Mackin v. Shannon

• Decision Date: 25 November 1908
• Citation: 165 F. 98
• Parties: MACKIN v. SHANNON et al.
• Court: U.S. District Court — Eastern District of Arkansas

165 F. 98

MACKIN v. SHANNON et al.

United States Circuit Court, E.D. Arkansas, Western Division.

November 25, 1908

Rose Hemingway, Cantrell & Loughborough, for plaintiff.

Greaves & Martin, for defendants.

TRIEBER District Judge.

The plaintiff has filed his bill to foreclose a mortgage executed to him by the defendant William T. Shannon to secure the payment of a note for the sum of $10,000, due six months after date. The other defendants are made parties as claiming some rights in the mortgaged property. The mortgagor, the defendant William T. Shannon, admits the execution of the note and mortgage sued on, but sets up that the same were executed in settlement of a gambling debt, and for this reason are null and void. The allegations in the answer are:

'That on the 24th day of February, 1905, he and the plaintiff entered into a copartnership for the purpose of carrying on and conducting the Kentucky Club, a gaming house, in the city of Hot Springs, Ark., for the season of 1905. That said copartnership continued until the 2d day of April 1905, at which time it was dissolved by mutual consent of the plaintiff and this defendant. That upon the day of the dissolution, by reason of certain payments made by this defendant to the plaintiff, there was due the said plaintiff the sum of $9,432, and the note sued on herein ought to have been credited by the plaintiff in a sum sufficient to reduce the indebtedness therein mentioned to said sum.'

The other defendants filed separate answers, but it is unnecessary, in view of the conclusions reached by the court to set them out in this statement of facts. There was a general replication filed by the plaintiff, and considerable proof taken by the parties. The proofs are somewhat contradictory, but adopting as findings of facts the testimony of the plaintiff and the conclusions advanced by his counsel, which are, of course, most favorable to him, they may be stated as follows:

That the defendant William T. Shannon was the owner of a gambling house in the city of Hot Springs known as the 'Kentucky Clubhouse,' where all kinds of gambling were carried on. That one part of the establishment was used exclusively for banking games, such as roulette, faro, and horse wheel, while in another part of the building there were poker rooms, from which the house received certain commissions. That in February, 1905, the plaintiff, being in the city of Hot Springs, was introduced to the defendant Shannon, and was informed that the Kentucky Clubhouse was in financial distress, owing considerable money which it was unable to pay. Thereupon an arrangement was made whereby the plaintiff was to put in $10,000, and was to have 30 per cent. of the business and the defendant Shannon the other 70 per cent.

That he put $10,000 into the business, and a day or so later put in $5,000 additional. That thereafter he inquired where the money was, and he was referred to John Kelly, who was the cashier of the gambling establishment, who first told him that the money was deposited in the bank. Plaintiff told him that he did not want the money there, that he wanted it in the house, and thereupon Kelly promised he would draw it out of the bank and put it in the house the next morning. On the same day Kelly came back and informed plaintiff that at various times he had advanced $12,202 of that money to the defendant Shannon. The bank roll was always to be the plaintiff's property, provided it was not lost in the game, and in addition he was to have 30 per cent. of the profits. He saw Shannon, and after some conversations this settlement was made, whereby the defendant executed, without any new, valid, or adequate consideration, his note for $10,000, and secured it by the execution of a chattel mortgage on the property therein described. It seems that some of the money missing had been lost in the poker game carried on in the gambling establishment, the evidence tending to show that it was customary, if not a sufficient number of men could be secured to play poker, and strangers desired to indulge in the game, that some member of the house would be one of the players, and any moneys lost by him would be charged to the house, and it was also customary that strangers who were supposed to be 'good' would give their duebills for the losses sustained by them, many of them afterwards refusing to pay them. But the plaintiff claims that the partnership of Mackin & Shannon had nothing to do with the poker game. Plaintiff's interest in the partnership, as claimed by him, included only the roulette wheel, the faro bank, and the horse wheel, and not the poker game. There have been some payments made on the note, being moneys collected on duebills executed for the gambling debts which had been turned over to the plaintiff, while others refused to pay these duebills.

Assuming these to be the undisputed facts, the question is whether he can invoke the aid of a court of equity, or any other court, for the purpose of collecting this note and foreclosing the mortgage executed by the defendant to secure it.

The keeping of a gaming house is malum in se, as well as malum prohibitum, under the laws of the state of Arkansas, which provide for heavy penalties against those maintaining such an establishment. See sections 2737 to 2752, Kirby's Dig. St. Ark. 1904. While it is conceded by counsel for plaintiff that no court of law or equity will enforce a contract to carry on such a business or aid either party to the contract to maintain an action arising therefrom, it is contended that when the parties themselves have had a settlement, and upon such settlement a balance is found to be due to one of the parties from the other, and the latter executes to the other a note for the amount agreed upon as due, an action upon that note may be maintained. To maintain this proposition counsel rely upon the following cases: Sharp v. Taylor, 2 Phil.Ch. 801, 817; Brooks v. Martin, 2 Wall. 70, 17 L.Ed. 732; Planters' Bank v. Union Bank, 16 Wall. 483, 21 L.Ed. 473; Armstrong v. American Exchange National Bank, 133 U.S. 433, 10 Sup.Ct. 450, 33 L.Ed. 747; O'Bryan v. Fitzpatrick, 48 Ark. 487, 3 S.W. 527; Harcrow v. Gardiner, 69 Ark. 6, 58 S.W. 553, 64 S.W. 881; and other cases following the above decisions.

Planters' Bank v. Union Bank and O'Bryan v. Fitzpatrick are clearly inapplicable to the case at bar. The principle laid down in those cases is that a third person or agent is not discharged from accounting to his principal, or the person for whose benefit the money or property was delivered to him, by reason of past unlawful acts or intentions of the principal collateral to the matter of the agency. This is the rule established by the English courts as early as 1797 in Tenant v. Elliott, 1 B. & P. 3; and followed in Farmer v. Russell, 1 Bos. & Pul. 295, Johnson v. Landsley, 12 C.B. 468, and Bridger v. Savage, 15 Q.B.Div. 363, and followed by the American courts generally.

It will serve no useful purpose to review these cases and the many other cases following them. On the other hand, the authorities are not only numerous, but practically unanimous, that the execution of notes with securities in settlement of an illegal contract does not purge the new promise from the illegal consideration; the reason therefor being that the new promise is founded upon the illegal consideration-- a debt or demand growing out of the illegal transaction-- and is as infirm in the eye of the law as the implied promise that existed previous to the giving of the notes. Fisher v. Bridges, 3 E. & B. 642; Sykes v. Beadon, 11 Ch.Div. 170; Brown v. Tarkington, 3 Wall. 377, 381, 18 L.Ed. 255; Coppell v. Hall, 7 Wall. 542, 558, 19 L.Ed. 244; Dent v. Ferguson, 132 U.S. 50, 67, 10 Sup.Ct. 13, 33 L.Ed. 242; Embrey v. Jemison, 131 U.S. 336, 348, 9 Sup.Ct. 776, 33 L.Ed. 172; Morris v. Norton, 75 F. 912, 927, 21 C.C.A. 553, 568; Watson v. Murray, 23 N.J.Eq. 257, 262; King v. Winants, 71 N.C. 469, 473, 17 Am.Rep. 11; Clemshire v. Boone County Bank, 53 Ark. 512, 14 S.W. 901; Shaffner v. Pinchback, 133 Ill. 410, 24 N.E. 867, 23 Am.St.Rep. 624; Whitesides v. McGrath, 15 La.Ann. 401; Plank v. Jackson, 128 Ind. 424, 26 N.E. 568, 27 N.E. 1117; Jackson v. McLain's Ex'rs, 100 Mo. 130, 13 S.W. 393.

In Fisher v. Bridges the plea to the action upon a covenant to pay money was that the consideration of the covenant to pay was a conveyance of land for an illegal object, and this was held by Jervis, C.J., delivering the opinion of the Exchequer Chamber, to be a good plea, reversing the judgment of the Queen's Bench, 2 E. & B. 118. The Chief Justice in his opinion said:

'The agreement, being illegal, could not be enforced, and no action could be brought for the recovery of the purchase money of the lands, the subject of the illegal agreement. * * * But it is said that the covenant may be good and may be enforced at law, even though the original agreement were illegal and the purchase money not recoverable, if it had not been secured by an instrument under seal. It is certainly true that for a bond or other instrument under seal no consideration is necessary, but it does not therefore follow that every such instrument may be enforced by an action. The authorities cited in the argument show that where the bond or other instrument is connected with the illegal agreement it cannot be enforced, and therefore, if this plea advanced that the covenant was given in pursuance of the illegal agreement, it would, upon these authorities, be no answer to the action. But if it is not so understood, we think it shows a good defense. It is clear that the covenant was given for the payment of the purchase money. It springs from, and is a creature of, the illegal agreement; and as the law will not enforce the

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