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factory answer, does not prove that it is contrary to public policy to permit corporations to defend themselves against their express contract, when illegal. No rule better calculated to promote sound policy could be devised than that which denies to either party the power of making a profit by the illegal transaction, and barely allows to the more innocent the right of being restored to his original condition. As I think this is the rule to which the authorities clearly point, I have no hesitation in adopting it, irrespective of the question whether the respondents are chargeable with knowledge of the illegality or not. Even with the knowledge, they would not be brought within the penalties of the restraining act. Assuming, then, that the provisions of the restraining act have been violated, the grounds of the relief afforded are: that as the prohibitions and penalties of that act are imposed upon the corporation alone, the respondents are not to be considered as in pari delicto with such corporation; and that public policy imperatively requires that this distinction, which exists in the nature of things and is supported by numerous authorities, should be observed in cases of this kind.

It may be objected to this doctrine, that there is a manifest incongruity in raising, by implication, a contract on the part of the corporation, which, it is at the same time held, would be void if expressly made. This objection however is, I think, without weight. If the incongruity referred to were real, it would be of little moment, as the implied contract is a mere legal fiction, resorted to simply for the purpose of complying with the forms of law. In equity no such implication is needed, and the objection, therefore, has no force when applied to the present case. The necessity of resorting to the fiction of a contract grows entirely out of the form in which justice is administered in common law actions. But the supposed incongruity does not really exist. It has never been held that a corporation could not promise to restore money or property acquired,

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without consideration and by an abuse of its powers. Its promises, in anticipation of and with a view to such acquisitions, are void. But it is not ulta vires for a corporation to be honest, or to do, or promise to do, that which justice demands. Again, there can be no difficulty, in a case like the present, for another reason. The bank had a right to receive money on deposit, that is, to borrow money payable on demand; and its contracts to borrow the money in question on time being void, the law may properly regard the money as deposited, and the bank as liable to repay it whenever called for. An express contract by parol to that effect would no doubt be valid.

The conclusions to which I have thus arrived render it unnecessary to examine in detail the various claims, with one or two exceptions which will be hereafter noticed. They are all limited to the amount actually advanced, with legal interest thereon. It remains, however, to be considered whether the respondents, or either of them, have any lien, for the sums so advanced, upon the securities assigned by the trust deeds. In the case of Leavitt v. Yates (4 Edw. Ch. R., 134), where a banking association had issued post notes in violation of the restraining act of 1840, and had, at the same time, executed a trust deed assigning certain effects to secure the payment of the notes, the vice-chancellor held that, the notes being void, the trust deed was also void. A similar decision was made by the Supreme Court at general term, in the case of Tylee v. Yates (3 Barb. S. C. R., 222). The principle adopted in these cases was fully confirmed by this court, in the case of Leavitt v. Palmer (3 Comst., 19.).

But it is claimed by the respondents that, admitting the mortgage bonds and trust deeds to be equally void, still, the holders have an equitable lien upon the property assigned by the deeds, for the money advanced; and they base their claim upon the ground that they advanced their money upon the faith of and relying upon these securities. The

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claim of the Palmers to a preference is urged upon the additional ground that, upon receiving a pledge of the mortgage bonds, they surrendered state stocks upon which they had a lien for their debt against the bank. Upon careful consideration, I find myself unable to sustain this claim as to the bondholders; they have participated in a transaction, the whole of which was in contravention of law, and they stand chargeable with constructive notice of its illegality, at least so far as the objection is concerned that the acts of the bank in issuing the bonds were ultra vires. Although they ar permitted, chiefly on grounds of public policy, to recove the money actually advanced, it would scarcely comport with that policy to allow them preferences over other credi tors, to which they are only entitled by virtue of a specia agreement which is held to be void. The law, upon con siderations of justice and policy combined, implies a promise to restore to the bondholders their money; but I am aware of no principle upon which it will also imply a contract to give them a preference over others, in violation of the rul that "equality is equity."

I omit the examination of various questions and of several minor branches of the case, which it would have become necessary to consider had the principles here advanced been adopted by the court, and shall content myself with the general conclusion that the trusts are void, and that the receiver is entitled to the entire fund, to be distributed ratably among all the creditors of the company. The judgment of the supreme court ought, I think, to be reversed.

DENIO, Ch. J., having been of counsel, did not sit in the

case.

The court adopted the following propositions unanimously, except as otherwise noted:

1. The million and half million trusts mentioned in the pleadings and proofs are not void under the eighth section

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of the statute "to prevent the insolvency of moneyed corporations." (1 R. S., 591.)

2. The said trusts are not void under the ninth section of said statute; it being the opinion of the court that they were not made with intent to give a preference to particular creditors over other creditors. (Judge SELDEN not voting.)

3. The trusts are not void under the statute (2 R. S., 135, § 1), on the ground that they were made for the use of the North American Trust and Banking Company; it being the opinion of the court that the statute applies only to conveyances, &c., primarily for the use of the grantor, and not to instruments for other and active purposes, where the reservations to the grantor are incidental and partial, (Judge SELDEN not voting.)

4. The said trusts were not made with intent to hinder, delay or defraud creditors, and therefore they are not void on that ground. (Judge SELDEN not voting.)

5. The North American Trust and Banking Company had power to borrow money, and prior to the 3d day of June, 1840, banking associations could lawfully issue time paper to secure a debt for moneys loaned, with or without the corporate seal, provided such paper was not intended or calculated to circulate as money, and the trust bonds in the two trusts were not of a description falling within this proviso. (Judge SELDEN dissenting, but not on the ground that the said bonds were calculated or intended for circulation.)

6. Prior to the said 3d of June, 1840, the said trust bonds were issued and pledged to Palmer, Mackillop, Dent & Co., in London, to secure their debt and future advances, with power to sell the same, according to the original design of the trust. Such pledge was valid, and it entitles the Palmers, &c., still holding three hundred and seventy-seven of the million and one hundred and eighty of the half million bonds under the same, to the benefit of the two

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trusts along with other bondholders. (Judge SELDEN not voting.)

7. The said bonds, when so issued and pledged, and when portions of the same were sold, were English contracts, and the loans or advances procured on the sale of four hundred and ninety-nine of them belonging to the million trust were not usurious by the then existing laws of England, being exempted from the usury laws of that country by the statute of 2d and 3d Victoria, ch. 37. (Judge SELDEN not voting.)

8. Even if said loans upon the four hundred and ninetynine bonds were usurious, the appellant, as receiver, representing, as he does, the corporation, is prohibited by the statute of this state, passed in 1850, ch. 172, from setting up the usury in these cases in any stage thereof.

9. The holders of the said four hundred and ninety-nine bonds are therefore entitled to share in the benefit of the million trust. (Judge SELDEN not voting.)

10. The loan, nominally, of $250,000, procured from the Philadelphia banks, was a Pennsylvania contract; and although it may have been usurious, nevertheless, by the laws of that state, the contract was inoperative only for the excess of interest over six per cent, the lawful interest.

11. The pledge of the two hundred and seventy half million bonds to said banks was valid, although the twelve certificates of deposit, amounting to $250,000, issued by said company, were prohibited by the statute of May 14, 1840, which took effect June 3, 1840; it being the opinion. of the court that the intention and legal effect of the pledge were to secure the payment of the money loaned, and it being also the opinion of the court that the alleged voidness of the certificates of deposit, issued for the repayment of such loan, does not affect anything else in the contract. (Judge SHANKLAND dissenting, on the ground that the pledge is void upon the authority of Leavitt v. Palmer, 3 Comst. 19.)