1. Where a defendant, sued at law in the district court for
money had and received, avers by answer and cross-petition that it
is a stakeholder of the money in question, offers to pay it into
court,
Page 260 U. S. 236
and prays that the other claimants be made parties, that the
issue be litigated between them and the plaintiff, and that the
defendant be discharged from liability, the proceeding becomes an
equitable one, an interpleader, under Jud.Code, § 274b, as amended
by Act of March 3, 1915, c. 90, 38 Stat. 956. P.
260 U. S.
240.
2. While it is not so expressly required, either by Equity Rule
22 or by statute, there is authority, by implication from Jud.Code,
§ 274b,
supra, and § 274a, to transfer a case thus begun
at law and converted to equity, to the equity side of the court,
and such, it seems, is the better practice. P.
260 U. S.
241.
3. But failure to order such transfer does not deprive the suit
of its equitable character. P.
260 U. S.
242.
4. Where an equitable defense is interposed in an action at law,
the equitable issue should first be disposed of, and, if an issue
at law remains, it is triable to a jury. P.
260 U. S.
242.
5. This preserves the right of jury trial guaranteed by the
Seventh Amendment, being in conformity with the practice of the
courts of law and chancery in England at the time of the adoption
of the Constitution in the light of which the Amendment should be
construed. P.
260 U. S.
243.
6. Sections 274b and 274a of the Judicial Code, although not
creating one form of civil action, are calculated to permit changes
from law to equity and vice versa, with the least possible delay or
formality. P.
260 U. S.
243.
7. Where an action at law is thus converted into an
interpleader, it is to be treated thenceforth, by trial and
appellate courts, as a proceeding in equity; the issue between the
claimants need not, under the Seventh Amendment, be submitted to a
jury, but may be tried by the court, and the judgment is reviewable
as in equity, and not as at law. P.
260 U. S.
244.
8. Under Jud.Code, § 269, as amended February 26, 1919, c. 48,
40 Stat. 1181, appellate courts are to give judgment after
examination of the record without regard to technical errors,
defects, or exceptions not affecting substantial rights. P.
260 U. S. 245.
9. Under Jud.Code, § 274b,
supra, whether review is
sought by writ of error or appeal, the appellate court has full
power to render such judgment upon the record as law and justice
require. P.
260 U. S. 245.
10. Where certiorari was issued to the circuit court of appeals
to settle an important question of practice,
held that
this Court, though it had the power, would not also decide the
merits, but would remand the case for that purpose to the court
below. P.
260 U. S. 245.
271 F. 928, reversed.
Page 260 U. S. 237
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
Page 260 U. S. 238
deposit was to be returned to the vendee and the contract was to
become null and void.
The petition averred that the money and the contract were
deposited in the defendant bank, that the abstract of title was
submitted, that an examination of the abstract submitted showed
that the title of the vendors was not good and marketable, in that
in the chain of title the vendors claimed under the deed of an
assignee for the benefit of creditors filed in a Colorado court and
taking effect by the laws of that state, but never authorized or
confirmed by a court of competent jurisdiction under the laws of
Kansas, as required by the law of the latter state, that this
defect was not remedied by the vendors within the time required by
the contract, and on July 11, 1918, the plaintiff duly notified the
defendant bank of this and demanded payment of the money deposited,
that the defendant refused and appropriated the sum to its own use
to the damage of the plaintiff in the sum of $100,000 and interest
at 6 percent from the date of the demand and refusal.
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
Page 260 U. S. 239
parties, and set up their claim within twenty 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.
The district court, on the evidence, found generally for the
vendors, and from its opinion it appeared that it found the title
good and marketable, and that, upon plaintiff's refusal to accept
the same, the vendors became entitled to the $100,000 as liquidated
damages. Accordingly, it was "considered, ordered, and adjudged"
that the vendors, interveners, recover $10,750 as interest on the
$100,000 from June 30, 1918, that the Condon Bank, defendant, be
discharged from further liability, and that the interveners have
judgment for the $100,000 then in the registry of the court. There
is nothing in the record to show that the defendant bank was
dismissed until this final judgment, although, under some authority
not made a matter of record, it had turned the money into the
registry of the court.
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 § 4 of the Act of September
6, 1916, 39 Stat. 727, to amend the Judicial Code, it had the power
and it was
Page 260 U. S. 240
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.
MR. CHIEF JUSTICE TAFT, after stating the case, delivered the
opinion of the Court.
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, 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
Page 260 U. S. 241
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, 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 § 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 § 274a of the Judicial Code, 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 conform them to the proper practice.
Webb v. Southern Ry.
Co., 235 F. 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 v. Wilson, 231 F. 654, 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.
Page 260 U. S. 242
Nor, by the failure to order the transfer in this case, did the
suit lose the equitable character it had taken on by the answer and
cross-petition of the defendant. The situation thus produced was
quite like that under state civil codes of procedure in which there
is but one form of civil action, the formal distinction between
proceedings in law and equity is abolished, and remedies at law and
in equity are available to the parties in the same court and the
same cause. Neither legal nor equitable remedies are abolished
under such Codes.
"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;
Smith v. Rowe, 4 Cal. 6;
Howard v. Tiffany, 3 Sandf. 695.
Section 274b is an important step toward a consolidation of the
federal courts of law and equity, and the questions presented in
this union are to be solved much as they have been under the state
Codes.
United States v. Richardson, 223 F. 1010, 1013. The
most important limitation upon a federal union of the two kinds of
remedies in one form of action is the requirement of the
Constitution in the Seventh Amendment that:
"In suits at common law, where the value in controversy shall
exceed twenty dollars, the right of trial by jury shall be
preserved, and no fact tried by a jury shall be otherwise
reexamined in any court of the United States, than according to the
rules of the common law."
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; Sutherland Code Pl. and Pr. § 1157. The
equitable defense makes the issue
Page 260 U. S. 243
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 suit 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.
Congress, we think, was looking toward such a union of laws and
equity actions in the enactment of § 274b quoted above, and of §
274a, which, referring to courts of the United States,
provides:
"That in case any of said courts shall find that a suit at law
should have been brought in equity or a suit in equity should have
been brought at law, the court shall order any amendments to the
pleadings which may be necessary to conform them to the proper
practice. Any party to the suit shall have the right at any stage
of the cause to amend his pleadings so as to obviate the objection
that his suit was not brought on the right side of the court. The
cause shall proceed and be determined upon such amended pleadings.
All testimony taken before such amendment, if preserved, shall
stand as testimony in the cause with like effect as if the
pleadings had been originally in the amended form."
To be sure, these sections do not create one form of civil
action, as do the Codes of Procedure in the states, but they
Page 260 U. S. 244
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;
Angell v. Hadden, 16 Vesey, 202;
Kirtland v.
Moore, 40 N.J.Eq. 106, 108; 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 that jurisdiction, once assumed, should
be maintained to end the litigation.
Greene v. Louisville &
Interurban R. Co., 244 U. S. 499,
244 U. S. 520;
McGowan v. Parish, 237 U. S. 285,
237 U. S. 296;
Camp v. Boyd, 229 U. S. 530,
229 U. S.
551-552.
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
Page 260 U. S. 245
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 § 269 of the Judicial Code, as amended by
the Act of February 26, 1919, c. 48, 40 Stat. 1181, appellate
courts are enjoined to give judgment after an examination of the
record without regard to technical errors, defects, or exceptions
which do not affect the substantial rights of the parties, and
under § 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.
On this review by certiorari, we could consider and decide the
issue which the circuit court of appeals erroneously refused to
consider. On such an issue alone, however, we would not have
granted the writ, because, except for the important question of
practice, the case was not of sufficient public interest to justify
it. We think it better, therefore, to reverse the judgment of the
circuit court of appeals and to remand the case to that court for
consideration and decision of the issues of fact and law in this
case as on an appeal in equity.
