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Re: proof of scienter

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  • 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 1 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 2 of 3 , May 7, 2005
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        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)
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