Eastern Building & Loan Ass'n v. Welling

SIMONTON, Circuit Judge (after stating the facts). In response to the rule to show cause, the defendants have interposed a demurrer, a plea, and an answer, — the demurrer because the controversy is res judicata; the plea in aid of the demurrer, setting out the assignments of error to the judgment of the supreme court of South Carolina, and so showing that the controversy in the state court is the same as is now set up in this court; and the answer putting in issue matters of fact alleged in the bill, specially that the mistake now relied upon was not mutual. The defendants insist that the controversy between them and the complainant has already been heard in the courts of South Carolina, that these courts have determined the controversy adversely to the complainant, and that so it is res judicata. Assuming, for the sake of argument, that the controversy set up in this bill of complaint is the same as that which was agitated in the proceedings in the state court between these same parties, it cannot be said that the question is res judicata. The pleadings disclose the fact that the final judgment of the state supreme court has been removed by writ of error into the supreme court of the United States, and that it awaits adjudication in that court. Were it now held that the issue is res judicata, — a question finally settled beyond controversy, — the decision of the supreme court may perhaps be anticipated, or its conclusion be antagonized. No controversy can be treated as res judicata until it has been finally discussed and decided in a court of last resort, or the result has been acquiesced in without resort to such a tribunal. But is the controversy which the complainant now seeks to make the same which was heard and decided in the suit in the state courts? The bill alleges that the contract by way of mortgage, which was the issue in the case in the state courts, was not the real contract between the parties; that it was entered into in mutual mistake, and by reason thereof did not express the full intent and purpose each of the contracting parties had in mind; that the whole transaction, with the printed and written documents attending it, shows that the real contract between the parties — that which each intended to make — was that the mortgage should not only secure the notes mentioned in it as given for the advance and the premiums and interest upon it, but that it should also secure the promises and obligations assumed by the present defendants, borrowing stockholders, as stockholders in the complainant association; that the mortgage as executed, in attempted compliance with the negotiations for the advance, failed to disclose this mutual purpose, and, on the contrary, was open to the construction that it was confined to the payment of the notes given at the time; that the taking of these notes, in itself, by the agent of the corporation, and the apparent conclusion drawn therefrom that the payment of the notes would satisfy the mortgage, were wholly unauthorized, and were in plain contravention of the charter of the lending corporation and its by-laws and of the written acknowledgments and contracts of the defendants, borrowing stockholders themselves. The action in the state court was an action at law. It was tried before the court with a jury. The verdict was reached wholly as in a case, at law. No equitable defense was interposed, and no affirmative relief was asked, 356 by the defendant in that action. The equities set up in this bill were not introduced, and, it is alleged, could not have been, and in fact were not, considered under the issues made in the pleadings. It goes without saying that this court would not presume to sit in judgment upon the decision of the state court; that it would not and cannot listen to any prayer for relief based on alleged errors or irregularities in the state court; that it will not express any opinion whatever as to the result of the case in the state court. But a question is made in the present case whether this court, after the trial of the cause in the state court, will proceed to hear and adjust the equities between the parties which were not presented or decided in the state court, and, if it be determined that there is an equity in favor of the complainant, will set it up, and grant relief notwithstanding the judgment of the state court. The Code of Civil Procedure of South Carolina permits equitable defenses in an action at law. And it may be that a defendant who can interpose an equitable defense, and does not do so, will be precluded from resort to the equity side of the court for the relief which he could have had, and which he has omitted or neglected to ask in the law case. The defendants, in their return, urge this consideration. “A judgment is not only conclusive as to what was actually determined respecting the demand, but as to every matter which might have been brought forward and determined respecting it.” Davis v. Brown, 94 U. S. 428, 24 L. Ed. 204. In order to make a full answer to the complaint in the state court, it was necessary that the defendant in that suit, the present complainant, should file a cross complaint seeking reformation of the mortgage upon the ground of the alleged mistake. It could not have been obtained in any other way. This was exclusively a matter for a court of equity, and wholly without the jurisdiction in a law case. Besides, it was not imperative upon the defendant to take this course. It could have litigated the issues at law, and could afterwards seek relief in equity. This appears to be the rule when the jurisdiction in law and in equity are distinct, and it would seem to be the rule where code practice prevails. Botsford v. Wallace (Conn.) 44 Atl. 10; Bush v. Merriman, 87 Mich. 260, 49 N. W. 567; Hawkins v. Wills, 1 C. C. A. 339, 49 Fed. 506; Reynolds v. Lincoln, 71 Cal. 183, 9 Pac. 176, 12 Pac. 449; Witte v. Lockwood, 39 Ohio. St. 141. Certainly, under code pleading, a defendant having a counterclaim, and not using it as a defense, is not precluded from a separate action upon his counterclaim. Roach v. Privett, 90 Ala. 391, 7 South. 808, 24 Am. St. Rep. 819. And it would seem that the same rule applies to any defense which may be set up in the nature of a counterclaim. Uppfalt v. Woermann, 30 Neb. 189, 46 N. W. 419. This will be a matter proper for consideration if the supreme court of the United States confirms or declines to disturb the judgment of the state court. For the present the point is not decided in this court, and it is considered simply in reaching a conclusion as to the continuing or dissolving the existing restraining order. This is the sole question, and it is addressed to the discretion of the court. In view of all the circumstances, the restraining order will be continued until the cause can be heard on a full hearing.