Schurmeier v. Connecticut Mut. Life Ins. ( 1909 )

HOOK, Circuit Judge.

The principal question in this case is whether the claim of the insurance company upon which it obtained a decree in the Circuit Court is barred by the limitations in the Minnesota statute (Gen. St. 1894, §§ 4509 and 4511) relating to the presentation and allowance of claims against estates of deceased persons. The statute provides that in granting letters testamentary or of administration the probate court shall make an order limiting the time for presentation of claims of creditors to not less than six months nor more than one year from the date of the order, that no claims shall be received after the time limited, except that “for good cause shown the court may in its discretion” grant additional time not extending beyond eighteen months from the time notice of the original order is given, and that all claims arising upon contract not presented within the time prescribed shall be forever barred.

When letters testamentary were issued to Schurmeier’s executors the probate court of Ramsey county, Minn., having cognizance of the matter, fixed six months as the period for presentation of claims, and notice of the order was duly given. The insurance company did not present its claim or sue thereon within the period so fixed, but later and within the additional year allowable for good cause brought an action at law in the circuit court. A judgment of that court in favor of the insurance company was reversed because no excuse for the delay appeared in the record. 124 Fed. 865, 60 C. C. A. 51. An amended complaint was then filed and another judgment obtained in the Circuit Court, which was also reversed. 137 Fed. 42, 69 C. C. A. 22. It was held upon the authority of Security Trust Co. v. Bank, 187 U. S. 211, 23 Sup. Ct. 52, 47 L. Ed. 117, that, as no action was begun within the period first fixed by the probate court, the remedy thereafter was in equity, not at law. When the cause ivas remanded upon the second reversal the insurance company applied to the Circuit Court to transfer it to the equity side, the application was granted, and the complaint at law was reformed into a hill in equity. A final hearing in equity resulted in a decree for the insurance company, from which the executors took the appeal now before us.

As already observed, when the action at law was begun in the Circuit Court, the additional year allowable for good cause had not expired. The complaint of the insurance company contained no averments excusing its delay beyond the six months fixed by the order of the probate court. In the answer of the executors the Minnesota statute and the order were relied on, and it was averred that no cause for an extension of time existed. The company demurred to the answer, the demurrer was sustained, and, the executors declining to replead, judgment was rendered against them. It will thus be seen that the first judgment of the Circuit Court, reversed by this court, proceeded upon the assumption that the action could be brought and maintained after the six months had expired and without any ground or cause for an extension of the time. In the opinion of this court (124 Fed. 865, 60 C. C. A. 51) Security Trust Co. v. Bank, 187 U. S. 211, 23 Sup. Ct. 52, 47 L. Ed. 147, is cited as controlling authority upon this question, but the other rule announced in that case, that after the first period fixed bj- the probate court had expired the remedy was in equity, was not definitely pointed out. Oil the contrary, this court said:

“As Hie record now stands, upon the authority of that case the judgment of the court below must be reversed and the demurrer overruled, but with leave to the plaintiff to reply to the answer* or to amend its complaint, stating its cause of net ion at law or iu equity, as it may be advised, and with leave to the defendants to answer or otherwise plead to such amended complaint.”

Thus three courses were suggested as being open to the insurance company: (1) A reply to the answer in the pending law action in which the executors averred that no cause for an extension existed, (2) an amendment of the complaint at law, or (3) a recasting of the complaint with appropriate amendments into a bill in equity. Acting Upon this, an amended complaint at law was filed; and it is but fair to say that counsel, failing to examine the opinion of the Supreme Court in Security Trust Co. v. Bank, supra, may have been misled by the direction above quoted. It is plainly disclosed in that opinion that the remedy .was in equity. On the other hand, it is doubtful that prejudice could result, because when the judgment was reversed the eighteen months prescribed by the statute had already passed, and, if the delay in showing cause for an extension beyond the six months was fatal, it was fatal then, and the adoption of a wrong course after-wards added nothing to it.

The amended complaint at law, the second judgment in favor of the insurance company, the second reversal by this court, the transfer of the cause from the law to the equity side of the Circuit Court, the reformation of the pleadings, the final hearing, and the decree from which this appeal was taken, all occurred more than eighteen months after publication of the notice of the order for the presentation of .claims. The reliance of the insurance company is upon the connection of these successive steps for the establishment of its demand with the action originally begun within the eighteen months, and upon the existence of sufficient cause for the delay beyond the first six months of that period. In approaching the situation so presented, it is important to notice some settled principles of law and some facts clearly shown in the case in hand. A foreign creditor may establish his claim in the courts of the United States against the personal representatives of a decedent though the laws of the state in terms limit such right to proceedings in the local probate courts. In such case, however, the courts of the United States administer the state laws and are bound by the same rules that govern the local tribunals. Security Trust Co. v. Bank, supra. In the case before us the requisite grounds of federal jurisdiction, diversity of citizenship, and amount in controversy are present, and, passing for the moment the matter of legal or equitable cognizance, the insurance company, therefore, had a lawful right to proceed in the Circuit Court. Under the Minnesota statute the probate court in which the administration of the estate was pending, having fixed six months for the presentation of claims, was authorized thereafter to grant an additional year for good cause' shown. The Circuit Court of the Ünited States sitting in equity was possessed of like authority. Schurmeier’s Executors v. Insurance Co., 137 Fed. 42, 69 C. C..A. 22. The limitations of the Minnesota statute involved in this case relate to the time the claim is presented for allowance, not to the time of trial and judgment, nor to the time the court judicially determines whether good cause for an extension existed. In other words, if a claim is “presented” within the six months or eighteen months, as the case may be, the proceeding takes its orderly judicial course, and it is not important that the questions connected with its allowance remain undetermined until after the time has expired. The bringing of an action upon a claim in a Circuit Court of the United States having jurisdiction has the same effect as a proceeding in the probate court, and is a “presentation” of the claim to all intents and purposes as if it had been presented to the probate court. The estate of the deceased has not been closed. When the action was brought in the Circuit Court the estate was in active course of administration; claims against it were allowed by the probate court months afterwards. In this particular the case differs from that of Security Trust Co. v. Bank, supra. The claim of the insurance company is a just one. When the action was begun there was no substantial defense to it save in the failure to present it within the six months fixed by the probate court, and the question whether there was good cause for the delay.

The determination of the principal question stated at the outset, therefore, depends upon the existence of sufficient cause within the meaning of the statute for an extension of time for the presentation of the claim, the effect of the failure to set forth such cause in the pleadings within the eighteen months, and the effect of first proceeding at law and the subsequent transfer of the cause to the equity side of the court. The Minnesota statute, and a similar one of Wisconsin from which the former was doubtless taken, have been construed by the courts of those states very liberally in faver of creditors whose claims were just and whose delay had not worked hardship to others. In State ex rel. v. Probate Court, 67 Minn. 51, 54, 69 N. W. 609, 610, it was said:

“The sole object for limiting the time for the presentation of claims is to secure the prompt settlement of estates. In the present case there is not even a suggestion that the granting of relator's application would in any way delay or prejudicially Interfere with the settlement of the estate, or cause it any possible injury, except to subject it to the chance of having to pay a just claim. Under the circumstances, to refuse relator the privilege of presenting its claim would be unreasonably harsh.”

And in State ex rel. v. Probate Court, 79 Minn. 257, 258, 82 N. W. 580, the court said:

“Courts are very liberal in relieving parties from defaults of this kind, especially when no injury can result to innocent parties. They are not only relieved from their own excusable negligence, but from like negligence of their attorneys as well. In this case it does not appear that the administration of the estate will he in any way hindered or delayed, and it does not appear that any other person interested in the estate will or can be in any manner prejudiced, by granting the application.”

Smith v. Grady, 68 Wis. 215, 31 N. W. 477, has points of resemblance to the case at bar. There a creditor sought the allowance of a foreign judgment, but the county court, sitting in probate, denied it upon the ground that the judgment was void on its face, and the decision was successively affirmed by the circuit court and the Supreme Court of the state. While the appeal of the creditor was pending in the circuit court, and after the period fixed for the presentation of claims had expired, he asked the county court to extend the time so he might present the demand upon which the void judgment -had been rendered. The application was denied. The Supreme Court of Wisconsin, reversing the decisions of the lower courts, held that the creditor had proceeded with diligence, was not guilty of laches in mistaking his remedy, and was entitled to relief. In the case in 79 Minn. 257, 82 N. W. 580, the court cited as an authority sustaining its conclusion Baxter v. Chute, 50 Minn. 165, 52 N. W. 379, 36 Am. St. Rep. 633, in which a statutory provision authorizing the opening up of a default in an action because of mistake or excusable neglect was held to embrace a mistake of law on the part of counsel. In view of the decisions of the state courts, we think the delay of the insurance company was excusable and that it had good cause for an extension of time. The mortgage debt held by the insurance company did not become due until after the six months fixed for the presentation of claims had expired. The deceased debtor had sold the mortgaged property shortly before his death, and it was to the interest of his estate that the property be followed,- a foreclosure be had, and the proceeds applied before resorting to funds in the hands of the executors. Indeed, the statute (Gen. St. Minn. 1894, § 4529) prohibited payment of a secured claim “until the creditor shall first have exhausted his security, or shall have released or surrendered the same”; and, though the claim might have been previously presented and allowed for the full amount, the closing of the estate would have been delayed, and the mortgagee possibly debarred from exercising a power of sale contained in the mortgage. Gen. St. Minn. 1894, § 6029. Again, the course of the insurance-company was in conformity with what was supposed to be the settled doctrine of the courts of the United States having jurisdiction in Minnesota. The Circuit Court had previously held broadly that a creditor whose citizenship and claim were such as to entitle him to invoke its jurisdiction might as of right bring his action at law therein at any time during the eighteen months mentioned in the statute; and this court affirmed that ruling. Security Trust Co. v. Dent, 104 Fed. 380, 43 C. C. A. 594; Security Trust Co. v. Bank, 104 Fed. 1007, 43 C. C. A. 683. The action of the insurance company was brought before that limitation had run, but after it had run the Supreme Court held that the view of this court and the Circuit Court could not be sustained, and that after the expiration of the time first fixed by the probate court further indulgence depended upon the existence of good cause. 187 U. S. 211, 23 Sup. Ct. 52, 47 L. Ed. 147. We think that the condition of the administration of the estate, that it was still open and claims were being audited and allowed, that the claim of the insurance company was not due, that it was secured by a lien upon property then owned by a third party, the enforcement of which with application of the proceeds was prerequisite to payment from the estate of any deficiency, that the claim finally asserted was a just one subject to no substantial defense, that the misconception of the correct procedure was due to the decisions referred to, all considered, very naturally produced the delay, and constituted sufficient cause for an extension of time. In this particular we think the case is well within the letter and spirit of the statute as construed and applied by the state court.

Good cause for an extension of time existing, thé failure to aver it in the pleadings until after the eighteen months had expired was not fatal. This is a necessary deduction from the opinion of this court on the first writ of error, for when the opinion was delivered the time had run, and yet methods of asserting the grounds for an extension were suggested. The claim of the insurance company was founded upon its contract, not upon the statutory limitation of the time for its presntation in a judicial proceeding, nor upon the reasons for an enlargenient of such time. The limitation of the statute is defensive in character ; it is not one of the elements and constitutes no part of the claim itself. Nor is it self-assertive; on the contrary, it must be affirmatively invoked by him who seeks its aid. In this particular it is like the ordinary statutory limitation, which may be waived. A pleading showing the lapse of time and silent as to cause for extending or enlarging it may be demurrable, but if not challenged it will support a valid judgment. An amendment to such a pleading forestalling a defense by showing grounds satisfying- or avoiding the statute does not set forth a new cause of action; therefore it relates back to the time the action was begun. A pleading may be amended after the period of limitation lias run by the averment of facts taking the case out of the statute. See Johnson v. Waters, 111 U. S. 640, 672, 4 Sup. Ct. 619, 28 L. Ed. 547.

There remains for consideration the transfer of the cause from the law to the equity side of the court and the recasting of the pleadings after the eighteen months had run. The court already had jurisdiction of the subject-matter of the controversy and of the parties. By this we mean jurisdiction in its general sense, and have in mind the fundamental grounds prescribed by Congress, the absence of which cannot be waived or cured by consent or stipulation of the parties. If such grounds exist when an action is begun, though they are not shown in the record, a Circuit Court nevertheless lawfully acquires cognizance of the cause, and may allow an amendment supplying the necessary averments. This may be done after a judgment has been reversed by an appellate court because of the apparent lack of jurisdiction, and after the period prescribed by a statute of limitations has fully run and the action if commenced anew could not be maintained. Carnegie, Phipps & Co. v. Hulbert, 70 Fed. 209, 16 C. C. A. 498; Bowden v. Burnham, 59 Fed. 752, 8 C. C. A. 248. Such amendments do not introduce a new cause of action, and, as they simply bring upon the record facts existing when the action was begun, they relate back to that time. A Circuit Court of the United States exercises jurisdiction .both at law and in equity, and, while the distinction is important and is carefully preserved, we do not think that if a party misconceives his remedy the court is powerless in aid of justice to direct a transfer of the cause to the proper docket, and thereafter, with appropriate changes as to form, to allow it to proceed as though originally lodged there. An order to that effect is no more radical than one permitting an amendment showing for the first time fundamental statutory grounds for invoking the jurisdiction of the court for any purpose; and, as we have seen, the practice of granting, orders of the latter character has been approved. It not infrequently happens that an action involving both legal and equitable rights and remedies is removed to a Circuit Court of the United States from a court of a state in which the statutes provide _ simply for a civil action without distinction between law and equity, and that difficult questions arise in the Circuit Court as to the proper docketing and disposition of the case. It would be a harsh rule that an error of judgment in such matter rendered proceedings on the wrong side of the court wholly void, and that the statutes of limitation continued to run as though no action were pending. In this respect there is no difference between a cause removed to a Circuit Court and one originally begun there. If the requisite diversity of citizenship exists or a federal question is involved, and the prescribed amount or value is in controversy, the cause is pending in the Circuit Court, and an error committed by entertaining it on the wrong docket is an error in the exercise of jurisdiction which the court has power to correct. Broad powers of amendment of process, pleadings, orders, and judgments are conferred by act of Congress, and should be liberally exercised in the interest of justice. We commonly speak of a court of law and a court of equity as though they were separate and distinct tribunals, but a Circuit Court with its dual jurisdiction is but a single court, and its material constitution is the same when it sits to-day in the trial of an action at law and to-morrow in hearing a suit in equity. There are not two courts created by different laws with judges holding under different commissions. In United States Bank v. Lyon County (C. C.) 48 Fed. 632, 633, it was said:

“Therefore the transfer of a cause from the equity to the law docket of the same Circuit Court is not transferring the case from the jurisdiction of one court, to that of another and distinct tribunal, but, in effect, is merely directing that it be placed upon the proper docket, so as to be proceeded with according to the rules governing the practice in that branch of the court.”

And after referring to a provision of the state Constitution perpetuating the distinction between law and equity jurisdiction, and to a provision of the state statute that an error made in the form of action should not work an abatement, but the cause should be transferred to the proper docket, the court further observed:

“Why may not this court follow this statutory enactment as a proper rule of actíon when it finds that a case, proper for an action at law, has been commenced in form of a suit in equity? If the cause of action is one cognizable in a Circuit Court of the United States, and is brought in that court, but an error is committed in bringing it in equitable instead of legal form, why is it not within the power of the court to order that in this particular the form of the action may be amended, and the cause be entered upon the proper docket? Why put the parties to the delay and expense necessarily caused by a dismissal and recommencement of the proceeding, when the same can be saved by following the rule enacted in the state statute, and adopting the same as the proper practice in the federal court? In Sustaining the demurrer to the bill, the ruling was not that the Circuit Court did not have jurisdiction, but that the case was not a proper one for equitable cognizance, because an adequate remedy could be had at law. It was not held that the complainant did hot have a cause of action, but only that the form of the proceeding was erroneous, in that it should have been at law, and not in equity.”

In the case at bar the original cause of action of the insurance company was purely a legal one. Resort to equity became necessary only to escape the subsequent bar of a limitation which might or might not be urged. If it had not been urged, a judgment at law would have been valid and entitled to recognition when presented to the probate court for a place in the schedule of liabilities. We think the Circuit Court acted within its power in permitting the transfer.

The decree is affirmed.