(173 N. Y. 359)

VEAZEY v. ALLEN et al. (Court of Appeals of New York. Feb. 10, 1903.)

DISMISSAL OF COMPLAINT-NONSUIT-CONTRACT-PUBLIC POLICY.

1. Where a complaint to compel an accounting for profits alleged to have been made by defendants in speculating in the stock of a corporation is dismissed on the ground that the agreements set forth in the complaint were contrary to public policy and void, and that plaintiff, therefore, has no cause of action, it is a nonsuit, entitling plaintiff to have it reviewed in the light of the facts most favorable to him.

2. Where plaintiff contracted with defendants to procure legislative action for the sole purpose of depreciating the market value of the securities of a certain corporation, with a provision that any profit arising from speculating in such securities by selling them short and covering at an anticipated decline should be divided between the parties, such contract is void as against public policy.

Appeal from supreme court, appellate division, First department.

Action by James N. Veazey against Henry Allen and others, copartners under the firm name of Henry Allen & Co. From a judgment of the appellate division (70 N. Y. Supp. 457) affirming a judgment for defendants entered on report of referee, plaintiff appeals. Affirmed.

In this action the plaintiff seeks to compel the defendants to account to him for certain profits alleged to have been made by the latter in speculating in shares of the capital stock of two corporations known as the Distilling & Cattle Feeding Company and the American Sugar Refining Company. The defendants were copartners engaged as stockbrokers under the firm name of Henry Allen & Co., in the city of New York. The plaintiff's claim, briefly stated. is that the defendants, in consideration of his supplying them with information concerning an investigation into the affairs of the corporations referred to, which he was to procure to be made by the United States congress, would sell the stocks of those corporations, buy them again at a lower price, the decline in price being caused by the congressional investigation,-and divide with him the profits so made. At the end of the plaintiff's case, the referee before whom the case was tried, upon motion of counsel for the defendants, dismissed the complaint on the ground that the contracts set forth therein were void as against public policy. The appellate division has affirmed the judgment entered upon that decision.

In 1891 the Distilling & Cattle Feeding Company was organized. This corporation was commonly known as the "Whisky Trust." Its chief business was the manufacture and sale of alcoholic liquors. It appears from the record that this company, instead of manufacturing these liquors by the ordinary processes, made them by mixing white spirits

2. See Contracts, vol. 11, Cent. Dig. §§ 587, 588.

with various essences, sirups, oils, and other deleterious substances, in such a way that liquor of any kind, color, and apparent age could be produced upon demand. Its business was soon extended over a great part of this country, being transacted through distributing agents located at various commercial centers. These agents sold the products of the company on what was called a "rebate plan," which consisted in selling to customers on an agreement that, if they would not deal in goods of any other concern which competed with the Whisky Trust, they would receive a rebate or discount upon the price paid at the end of six months. This manner of transacting business soon became a serious menace to the business of those concerns which dealt in what was known as "straight goods"; that is, manufacturers of alcoholic liquors manufactured and disposed of in the ordinary way. Its effect was also to throw many traveling men employed by independent competitors out of employment. In the language of the plaintiff, "it had driven many men off the road." At that time the plaintiff was employed as a traveling salesman by the firm of Tullidge & Co., of Cincinnati, who were manufacturers of "straight" whisky. He and his employers were interested in checking the growth of the business of the Whisky Trust and shutting it out of the market. Plaintiff had been connected with the whisky business for a number of years, and had also been in the essential oil business, and was thoroughly conversant with the details of both. Almost from the inception of the so-called Whisky Trust he had been agitating the question of how to check its encroachments upon the business of the dealers in "straight goods." He had consulted with many persons upon the subject, and had been considering the plan of going to Washington to see if he could accomplish his object through the federal authorities. In 1892 the plaintiff became acquainted with Judge Veazey, a member of the interstate commerce commission, and his son-in-law, Walton. During that year plaintiff discussed with Walton the subject of a congressional investigation into the affairs of the Whisky Trust, and the probable effects of such an investigation upon the price of the stock of that corporation. Walton suggested to plaintiff that there might be some pecuniary benefit to plaintiff from such an investigation, and that he could introduce him to some persons in New York who could help him. In pursuance of this suggestion, the plaintiff went to New York, and was there introduced by Walton to a lawyer by the name of Flagg. The latter told plaintiff that there would probably be an opportunity to make considerable money out of the decline of the Distilling & Cattle Feeding Company's stock, providing that the representations he made in regard to that company and its methods were true; that they should be exposed; and that he thought it would be well for the plaintiff to consult

some broker in New York. Soon after this conversation, which took place at Flagg's house, and on January 5, 1893, the latter introduced the plaintiff to the defendant Allen at the New York Club. Plaintiff told Allen that he thought he would bring about a congressional investigation into the affairs of the Distilling & Cattle Feeding Company, and that he would furnish him with all information in connection with that investigation that would tend to affect the stock of that company. Allen asked for information concerning the company, and plaintiff told him about its operations. Allen replied that if the facts regarding the operation of the business of the trust were as represented by the plaintiff, and proven and publicly developed, it would undoubtedly result in seriously affecting the market value of that stock on the stock market; and he suggested that there would be an opportunity for the plaintiff to make some money, in giving him information relative to the possible action taken in Washington. Allen requested plaintiff to furnish him with any information he had, or that might come to his knowledge, affecting or tending to affect in any way the value of the stock of the Distilling & Cattle Feeding Company. Plaintiff thereupon asked Allen how he proposed that plaintiff should make any money. Allen replied that if the plaintiff would furnish him with information regarding that matter, when they proposed to introduce the resolution, and any subsequent steps that were taken in that matter in Washington, he would sell 3,000 shares of the stock of that company when they were ready to begin investigation over there, without requiring plaintiff to put up any margin, and that Allen would return to the plaintiff the profits which would accrue from the sales of such stock. Plaintiff accepted this proposition, and testified that Allen stated to him that in making it he was acting on behalf of the firm of Henry Allen & Co. Plaintiff thereupon proceeded to Washington, where he was introduced to Mr. Burrows, a member of the house of representatives, through Judge Veazey and Walton. He succeeded in interesting Mr. Burrows in the matter by fully informing him of the methods employed by the Distilling & Cattle Feeding Company in conducting its business, and demonstrated to him, by actual experiments, its method of producing different kinds of liquors by the use of the deleterious essential oils and compounds above described. Plaintiff talked with other members of congress, and through his efforts Mr. Burrows, on January 13, 1893, introduced a resolution in the federal house of representatives calling for an investigation into the affairs of the Distilling & Cattle Feeding Company. This resolution was finally referred to a subcommittee of the judiciary committee of the house, before which hearings were had, commencing on February 4, and continuing at intervals until February 27, 1893, when the last hearing was had. Plaintiff appeared as

a witness before the subcommittee and there gave testimony in connection with which he again demonstrated by actual experiments the methods employed by the Distilling & Cattle Feeding Company in producing its goods, and described its mode of conducting its business. He not only appeared as a witness himself, but suggested the names of other witnesses, attended during nearly all the hearings, supplied information to the committee from time to time, and did what he could to promote and continue the investigation. He was in fact the prosecuting witness, and was referred to as such by the chairman of the subcommittee.

Subsequent to the introduction of the resolution authorizing the congressional investigation, it was amended so as to give the committee power to investigate the affairs of all "trusts" doing business in restraint of trade, and under this amendment the affairs of the American Sugar Refining Company were inquired into somewhat, and plaintiff suggested witnesses and took some part upon this branch of the inquiry. In a letter written June 27, 1893, to the president and governing committee of the New York Stock Exchange, the plaintiff stated that, pursuant to his agreement with Allen, he had instituted this investigation, and, at his own expense and by his own efforts, had furnished the testimony for the investigation, with the result that there was an immediate fall in price of the stock of said corporation. the same letter the plaintiff stated that after January 17, 1893, he and Allen agreed to proceed upon the same basis against this stock; that further efforts were made by him, resulting in a further decline of the stock; and that on the 1st of February, 1893, the arrangement was continued as before. Again, in the same letter, the plaintiff stated that during the month of February, 1893, a heavy decline occurred in said stock, and that Mr. Allen then desired him, in addition, to aid in breaking the market in sugar, and would give him one-half the profits which might result from the effort; that, pursuant to this agreement, he set such measures at work as were necessary, with the result that sugar declined heavily.

In

The record shows that between the date of plaintiff's going to Washington, about January 5, 1893, and March 7th following, he was in almost constant communication with the defendants, by telegraph, telephone, mail, and personal interviews. In some of his telegraphic dispatches he used a cipher code furnished him by defendants. From these communications it appears that plaintiff kept the defendants well supplied with information concerning the success of his efforts in bringing about the investigation, and the progress of the proceedings before the subcommittee, both in regard to the affairs of the Distilling Company and the American Sugar Refining Company. Many replies to these communications were received by him from the defendants, advising him of the

cy upon which fixed principles of law are, or should be, based. There are, however, other phases of public policy which are as enduring and immutable as the law of gravity. One of them is that, as applied to the law of contracts, courts of justice will never recognize or uphold any transaction which, in its object, operation, or tendency, is calculated to be prejudicial to the public welfare. That sound morality and civic honesty are corner stones of the social edifice is a truism which needs no re-enforcement by argument. It may therefore be taken for granted that, whenever our courts are called upon to scrutinize a contract which is clearly repugnant to sound morality and civic honesty, they need not look long for a well-fitting definition of "public policy," nor hesitate in its practical application to the law of contracts. This is no new doctrine, for it was the law in the time of Lord Chief Justice Wilmot, when he said, "It is the duty of all courts of justice to keep their eye steadily upon the interests of the public, even in the administration of commutative justice, and when they find an action is founded upon a claim injurious to the public, and which has a bad tendency, to give it no countenance or assistance in foro civili." Low v. Peers, p. 378, Wilmot's Notes.

Let us now look at the contract which the plaintiff seeks to enforce in this action. It is, in effect and substance, a contract to pay the plaintiff the whole or a part of the profits resulting from speculations in the stock of a corporation, undertaken by the defendants pursuant to advance information furnished them by the plaintiff as to the probable course and developments of a congressional investigation into the affairs and methods of said corporation, instituted and encouraged by the plaintiff as a prosecuting witness, and in other ways. The investigation was intended to, and did seriously, impair the reputation of said corporation, and resulted in a substantial decline in the market price of its stock. This was the end aimed at in said contract. The plan agreed upon between the plaintiff and the defendants contemplated the sale, at a given price, of stock which they did not have, but which they expected to be able to purchase at a lower price in consequence of the investigation referred to. The anticipated profit was to be the difference between the selling and purchasing price of the stock. The allegations of the complaint suggest the great extent to which the plaintiff believed he was to be benefited by the defendants' operations under this contract, and the answer admits enough to prove that plaintiff's interest in it was at least a substantial one. The fidelity and zeal with which the plaintiff performed his part of the contract is clearly shown by the voluminous telegraphic and written correspondence which appears in the record. In its final effect, we have here a case in which it is alleged and proved that the considera

tion of the contract sought to be enforced is the fruit of a legislative investigation instituted, prosecuted, and encouraged by the plaintiff. That such a contract is one which, in its object, operation, and tendency, is calculated to be prejudicial to the public welfare, ought not to be doubted for a moment. Why? Not because the plaintiff was in fact necessarily dishonest or corrupt in instituting and prosecuting the investigation, nor yet because the charges preferred against the offending corporation were not true, but because the plaintiff voluntarily acquired a pecuniary interest in the result of the investigation, which might subject not only him, but, through him, others, to the temptations and allurements which human experience has proven to be potent in sacrificing sound morality and honesty to that greed and cupidity which not infrequently beget perjury, bribery, and other moral delinquency incompatible with the public weal.

But just here counsel for the plaintiff interjects the suggestion that he is entitled to all the favorable inferences that may be drawn from the testimony; that, since his efforts to procure an investigation were begun before the making of the contract in suit, it is not to be presumed that he was or could be improperly influenced, or that he would be led to improperly influence others, by the financial interest which he subsequently acquired in the results of the investigation. It is true that, under the rule entitling the plaintiff to all the favorable inferences that may legitimately be drawn from the testimony, we must assume that plaintiff's first efforts to procure a legislative investigation of the corrupt and evil methods of the Whisky Trust were innocent and commendable, but it is equally true that before his laudable efforts had borne any fruit he changed his status from that of a disinterested citizen to that of an interested party. His original purpose, to protect and preserve the legitimate business with which he had long been identified, against the unlawful and insidious encroachments of an unscrupulous corporation, was commendable and worthy. Had he persevered in his first designs and motives, their effect upon the public would have been above criticism. But favorable inferences cannot stand against positive testimony. It is in evidence that, before the plaintiff's early efforts to obtain governmental aid had promised any results, he entered into the contract in suit. Over his own signature the plaintiff declared his inability to proceed without financial aid, and later on, in the same unequivocal manner, he admitted that, pursuant to the contract under discussion, he instituted the investigation, at his own expense and efforts furnished the testimony, and procured the result which eventuated in the profit which he now seeks to recover. It is, as the referee herein has well said, "the right of every citizen to petition a legislative body in respect

to any existing matter or condition of things within its jurisdiction, which may be prejudicial to his personal rights or interests, or which he may deem to be a public evil, and to lay before the body, by proper means and in a proper manner, the grounds of his complaint, and his reasons for demanding its intervention." Had the plaintiff maintained the attitude of such a petitioner, he could not now be criticised. But when he has voluntarily abdicated that position for one in which his every movement is coupled with an interest that cannot be disassociated from ultimate gain or loss, depending in some degree upon the success of his own efforts, it is not difficult to see that he is no longer purely an advocate for the public good, but an interested party, seeking to further his own ends by means that may be, if they are not in fact, immoral, corrupt, and de structive of public welfare.

Although there are no cases directly in point, we think the principle underlying these views is sustained by many authorities. In Mills v. Mills, 40 N. Y. 546, 100 Am. Dec. 535, the action was brought to enforce specific performance of a contract to convey land, the consideration for which was the plaintiff's agreement to give all the aid in his power, and to use his interest, influence, and exertions to procure the passage of a law granting to the defendant and others the right to build and operate a railroad. In holding the contract void, this court said: "It is not necessary to adjudge that the parties stipulated for corrupt action, or that they intended that secret and Improper resorts should be made. It is enough that the contract tends directly to those results. It furnishes a temptation to the plaintiff to resort to corrupt means or improper devices to influence legislative action." In Atcheson v. Mallon, 43 N. Y. 147, 3 Am. Rep. 678 it was held that an agreement between parties tending to lessen rivalry in bidding upon public work was void as against public policy, even though it did not appear that the agreement was actually detrimental to public interests. In Richardson v. Crandall, 48 N. Y. 348, the plaintiff was engaged in furnishing men to fill the quotas of certain counties for military service under a call from the president. The defendant, as provost marshal, exacted from the plaintiff a bond that the men furnished would not desert. It was held that any discretion which the provost marshal had should have been exercised, uninfluenced by the security exacted, and the taking of the pledge was therefore against public policy. To the same effect is Tool Company v. Norris, 2 Wall. 54, 17 L. Ed. 868, where it was held that an agreement to procure from the government a contract for firearms was offensive to public policy, and therefore void. So a contract for "lobby services," to secure the passage of a bill providing for the payment of a claim, has been held void by the

supreme court. 22 L. Ed. 623.

Trist v. Child, 21 Wall. 441,
In Meguire v. Corwine, 101

U. S. 108, 25 L. Ed. 899, it was held that a contract between A. and B., whereby the former agreed to secure the appointment of the latter as special counsel in certain government cases, and to assist him in the defense thereof, upon the consideration that A. should have one-half of the fee received by B., was contrary to public policy. To the same effect is Oscanyan v. Arms Co., 103 U. S. 261, 26 L. Ed. 539.

The authorities relied upon by the plaintiff (appellant) are distinguishable from the case at bar and those cited in support of the judgment herein. It is a fundamental principle of the common law that what a person may lawfully do for himself he may do through his agents and servants. Early in the history of this court that principle was applied to a contract by which one party agreed, for compensation, to aid another in prosecuting a claim against the state. This court said: "A party who has a claim against the state may employ persons to present and urge it, with proofs and arguments, before the tribunal authorized to act upon it. This is not within the principle which renders agreements to compensate a person for privately soliciting individual members of the legislature, or other public bodies, to act in favor of a claim or measure, void." Sedgwick v. Stanton, 14 N. Y. 289. Similar cases in the supreme court are Russell v. Burton, 66 Barb. 539, and Cary v. Western Union Tel. Co., 20 Abb. N. C. 337. In Chesebrough v. Conover, 140 N. Y. 382. 35 N. E. 633, which is strongly relied upon by the plaintiff, this court reiterated the rule that "it is the right of every citizen interested in any proposed legislation to employ. and agree to pay, an agent to draft a bill, and fairly and openly to explain it to a leg. islative committee or any member of the legislature, and ask to have it introduced; and a contract which does not call for more, and services under it which do not go further, are not against policy." In that case there was, however, a question of fact as to what the agreement was, and that question was fairly submitted to the jury, under proper instructions. By their verdict for the plaintiff the jury decided that the contract was one for purely professional services, and it was in the light of this finding that the judgment was sustained, although this court took occasion to say: "If the plaintiff was employed to render what are commonly called 'lobby services' in procuring legislation desired by the defendant, then he should have been defeated in his action. Such contracts are condemned as against public poli cy, and the rules applicable to them are laid down in many decisions." Citing cases.

The foregoing list of cases might be swelled by many others to illustrate the variety of conditions under which questions of public policy have had to be considered in de