Statement of the Case.

of money aggregating more than $600,000, of which Harper paid not less than $400,000; that the said claim was for the pretended balance of said winnings, and that said winnings formed the sole consideration for the transfer of the bonds of the said company to the complainants; and that the said judgments were founded on said bonds so transferred, and on no other consideration whatever. This answer prays that all of said petitions of complainants be dismissed. In his crossbill the said trustee asks for a decree against Emma C. Preston, executrix, William E. McHenry, and Eugene H. Lahee in the sum of $400,000, the amount alleged to have been won by said complainants as aforesaid.

Complainants excepted to this answer for its insufficiency, and moved to strike out that portion thereof referring to the character of the grain transactions of Harper with Preston & Co. and others prior to October 12, 1881. To the cross-bill complainants demurred.

The court granted said exceptions and motion, and sustained said demurrer, to which action of the court the defendant Lloyd, trustee, excepted.

A final decree was entered in the cause in the said Circuit Court of the United States on March 15, 1889, providing for the recovery by complainants of the sum of $322,531.67 from E. L. Harper, being the aggregate amount of complainants' said judgments entered in the previous action, with interest, and for the recovery of the same amount from W. D. Lee. By this decree judgment was also entered against all the other defendants except George E. Clymer, who was not found, and Lewis Seasongood, who was not shown to have been a stockholder of the company, for the amount of their respective subscriptions.

The court further decreed that complainants are entitled to have the entire claim of said company against Harper, to wit, $300,000, with interest from January 5, 1885, allowed as against said Lloyd, trustee, for the purpose of securing to complainants their full proportion of the value of the credit of the company against Harper's estate, and to have the total sum obtainable upon said credit distributed between and paid to the complainants pro rata. 36 Fed. Rep. 54.

Argument for Appellants.

Exceptions were taken by the defendants E. L. Harper and H. P. Lloyd, trustee, to each and every part of the findings, order, judgment and decree of the court, and said defendants prayed an appeal, which was granted.

Upon this appeal the case is before this court.

Mr. H. P. Lloyd for appellants.

Our opponents seek, on three grounds, to prevent the trustee from setting up these gambling transactions as a defence in the case: (1) That Harper did not set this up in his original answer below; (2) That the question became res judicata by the decree of foreclosure in the prior suit upon the mortgage; (3) That the trustee stands in Harper's shoes and can make no defence which Harper could not have made.

At the time that Harper filed his original answer he was supposed to be in solvent circumstances, and was carrying on a large business. He had ample means, and was handling large sums of money. There may have been business considerations sufficient to control his mind and prevent his setting up the nature of this gambling debt. Whatever the reason, these considerations were such that he did not set them up. But he had an undoubted right to have availed himself of this defence at any proper stage in the proceedings in this case in the court below, and the fact that he did not do so, does not bar the trustee from the exercise of his undoubted right to do the same thing.

In the second place, it must be constantly borne in mind that Harper was not a party to the foreclosure case in which the decree was rendered against the defendant railway company. He was not called upon in that case to make any issue as to the illegal consideration, and made none. The decree in that case was binding only upon the parties to that action, and was res judicata only as to the matter which was directly in issue in that action. The issue presented in the answer of Lloyd was never passed upon in the other case.

But even if Harper could not have set up this failure of consideration, and the nature of the transaction as a gambling

Counsel for Appellees.

debt, on the ground that he could not take advantage of his own wrong, this objection does not lie against Lloyd, trustee, who came into court and stands there as the representative of the creditors. Clements v. Moore, 6 Wall. 299; Casey v. Cavaroc, 96 U. S. 467; Sawyer v. Hoag, 17 Wall. 610.

That this gambling transaction was in direct violation of the law of Illinois, where the business was done, will appear from an examination of the Illinois statute, and the decisions of the Illinois courts and of the United States Supreme Court thereupon. Rev. Stats. Illinois, 1874, pp. 372, 373, c. 38, §§ 130, 131, 135, 136; Brown v. Alexander, 29 Ill. App. 626; West v. Carter, 129 Illinois, 249; Coffman v. Young, 20 Ill. App. 76.

The gambling contract in the case at bar was illegal under the law of Ohio, where the action was brought for the foreclosure of the mortgage bonds, and where the decree of foreclosure was rendered. 2 Rev. Stats. Ohio, 1890, 2010, § 6934a.

The general rule of law prevailing throughout the United States is, that a contract made in violation of a statute is void; that when the plaintiff cannot establish his cause of action, without relying upon an illegal contract, he cannot recover. Miller v. Ammon, 145 U. S. 421; Embrey v. Jemison, 131 U. S. 336.

This gambling contract was also void as against public policy. Embrey v. Jemison, 131 U. S. 336; Irwin v. Williar, 110 U. S. 499; Roundtree v. Smith, 108 U. S. 269; Pearce v. Rice, 142 U. S. 28.

There was also manifest error in the decree rendered in the Circuit Court, so far as the same allowed anything against Lloyd, trustee, except the amount of Harper's original stock subscription of 2500 shares.

And further the assignment of Harper, as an insolvent, took place on the 21st of June, 1887. At this time interest ceased on all his obligations of every kind. The dividend to be declared must be computed upon the amount of his liabilities as they then existed.

Mr. J. W. Warrington for appellees.

VOL. CXLVI-41

Opinion of the Court.

MR. JUSTICE SHIRAS delivered the opinion of the court.

This was a bill filed by judgment creditors of the Cincinnati, Columbus and Hocking Valley Railway Company to compel E. L. Harper and others to pay their respective unpaid subscriptions to the capital stock of said company, in order that the same might be applied to the payment of complainants' judgments, which remained unsatisfied after proceedings at law.

The bare statement of the facts attending the organization of the railway company fully justifies the opinion of the court below "that the entire organization was grossly fraudulent from first to last, without a single honest incident or redeeming feature.”

It having been found, on convincing evidence, that the over-valuation of the property transferred to the railway company by Harper, in pretended payment of the subscriptions to the capital stock was so gross and obvious as, in connection with the other facts in the case, to clearly establish a case of fraud, and to entitle bona fide creditors to enforce actual payment by the subscribers, it only remains to consider the effect of the defences set up.

The first is set up by Harper himself, in his answer to the bill of complaint; the other by Lloyd, assignee for the benefit of creditors of Harper, and who filed an answer and likewise a cross-bill.

Harper's defence, beyond the allegation that the stock subscriptions had been fully paid up by a transfer of property to the railway company, consisted in the assertion that Preston & McHenry were estopped from alleging, as judgment creditors of the railway company, that the capital stock was not adequately and actually paid up, because they were cognizant of the proceedings by which the company was organized, and privy to the arrangement whereby the property referred to was taken in full payment of this stock; and that the other complainants claimed under and through Preston & McHenry, and were, therefore, affected by their knowledge and complicity in the transaction.

Opinion of the Court.

Issues were taken on this allegation of Harper, and it was found by the court below that Preston & McHenry did not agree or understand that the subscriptions to the capital stock of the railway company, whose bonds they agreed to take in payment of Harper's indebtedness to them, were to be paid by the simple transfer of the property to the railway company, but that they understood that the stockholders of the company were to be subject to the liabilities imposed by the law of Ohio, namely, full payment in money or its equivalent, and, in addition, one hundred per cent individual liability, and that they were in nowise chargeable with knowledge of or complicity in the company's illegal organization.

An examination of the evidence contained in the record satisfies us of the correctness of this conclusion of the court below.

This brings us to a consideration of the second ground of defence, which is the one advanced by Lloyd, the assignee. He alleges that the original indebtedness of Harper to Preston & McHenry, in payment of which they took the bonds of the railway company, arose out of gambling transactions in wheat deals at the Chicago Board of Trade; and he claimed, accordingly, that not only were the bonds void in their hands, but likewise the judgments obtained thereon against the railway company; and he further claimed, in his cross-bill, the recovery of a large sum of money paid by Harper to Preston & McHenry, on account of these alleged gambling transactions, before the settlement between the parties which resulted in their taking the railway bonds in payment of the balance due them.

It was the opinion of the court below that there was absolutely no testimony in support of either the answer or the cross-bill of the assignee.

The only evidence disclosed by the record, on this issue, appears at pages 46 and 47, and we fully concur with the court below that neither this evidence nor any offer of evidence made on behalf of the defence, if taken to be true, established the case of a gambling transaction.

Complaint is made by the assignee of the course of the court