Zeuske v. Zeuske , 55 Or. 65 ( 1909 )

Mr. Justice Eakin

delivered the opinion of the court.

(Mr. Justice King dissenting.)

1. The defendant cites Section 392, B. & C. Comp, as authority for pleading an equitable title in defense of; an action of ejectment. That section is a statute of limitation, and, so far as it relates to this question, reads as follows:

“A suit shall only be commenced within the time to commence an action as provided in Chapter 2 of Title I ■of this Code; and a suit for the determination of any right or claim to or interest in real property, shall be deemed within the limitations provided for actions for the recovery of the possession of real property; * * provided, this section shall not be construed so as to balan equitable owner in possession of real property from defending his possession by means of his.equitable title.”

There are other provisions in the section which affect suits relating to United States and State patents to lands, authorizing an equitable defense in an action of ejectment brought by the patentee; but the' proviso above quoted is the only portion of the section involved here, and by virtue of that proviso the statute of limitations cannot run against an equitable owner in possession so as to prevent him from defending his possession by means of his equitable title. In the cases of Spaur v. McBee, 19 Or. 76 (23 Pac. 818) and Rowland v. McCown 20 Or. 538 (26 Pac. 853). Mr. Justice Strahan refers to this proviso as an enlargement of the jurisdiction of courts of law; but in both "cases it was mere dictum. Also, in Coles v. Meskimen, 48 Or. 55 (85 Pac. 67) where this statute was evidently relied on, Mr. Chief Justice Bean passes it over with the statement that “an equitable defense cannot be pleaded in an action at law, unless, perhaps, that right is given by Section 392, B. & C. Comp., in actions to recover- the possession of real property—a question we need not now consider.” Therefore we consider the effect of that proviso an open question at this time.

Prior to 1866, Section 93 of the Civil Code of 1862 (Deady’s General Laws, Chapter 1) provided that “a material allegation in a pleading is one essential to the claim or defense, and which could not be stricken from the pleading without leaving it insufficient.” In 1866 (Laws 1866, p. 12) this section was amended by adding thereto the following language: “When the facts stated in the pleadings present a case cognizable in a court of law, the case shall proceed as an action at law. But if the facts stated, either by the plaintiff or defendant, show a case requiring the interposition of a court of equity, the case shall proceed as a suit in equity.” In Delay v. Chapman, 2 Or. 245, it was held that this amendment allows equitable titles to be set up against legal titles in the same action, and virtually unites actions at law and suits in equity in the same case, and was an effort by the legislature to simplify judicial proceedings, and the court gave it that effect. Four years later (Laws 1870, p. 29), this Section 93 was again amended, eliminating the amendment of 1866, and as a part of the same act Section 377, relating to modes of procedure in suits in equity, was amended by adding thereto the following language: “And in an action at law, where the defendant is entitled to relief, arising out of facts requiring the interposition of a court of equity and material to his defense, he may, upon filing his answer therein, also as -plaintiff, file a complaint in equity, in the nature of a cross-bill, which shall stay the proceeding in law, and the case thereafter shall proceed as a suit in equity. * *” And these two sections remain unchanged, being Sections 96 and 391, respectively, of B. & C. Comp. On the same day the legislature also amended Section 378 of the Code of 1862 (Section 392, B. & C. Comp.), which fixes the limitation of suits in equity, by adding thereto a special limitation in suits affecting patents to lands issued by the United States or by the State. This Section 378, was again amended in the year 1878 (Laws 1878, p. 25) by adding the proviso hereinabove quoted.

From this history of the course of this legislation, it was evidently intended by the amendments of 1870 to limit the application of an equitable defense in an action at law to a cross-bill in which affirmative relief might be secured-. In discussing the scope of the jurisdiction in the cross-bill provided for in Section 391, B. & C. Comp., in S. P. L. Co. v. Munger, 36 Or. 472 (60 Pac. 6) being a cross-bill to enjoin an action of ejectment, in which the defendant pleaded his equitable title, Mr. Justice Wolverton says that the cross-bill is an innovation on the common law, which prohibited the setting up of an equitable defense to an action at law, and quotes from Hatcher v. Briggs, 6 Or. 31:

“The general doctrine resulting from the best considered cases is that the defendant can defeat the action on equitable principles, and not only defeat the action, but secure affirmative relief, and that, as the defendant becomes an actor and the pleading an equity pleading, the sufficiency thereof in substance, though not in form, is to be determined by the application of the general rules of equity pleading, and that, as an equitable defense may be set up to a legal claim, it would be inconsistent to lay down the doctrine that, because one party is asserting a right under a legal form, equity will not protect the equitable rights of the other party to the same extent as though the proceeding was under equitable forms.”

Thus a cross-bill is recognized as the appropriate remedy by which an equitable defense may be made available, and therefore the amendment of Section 392, above quoted, can only apply to an equitable defense to an action of ejectment set up in a cross-bill by a defendant in possession. Hence, as long as the defendant is in possession of the premises, he shall not by lapse of time lose his right to plead the equitable defense against1 the legal title. This proviso of Section 392 does not by its language pretend to extend jurisdiction at law, but only makes an exception to the limitation created by the section, on the assumption that there exists a right to defend the possession of real property by means of an equitable title, which right existed under Section 391, B. & C. Comp., only by cross-bill. Mr. Justice McArthur, in Hatcher v. Briggs, 6 Or. 31, so construed this statute at page 40, where he says: “We regard Section 377 (Section 391, B. & C. Comp.) as providing for no more nor less than the equitable answers and cross-petitions allowed by the codes of those states where the distinction between actions at law and suits in equity is abolished.” We conclude that Section 392 does not authorize an equitable defense to be set up by answer at law.

2. Defendant relies on two defenses: (1) The oral contract of purchase and part performance thereunder as sufficient to take the case out of the statute of frauds at law; and (2) he pleads the same facts as an equitable estoppel. Facts that would be sufficient in equity to take an oral contract out of the statute of frauds might not be sufficient to constitute an equitable estoppel either at law or in equity. Therefore these two defenses are independent of each other, though both are based on the same facts.

3. If the defendant’s possession were under a written contract of purchase, and he was not in default, then his possession would be legal, and, if sued in ejectment, such contract would be a good defense at law; the contract being competent evidence of its terms, although plaintiff could not have specific enforcement of it in that action, and that being obtainable only in equity. This statement may be taken as conceded, and needs no citation of authority to sustain it.

4. The question then arises: Can an oral contract of sale of real property be alleged and proved at law in defense of his possession by the vendee? Such an oral contract, under which, by authority of the vendor, the vendee has entered into possession, and has made payments and valuable improvements, must be established in equity before the vendee can predicate any rights thereon. The courts in many states permit the proof of an oral contract in defense of an action of ejectment, if the facts would be sufficient to entitle him to affirmative relief in equity, in a proceeding brought for that purpose; but such decisions, so far as the writer has found, are in states where the distinction between the courts of law and equity has been abolished, and there is' but one form of action in which legal and equitable rights may be pleaded by either plaintiff or defendant. This is the case in New York, California, Nebraska, Missouri, Georgia, and several other states; and in some states, such as Virginia and West Virginia, in which the distinction between the courts of law and equity is still maintained, as in Oregon, the statute provides that in ejectment an equitable defense may be pleaded by answer. But, subject to these exceptions, we have found no decision that permits a defendant in possession of real property under an oral contract of purchase to defend his possession in an action of ejectment by means of such contract, for the reason that, by the statute of frauds, no evidence of such contract shall be received. Equity permits evidence of it in a suit for specific performance, on the ground of equitable fraud. Justice LORD, in Wagonblast v. Whitney, 12 Or. 83 (6 Pac. 399) in discussing this question, states the power of the equity court and the reasons for it as follows: “The ground of the jurisdiction is equitable fraud. It is based upon the just principle that when acts of part performance have been done in pursuance of and in reliance on the verbal contract, with the knowledge and consent of the other party, and the relations of the parties are so changed by reason thereof as to prevent a restoration to their former condition, it would be a fraud, and encourage bad faith, to permit the statute to be interposed as a defense whereby one party would reap the benefit of the acts of part performance, and the other be left without any remedy, and liable for damages as a trespasser. * * Equity will not permit a party to retain an advantage thus gained upon the faith of a verbal agreement, while he repudiates its obligations under cover of a statute. In a word, it will not allow the statute to be used as a cover for fraud and bad faith.” And this has always been recognized in Oregon as the only manner in which an oral contract for the sale of real property may be established, and it is only for such a purpose and in such a tribunal that evidence is admissible which the statute provides shall not be received. Defendant relies upon Coles v. Meskimen, 48 Or. 55 (85 Pac. 67), as holding that evidence of an oral contract may be received at law ; but that case is decided upon the fact that the contract is “an executory contract,” meaning a legal contract. The contract was practically admitted by the pleadings, and an offer to convey, was made in writing, and the plaintiff was defeated because she had not put defendant in default by tendering a deed.

5. Then we come to the question whether, under the facts alleged and proof offered, plaintiff is estopped from prosecuting the ejectment action, and is' not equitably estopped from pleading title by reason of an oral contract for the sale of real property, even though the vendee is in possession and has made valuable improvements and payments thereunder. The estoppel, to constitute a defense of possession in such a case, either at law or in equity, depends upon representations that title has passed, or such conduct on the part of the plaintiff as justifies the possessor in assuming that he has a good title.

6. An agreement by the vendor that he will convey upon the fulfillment of the terms of sale is not a representation of a present fact, nor is his knowledge, without protest, that defendant is in possession and making improvements, an element of estoppel. These things are contemplated by the agreement and done in pursuance of it, and therefore defendant was not misled to his injury. If defendant is in possession, and has fulfilled the contract, and made valuable improvements, he may in equity be entitled to a deed; but equity alone can establish that fact. Dickerson v. Colgrove, 100 U. S. 578 (25 L. Ed. 618) relied on by defendant, is not in point, as in that case there was an express waiver in writing of his title by the owner of the fee, which justified defendant in the belief that he had good title, and upon which he acted for many years. In Kirk v. Hamilton, 102 U. S. 76, (26 L. Ed. 79) the owner of the fee stood by, and by his conduct led the defendants to believe that they had acquired a good title at a judicial sale, by which defendants thought they had acquired a good title, and under which they acted for many years, and expended large sums of money in improvements. There are many other cases of the same character that might be cited; but these elements distinguish them.

The fact that the agreement for the sale was oral appeared only from the evidence, and the court admitted evidence of the agreement on the theory that such an agreement could be proved by a defendant in an action of ejectment in defense of his possession thereunder, and the instructions were based on the same assumption. It is not necessary to refer specifically to the evidence, or to the rulings thereon.

These rulings were error, and the judgment is reversed and the cause remanded for such further proceedings as may be proper and not inconsistent with this opinion.

Reversed.