting relief to the borrower, the courts, both of law
          and equity, have subordinated the equitable doctrines of in pari
          delicto, unclean hands and "he who seeks equity must do equity"
          to the legislative fiat which provides for relief to the borrower
          and imposition of penalties upon the lender. There are
          undoubtedly many authorities lending color to this argument.
          Cone v. Russell & Mason, supra; Martin v. Morales, 102 N.J. Eq. 535,
          536; Van Doren v. Staats (1811), 3 N.J. Law 448,
          [*]887, [*]893; Crossley v. Moore, 40 N.J. Law 27; Hintze v.
          Taylor, 57 N.J. Law 239; Brown v. McIntosh, 39 N.J. Law 22;
          Van Pelt v. Schauble, supra; Holman v. Johnson, supra;
          Browning v. Morris, supra; Williams v. Hedley, 8 East. 378;
          103 Eng. Rep. 388; Smith v. Bromley, 2 Douglas 696; 99 Eng.
          Rep. 441; Reynell v. Sprye, 1 De Gex. M. & G. 660, 679; 42 Eng.
          Rep. 708; Clark v. Snee (1774), 1 Cowp. 197; 98 Eng. Rep.
          1041; Jones v. Barkley, 2 Doug. 684; 99 Eng. Rep. 434; Jacques
          v. Golightly, 2 W. Black. 1073; 96 Eng. Rep. 632; Bosanquet v.
          Dashwood, Cas. T. Talbot 38; 25 Eng. Rep. 648; Duval v.
          Wellman, 124 N.Y. 156; 26 N.E. Rep. 343; Schroeppel v.
          Corning, 6 N.Y. 107, 116; Tracy v. Talmage, 14 N.Y. 162;
          Edgerly v. Hale, 71 N.H. 138; 51 Atl. Rep. 679; Irvin v.
          Curie, 171 N.Y. 407; 64 N.E. Rep. 161; 58 L.R.A. 830; Colby v.
          Title Insurance and Trust Co. (Cal.), 117 Pac. Rep. 913; 35
          L.R.A. (N.S.) 813; Bell v. Campbell, 123 Mo. 1; 25 S.W.
          Rep. 359; MacRacken v. Bank of Columbus, 164 N.C. 24; 80 S.E.
          Rep. 183; 49 L.R.A. (N.S.) 1043; B. & O.S.W.R. Co. v.
          Hagan (Ind. S.G. 1915), 109 N.E. Rep. 194; Davis v.
          Atlanta Finance Co. (Ga.), 129 S.E.
          Page 546
          Rep. 51; O'Connor v. Ward, 60 Miss. 1025; Missouri K. & T.
          Trust Co. v. Krumseig, 172 U.S. 351; 43 L.Ed. 474; Becker v.
          Wilcox, 81 Neb. 476; 16 L.R.A. (N.S.) 571; Ladd v. Barton,
          64 N.H. 613; 6 Atl. Rep. 483; Ferguson v. Sutphin, 8 Ill. 547;
          Tate v. Commercial Building Association, 97 Va. 74; 45 L.R.A.
          243; 33 S.E. Rep. 382; 11 Restatement of Law, Contracts 1120 ¶
          604; 39 Cyc. 1030; Tyler on Usury 421; Webb on Usury ¶ 461; 13
          C.J. 497; Contracts ¶ 441; 6 R.C.L. 834; 12 Am. Jur. 734;
          Contracts ¶ 217-8; 1 Pom. Eq. Jur. 755 ¶ 403. Many of the
          early cases supporting this argument arose out of statutes
          against usury, gaming, bankrupt laws, and the like. The same
          doctrine has been applied in cases involving small loan laws.

          Easy Term Loan Co. v. Silberman, supra, is cited by
          complainant in support of this argument, but it is not in point.
          That was an appeal to the Supreme Court from a judgment of a
          District Court of Newark, and only a question of evidence was
          before the appellate court. The court held the evidence objected
          to was competent as "it tended to establish that the transaction
          between the plaintiff and defendants was an attempt to circumvent
          the express mandate of the statute." The maxims referred to were
          not involved in that case.

          In all of the cited cases where relief was granted it either
          appeared or was presumed that the applicant for relief was in
          vinculis and not in pari delicto. And, of course, where there
          is oppression on the one side and submission on the other, or if
          one party is but an instrument in the hands of the other, the
          parties are obviously in vinculis and not in pari delicto.
          MacRacken v. Bank of Columbus, 164 N.C. 24; 80 S.E. Rep. 184;
          49 L.R.A. (N.S.) 1043; 13 C.J. 498 ¶ 442b. But it has been
          held that where the parties stand upon an equal footing neither
          has a remedy against the other (Bryant v. Peck,
          154 Mass. 460), and that this is so whether the contract is malum
          prohibitum or malum in se. Compton v. Bunker Hill Bank,
          96 Ill. 301; 36 Am. Rep. 147; Allison v. Hess. 28 Ia. 388:

          In Browning v. Morris, supra, Lord Mansfield said:
          Page 547

          "The rule is, in pari delicto, potior est conditio
          defendentis; and there are several other maxims of the same
          kind. Where the contract is executed, and the money paid in pari
          delicto, this rule, as Mr. Dunning contended, certainly holds:
          and the party who has paid it, cannot recover it back. For
          instance, in bribery, if a man pays a sum of money by way of a
          bribe, he can never recover it in an action; because both
          plaintiff and defendant are equally criminal. But, where
          contracts or transactions are prohibited by positive statutes,
          for the sake of protecting one set of men from another set of
          men; the one, from their situation and condition, being liable to
          be oppressed or imposed upon by the other; there, the parties are
          not in pari delicto; and in furtherance of these statutes, the
          person injured, after the transaction is finished and completed,
          may bring his action and defeat the contract. For instance, by
          the Statute of Usury to take more than 5% is declared illegal and
          the contract void. But these statutes were made to protect needy
          and necessitous persons from the oppression of usurious and
          monied men who are eager to take advantage of the distress of
          others, whilst they on the other hand, from the pressure of their
          distress, are ready to come into any terms and, with their eyes
          open, not only break the law, but complete their ruin. Therefore
          the party injured may bring an action for the excess of interest.
          * * * And it is very material, that the statute itself, by the
          distinction it makes, has marked the criminal; for the penalties
          are all on one side. * * * The man who makes the contract is
          liable to no penalty. So in usury, there is no penalty upon the
          party who is imposed upon." (Italics mine.)

          In Clark v. Shea, supra, the same distinguished jurist
          said:

          "There are two sorts of prohibitions enacted by positive law,
          in respect of contracts. First. To protect weak or necessitous
          men from being over-reached, defrauded, or oppressed. There the
          rule in pari delicto, potior est conditio defendentis, does not
          hold - because where the defendant imposes upon the plaintiff it
          is not per delictum." (Italics mine.)
          Page 548

          In Williams v. Hedley, supra (1897), Lord Ellenborough
          said:

          "But although this rule applies (as was said by Lord Mansfield
          in Smith v. Bromley, Douglass, 696 N) `If the act be in
          itself immoral, or in violation of the general laws of public
          policy, yet in the case of other laws which are calculated for
          the protection of the subject against oppression, extortion and
          deceit,' Lord Mansfield lays down that `if such laws be violated
          and the defendant take advantage of the plaintiff's condition
          or situation, then the plaintiff shall recover.'" (Italics mine.)

          In Reynall v. Sprye, supra, Knight Bruce, L.J., said:

          "But where the parties to a contract against public policy or
          illegal are not in pari delicto (and they are not always so),
          and where public policy is considered as advanced by allowing
          either, or at least the most excusable of the two, to sue for
          relief against the transaction, relief is given to him, as we
          know from various authorities." (Italics mine.)

          The result of the early English cases is summed up in a note to
          Jones v. Barkley, supra (at p. 443), as follows:

          "The inference to be drawn from the various decisions that have
          taken place on this subject * * * appear to be, that, the general
          principle remaining, that in pari delicto potior est conditio
          possidentis, the two following exceptions to its application are
          also established:

          "1. That where the illegality exists in the contract itself and
          that contract is not executed, there is a locus poenitentiae,
          the delictum is incomplete, and the contract may be rescinded
          by either party.

          "2. That where the law which creates the illegality in the
          transaction was designed for the coercion of one party, and the
          protection of the other, or where the one party is the principal
          offender, and the other only criminal from a constrained
          acquiescence in such illegal conduct, in these cases there is no
          parity of delictum at all between the parties, and the party so
          protected by the law, or so acting under compulsion, may at any
          time resort to the law for his remedy, though the illegal
          transaction be completed." (Italics mine.)
          Page 549

          Professor Pomeroy (1 Eq. Jur. 756 ¶ 403) says:

          "Assuming that a contract is fraudulent, or against public
          policy, or illegal, still where the parties to it are not in
          pari delicto, and where public policy is considered as advanced
          by allowing either, or at least the most excusable of the two, to
          sue for relief, relief may be given. * * *"

          And in the note (at p. 757) it is said:

          "Among the ordinary instances where equity will set aside a
          fraudulent or illegal transaction at the suit of the party
          supposed to be comparatively innocent, wholly on grounds of
          public policy, is the familiar case of a borrower suing to have
          the usurious contract and securities surrendered up and
          cancelled." (Italics mine.)

          In Colby v. Title Insurance and Trust Co. (Cal. 1911),
          117 Pac. Rep. 913; 35 L.R.A. (N.S.) 813, the court said:

          "It is true that, as a general rule, equity will not aid one
          party or another to an illegal transaction where they stand in
          pari delicto, but will leave them just where it finds them, to
          settle these questions without the aid of the court. * * * But
          this rule only applies where the parties are in pari delicto;
          where the illegal transaction is entered into voluntarily and the
          turpitude of the parties is mutual. * * * Where, however, the
          party seeking the relief is not a free moral agent, and his
          consent to the illegal transaction is obtained through duress,
          menace, or undue influence, he is not regarded as in pari
          delicto with the person obtaining his consent by the employment
          of such means, and will not be precluded from invoking
          affirmative relief in equity to set aside contracts or
          instruments so executed, or to defeat an attempted enforcement of
          them against him." (Italics mine.)

          In Brown v. McIntosh, supra, it was held that money
          usuriously paid may be recovered, because the parties are not in
          pari delicto. Mr. Justice Reed there pointed out the common law
          distinction stated in the note to the case of Jones v.
          Barkley, supra, that:

          "Where the law that creates the illegality of the transaction
          was designed for the coercion of one party and the protection of
          the other, or where one party is the principal offender and
          Page 550
          the other only criminal, from a constrained acquiescence in such
          illegal conduct, in these cases there is no parity of delictum
          at all between the parties. (Italics mine.)

          After citing a number of the early English cases as examples of
          this rule, among which are Browning v. Morris, Jones v.
          Barkley, Jacques v. Golightly, Smith v. Bromley, Williams
          v. Hedley and others, and quoting from some of them, he said:

          "In each of these cases the prohibitions and penalties of the
          statute were levelled at a party who received the money, and the
          court recognized a distinction between his guilt and that of the
          party intended to be protected by the statutes, and so held them
          not in pari delicto."

          "It is observable that the reasoning which relieves the payer
          of the character of particeps criminis, also takes his payment
          out of the operation of the rule relative to voluntary payments."

          "No payment obtained through oppression or undue advantage is
          voluntary, and the law presumes every payment made to a person
          who is by statute forbidden to receive it, where the statute is
          for the protection of the payer, as made through oppression and
          undue advantage." (Italics mine.)

          In this last quoted paragraph of Mr. Justice Reed's opinion,
          the fiction of law which is the sole support of the complainant's
          argument is succinctly stated.

          In Van Pelt v. Schauble, supra (Court of Errors and
          Appeals), Dixon, J., said:

          "But with regard to dealings such as that before us the
          legislature has put aside this judicial rule, by enacting the
          second section of the Gaming Statute, which declares that `any
          person who shall pay, deliver or deposit any money * * * upon the
          event of any wager or bet * * * may sue for and recover the same
          of the * * * person to whom the same shall be paid * * *."

          While that case arose under the statute against gaming, the
          same principle was involved there as here.

          In Davis v. Green, 91 N.J. Eq. 17, Leaming, V.C., said:

          "The equitable maxim that he who comes into equity must come
          with clean hands is subject to well-defined limitations.
          Page 551
          While the general rule is that where parties are in pari
          delicto no affirmative relief of any kind will be given to one
          against the other, that rule has always been regarded by courts
          of equity as without controlling force in all cases in which
          public policy is considered as advanced by allowing either party
          to sue for relief against the transaction. 2 Pom. Eq. Jur. 941."
          (Italics mine.)

          In Hintze v. Taylor, supra, the court (at p. 241), said:

          "It is well settled that when a plaintiff is in pari delicto
          with the defendant, money paid by the former to the latter cannot
          be recovered back. This rule applies where the act done is in
          itself immoral or a violation of the general laws of public
          policy, but it does not bar a recovery where the law violated is
          intended for the protection of the citizen against oppression,
          extortion or deceit." (Italics mine.)

          This rule is quoted verbatim from the opinion of Lord
          Mansfield in Smith v. Bromley, supra, but the court omitted
          the following sentence: "If such laws are violated and the
          defendant takes advantage of the plaintiff's condition or
          situation, there the plaintiff shall recover." (Italics mine.)
          The italicized portion of the sentence above quoted indicates, I
          think, that the rule of the early English cases required a
          showing of advantage taken, oppression imposed, or deceit
          practiced. And that rule is implicit in the decisions of most
          American courts, of which the decision in Bell v. Campbell,
          123 Mo. 1; 25 S.W. Rep. 359, is a fair example. In that case the
          court said:

          "The circumstances of this case clearly bring it within the
          operation of the principle that condemns and avoids a contract
          entered into where the obligor is not a free agent; where he
          stands a vinculis; where he is not equal to the task of
          protecting himself; where the circumstances which surround him at
          the time are of such extreme necessity or of distress that his
          will is overcome, his free agency destroyed, by some oppression
          or fraudulent advantage or imposition incident to the
          transaction. In such case a court of equity will protect him by
          setting aside the contract thus made." (Italics mine.)

          In Irwin v. Curie, supra, Parker, J., commenting on the
          leading case of Tracy v. Talmage, supra, said:
          Page 552

          "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."

          He then quoted from the Talmage Case, as follows:

          "The maxim, said Judge Selden, `ex dolo malo non oritur
          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." (Italics mine.)

          Bouvier says that "A person who is in pari delicto with
          another differs from a particeps criminis in this, that the
          former term always includes the latter, but the latter does not
          always include the former." Bouvier Law Dict. 882

          A superficial reading of the cases establishing this exception
          to the rule of in pari delicto might lead to the conclusion
          that wherever the illegal contract is so because it is merely
          malum prohibitum, the statute imposing a penalty upon but one
          of the parties for its violation, and having been enacted for the
          protection of one class of individuals from the oppression of
          another, the parties are conclusively presumed not to be in pari
          delicto. But a careful reading and consideration of these
          authorities will, I think, show that whether or not the parties
          are actually in pari delicto is always a question of fact for
          the jury, or the court when sitting without a jury. The fact that
          "the statute" as was said by Lord Mansfield, "has marked the
          criminal," is merely evidential; but it is not conclusive proof.
          This appears plainly, I think, from the language of Selden and
          Comstock, JJ., in the following quotations from Tracy v.
          Talmage, and of Brown, J., in Duval v. Williams, supra:

          In the leading case of Tracey v. Talmage, supra, the court
          (Selden, J.) said:

          "* * * In Browning v. Morris (2 Cowp. 790) Lord
          Page 553
          Mansfield, after referring with approbation to the case of
          Jacques v. Golightly, reiterates the argument of Blackstone,
          J., in that case. He says, `And it is very material that the
          statute itself, by the distinction it makes, has marked the
          criminal, for the penalties are all on one side.' * * *

          "It will be seen that these two cases are not like that of
          Smith v. Bromley where an undue advantage was taken of the
          peculiar situation of the plaintiff; and that although some
          effort is made in Jacques v. Golightly, and by Lord Mansfield
          in Browning v. Morris, to bring them within the reasoning of
          that case, they are really placed upon the broad grounds that the
          parties are not in pari delicto, and, as evidence of this,
          the court rely upon the fact that the penalty was imposed upon
          the defendant alone.

          "* * * These are the leading English cases on this subject; and
          it is plain that they do not rest solely upon the ground that the
          statute infringed was intended to protect one party from acts of
          oppression or extortion by the other."

          On reargument, Comstock, J., said:

          "The maxim `in pari delicto potior est conditio defendentis'
          has never been applied to the case of a person contracting with a
          corporation, simply beyond the powers of the latter. * * * An
          instance might, no doubt, occur where the person dealing with a
          corporation might be shown to be an active and contriving agent
          in the unauthorized transaction. Then the law might leave him
          where it found him." (Italics mine.)

          In Duval v. Williams, supra, it was held that money paid to
          a marriage broker may be recovered as obtained by constructive
          fraud, and the party who paid the money will not be regarded as
          in pari delicto with the marriage broker. There, commenting on
          the rule of in pari delicto, the court said:

          "Public policy has dictated the adoption of this rule, but it
          has its limitations; and when the parties are not equally
          guilty, or when the public interest is advanced by allowing the
          more excusable of the two to sue for relief, the courts will aid
          the injured party by setting aside the contract and restoring him
          so far as possible to his original position. * * *
          Page 554

          "The question in this and kindred cases therefore, must always
          be whether the parties are in equal guilt. Obviously cases might
          arise where this would clearly appear, and where the court would
          be justified in so holding as a matter of law; * * * We are of
          the opinion, therefore, that it was error to hold as a legal
          conclusion that the parties to the contract in question were
          equal in guilt. * * * It is true there is no evidence of actual
          overpersuasion or undue influence, but at most the inferences to
          be drawn from these facts were for the jury. * * * If the
          evidence was not sufficiently strong to authorize the court to
          hold as a question of law that the parties were not in pari
          delicto, it at least presented a mixed question of fact and law
          for the jury." (Italics mine.)

          In the case of Lowell v. Boston & Lowell Railroad Co., 23
          Pick. 24, where the objection was raised that the parties were
          particeps criminis, the court said:

          "In respect to offenses in which is involved any moral
          delinquency or turpitude, all parties are deemed equally guilty,
          and courts will not inquire into their relative guilt. But where
          the offense is merely malum prohibitum, and is in no respect
          immoral, it is not against the policy of the law to inquire into
          the relative delinquency of the parties, and to administer
          justice between them, although both parties are wrongdoers." And
          in Tracy v. Talmage, supra (at p. 188), Judge Selden said:

          "It will be seen * * * that the penalties are imposed
          exclusively upon the corporation violating the provisions of the
          act, and upon its officers and members. So far, therefore, as the
          defense is based upon a violation of the Restraining Act, there
          is that statutory designation of the guilty party upon which most
          of the cases to which I have referred are made to rest. * * * The
          imposition of the penalties for a violation of the restraining
          law upon the corporation alone does not make it the guilty party,
          but it is simply evidence that the legislature so regarded it."
          (Italics mine.)

          Mr. Justice Story (2 Story Eq. Jur. 310, ¶ 298), says

          "Lord Thurlow, indeed, seems to have thought, that in all cases
          where money had been paid for an illegal purpose, it might be
          recovered
          Page 555
          back, observing that if courts of justice mean to prevent the
          perpetration of crime, it must be, not by allowing a man who has
          got possession to remain in possession, but by putting the
          parties back to the state in which they were before. But this is
          pushing the doctrine to an extravagant extent, and effectually
          subverting the maxim, in pari delicto est conditio defendentis.
          The ground of reasoning, upon which his lordship proceeded, is
          exceedingly questionable in itself; and the suppression of
          illegal contracts is far more likely, in general, to be
          accomplished by leaving the parties without remedy against each
          other, and by thus introducing a preventive check, naturally
          connected with a want of confidence, and a sole reliance upon
          personal honor. And so, accordingly, the modern doctrine is
          established. Relief is not granted where both parties are truly
          in pari delicto, unless in cases where public policy would
          thereby be promoted." (Italics mine.)

          In Collins v. International, &c. (Court of Chancery, 1935),
          119 N.J. Eq. 230, 239, where payments of $100 to $500 were
          exacted from union members by the officers for preferred jobs,
          and members from whom such extortions had been made sought an
          injunction against the continuance of the practice and an
          accounting for the moneys thus extorted, it was held that
          complainants were entitled to an injunction but not to an
          accounting as the parties were in pari delicto, and "it is the
          established rule that the law will not assist either party to an
          illegal contract * * * it will leave them where it finds them"
          (citing Cameron v. International Alliance, &c., 118 N.J. Eq. 11),
          and the court said:

          "It is urged that as the public interest is here involved this
          case comes within the exception to the rule quoted. The exception
          is based upon `the reasons * * * that the public interest
          requires that relief should be given; and it is given to the
          public through the party.' Story Eq. Jur. (14th ed.) ¶ 421.
          The public interest is amply served by an injunction against a
          continuance of the unlawful practice; an accounting for the graft
          paid would benefit no one except guilty parties."

          It is certainly no part of the public policy of this state to
          encourage the perpetration of fraud upon its laws or statutes, or
          to reward a fraud doer for his perfidy. Nor should equity put a
          premium on venality. Professor Pomeroy (2 Pom. Eq. Jur. 1984 ¶
          937) says: "Equity will never assist a party to carry into
          effect his own intentional violation of the law."

          In 13 C.J. 497, the text reads:
          Page 556

          "But courts are and should be cautious in affording relief to a
          fraudulent debtor or other violator of the law under this
          exception, and should act only where it is evident that some
          greater public good can be subserved by action than by inaction."

          In Petrie v. Hannay, supra, Lord Kenyon said:

          "Those who come into a court of justice to seek redress must
          come with clean hands and must disclose a transaction warranted
          by law."

          A careful examination of the authorities will show, I believe,
          that this exception to the application of the rule of in pari
          delicto, and the presumption that the borrower of a usurious
          loan is not in pari delicto with the lender, is founded upon a
          mere fiction of law - a presumption that the borrower is always
          the oppressed victim of circumstance and the slave of the lender.
          Brown v. McIntosh, supra. This fiction had its origin in the
          archaic rule which prohibited all interest, excluded the usurer
          from the altar, denied him absolution in the hour of death and a
          Christian burial after death. It also finds support in that
          peculiar doctrine, advanced by some of the Fathers of the Church
          in the fifteenth century, that "Jews might be allowed to take
          interest since they were to be damned in any case, and by giving
          them a monopoly of the business the souls of Christians might not
          be lost." See Liegois, Histoire de L'Usure, 82, cited in
          Marshall v. Beeler, 104 Kan. 32; 178 Pac. Rep. 245 (which see
          for an interesting discussion of the ancient rules applicable to
          usury (interest) and the development of the modern law of usury).
          But must this fiction be forever indulged in regardless of the
          facts of the particular case? I think not. Fact is not only
          stranger, but stronger than fiction. I am aware of the
          distinction between a legal fiction and a legal presumption as
          stated by the text writers (22 C.J. 82; 25 C.J. 1086; Black,
          L.D. 495; Bouvier, L.D. 411), but I believe I am correct in the
          use of the term "fiction" here, because, by a fiction of law
          "something known to be false * * * is assumed to be true" (28
          C.J. 82), and the evidence shows that an assumption of
          complainant's innocence would be a patently false one. However,
          it is probably of small moment whether we refer to the
          presumption mentioned in Brown v. McIntosh as a fiction of
          law or a presumption of law. Neither fiction nor presumption
          Page 557
          can prevail over fact. In Johnston v. Smith, 2 Barrow 962; 97
          Eng. Rep. 654, Lord Mansfield said: "the only question was,
          whether the truth of the fact could * * * be averred contrary to
          the fiction of the law." * * * "The court could not endure that a
          mere form or fiction of law, introduced for the sake of justice,
          should work a wrong, contrary to the real truth and substance of
          the thing." See, also, 25 C.J. 1086; United States v. 1960
          Bags of Coffee, 8 Cranch (U.S.) 398, 415; 3 L.Ed. 602.
          Presumptions merely shift the burden of proof (22 C.J. 79), are
          indulged in only to supply facts, and do not arise where the
          facts are known. 22 C.J. 83; and "as a practical matter every
          presumption is rebuttable by proof that the facts are actually
          otherwise."

          "Presumptions * * * are artificial rules which have a legal
          effect independent of any belief, and stand in the place of proof
          until the contrary be shown." 2 Strobh. 141, 147.

          "Presumptions * * * may be looked on as the bats of the law,
          flitting in the twilight but disappearing in the sunshine of
          actual facts. * * * presumptions have no place in the presence of
          the actual facts disclosed to the jury." Woskowik v. Kansas
          City, St. J. & C.S.R.R. Co., 196 Mo. 550, 571; 94 S.W. Rep. 256.

          Professor Wigmore (5 Wigmore, Evidence, ¶ 2492) says: "In
          strictness there cannot be such a thing as a conclusive
          presumption." And see paragraph 2491. In Robinson v.
          Robinson, 83 N.J. Eq. 150; affirmed, 84 N.J. Eq. 201,
          Vice-Chancellor Leaming said:

          "It is impossible to predicate judicial action upon a
          presumption which is wholly repelled by the evidence."

          Presumptions are merely substitutes for evidence, and both
          presumption and fiction are resorted to simply for the
          furtherance of justice. Neither will be permitted to work any
          wrong to the individual or the state.

          The fiction or presumption that Ryan is not in pari delicto
          cannot stand up against the overwhelming facts here disclosed.
          Ryan knew as well as Devine and his superiors that the contracts
          were illegal. Out of his own mouth it appears that he was
          familiar with the Small Loan Act and its limitations.
          Page 558
          He had previously operated a used car business in Florida and had
          borrowed moneys from small loan companies there. He was not in
          the position of the ordinary borrower who participates in an
          illegal transaction believing it to be legal. In the usual case
          of evasion of the statute by subterfuge, the borrower is led by
          the lender to believe that the devices by which the strict
          provisions of the act are avoided make the transaction legal -
          that certain methods of evasion are entirely within the law. But
          that is not the case here. Both parties knew that the contracts
          were void under the statute - there was no pretense of legality
          on either side. The methods adopted were not to validate the
          contracts, but to cover up their invalidity and to make it appear
          to the casual observer, or to representatives of the Department
          of Banking and Insurance, that all was in conformity with the
          law, when, in fact, as both parties knew, it was not - and not so
          intended. The intent was to violate and conceal.

          In Brooks v. Cooper, supra, the court said:

          "Now, the intention of the contract was to contravene the
          statute, * * * This renders the contract vicious and
          unenforceable. An agreement to contravene a statute in fraud of
          the public, or to the injury of private parties, savors of a
          conspiracy." (Italics mine.)

          That the parties to this suit conspired to contravene the
          statute, to perpetrate a fraud on the law, admits of no doubt. It
          has been so found by this court, and by a jury in a court of law.
          However remedial our Small Loan Act may be, or whatever may have
          been its purpose, it was certainly not designed to reward or
          encourage fraud. The underlying reason for the drastic provisions
          of the act for the protection of the borrower is his credulity
          and susceptibility to oppression by reason of his necessitous
          circumstances. It was that class of borrowers the statute was
          designed to protect. It was not designed to protect the
          criminally minded - those borrowers who were not motivated in
          their transactions by distress and necessity. Certainly not to
          protect a man like Ryan who was not under the pressure of want or
          necessity, who was not the type susceptible to oppression, but
          who voluntarily entered into a conspiracy with the defendants to
          commit
          Page 559
          a fraud upon the act and defeat its provisions. Ryan was prompted
          by his desire to do business on a large scale; the defendants by
          their desire for a ready market for their repossessed cars and
          their greed for thirty per cent. interest. Both parties entered
          into the nearly 500 transactions with their eyes wide open, with
          full knowledge of the law, and a deliberate purpose to set at
          naught the provisions of the act. It is true that the penalties
          of the act seem to be directed solely to the lender, and the
          advantages or benefits, aside from the provisions permitting an
          outrageous interest charge by the lender, reserved solely for the
          borrowers. But these penalties were designed to prevent
          oppression of the weak and poor; they were not designed as
          rewards for the perfidy of the borrower. Where no oppression is
          involved, no advantage taken by the lender of the borrower, the
          transaction being entered into with the deliberate purpose of
          defeating the statute, the parties are both particeps criminis
          and in pari delicto, and the rule and not the exception
          applies. Certainly it was not the intention of the legislature to
          preclude the courts, in such cases, from finding as a fact that
          the parties were in pari delicto. It was not intended that the
          hand of the court should be forced, or that it should be stayed
          in the application of the fundamental principles of justice.

          In Prindiville v. Johnson & Higgins, supra (Court of Errors
          and Appeals, 1922), Gummere, C.J., speaking for the Court of
          Errors and Appeals, said:

          "The complainant, according to the averments of his bill and
          the undisputed facts set out in the answer and developed by the
          proofs, came into the Court of Chancery for the purpose of having
          it there declared that a scheme, in the execution of which he was
          an active participant and the recipient of very large sums of
          money<br/><br/>(Message over 64 KB, truncated)
        Your message has been successfully submitted and would be delivered to recipients shortly.