Carroll v. Bowne

Mr. Justice Slater delivered the opinion of the court. 1. The statute (Section 391, B. & C. Comp., provides as follows: “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 for 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 proceedings at law, and the case thereafter shall proceed as in a suit in equity, in which said proceedings may be perpetually enjoined by final decree, or allowed to proceed in accordance with such final decree.” If the defendant in a law action has an equitable right, which if worked out would defeat a recovery, he may not plead .it at law, but must go to the equity side of the court, and this he does by the filing of a complaint in the nature of a cross-bill in equity. The facts which he [321] sets forth ip such a complaint must be not only such as require the interposition of a court of equity, but the relief sought must be material for his defense. He is not restricted, however, to the averment of merely defensive matter, but may set forth any facts entitling him to affirmative relief, but the facts and circumstances set forth and the relief sought must in some degree form a defense, either entire or partial, to the action at law. Hatcher v. Briggs, 6 Or. 31, 40. No facts are stated in the complaint, which tend in any degree to defeat Bowne’s right to recover upon the note. Indeed, the only remedy sought, which would at all affect the action at law is contained in the closing sentence of the prayer, viz., that the court decree that Bowne has no right in law or equity to enforce payment of the note until he has* complied with the terms and conditions of the two contracts set forth in the complaint. But we are unable to see that the facts stated entitle him to any such relief. He does not seek a rescission of the contracts, but the whole tenor of the complaint is upon the theory of a right to a specific enforcement of the contracts against Bowne. This could not be had, except upon performance, or offer to perform all conditions precedent, one of which is the prompt payment of the several installments of the purchase price. 2. As we understand counsel, they contend upon one phase of the case that the facts alleged tend to show a failure or partial failure of the consideration for which the note was given. Even if that be true, the defense is available at law. The note was given for the first payment to be made under the contract on the purchase price of land, and it is averred in the cross-bill that it was taken and received by Bowne as the first payment. A few days afterwards Carroll, who gave the note, assigned to McKenney, for a valuable consideration, an undivided interest in the contract of purchase, and still [322] later both of them likewise assigned to the corporation all of the contract pertaining to the realty, and it is out of that part of the transaction that the equitable rights, if any, are supposed to have arisen. By the assignment Carroll deprived himself of all further interest to be derived from the purchase of the land. The fact that he was a stockholder and president of the corporation does not preserve to him an interest, or right as an individual, in the contract. All of the benefits to be derived therefrom come to the corporation as an entity, and, if there was a breach of its terms by the vendor, it is an injury to the corporate entity, and not to the individual stockholders. Suppose that upon a judicial examination of the merits of the case stated in the complaint, it should be found that Bowne had wrongfully broken his contract, and was required to account for a large sum of money received by him from the sale of land or for crops taken, to whom would this go—to Carroll or to the corporation? It could not go to Carroll, because the right of property is not in him, and hence no part of it could offset the amount due upon the note. Neither could Carroll refuse to pay the note because Bowne had refused performance, because that would be an injury to the assignee, who could not enforce the contract without showing performance or offering to perform on its part all conditions precedent. This would follow, even on the assumption that the giving of the note was merely an extension of time in which to make the first payment, but, as pointed out, it is averred that it was taken and received by Bowne as the first payment. If so, it would be an independent contract, to which subsequent equities arising out of a nonperformance of the contract to sell by the vendor could not attach. It is not material to consider whether the bill states any equity in favor of the Bonanza Improvement Company, for such company is not a party to the law action, [323] and Carroll, the sole defendant therein, is alone entitled to present a cross-bill as a defense to the action. The case of Manning v. Gasharie, 27 Ind. 399, is somewhat in point. That was a suit upon a promissory note against a number of persons who had united in an association for the purpose of carrying on a co-operative store. The note given was for merchandise, and was signed by the managing agent of the association as agent. The articles of association provided that the business should be managed by a board of directors, a president, vice-president, and managing agent, and that no goods should be bought on credit. Certain of the defendants filed a cross-complaint against the plaintiff, and those of the defendants who had held the position of directors setting up that the goods had been bought on credit, in violation of the articles of association, etc., and asking, if judgment was recovered, that execution might be first directed against the property of the directors. It was held on demurrer to the complaint that the relation of the defendants to the law action was that of partners, and that the facts stated in the cross-complaint did not constitute any defense to the action. We are satisfied there was no error in sustaining the demurrer, and therefore the decree is affirmed. Affirmed.