Confining ourselves to a particular locality, without reference to the question of conflict of laws, if an act of private banking is absolutely forbidden by a legal prohibition, which contains the assumption that the legislative or other prohibition is held to be lawful, it follows that, if the persons doing the act of private banking are equally culpable, no civil obligation whatever can arise to perform the contract.1 The rule of law would be the one applied to any other illegal transaction. But while the courts will not enforce an executory illegal contract, nevertheless, where one party has received a benefit which he ought not in justice to retain, as where the parties are not in pari delicto, an action to recover that goes in disaffirmance of the contract will be sustained,2 although if the parties are equally culpable no recovery can be had.3 If a fraud was practiced by one party to obtain the benefit, the other party may recover;4 or if the fact that causes the illegality were not known to the party who has parted with money or property on the faith of a contract, he may recover.5 Some courts have held that, where the prohibited act was simply malum prohibitum, and not malum in se, and prohibited private banking is such an act,6 a recovery may be had, provided a suit disaffirming the contract be brought while it remains executory.7 But after a default has been made on the contract, or after a breach of the contract, where the same amounts to a discharge,8 no recovery can be had, unless the parties were not in pari delicto.9 Parties are not in pari delicto where a penalty is imposed upon the one and not upon the other;10 and as pro-

1 Walker v. United States, 10G U. S. 413; Hanauer v. Doane, 12 Wall. 342; Hunt v. Knickerbocker, 5 Johns. 327; Hamtramck v. Selden, 12 Grat. 28; Craig v. Missouri, 4 Pet. 410. And see Sec. 312, post, notes 11 and 12, for the general principle.

2 See note 7 to this section.

3 Tracy v. Tallmage, 14 N. Y. 162.

4 Catts v. Phalen, 2 How. 376.

5 Hentig v. Staniforth, 5 M. & S. 122; Northern Bank v. Zipp, 28 I11. 180; City Bank v. Perkins, 4 Bosw. 420.

6 State v. Williams, 8 Tex. 255. This distinction, however, between acts prohibita and acts mala in se is not sound from, any rational standpoint.

7 Keener on Quasi-Con tract, 259; Utica Ins. Co. v. Kip, 8 Cow. 20; White v. Franklin Bank, 22 Pick. 181. If the business for which a corporation is formed is illegal, the corporators may be sued as partners. McGrew v. Produce Ex., 85 Tenn. 572.

8 Clark on Contracts, 643 et seq.; Anson on Contracts, 349.

9 Keener on Quasi-Contract, 274; Tracy v. Tallmage, 14 N. Y. 162; Thomas v. Richmond, 12 Wall. 349.

10 Keener on Quasi-Contract, 274. But where the penalty is imposed on both parties, they are in pari delicto. Thomas v. Richmond, supra. For cases where the parties were held not to be in pari hibited private banking is usually accompanied with a penalty upon the banker, this fact will generally be a controlling considerationll where the banker is sued.

Sec. 28. Unauthorized Partnerships Or Companies

The effect of the formation of a limited partnership, where the same is made for a business not permitted by statute, is to make the parties liable as general partners.1 The same rule would apply to unauthorized joint-stock companies,2 with the limitation already pointed out, that in some jurisdictions the joint-stock company might be held to be a corporation.3 But the latter question would not arise except in another state, and the courts of such a state would probably apply the law of the place of formation of the joint stock company.