Source: https://www.law.cornell.edu/supremecourt/text/260/235
Timestamp: 2016-12-08 21:59:36
Document Index: 584439956

Matched Legal Cases: ['§ 1649', '§ 1251', '§ 1251', '§ 87', '§ 1157', '§ 1246']

LIBERTY OIL CO. v. CONDON NAT. BANK et al. | US Law | LII / Legal Information Institute
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260 U.S. 235 (43 S.Ct. 118, 67 L.Ed. 232)
LIBERTY OIL CO. v. CONDON NAT. BANK et al.
Argued: Nov. 15 and 16, 1922.
This suit was begun as an action at law in the District Court of Kansas by the Liberty Oil Company, a corporation organized under the laws of Virginia, and a citizen of that state, against the Condon National Bank, a corporation organized under the banking laws of the United States and resident and doing business in Kansas. Plaintiff by its petition averred that it had made a contract with the Atlas Petroleum Company of Oklahoma, C. M. Ball, Isadore Litman, P. G. Keith, and J. H. Keith, residents of Kansas, by which it agreed to purchase and they agreed to sell 160 acres, more or less, of oil lands in Butler county, Kansas, for $1,150,000. By the contract, the purchaser was required to deposit $100,000 with the Condon National Bank simultaneously with a deposit of the contract, and this sum, together with the assignments, transfers, and conveyances under the contract, was to be held by the bank and by it to be delivered in accordance with the conditions of the contract. The main conditions, and the only ones here material, were that the vendors should furnish an abstract of the title to the property contracted to be sold, showing a good and marketable title in them, that the vendee should have seven days in which to examine the abstract, and that, if its examination should show a good and marketable title, the vendee should pay the bank $1,050,000, the remainder of the purchase money, and the bank should deliver the deeds of assignment and transfers to the vendee, and the vendor should deliver possession of the land. If the examination showed a good and marketable title, and the vendee should refuse to pay the money then due from it, the $100,000 was to be delivered to the vendors as liquidated damages, and the contract was to become null and void. In the event that the examination should disclose that the title was not good and marketable, the vendee was to notify the vendors, and they were to have 30 days in which to perfect the title, and should they neglect in that time to do so the $100,000 on deposit was to be returned to the vendee, and the contract was to become null and void.
The defendant bank answered, admitting all the facts averred in the petition, except those as to the character of the title shown by the abstract, and alleged that the vendors in the contract of sale had also demanded that the deposit of $100,000 be paid to them on the ground that the vendee had refused without right to accept a good and marketable title to the land sold, that the defendant bank had no interest in the deposit, and offered to pay the sum into court or to such person as the court should order. The defendant asked that the vendors be made parties and required to set up their claim to the deposit, that the court make proper order as to the disposition of the money, and that the defendant, upon compliance with the order, be discharged from all liability in connection therewith. The court granted the prayer of the answer and 'ordered, adjudged, and decreed' that vendors be made parties, and set up their claim within 20 days. The vendors waived summons and filed an answer and cross-petition, in which they averred that the petition of the plaintiff did not state a cause of action, and denied as much of the petition as averred that there were defects in the abstract of title which prevented it from being good and marketable. By the cross-petition they asked for the payment of the $100,000 deposit and also a judgment for $1,050,000 as the purchase price for the land, title to which they had tendered, and for general relief. This cross-petition the plaintiff answered, making the same issue as that in the petition and answer. A jury was waived in writing. A bill of exceptions was taken, embodying all the evidence, which was signed by the judge, and the same evidence was included in a transcript also certified to by the judge.
An appeal was taken to the Circuit Court of Appeals and a supersedeas bond given. The Circuit Court of Appeals held that the action was a suit at law, that under section 4 of the Act of September 6, 1916 (
39 Stat. 727 Comp. St. § 1649a), to amend the Judicial Code, it had the power and it was its duty to consider the appeal taken as a writ of error, and that, as the bill of exceptions showed no special findings of fact in a cause in which a jury had been waived but only a general finding for the interveners, it was not within the power of the court in a law case to consider the sufficiency of the evidence to sustain the finding. It therefore affirmed the judgment of the District Court. A certiorari brings the case here for consideration.
We differ with the Circuit Court of Appeals in its holding that, as brought in review before it, this cause was an action at law. We think the cause was then equitable, and the proper review was by appeal. The case began as an action at law for money had and received. When the defendant bank claimed to be only a stakeholder of the deposit, disclaimed interest therein, and offered to pay it into court, and asked that the other claimants of the fund be made parties, its answer and cross-petition became an equitable defense and a prayer for affirmative equitable relief in the nature of a bill for interpleader. Section 274b of the Judicial Code, as amended by Act of March 3, 1915, c. 90, 38 Stat. 956 (Comp. St. § 1251b), provides:
'That in all actions at law equitable defenses may be interposed by answer, plea, or replication without the necessity of filing a bill on the equity side of the court. The defendant shall have the same rights in such case as if he had filed a bill embodying the defense of seeking the relief prayed for in such answer or plea. Equitable relief respecting the subject matter of the suit may thus be obtained by answer or plea. In case affirmative relief is prayed in such answer or plea, the plaintiff shall file a replication. Review of the judgment or decree entered in such case shall be regulated by rule of court. Whether such review be sought by writ of error or by appeal the appellate court shall have full power to render such judgment upon the records as law and justice shall require.'
This section applies to the case before us. The proceeding was changed by defendant's answer and cross-petition from one at law to one in equity with all the consequences flowing therefrom. The better practice would perhaps have been, on the defendant's filing its answer and cross-petition, to order the cause transferred to the equity side of the court. Under equity rule No. 22 (33 Sup. Ct. xxiv), a suit in equity which should have been brought at law must be transferred to the law side of the court. There is no corresponding provision in rule or statute which expressly directs this to be done when the action begun at law should have been by a bill on the equity side, but we think the power of the trial court to order a transfer in a case like this is implied from the broad language of section 274b, above quoted, by which the defendant who files an equitable defense is to be given the same rights as if he had set them up in a bill in equity, and from section 274a of the Judicial Code (Comp. St. § 1251a), quoted below, in which the court is directed, when a suit at law should have been brought in equity, to order amendments to the pleadings necessary to confrom them to the proper practice. Webb v. Southern Ry. Co. (D. C.) 235 Fed. 578, 593, 594. We are aware that a different conclusion has been reached by the Circuit Court of Appeals of the Fourth Circuit in Waldo et al. v. Wilson, 231 Fed. 654, 145 C. C. A. 540, but for the reasons stated, and after a full examination of that case, we think the conclusion of that court upon this point was too narrow.
'What was an action at law before the Code is still an action founded on legal principles; and what was a bill in equity before the Code is still a civil action founded on principles of equity.' Sutherland on Code Pleading Practice and Forms, § 87; De Witt v. Hays, 2 Cal. 464, 56 Am. Dec. 352; Smith v. Rowe, 4 Cal. 6; Howard v. Tiffany, 5 N. Y. Super. Ct. 695.
Where an equitable defense is interposed to a suit at law, the equitable issue raised should first be disposed of as in a court of equity, and then, if an issue at law remains, it is triable to a jury. Massie v. Stradford, 17 Ohio St. 596; Dodsworth v. Hopple, 33 Ohio St. 16, 18; Taylor v. Brick Co., 66 Ohio St. 360, 366, 64 N. E. 428; Sutherland Code Pl. and Pr. § 1157. The equitable defense makes the issue equitable, and it is to be tried to the judge as a chancellor. The right of trial by jury is preserved exactly as it was at common law. The same order is preserved as under the system of separate courts. If a defendant at law had an equitable defense, he resorted to a bill in equity to enjoin the suit at law, until he could make his equitable defense effective by a hearing before the chancellor. The hearing on that bill was before the chancellor, and not before a jury, and, if the prayer of the bill was granted, the injunction against the sutit at law was made perpetual, and no jury trial ensued. If the injunction was denied, the suit at law proceeded to verdict and judgment. This was the practice in the courts of law and chancery in England when our Constitution and the Seventh Amendment were adopted, and it is in the light of such practice that the Seventh Amendment is to be construed.
To be sure, these sections do not create one form of civil action as do the Codes of Procedure in the states, but they manifest a purpose on the part of Congress to change from a suit at law to one in equity and the reverse with as little delay and as little insistence on form as possible, and are long steps toward Code practice.
Coming now to apply those two sections thus construed to the case before us, we find that by defendant's answer and the court's order it became a bill of interpleader in equity. Thereafter the proceedings should have been so treated, both in the trial and appellate courts. The chancellor having sustained a bill of interpleader, disposed of the controversy between the claimants by directing any method of trial which would best and expeditiously accomplish justice in the particular case. State Insurance Co. v. Gennett, 2 Tenn. Ch. 100, 101; Rowe v. Hoagland's Adm'rs, 7 N. J. Eq. 131; Condict's Ex'rs v. King, 13 N. J. Eq. 375, 383; City Bank v. Bangs, 2 Paige, Ch. (N. Y.) 570, 573; Gibson v. Goldthwaite, 7 Ala. 281, 290, 42 Am. Dec. 592; Angell v. Hadden, 16 Vesey, 202; Kirtland v. Moore, 40 N. J. Eq. 106, 108, 2 Atl. 269; 2 Daniell's Ch. Practice (6th Am. Ed.) 1568, 1569. This well-established rule takes the issue here to be tried out of that class of issues in which there must have been a jury trial under the Seventh Amendment. Where it was one which the chancellor could readily dispose of in one proceeding, it was in the interest of economy of expedition, and of justice that he should do so. This is in accord with the general rule in equity embodied in equity rule 23 (33 Sup. Ct. xxiv) that jurisdiction once assumed should be maintained to end the litigation. Greene v. Louisville & Interurban R. R. Co., 244 U. S. 499, 520, 37 Sup. Ct. 673, 61 L. Ed. 1280, Ann. Cas. 1917E, 88; McGowan v. Parish, 237 U. S. 285, 296, 35 Sup. Ct. 543, 59 L. Ed. 955; Camp v. Boyd, 229 U. S. 530, 551, 552, 33 Sup. Ct. 785, 57 L. Ed. 1317.
It was therefore error by the Circuit Court of Appeals to proceed as if it were reviewing a judgment in a suit at law upon a bill of exceptions. It is true that the record contained a bill of exceptions, but there was also a transcript of the same evidence certified as required in appeals in equity. The plaintiff below was evidently not certain of the proper practice and prepared for either writ of error or appeal. Under section 269 of the Judicial Code, as amended by the Act of February 26, 1919, c. 48, 40 Stat. 1181 (Comp. St. Ann. Supp. 1919, § 1246), appellate courts are enjoined to give judgment after an examination of the record without regard to techical errors, defects or exceptions which do not affect the substantial rights of the parties; and under section 274b, whether the review is sought by writ of error or appeal, the appellate court is given full power to render such judgment upon the record as law and justice shall require. It follows that the court should have considered the issue of law and fact upon which the decree of the District Court depended; that is, whether there was a good and marketable title.