Stevens v. Hertzler , 114 Ala. 563 ( 1896 )

McCLELLAN, J. —

We are not of opinion that the change in the language of the paper dated January 16, 1894, for which the bill prays by way of reforming the 'writings now evidencing the contract between the parties, would be without effect upon the legal construction and meaning of the writings. The two. papers, of January 8th and 16th, respectively, as .acted upon the -former by the latter, import a promise by Stevens to pay Hertzler $25.92 per share for.forty-nine shares of certain stock, belonging to Hertzler, but then in the possession of Stevens, unless the same should be returned to Hertzler within three months from the date of the first instrument, as was held when this cause was here’ on appeal from the circuit court. — Stevens v. Hertzler, 109 Ala. 423. But if the paper of January 16th should be reformed as prayed in the bill,' it would, we think, be nothing more than a receipt by Stevens for the stock from .Hertzler, accompanied by or containing -a recital that the former was to hold it subject to the option agreement of January 8th, intended, not to .evidence a contract of sa]e or return, but merely to exclude the idea that the delivery to Stevens should be either an election by him to purchase under the option or a rescission of the contract .giving him the option to purchase within three months. So that, if .the writings be reformed as proposed by the bill, Stevens would not have become liable for the agreed price of the stock, unless he had within the time limited affirmatively .elected to.ay ail himself of the.option to'buy, and evidenced such election by some act or means other than the mere failure to return the certificate of shares ■to Hertzler. The bill was, therefore, not open to the objection, that it showed by its averments that if the correction sought were made, the legal tenor and effect of the writing would not thereby be -varied or changed, but would in its new as in its- original form authorize and support the judgment sought to be enjoined.

The general rule by which courts of equity are guided when their powers are invoked to the injunction of judgments rendered by courts of law, is thus stated by Chief Justice Marshall : “Without attempting to draw any precise line to which courts of equity will advance, and which they cannot pass, in restraining parties from availing themselves of judgments obtained at law, it may safely be said, that any fact which proves it to be against conscience to execute a judgment, and of which the injured party could not have availed himself in a court of law, or of which he might have availed himself at law, but was prevented by fraud or accident, unmixed with any fault on the part of himself or his agents, will justify an application to a court of chancery.” — Marine Insurance Co. v. Hodgson, 7 Cranch, 332. The same general doctrine is condensed in statement by Justice Curtis in Hendrickson v. Hinckley, 17 How. 443, thus : “A court'of equity does not interfere with a judgment at law unless the complainant has an equitable defense, of which he could not avail himself at law, because it did not amount to a legal defense, or had a good defense at law, which he was prevented of availing himself of by fraud or accident, unmixed with negligence of himseif or-his agents.” And this exposition of the principle is universally accepted by courts and text-writers. — 2 Story Eq. Jur., § 887 ; 1 High on Inj., § 114; 1 Beach on Inj., § 615.

The cases in which equity will interfere by injunction, and 'restrain an action at law, either before or after judgment, are reducible, says Mr. Pomeroy, to three general classes : “1. Where the controversy, in addition to its legal aspect, involves some equitable estate, right, or interest which is exclusively cognizable by a court of equity, so that a complete determination of the issues cannot be made by a court of law, it is well settled that equity not only may, but must, interfere at the suit of .the party in whom the equitable estate or right is vested, and restrain the action at law and decide the whole con•troversy. This is so when the defendant at law has a purely equitable defense which the court of law will not recognize or enforce, and especially ivhen he is entitled to some affirmative equitable relief which will clothe him with a legal right or title, and thus defeat the legal action brought against him.” [The italicization is ours]. 2. Where courts of law and of equity have concurrent jurisdiction to grant their respective and distinctive remedies, but the remedy afforded by the law court is not adequate to to the accomplishment of full justice between the parties ; and 3. Where the legal judgment was obtained or entered through fraud, mistake, or accident or where the defendant in the action, having a valid legal defense on .the merits, was prevented to maintain it by fraud, mistake or accident,'and there was no laches, negligence, or other fault on his part or on the part of his agents, contributing to his failure to make defense. — 3 Pom. Eq. Jut., §§ 1362-64.

It is entirely obvious that the present case — for the reformation of a written contract upon which the judgment, at law was rendered, so that as reformed it would not support such judgment, and for the perpetual injunction of the judgment — belongs not to the second or third class just defined, but to the first, the fact relied on being one “which proves it to be against conscience to execute the judgment,” and of which complainant could not avail himself at law, and which, if established, would entitle him to affirmative equitable relief of a nature to clothe him with a legal right destructive of respondent’s cause of action both in equity and at law.

There are a very great number of adjudications to the effect that a defendant at law, having a defense there available in bar of the legal action but failing to present it, must, on coming into equity for an injunction of the judgment, both allege and prove that his failure to defend was due purely to accident, mistake or fraud wholly unmixed with laches on his part; but neither these authorities, nor the principle upon which they proceed can have any application to a case of the first, class as defined by Mr. Pomeroy, such as this one is, where the very ground and reason for resorting to equity is that the defense relied upon it not cognizable at law at all, and could not possibly be or have been made there; a theory which is in itself utterly exclusive of ' the notion of any negligence or fault on the part of the complainant in failing to make the defense in the légal forum. The authorities just adverted to, having reference to cases of the third class, and no pertinency to those of the first, were, it would seem, applied to the present case in the court below, to the conclusion that the bill showed 'the complainant was guilty of laches which barred his right to the relief he sought. This conclusion is specifically based on the fact that complainant waited until after judgment passed against him at law before ■filing this bill, when, as it is insisted, he should have sought the reformation of the- contract sued upon while the action was in progress and .before judgment. The authorities relied upon to support this view, fail so to do, in .our opinion : they all relate, certainly in respect of ■what is decided in them, to cases of the third classifica■tion supra, and not at all to cases like the present one. Chief among them is Moore v. Faggard et al., 51 Ala. 525. We have no doubt of the entire soundness of that case, as well for all that was said as for all that was decided in it, barring a misleading tendency of one sentence: ■indeed it contains nothing of dictum, but the opinion goes solely upon questions presented by the record and necessary to be determined. It holds in substance and effect, that where a defendant' at law has an equitable defense to the cause of action, which rests in part upon a state of facts which cannot, be shown in that forum and in part upon a fact which is of legal cognizance and is irrelevant in the issues tendered by the complaint in the action at law, and properly determinable in that action, such fact being a bar to the action if pleaded therein and proved, such defendant, if he would avail himself of his equity, must either invoke .the aid of chancery before that constituent of his right which rests upon the fact involved in the action at law is destroyed by a judgment determining the non-existence of the fact, or, failing that, he must show that he was prevented by fraud, accident or the act of his adversary,without fault on his part, to plead and prove the fact in the forum of law. The suit in that case was instituted by Faggard and others, suing as partners, against Moore on .a,contract for work and labor done. Moore claimed that he had demands against Faggard and the . others individually, that they were not partners, but joint owners of the claim sued on, and that the course of dealing between them, collectively and individually on the one hand and himself on the other, had been such that the debts they individually owed him constituted equitable sets-off against their joint demand against him. His equity, therefore, rested upon two distinct facts : first, that plaintiffs were not partners but joint owners ; and, second, the course of dealings alleged between them. If plaintiffs were partners, as they alleged in the action at law, he had no equity. That was an issuable fact in that action, and disproof of it would have been a bar. But he did not make this issue, or, indeed, any issue, but stood supinely by and judgment went against him by default. This judgment was conclusive that plaintiffs were partners, and hence conclusive that Moore’s demands against them individually could not be set off, any more in equity than at law, against the debt he owed the partnership. ' Moore thus having failed to invoke the aid of chancery while both constituents of his equity were at large,- and having through his own negligence allowed one of the facts on which it rested to be properly and regularly adjudged against him in- the action at law, he had no standing in equity, not only because his bill showed the judgment at law was not due to any fraud or accident, or the act of his adversary preventive of his making defense unmixed with his own fault, but also for that the judgment at law was finally determinative that plaintiffs were partners against whose claim his demands against them individually .could not be set off in any forum, legal or equitable. One sentence in the opinion in that case is misleading. It is this: “He ought not to let the suit at law proceed to judgment, when he knows he has an equitable defense against it.” Now, he in fact had, according to the averments of his bill, a perfect legal defense against that suit, but no shadow of an equitable defense. The suit being by an alleged partnership, a plea of no partnership, supported by proof, would have defeated the action. But neither at law nor in equity could the defense, by way of equitable set-off alleged in the bill, be made against Faggard and the others as partners, so that to the action as brought Moore had no equitable defense whatever, and no defense at all except the legal one of nul tiel partnership. And it is clear from the whole opinion that if the defense had been of purely equitable cognizance, if the suit had been prosecuted by Faggard and his associates as joint owners of the claim and notas partners, no fact would or could have been determined in it destructive of complainant’s equity to set off their several debts due to him, and his bill would have been sustained on demurrer. Certainly it should have been. — French v. Garner et al., 7 Port. 549.

We have considered this case somewhat at length because upon it reliance is chiefly had to support the decree below. Jt really belongs to the third catego'ry stated above, and rests upon principles having no application to cases of the class to which the one we have in hand belongs.

Another line of cases relied on is illustrated by that of McCollum v. Prewitt, 37 Ala. 573. These hold that a defendant, after judgment, can not invoke the injunctive power of chancery, when his defense is legal and failed of being made in the law court, because the evidence to support it could not be secured except by a bill of discovery or through interrogatories under the statute. These cases belong clearly to the third class defined above, and they proceed simply upon the ground that the complainant was negligent in and about making his defense at law, for that he should have taken the necessary steps to procure the testimony essential thereto, either by filing interrogatories to his adversary, or by filing a bill of discovery against him before going to trial in the action at law. They can have no bearing upon a case such as this, where the defense is purely equitable, and not available at all at law. The remaining cases and texts cited by appellee are merely declaratory of the rule applicable to cases in which the complainant had a legal defense against the judgment he seeks to enjoin, and are not pertinent to the case at bar. It is believed that no case can be found which holds that a defendant at law, having only a purely equitable defense to the cause of action stated in the complaint, is barred of his equity by the mere fact that he defers filing his bill until judgment has been entered against him at law. To the contrary, it would seem that this court, at least, is committed to the doctrine, that in such case the passing of judgment against the defendant is wholly without effect upon his right to effectuate his equity. Thus it is said in Jordan v. Loftin, 13 Ala. 550 : “The rule is well settled, that to entitle a party to relief in a court of equity against a judgment at law, when his defense could be made in a court of law, he must show that he has been prevented from making his defense, either by the fraud of the opposite party, or by some accident unmixed with any negligence on his part. But if his defense could not be made at law, equity may interfere, and afford relief; and the rendition of the judgment at law will not close the door of relief against him.” So in Caloway v. McElroy, 3 Ala. 406, it is said : “An unsuccessful attempt to defend at law, when no defense could there be made, under the circumstances of the case, will not preclude a party from relief in a court of equity,” by injunction of the judgment at law. And in McClure et al. v. Caldough et al., 5 Ala. 25, it is held, that “when a judgment at law is obtained against one who, notwithstanding,' has an equitable defense, and he sues out a writ of error to reverse the judgment at law, he is not thereby precluded, 'after its affirmance, from seeking relief inequity.” And in Howell v. Motes, 54 Ala. 1, it is said: “An unsuccessful attempt, or an entire omission, to assert in a court of law, a purely equitable defense, does not prejudice the right to relief in equity," citing Caloway v. McElroy, supra, and Nelson v. Dunn, 15 Ala. 502. These authorities are conclusive against appellee’s contention, that the complainant was estopped by the judgment at law upon the contract as written to afterwards say that it had that form only in consequence of the mutual mistake of the parties to it, and that the said agreement of the parties was materially different from that evidenced by the writings, and invoke equity jurisdiction to a reformation of the writings, so that they should set forth the terms upon which the minds of the parties really met; terms which would not authorize or support the judgment rendered. They— the cases last referred to — also go far to overturn appellee’s further contention, that complainant was guilty of laches in waiting until after judgment to move for a reformation of the contract, when he might have proceeded to that end before judgment rendered. But our conclusion against this latter insistence of appellee need not be rested on those cases.' There are at least two others in our own books which go directly to support the bill against the charge of laches made by the demurrer. and which involved facts substantially those of the present case for all the purposes of applying to them the principles which obtained in them and must obtain in this. Stone v. Hale, 17 Ala. 557, is one of them. That was a bill to reform a deed, so that it would vest the property to the sole and separate use of a wife according to the intention of the parties to it. The immediate occasion for this relief grew out of the facts that creditors of the husband had levied upon the property under a judgment against him, the trustee in the deed had interposed a claim to the property on the assumption that the husband had no interest in it, and this claim suit was decided below in favor of the trustee. On appeal to this court, however, that judgment was reversed on the ground that the deed was not exclusive of the husband’s interest, that it did not convey the property to the wife’s sole and separate use. — Hale v. Stone, 14 Ala. 803. It is true that no final judgment had at time of bill filed been rendered in the claim suit; but the rights of the parties at law had been as fully settled by the reversal of the judgment in favor of the trustee and the remandment of the cause, on the ground stated in the opinion, as they would have been by a final judgment; and it only remained for a formal judgment to be entered as matter of course in the primary court. And upon this state of facts, this court held that the complainant had not been guilty of laches in delaying to file his bill for reformation until the rights of parties under the deed as written had thus been determined and fixed.

The other case is that of Bryan v. Cowart, 21 Ala. 92. The object of the bill in that case was to reform a deed by inserting a defeasance upon the payment of money, thereby converting it into a mortgage, and to enjoin a judgment at law which had been recovered as for purchase money constituting the consideration of the deed. The bill showed that complainant, who was the grantee in the instrument and defendant in the action at law, sought to prove in that action that the paper was not a deed, but a mortgage, and hence that he did not owe the plaintiff as for purchase money of the land, but this attempted defense was ruled out by the court. A motion to dismiss the bill for want of equity was overruled by the chancellor; and upon this ruling this court, by Ligón, J., said: “The chancellor did not err in refusing to dismiss the bill for want of equity. In its form, structure and matter, it is not alone a bill to enjoin a judgment at law ; but it contains allegations on which it seeks relief, that could only be sought in, and extended by a court of equity. On this motion all the allegations of the bill are admitted to be true. These assert, in terms or effect, that the deed from McPhail to Cowart and Bryan, though absolute on its face, was intended by the parties to operate as a mortgage, and one object of the bill is to have it so declared, and to obtain a decree of foreclosure. A court of equity is the only forum which can hear and determine such matters, and having jurisdiction for this purpose, it may rightly take it for the purpose of doing complete justice between the parties ; and, if, to accomplish this end, and to prevent oppression and injustice, an injunction was necessary, it would not hesitate to grant one.

“This case is wholly different, ivhen viewed in all its aspects, from that large class of cases to which we are cited by the counsel for the plaintiffs in error, and which determine the rules that govern the conduct of the chancellor, in granting injunctions to judgments at law, for the purpose of enabling the defendant to wage, in equity, a legal defense, which he had been prevented from setting up on the trial at law by fraud, or accident, or the act of' the opposite-party, unmixed with any fault or negligeuce of his own.” (The italicization is ours).

We think we need say no more in support of our conclusion, that where a defendant at law has, as Stevens had, a purely equitable defense, which the court of law can not recognize or enforce, and especially when he is entitled to some affirmative equitable relief — as the reformation of a writing — which will clothe him with a legal right, laches are not imputed to him in consequence of, nor is he estopped by, the mere fact that judgment passes against him at law before he invokes the powers of equity to a reformation of the writing and an injunction of further proceedings at law.

Something is said in the case about complainant’s acquiescence in the construction put on the contract by the plaintiff at law, or in the binding efficacy of the contract as written. We do not find that aught of this is disclosed by the bill. To the contrary, complainant has always insisted, in season and out, that the contract made between him and Hertzler did not bind him to pay for the latter’s shares of stock.

The bill was not open to the objections made by the demurrer and motion to dismiss for the want of equity. The decree sustaining the demurrer and the motion and dismissing the bill, is reversed. A decree' will be here rendered overruling the demurrer and motion to dismiss ; and allowing the respondent thirty days in which to answer the bill. The cause is reihanded.

Reversed, rendered and remanded.