Michigan Pipe Co. v. Fremont Ditch, Pipe Line & Reservoir Co.

SANBORN, Circuit Judge, alter stating the case as above, delivered the opinion of the court. A suit in equity is an appeal for relief to the moral sense of the chancellor. A court of equity is the forum of conscience. Nothing but good faith, the obligations of duty, and reasonable diligence will move it to action. Its decree is the exercise of discretion,—not of an arbitrary and fickle will, but of a wise judicial discretion, controlled and guided by the established rules and principles of equity jurisprudence. One of the most salutary of these principles is expressed by the maxims, “He who comes into a court of equity must come with clean hands,” and “He who has done iniquity cannot have equity.” A court of equity will leave to his remedy at law—will refuse to interfere to grant relief to—one who, in the matter or transaction concerning which he seeks its aid, has been wanting in good faith, honesty, or righteous dealing. While in a proper case it acts upon the conscience of a defendant, to compel him to do that which is just and right, it repels from its precincts remediless the complainant who has been guilty of liad faith, fraud, or any unconscionable act in the transaction which forms the basis of his suit. 1 Pom. Eq. Jur. §§ 397, 398, 400; Medicine Co. v. Wood, 108 U. S. 218, 227, 2 Sup. Ct. 436, 27 L. Ed. 706; Marble Co. v. Ripley, 10 Wall. 339, 357, 19 L. Ed. 955. How can the complainants in this case sustain their decree in the face of this indisputable rule? They sold and conveyed the property in controversy to the defendants on February 13, 1893, for the purpose of enabling them to lay water mains, to construct reservoirs upon it, and to use it to operate a system of waterworks for the town of Cripple Creek; and they agreed that their payment of the incumbrances upon it, which actually amounted to $1,900, although they were represented to be only $1,400, should constitute a condition precedent to their right to the receipt of the purchase price. The defendants undertook to construct the works and to deliver to the complainants on or before August 15, 1893, the bonds and stock to the amount of $10,000, on condition that the complainants first paid off and satisfied the incumbrances upon the property which they bought. They built the waterworks over, and operated them by the use of, the property conveyed to the Michigan Company. They [288] failed to complete them until about 17 months after they had agreed to finish them. They laid only about 2j4 miles of water mains, while they had contracted to lay 3 miles. But the differences between promise and performance in the construction and operation of the works were so slight and insubstantial that the plaintiffs never mentioned or objected to them in the course of a long correspondence, continuing more than a year, in which they often demanded the delivery of the stock and the bonds and the completion of the purchase. The defendants never delivered either the stock or the bonds. The complainants never satisfied or removed the incumbrances upon the property. On July 1, 1895, this property had been enhanced in value by the construction and operation of the waterworks and the growth of the town until it was worth three times its value when the Fremont Company conveyed it to Smith in February, 1893. Meanwhile the complainants had given no notice to the defendants that they claimed a forfeiture of their rights or a re-transfer of the property on the only ground upon which they were entitled to it under the terms of the contract,—because the defendants had not constructed the system of waterworks in accordance with the terms of the franchises granted to J. A. Jones. On the other hand, they repeatedly demanded payment of the purchase price, and had threatened an action for damages if the payment was not made, thus affirming the sale, although they knew that the' works had been built, and that they had been constructed under the franchise granted in 1893, and not under those evidenced by the ordinances of 1892 in favor of Jones. This was the situation of the parties and of the property in July, 1895. In this state of the case the defendants caused the trust deeds which they had agreed to pay off and to satisfy to be foreclosed, sold the title which they acquired under these foreclosures to the town of Cripple Creek for $26,500, and compelled the defendants to incur the expense of two suits in equity to remove the clouds of these proceedings from their title. After the decrees had been rendered to the effect that these foreclosures were illegal, and that in equity and good conscience the title taken under them was held in trust for, and must be conveyed to, •the Michigan Company, the complainants instituted this suit, and prayed a court of equity to retransfer to and vest in them.the title to all this property, worth three times its value in 1893, because the defendants had not constructed the works in exact accordance with the terms of the grant to Jones, and because they had not paid the purchase price. Could effrontery go further? The payment and satisfaction of the incumbrances by the complainants was a condition precedent to their right to a payment of the purchase price of the property by the terms of their contract. They gave the defendants no opportunity to pay these mortgages, no notice that they had not paid them, no notice that they would not discharge them. Without notice of their failure to perform their part of the agreement, they sought to take advantage of their own wrong to rob the defendants of the property which they had purchased, and of that portion of the waterworks which they had placed upon it. They undertook to do this so secretly that the defendants should not become aware [289] of tlieir purpose or of their proceedings until it would be too late for them to redeem from the incumbrances. They succeeded in effecting formal foreclosures of the two trust deeds, and in entailing upon the defendants the burden and expense of two suits in ecpiity to avoid them. Their course of action constituted a bold endeavor to appropriate to themselves property of the defendants of the value of at least $20,000 by taking advantage of their own wrong,—by concealment, bad faith, and sharp practice. They failed in their endeavor, and this suit was an appeal to a court of equity to grant to them the same thing which they vainly sought to obtain by trickery and stealth. Their breach of good faith, their unconscionable attempt to take from the defendants their rights in this property by stealth and sharp practice, closed the doors of all courts of equity against their application for the relief sought in this suit, and perpetually repelled them from their precincts. They were perpetually barred by their own acts from obtaining any relief from a court of equity against the defendants relating to this property, or to the contract of the parties evidencing its sale. The complainants are entitled to no relief in this suit for another reason. Their bill is an application to enforce a forfeiture, and that relief is never granted by a court of equity. The contract was an agreement of sale of the property, with a stipulation that, if the vendee failed to construct the waterworks under the franchises to Jones, it should reconvey the land, water rights, and rights of way for the ditch and reservoirs to the vendors. This was, in effect, a provision that the vendee should forfeit all its rights to the property if it failed to comply with the grants to Jones. The purpose and prayer of the complainants’ bill is to enforce this forfeiture. They seek to enforce it for insubstantial failures to comply with the terms of the agreement, when the great desideratum of the contract, the system of waterworks for the town of Cripple Creek, has been obtained, when the property has been greatly enhanced in value by the labor and expenditures of the vendee, and when the provisions of the ordinances in favor of Jones have been substantially, though not exactly, complied with. Courts of equity uniformly decline to interfere to enforce forfeitures in such cases, and leave the complainants to their remedies at law. 1 Pom. Eq. Jur. § 459. It is said that, although the complainants were not entitled to the specific relief for which they prayed, yet this was a case of equitable cognizance,—a suit for the specific performance of a contract,—and that the court, having obtained jurisdiction' of the subject-matter, was warranted in investigating and determining the rights of the parties under their contract of sale, and in rendering a decree or a judgment for the recovery of damages according to the very right of the matter. The position is well taken, and its soundness is conceded. The answer to it is that under the proofs in this case, and according to the very right of the matter, the complainants are barred from any relief in equity by their bad faith, concealment, and sharp practice in their dealing with the subject290 matter of the suit, under the maxim that he who comes into a court of equity must come with clean hands. Finally, this is not a case in which the title to the property sold should be transferred or conveyed back to the vendors, but it is one in which the legal injuries of the respective parties may be and should be compensated by damages. It is a case, therefore, peculiarly appropriate for disposition by one or more actions at law. This fact is emphasized by the objection strenuously urged by the complainants that the claim of the defendants to recover the expenses which' they incurred in the suits to avoid the foreclosures cannot be considered in equity, because this claim is the basis of a cause of action at law. The objection- may not be tenable, but in an action at law the claims of all the parties to the damages which they have suffered can be presented and tried upon their merits, while these claims cannot be considered in this suit in equity, because the plaintiffs are barred from all relief here by their own unconscionable acts. : The decree below will accordingly be reversed, and the case will be remanded to the court below, with directions to dismiss the bill without prejudice to the right of any party to the suit to litigate in any action at law any of the questions of law or of fact in issue in this suit. It is so ordered.