Gilbert v. American Surety Co.

JENKINS, Circuit Judge, after stating the facts, delivered the opinion of the court. It is provided by statute of the state of Illinois that in an action upon a bond given upon replevin the obligors in the bond may plead, in mitigation of damages, title to the property in dispute in the replevin suit, when the merits of the case have not been determined in that suit. 3 Starr & C. Ann. St. Ill. c. 119, par. 26, p. 3388; Stevison v. Earnest, 80 Ill. 513. It was therefore open to the defendants in error to show in this suit that the title to the property involved in the replevin suit was in the American Preservers Company. This was shown by the bill of sale executed by Bishop to that company. That title, however, was sought to be rendered nugatory by evidence that the bill of sale was given in pursuance of an illegal trust agreement in restraint of trade; in other words, that Bishop, who had sold his plant and had received the stipulated consideration, and for nearly three years thereafter had been in the service of the vendee at a stipulated salary, could defeat his vendee’s title, and hold as his own the plant sold by him of which he was in possession only as agent of his vendee, and including goods subsequently purchased by the vendee, because the agreement under which the bill of sale was executed was in restraint of trade. It is primarily urged in support of this contention that the Supreme Court of Illinois had so ruled in the replevin suit between Bishop and the American Preservers Company (157 Ill. 284, 41 N. E. 765, 48 Am. St. Rep. 317), and that its decision is res judicata between the parties to that suit, and therefore conclusive in this suit. The vice of this contention is not difficult to be ascertained. It is not doubted that a decree of a court of competent jurisdiction is conclusive, in a second suit between the same parties or their privies, of every matter that was decided therein and that was essential to the decision made, and we have so held. David Bradley Manufacturing Company v. Eagle Manufacturing Company, 18 U. S. App. 349, 6 C. C. A. 661, 57 Fed. 980. In the replevin suit, however, there was no'judgment determining the merits of the cause. The case was dismissed for want of prosecution, with the ordinary judgment for the return of the property taken in replevin. The decision of the Supreme Court merely ruled that certain evidence tending to show the illegality of the transaction, and which was excluded at the trial of the replevin suit, should have been allowed, and the judgment was therefore re-.versed, with a direction for a new trial. There was no new trial. The dismissal of the suit for want of prosecution is no bar to a [502] subsequent action — certainly not so persuasive as a judgment of non-suit when the plaintiff’s evidence has been heard; and the latter is not a bar to a second suit. Manhattan Life Ins. Company v. Broughton, 109 U. S. 121, 3 Sup. Ct. 99, 27 L. Ed. 878; Bucher v. Cheshire Railroad Company, 125 U. S. 555, 8 Sup. Ct. 974, 31 L. Ed. 795; Gardner v. Michigan Central Railroad Company, 150 U. S. 349, 14 Sup. Ct. 140, 37 L. Ed. 1107. The case of Mitchell v. First National Bank of Chicago, 180 U. S. 471, 21 Sup. Ct. 418, 45 L Ed. 627, does not, as was urged at the bar, hold otherwise. In that case there was final judgment of a state court, which was propT erlv held conclusive under the general rule above stated. Nor, while we read with great respect the decisions of the highest appellate court of the state of Illinois, can we recognize its ruling in the replevin case as binding upon us. The question upon which it passed was one of general law, and was not founded upon the construction of a statute of the state. In respect of such questions of general law, the federal courts cannot avoid the responsibility of deciding them for themselves as they may arise. In Delmas v. Insurance Company, 14 Wall. 661, 668, 20 L. Ed. 757, the Supreme Court said: “But, as we have already said, this is not the class of questions in which we are bound to follow the state courts. It is not based on a statute of’the state, or on a construction of such a statute, nor on any rule of law affecting the title to lands, nor any principle which has become a settled rule of property; but on those principles of public policy designed for the protection of the state or the public, of which we must judge for ourselves, as they do when the question is fairly presented.” See, also, Swift v. Tyson, 16 Pet. 1, 10 L. Ed. 865; Carpenter v. Providence Washington Insurance Company, 16 Pet. 495, 10 L. Ed. 1044; Railroad Company v. National Bank, 102 U. S. 14, 26 L. Ed. 61; Boyce v. Tabb, 18 Wall. 546, 21 L. Ed. 757; Smith v. Alabama, 124 U. S. 465, 8 Sup. Ct. 564, 31 L. Ed. 508; Liverpool & Great Western Steam Company v. Phenix Insurance Company, 129 U. S. 397, 9 Sup. Ct. 469, 32 L. Ed. 788; Gardner v. Michigan Central Railroad Company, 150 U. S. 349, 358, 14 Sup. Ct. 140, 37 L. Ed. 1107. Assuming that the agreement pursuant to which Bishop executed his bill of sale was, as held by the Supreme Court of Illinois in Bishop v. American Preservers Company, and within the principle laid down in Addyston Pipe & Steel Company v. United States, 175 U. S. 211, 20 Sup. Ct. 96, 44 L. Ed. 136, void as against public policy and in restraint of trade, and that therefore a court will not lend its aid to either party to such unlawful agreement, it is to be remarked that the supposed unlawful agreement had in fact been executed by the parties thereto. Bishop had made his bill of sale and given possession of his property to the Preservers Company in execution of the unlawful agreement. Such possession as he afterward had of that property was not in his own right as owner, but as agent of the Preservers Company. A trust character was assumed by him. We doubt if such illegal transaction can be made the subject of defense in an action at law, unless the suit be brought upon the illegal contract itself. We doubt if it can be thus attacked collaterally. It is [503] true that contracts which in themselves are directly in restraint of trade may in a suit based thereon be declared void and. unenforceable by the court, but certainly one dealing with the principal of the illegal combination cannot defend against his contract made with such principal, although it was collateral to the arrangement for the combination, the action not being one to enforce the terms of the arrangement. Brooks v. Martin, 2 Wall. 70, 17 L. Ed. 732; Smith v. Sheeley, 12 Wall. 358, 20 L. Ed. 430; Planters’ Bank v. Union Bank, 16 Wall. 483, 21 L. Ed. 473; Connolly v. Union Sewer Pipe Company, 184 U. S. 540, 22 Sup. Ct. 431, 46 L. Ed. 679; Strait v. National Harrow Company (C. C.) 51 Fed. 819; Dennehy v. McNulta, 30 C. C. A. 422, 86 Fed. 825, 41 L. R. A. 609; The Charles E. Wiswall, 30 C. C. A. 339, 86 Fed. 671, 42 L. R. A. 85; National Folding-Box & Paper Company v. Robertson (C. C.) 99 Fed. 985; Harrison v. Glucose Sugar Refining Company, 53 C. C. A. 484, 116 Fed. 304, 58 L. R. A. 915. In the case at bar Bishop had sold his property to the American Preservers Company and parted with his title to it. He had delivered possession to that company. The illegal agreement between him and the promoter of the trust was executed. He thereafter was in possession of the property by virtue of his employment as agent of the company. He occupied a position of trust, holding the property and dealing with it for the company for a stipulated compensation, which he promptly received. He may not, after years of service under that arrangement, hold as his own the property which he had sold and for which he had received the agreed price. “An obligation will be enforced though indirectly connected with an illegal transaction, if it is supported by an independent consideration, so that the plaintiff does not require the aid of the illegal transaction to make out his case.” Armstrong v. American Exchange Bank, 133 U. S. 433, 469, 10 Sup. Ct. 450, 33 L. Ed. 747. We are not asked to enforce an agreement in restraint of trade. We are asked to declare that a trustee, receiving property from his principal and holding it in trust for the principal, shall not be permitted to convert it to himself. He is estopped to deny the title of his principal. There is no public policy which would warrant us to hold otherwise. We concur with the remark of the court in Manchester Railroad Company v. Concord Railroad Company, 66 N. H. 100, 20 Atl. 383, 9 L. R. A. 689, 49 Am. St. Rep. 582: “And, however it may once have been, it is certainly now difficult to see how public policy is subserved by allowing the addition of a private wrong to a public wrong, which necessarily results xwhen, without any equivalent in return, one party to an executed illegal transaction excludes the other from participating in the proceeds; and we entirely fail to appreciate the morality which denies in such cases any rights to the party whose money or other property has been thus appropriated by his associate, contrary to express agreement and common honesty, and which in conscience the benefited party cannot retain.” And we approve the observation of Lord McNaghten in Nordenfelt v. Ammunition Co. [1894] App. Cas. 535: “There is a homely proverb in my part of the country which says you may not ‘sell the cow and sup the milk.’ * * * It seems almost absurd, to [504] talk of public policy In such a case. It is a public scandal when the law is forced to uphold a dishonest act.” It is said that the court erred in not permitting the plaintiff below to prove the value of stenographer’s fees and costs, including therein attorney’s fees necessary and incidental to the conduct of a replevin suit. In this ruling we think the court was entirely right. Conard v. Pacific Insurance Company, 6 Pet. 262, 8 L. Ed. 392; Watson v. Sutherland, 5 Wall. 74, 18 L. Ed. 580; Oelrichs v. Spain, 15 Wall. 211, 21 L. Ed. 43; Day v. Woodworth, 13 How. 363, 14 L. Ed. 181. The judgment is affirmed.