Horton v. New Pass Gold & Silver Mining Co. , 21 Nev. 184 ( 1891 )

The facts sufficiently appear in the opinion. This is an action brought to recover judgment for five thousand two hundred and twenty-three dollars and thirty-seven cents, alleged to be due the plaintiff for goods sold and delivered, for labor performed, and upon other contracts with the defendants.

On April 16, 1890, a demurrer previously interposed by the corporation defendant was overruled, and it was given fifteen days in which to answer. No answer being filed, and the other defendants having also failed to answer, default and judgment were entered against all of them on May 2, 1890. On May 21, 1890, the corporation through its attorney served notice of a motion supported by affidavit to set this default and judgment aside so far as it affected the company, upon the ground, as therein stated, "of surprise, inadvertence, mistake and excusable neglect to file answer herein, and on the ground that default was taken before the time for answering had expired." There is nothing in the last ground stated, and it will be unnecessary to consider it further. On October 9th the motion was overruled, and from this order the company appeals.

1. From the affidavit upon which the motion was based and the accompanying exhibits, one of which is its proposed answer, it appears, prima facie, that this defendant has a good and sufficient defense to the action upon the merits. It is shown that the company, being the owner of certain mining property, entered into a contract with the ether defendants by which it was agreed that upon their expending ten thousand dollars in developing and improving the property, they were to receive a conveyance of an undivided one-half thereof; but it was expressly stipulated that the company should not become responsible for any debts incurred by them in making such improvements, nor should any partnership be created between them. This agreement was placed on record in the recorder's office of the proper county, and the indebtedness upon which the action was brought appears to have been incurred while the property was being worked under this arrangement.

It is contended by the plaintiff that as the defendant was in a certain contingency to share some of the profits derived from the working of the mining property, it therefore became a partner with the other defendants in such working, notwithstanding the stipulation to the contrary, and consequently liable for the debts incurred therein. Waiving the question of whether a corporation can form a partnership with an individual, it has been the recognized rule of law in nearly all courts since the decision in 1860 of the case of Cox v. Hickman, 8 H. L. Cas. 268, that mere participation in the profits of a business does not create a partnership. The company had not held itself out as a partner, nor had it by contract or intention formed a relation with the other defendants in which the elements of a partnership are to be found. It was therefore not liable as a partner. (Bercher v.Bush, 45 Mich. 188; Heckert v.Fegely, 6 Watts S. 139; Clinton v.Howard, 89 Mo. 192.) Thus it would seem that a heavy judgment has been obtained against the company upon claims for which it is in no wise responsible.

The affidavit of merits is sufficient, although made only by the attorney. (State v. Mining Co.,13 Nev. 194; Jean v. Hennessy,74 Iowa 348.) The defendant being a corporation it was necessarily made by some agent, and as the attorney swears he is familiar with all the facts of the case, both of plaintiff's claim and the defendant's defense, no reason is perceived why he could not make it as well as another.

2. Having prima facie a good defense to the action, the next inquiry is whether the company has been guilty of such negligence in making its answer that it has been justly refused the opportunity of defending itself. While opening a default is said to be much in the discretion of the lower court, the cases show that this means a legal discretion which has been unhesitatingly supervised by appellate tribunals wherever it appears to have been so exercised as to result in injustice. In this regard it is said inBailey v. Taaffe, 29 Cal. 424: "The discretion intended, however, is not a capricious or arbitrary discretion, but an impartial discretion, guided and controlled in its exercise by fixed legal principles. It is not a mental discretion, to be exercised ex gratia, but a legal discretion to be exercised in conformity with the spirit of the law, and in a manner to sub-serve, and not to impede or defeat the ends of substantial justice. In a plain case this discretion has no office to perform, and its exercise is limited to doubtful cases, where an impartial mind hesitates. If it be doubted whether the excuse offered is sufficient or not, or whether the defense set up is with or without merit in foro legis, when examined under these rules of law by which judges are guided to a conclusion, the judgment of the court below will not be disturbed. If, on the contrary, we are satisfied beyond a reasonable doubt that the court below has come to an erroneous conclusion, the party complaining of the error is as much entitled to a reversal in a case like the present as in any other."

It is difficult to lay down any general rule for determining when a default should be opened. As said inState v. Mining Co., 13 Nev. 202, each case must necessarily be determined upon its own peculiar facts. It is safe, however, to say that courts should be liberal in such matters, where a meritorious defense is shown to the whole or a substantial part of an action, and it is apparent that the failure to answer is the result of a mistake or of negligence which is not so gross as to be inexcusable, or to indicate trifling with the court, to the end that cases may be determined upon their merits and not upon some inadvertence or slip or aberration of the opposing party or counsel. Such terms can always be imposed as will compensate the plaintiff for any loss occasioned him by the delay and as will make it unprofitable to a defendant to willfully neglect to answer.

Courts are established not only to arbitrate and settle the legal controversies of men, but also to settle them, so far as the inherent imperfections of human tribunals will permit, upon a just and equitable basis. This can only be arrived at after a full and patient hearing of both sides. Of course there must be rules of procedure for doing this, which must not be trifled with. Still they are but means to an end; and whenever they have so operated, or have been so administered, that the action has been determined with reference to them, instead of the great principles of right and justice, it can not be denied that therein the tribunal has failed to reach the end for which it was created. Admittedly, this may be the necessary consequence of the operation of rules indispensable to the transaction of business, but the result is the same — the form has triumphed over the substance. All will agree that whenever this can be avoided with justice to the opposing party, it should be done. In this connection the language of Justice Baldwin in Roland v.Kreyenhagen, seems quite appropriate: "The power of the court should be freely and liberally exercised under this and other sections of the act to mould and direct its proceedings so as to dispose of cases upon their substantial merits, and without unreasonable delay, regarding mere technicalities as obstacles to be avoided, rather than as principles to which effect is to be given in derogation of substantial right. While formal requirements of pleading and practice can not be dispensed with by the court, it can usually make such orders, or grant such amendments in the progress of the cause as will avoid the effect of petty exceptions, and dispose of the case upon its legal merits. It can also usually prevent unjust or unfair advantages, or serious injury arising from casualties or inadvertences. The design of the act was to call into requisition its equitable powers in this respect." (18 Cal. 457.) A finding that a defendant has negligently failed to answer in the proper time does not cover the case; the question still remains, is the negligence excusable? Where the circumstances are such as to lead the court to hesitate in answering this query, the doubt should be resolved in favor of the application. (Watson v. Railroad Co., 41 Cal. 20.)

Two cases in this court are relied upon by opposing counsel — Howe v. Coldren, 4 Nev. 171, andHarper v. Mallory, Id. 447 — the former as requiring the opening of the default and the Litter as justifying the refusal to do so. Each is perhaps a fair sample of its class; the one enforcing all the strictness of the common law system of pleading and practice, and the other recognizing the more liberal principles of the reformed procedure, which has endeavored to wipe away much of the technicality and foolish adherence to form of the former. Harper v. Mallory was decided by a divided court, and it seems difficult to say of it, as is said in the prevailing opinion therein concerning the case of Howe v. Coldren: "In the decision we concur." On the other hand, the remarks in the opinion inHowe v. Coldren, dicta though they be, are, to our comprehension, founded in both justice and good sense. The court there says (page 175): "Certainly there are strong reasons why an appellate court should interfere in the one case and not in the other. If there is a refusal to set aside a default, a ruinous judgment may be sustained against a party who, upon hearing, might have interposed a perfectly good defense. By sustaining the default, he would forever be debarred the right of a hearing. If, then, a nisi prius court refuse to set aside a default when a party shows with reasonable certainty that he has a good defense, and he has only been guilty of carelessness and inattention to his business, but no willful or fraudulent delay, it would be highly proper even for an appellate court to come to his relief if the lower court refused it. But when the default has been set aside the case is far different."

In the case at bar, it appears that after the action was brought the defendant employed an attorney to defend it, and placed the matter in his hands. Certainly this was all the client was called upon to do. The attorney interposed a demurrer to the complaint, and when this was overruled, obtained time to answer. At the same time, in another action pending between the same parties he was given fifteen days to answer after the service upon him of a bill of items. The showing is that he commenced drawing the answers at once, and in this, and other matters, was quite busily engaged until April 26th, when he left Austin for Belmont, where he was employed in the trial of an action before the district court of Nye county, and was detained there longer then he expected to be, and until after default was entered. He claims to have been under the impression that he also had fifteen days to answer in this case, after the service upon him of the bill of items, but it clearly appears that his failure to file the answer in time was not owing to this. Taken altogether it sufficiently appears from the affidavit, while not as explicit as it might have been, that the defendant intended, in good faith, to contest its liability in the case; that the attorney in like good faith intended to file the answer in time, and had it prepared for this purpose, but he appears to have negligently forgotten when the time for answering would expire, or believing that he would be able to return from Belmont earlier than he could reasonably hope to do, he neglected to file it before leaving Austin, but left it in his office. While at Belmont it occurred to him that the time for answering might be about to expire, and he immediately made arrangements for having it filed, which was done on May 2d, but after the default had been entered.

Bearing in mind that the statute provides for relieving a party from a default taken against him through his negligence when the negligence is not inexcusable, does it not appear at once that a judgment for over five thousand dollars is a rather heavy penalty to pay for such carelessness as is shown here? While it was negligence, such as is properly punished by the infliction of terms, it does not seem to be of the kind that should be deemed inexcusable, and the defendant, consequently, denied any opportunity of making a defense. It was the severest penalty that could be invoked for the grossest misconduct, and in imposing it in this case we are of the opinion that the court erred in the exercise of its discretion to such an extent as to require a judgment of reversal. As presented, the denials of the answer are insufficient, but are, of course, subject to amendment.

3. Application to open a default should be made immediately. There was apparently an unnecessary delay in making the motion in this case, and had it appeared that the result of this would be to defer the trial of the case if the motion was granted, it might have justified the ruling of the court, but it is affirmatively shown that it did not, as court was not in session during the time. The order and judgment appealed from are reversed and cause remanded.