
    MONTEJO v. OWEN.
    
      U. S. Circuit Court, Southern District of New York,
    
    
      1877.
    
    Demubbeb to Answeb. — Action upon a Judgment. — Equitable Defenses in Common Law Actions. —U. S. Rev. Stat. § 914.
    In the- jurisprudence of the United States the distinction between legal and equitable rights and suits is one of substance as well as of form and procedure.
    
      Under section 914 of the U. S. Revised Statutes, an affirmative equit- . able right to relief cannot be set up in an action at common law in the United States circuit court, although permissible under the law of procedure of the State where the action is brought.
    Demurrer to an answer.
    This action was brought by Francisco Montejo and another against Thomas J. Owen and others on a judgment recovered by the former against the latter in the city of New Orleans.
    The complaint set up, as its cause of action, the recovery of the New Orleans judgment.
    The answer stated that, in the year 1868, the defendants advanced money to the plaintiffs to pay for certain machinery; that in 1869 the defendants brought suit against the plaintiffs for this money in New Jersey and attached certain real estate there; that soon after, an account was stated between the parties, by which it appeared that $35,000 were due the defendants; that thereupon plaintiffs gave defendants a second mortgage for that amount on the said real estate in order to have the said suit discontinued; that soon after, the machinery, for the purchase of which the indebtedness accrued, was, at the plaintiffs’. request, transferred by them to the defendants, in order that it might appear to be their property, and thus avoid confiscation on the island of Cuba, where the plaintiffs were likely to be regarded as rebels ; that the plaintiffs retained possession of the machinery, treated it as their own, sold, pledged, or disposed of it, and never communicated or consulted with the defendants on the subject until upwards of one year after they had disposed of it, when they appear to have called their attention to the fact, only because they experienced some difficulty in collecting the amount of the purchase money from the buyer; that during this whole period the defendant was uninformed of their doings with reference to this machinery; that the first mortgage on the New Jersey property had been foreclosed, and the land sold, and had realized a sum sufficient fully to pay the first mortgage and to leave a balance, applicable to the defendants’ mortgage of $28,482.42, which was credited upon the outstanding account between defendants and the plaintiffs, and left the latter in defendants’ debt in the sum of $12,389.98 ; that the plaintiffs having failed to visit New York, as it had theretofore been their practice, or to pay the aforesaid balance, the defendants brought action against them in the city of New Orleans, in the circuit court, the forum of their (the plaintiffs’) domicile, to recover it; that the trial resulted — the defendants being absent — in a verdict for the plaintiffs for $16,130.16, with interest; that the court should compel the plaintiffs to account or the defendants would be remediless; that the facts above stated could not have been presented under the ^headings in the former trial in a court of law; and that at the time of said trial they were not fully informed of the facts above stated, and had no means at the time of procuring the infor mation required to lay before the court and jury a full and fair statement of all the acts and doings of said plaintiffs, nor could they procure a discovery of the facts in the possession of the plaintiffs relating to their dealings with said machinery or to their accounts, except by proceedings in the nature of a suit in equity, where all the rights and equities of the parties might be adjusted and disposed of.
    To this answer the plaintiffs demurred for insufficiency in not stating facts sufficient to constitute a defense or counter-claim.
    
      Granville P. Hawes, for plaintiffs.
    The defendants cannot set up an equitable defense in an action at law in this court (Lessee of Baird v. Wolfe, 4 McLean, 552; 1 Stat, at L. 94; Robinson v. Campbell, 3 Wheat. 212; Loring v. Donner, Mc A. 360; Jones v. McMasters, 20 How. 22; Bennett v. Butterworth, 11 Id. 666; Thompson v. Railroad Companies, 6 Wall. 134; McFaul v. Ramsey, 20 How. 526; Meyers v. Grier, Mc A. 401, 402; Fenn v. Holme, 21 How. 481; U. S. R. S. § 914; 1 Abb. U. S. Prac. 249; Republic Ins. Co. v. Williams, 3 Biss. 371; Blease v. Garlington, 2 Otto, 1, 8). The answer discloses no equitable defense (Maxwell v. Stewart, 22 Wall. 77; Christmas v. Russell, 5 Id. 304; Dobson v.. Pearce, 12 N. Y. 156; Randolph v. King, 2 Bond, 104; Stillwell v. Carpenter, 59 N. Y. 423; Smith v. Nelson, 62 Id. 289; Ross v. Wood, 8 Hun, 185; Krekeler v. Ritter, 62 N. Y. 375). If the Louisiana practice prevailed in the United States court, then he might have set up any matter in reply to the plea in reconvention (Spinney v. Hyde, 16 La. An. 250; Mead v. Buckner, 2 La. 284; 6 N. S. 611 [9 Martin]; 2 Hennen Dig. 1,175 ; 3 L. R. O. S. 100; 5 A. R. 3).
    
      F. R. Coudert (Coudert Brothers, attorneys), for defendants.
    This is an action at law, and the answer cannot change it, and therefore the act of 1872, § 914, applies. Although the general complexion of the answer is equitable, there is enough to make a legal defense to the claim, and it is good under the decisions in this State (Dobson v. Pearce, 12 N. Y. 156, 165; Reigal v. Wood, 1 Johns. Ch. 402; McDonald v. Neilson, 2 Cow. 139; Duncan v. Lyon, 3 Johns. Ch. 351; Marine Ins. Co. of Alexandria v. Hodgson, 6 Cranch, 206; Shottenkirk v. Wheeler, 3 Johns. Ch. 275; 2 Story Eq. Jur. §§ 887, 896; Huggins v. King, 3 Barb. 616; Code, § 69). As this court has the power, and is required to conform to the existing State practice, it will do so as far as practicable (Republic Ins. Co. v.. Williams, 3 Biss. 371). No right of the plaintiffs is destroyed or impaired in any way by the interposition of the defense submitted to the court (Goulet v. Asseler, 22 N. Y. 228, 229; N. Y. Life Ins. Co. v. Supervisor of N. Y., 4 Duer, 192; 1 Abb. Pr. 250; Eldridge v.. Adams, 54 Barb. 417; Hale v. Omaha Nat. Bank, 7 J. & S. 207; Thompson v. R. R. Co., 6 Wall. 134). The act of 1789 (1 Stat. at L. 276) was only intended to regulate processes ; there was no provision to assimilate either the practice or the pleadings of the State and federal courts. The act of 1872 is broader and more general in its spirit than the preceding acts, and a real, substantial and comprehensive change was intended by it — provided, such change were necessary in order to conform the federal practice to the State practice, and that the innovation could be made effectual without impairing any constitutional right; hence the force and relevancy of decisions made before 1872 disappear.
   Johnson, J.

This case comes up on a demurrer by the plaintiffs to the answer of the defendants.

The action is upon a judgment rendered by the circuit court of the United States for the district of Louisiana, in favor of the present plaintiffs against the present defendants. The answer sets up a variety of matters which are not defenses at common law against the judgment, but which are claimed to give the defendants an equitable right to prevent the enforcement of the judgment.

These matters the defendants insist are available to them as a defense in this suit by force of section 914 of the revised statutes of the United States.

That section prescribes that “The practice, pleading, and forms and modes of proceeding in civil causes, other than equity and admiralty causes, in the circuit and district courts, shall confirm as near as may be, to the practice, pleadings and forms, and modes of proceeding-existing at the time in like causes in the courts of record of the State within which such circuit or district courts are held, any rule of court to the contrary notwithstanding. ’ ’

It must be assumed that in a suit upon a judgment brought in a court of the State of New York the defense set up in the answer in this suit, would be available by way of answer if sufficient in substance to entitle the party to relief against the judgment. Such is the known and established law of procedure in the State of New York, introduced by sections 69, 150 and 167 of its code of procedure. The first of these abolishes the distinction between actions at law and suits in equity, and the forms of all such actions and suits theretofore existing, and declares that thereafter there shall be in that State but one form of action. The next section cited enacts that the defendant may set forth by answer as many defenses and counter-claims as he may have, whether they be such as had theretofore been denominated legal, or equitable, or both.

The last section named enacts that the plaintiff may unite in the same complaint several causes of action,, whether they be such as have been heretofore denominated legal or equitable, or both, under certain specified conditions.

These sections of the code deal with claims legal and equitable, and defenses legal and equitable set up by answer, and counter-claims of both characters.

In pursuance of the policy thus indicated, section 274 provides that judgment may be given for or against one or more of several plaintiffs and for or against one or more of several defendants, and it may determine the ultimate rights of the parties as between themselves, and it may grant to the defendant any affirmative relief to which he may be entitled.

It is of course obvious that this system, while it undertakes to provide for the means of administering indiscriminately legal and equitable remedies in substance founded upon legal and equitable rights, completely ignores all the former schemes of procedure founded on the recognition of their differences.

Now, from the provision of section 914 of the United States revised statutes, which is already set forth, equity and admiralty causes are completely excluded in terms. That section does not relate to them, except to effecc such exclusion. The jurisprudence of the United States has recognized this distinction, in numerous cases, as one of substance, as well as of form and procedure (Robinson v. Campbell, 3 Johns. 212 ; Bennett v. Butterworth, 11 How. 669; McFaul v. Ramsey, 20 Id. 526; Jones v. McMasters, Id. 22; Fenn v. Holme, 21 Id. 481; Thompson v. Railroad Company, 6 Wall. 134). In the last case cited, Mr. Justice Davis says, giving the opinion of the court: “ The constitution of the United States and the acts of Congress recognize and establish the distinction between law and equity.

“Theremedies in the courts of the United States are, at common law or in equity, not according to the practice of State courts, but according to the principles of common law and equity as distinguished and defined in that country from which we derive our knowledge of these principles. And although the forms of proceedings and practice in the State courts shall have been adopted in the circuit courts of the United States, yet the adoption of the State practice must not be understood as confounding the principles of law and equity, nor as authorizing legal and equitable claims to be blended together in one suit.”

In the case of Bennett v. Butterworth, above cited, Chief Justice Taney said, “The constitution of the United States, in creating and defining the judicial power of the general government, establishes this distinction between law and equity; and a party who claims a legal title must proceed at law, and may undoubtedly proceed according to the forms of practice in such cases in the State court. But, if the claim is an equitable one, he must proceed according to the rules which this court has prescribed regulating proceedings in equity in the courts of the United States.”

“ That these discriminations between legal and equitable rights and suits are substantial in the jurisprudence of the United States is further apparent from provisions of the statute law, as well as from the decision of the courts. Under section 721 of the revised statutes the laws of the several States, with certain exceptions, must be regarded as rules of decision in trials at common law, in the courts of the United States, in cases where they apply ; while, on the other hand, the law of equity in the courts of the United States is one and the same in every State, not dependent upon local law.”

“ Wherever a case in equity may arise and be determined under the judicial power of the United States, the same principles of equity must be applied to it, and it is for the courts of the United States, and for this [supreme] court in the last resort, to decide what those principles are, and to apply such of them, to each particular case, as they may find justly applicable thereto” (Neves v. Scott, 13 How. 270).

Nor are the statutes silent as to the forms and modes of procedure in suits of equity. Section 913 of the revised statutes declares that they shall be according to the principles, rules and usages which belong to courts of equity, except as modified by statute, or rules made in pursuance of statute, or by the supreme court.

That court has accordingly prescribed a body of rules regulating very largely and comprehensively the practice in equity.

It is claimed that inasmuch as the present action is one to enforce a judgment, and therefore not an equity cause, the procedure is to be conformed to that of the State courts upon such a cause of action ; and that as those courts allow an equitable right to set aside or restrain the execution of such a judgment by way of answer, the courts of the United States must conform to that- rule.

But this is a mere confusion of names. This so-called defense is an affirmative equitable right to the relief asked. It, under the cases and statutes cited, is to be admitted under the equitable principles and according to the equitable procedure of the courts of the United States. In that respect the procedure cannot be conformed to the State practice without overthrowing the whole scheme for the administration of equity in the courts of the United States. The action is at common law, the defense is substantially an action in equity, and it cannot, because it assumes the guise of an answer, or defense under the State law, escape from the control of the laws of the United States as to the modes of enforcing equitable rights.

The demurrer must be sustained and judgment given for the plaintiffs, with leave to defendants to amend on payment of costs within twenty days.  