Percy Farish, of Greenville, for appellants.
The decree of the United States Circuit Court of Appeals, Fifth Circuit, in Cause No. 8223, styled Geo. W. Armstrong v. The Alliance Trust Company, Ltd., 88 F.2d 449, is a final adjudication of all questions of usury in the case at bar, and is binding upon this court.
The familiar rule of res adjudicata, long settled everywhere, as this court knows, is that the rendition of a decree, or judgment, by a court of competent jurisdiction over the parties and the subject matter of the suit is forever conclusive upon the same parties and their privies, as to all matters determined or which might have been determined.
Gaines v. Kennedy, 53 Miss. 103 ; Hardy v. O'Pry, 102 Miss. 197 ; Dean v. DeSoto County, 135 Miss. 268 ; Bates v. Stricklin, 139 Miss. 636 ; Love v. Yazoo City, 162 Miss. 65 ; National Life Acc. Ins. Co. v. Prather, 172 Miss. 567 .
This doctrine, always vigorously applied by this court, has been extended to the point that a former judgment on the merits of a case is determinative of any and all issues presented, however erroneously decided, and is binding in a different cause of action between the same parties where such issues are essential to the latter suit.
Fair v. Dickerson, 164 Miss. 432 ; Watkins v. State Board of Pharmacy, 170 Miss. 26 .
Where a federal court, deriving its jurisdiction from the citizenship of the parties, and by administering the law of the state in which it sits, renders a judgment, such is entitled to the same sanctity and effect as would be due to the judgment of the state court in a like case and under similar circumstances.
Dupasseur v. Rochereau, 21 Wall. 130, 22 L.Ed. 588; Pendleton v. Russell, 144 U.S. 640 ; Embry v. Palmer, 107 U.S. 3 ; Crescent City, etc., Co. v. Butchers' Union, etc., Co., 120 U.S. 141 ; Shields v. Taylor, 13 S. M. 127; National Surety Co. v. Lee, 125 Miss. 517 ; G.M. N.R.R. Co. v. Hill Mfg. Co., 127 Miss. 644 ; New York Life Ins Co. v. Dumler, 149 Miss. 361 ; Thornton v. Natchez, 88 Miss. 1 .
The holding of the lower court that the decree was not binding upon it rests upon grounds that are plainly and palpably violative of the rule of res adjudicata.
Deposit Bank v. Board of Councilmen of Frankfort, 191 U.S. 499 , 48 L.Ed. 276.
Without at this time inquiring into the validity vel non of the extension agreement, the question arises whether appellee might raise and litigate such an issue in the courts of Mississippi. If appellee could have, with propriety, raised the bar of the statute of limitations in the suit filed in the United States District Court, and he failed to do so, is he now at liberty to do so in the courts of this state?
The transcript of the record in the federal courts shows that appellee filed his bill of complaint in the district court on January 14, 1936. At that time what were the circumstances facing the parties with reference to the statute of limitations? What facts bearing upon the extension agreement were then in appellee's possession? Did he then know he had grounds for its rescission and avoidance? Could the plea of the statute of limitations have been properly made in the federal litigation? If these questions are answered in the affirmative, under the sound and salutary rule adopted by this court, appellee is estopped from questioning the extension agreement and pleading limitations in the courts of this state.
Stewart v. Stebbins, 30 Miss. 66 ; Buford v. Kersey, 48 Miss. 642 .
It is familiar learning to this court that, in order for a mistake of fact to be relievable in equity by way of reformation, there must appear a mistake of both parties as to a material fact bearing upon the transaction. Moreover, a mutual mistake has reference to an intention, bi-laterally shared, which is not properly expressed by the deliberate act of the parties. Unless there can be ascertained a mutual intent of the parties — a meeting ground of the minds of both sides — equity is powerless to reform an instrument objectionable to one party into another instrument equally objectionable to the other party.
Whitney Central National Bank v. First National Bank of Hattiesburg, 158 Miss. 93 ; Mosby v. Wall, 23 Miss. 81 ; Rogers v. Clayton, 149 Miss. 47 ; Watson v. Owen,.
It is plainly upon the principle that a man cannot profit by his own conscious wrong that equity will reform at the instance of one taken advantage of while in error of a material fact.
12 Am. Jur., sec. 138; Columbia National Life Ins. Co. v. Black, 35 F.2d 571 , 71 A.L.R. 128.
Generally it may be said that equitable relief by way of rescission will be given from a unilateral mistake relating to a material feature of the contract of such grave consequence that enforcement of the contract would be unconscionable, if the party making the mistake was in the exercise of ordinary diligence, and relief can be given without serious prejudice to the other party, aside from the loss of his bargain.
9 Am. Jur., sec. 33, page 378; 59 A.L.R. 809; Hurst v. National Bond Investment Co., 117 So. 792 , 59 A.L.R. 807.
We submit that the lower court erred in granting rescission because (1) The proof does not show that the enforcement of the contract as actually made would be unscionable. (2) The proof does not show that appellee acted under a mistake notwithstanding the exercise of ordinary diligence. (3) The decree destroyed all of appellant's rights, although it was possible to restore the statu quo ante.
Cresswell v. Cresswell, 164 Miss. 871 .
Rescission of the extension agreement was improperly allowed because it sufficiently appears from the evidence that the error was the result of appellee's own negligence and lack of diligence.
1 Elliott on Contracts, sec. 110, page 189; 12 Am. Jur., sec. 137, page 629; 10 R.C.L. 297, sec. 40; Wall v. Wall, 177 Miss. 749 .
It is the firmly established law of this state, in so far as the courts of law are concerned, that a person cannot avoid a written contract deliberately made, on the ground
that he did not read it or have it read to him, and that he supposed its terms were different, unless he was induced not to read it or have it read to him by the fraudulent representations of the other party.
Continental Jewelry Co. v. Joseph, 140 Miss. 582 ; Gunter v. Molphus Co., 149 Miss. 603 ; Fornea v. Goodyear Yellow Pine Co., 178 So. 914 .
The courts unanimously hold that if a party would preserve his right to rescind a contract, he must promptly notify the other party of his intent not to be bound thereby, and that he must not vacillate in his purpose but adhere to it, avoiding any conscious recognition of the contract as binding upon him.
Foster v. Swanson, 306 Ill. 518 , 138 N.E. 119; Kennedy v. Bender, 140 S.W. 49; Gibson v. Alford, 161 Ga. 581 , 132 S.E. 442; Cleaves v. Thompson, 122 Kan. 43 , 251 P. 429; Columbus Hotel Corp. v. Hotel Management Co., 116 Fla. 464 , 156 So. 893 ; Holman v. Gulf Refining Co., 76 F.2d 94 ; Gravenhorst v. Zimmerman, 236 N.Y. 22 , 27 A.L.R. 1465; Ayres v. Mitchell, 3 S. M. 683; Hansen v. Field, 41 Miss. 712 .
We understand the basis upon which equity will act to relieve from mistakes to be that aid can be granted to one party without prejudice to the other party; that so long as the parties have not materially altered their position, the relief to the mistaken party is equitably balanced by giving back to the other party all of the rights surrendered in the relievable transaction. The premise for relief is the absence of hardship upon the parties. The only exception known to the courts appears to be that, if restoration is impossible, relief can be granted only where the clearest equity makes it imperative.
Martin v. Broadus, Freem. Ch. Rep. 35; White v. Trotter, 14 S. M. 30; Hanson v. Field, 41 Miss. 712 ; Dean v. Robertson, 64 Miss. 195 ; Bonner v. Bynum, 72 Miss. 442 ; Webb v. Webb, 99 Miss. 234 ; Pound v. Clarke Hood Co., 70 Miss. 263 ; Shipp v. Wheeless, 33 Miss. 646 .
The only exception to the requiring of restoration, as recognized by all the courts, is that if it has become impossible to restore the former status, equity will nevertheless rescind if the clearest equities of the complainant make it imperative.
Such an exception cannot possibly apply to the case at bar. Appellee has not claimed that it does apply. Furthermore the status of both parties can be easily restored. Not the slightest prejudice will accrue to either side. Appellee cannot complain of any hardship being thereby worked upon him. Moreover, we submit that under any view of this case the equities of appellant are just as strong and just as deserving of protection as may be the equities of appellee.
Therefore, under all the authorities that this court recognizes, if cancellation of the agreement extending the maturity of the debt is to be decreed, this court must preserve the equities of appellant by awarding a period of nineteen days in which to take action on the note. Our position on this appeal has been and still is, that, although we do not believe that the conditions necessary for rescinding a contract are present in this case, the decree of the lower court, in all equity and fairness, should not have permitted appellant's rights to be destroyed in granting relief to appellee.
We contend most vigorously that whether the instrument be rescinded or reformed, this court must, in either event, restore the statu quo ante by awarding appellant nineteen days in which to proceed on the note. Reformation is no less an equitable remedy than rescission. When the former operates inequitably upon the rights of the defendant, equity will refuse to reform. If one party has materially altered its position, as is the case here, a contract can only be reformed by placing both parties in their former status. If appellee would seek the aid of equity to reform his undertakings, he must be required to do equity.
23 R.C.L. 346, sec. 41; 1 Pomeroy's Equity Jurisprudence (4 Ed.), sec. 388; Swope v. Missouri Trust Co.,
26 Tex. C. App. 133, 62 S.W. 947 ; 21 C.J., sec. 849; Commodore Corp v. Davis, 178 Miss. 376 , 172 So. 867 ; Strickland v. Webb, 152 Miss. 421 ; Moss v. Miss. Livestock Sanitary Board, 154 Miss. 765 ; Morgan v. Collins School House, 160 Miss. 321 ; Cox v. Hartford Fire Ins. Co., 160 So. 741 ; 21 C.J., sec. 845.
We contend that, if the decree of the lower court is reversed a final decree should be entered here, and that the case should not be remanded for further proceedings under the moratorium statute. Appellee is not entitled to invoke moratorium relief because the record affirmatively shows that he has not made out a proper case for such relief.
W.A. Geisenberger and Engle Laub, all of Natchez, and Wells, Wells Lipscomb, of Jackson, for appellee.
The United States District Court and Circuit Court of Appeals were without jurisdiction, and their judgments are void and consequently are not res adjudicata.
Constitution Miss., Art. 3, sec. 8; U.S.C.A., Title 28, sec. 41.
Where court did not have jurisdiction of subject matter of parties judgment can be attacked collaterally anywhere.
Digest, sec. 488-9, "Judgment."
This case in the federal court possesses no more virtue than a proceeding in a moot court. It was a mere thundering in the index. It was the duty of the defendant to have raised and brought to the attention of the court the question of lack of diversity of citizenship and the defendant, having failed to do this, cannot now stand on that judgment even conceding that the issue under the peculiar agreement by which the bankruptcy composition proceeding was tied into the equity suit gave the court any right to proceed to adjudicate the rights of the parties.
The jurisdiction of the federal court in the equity suit as well as in the composition case, Equity Cause No. 170, are founded upon section 74, paragraph (g) of the amendment to the bankrupt act.
The court could not have taken jurisdiction under said paragraph of the bankruptcy act, because the composition case was not before it and was not determined by it.
It was not an extension of a debt that the parties sought, but a waiver of the statute of limitations by appellee.
The correspondence between the parties clearly shows that the appellee was willing to waive limitation for a period of six months and no longer.
A unilateral error, it has been said, does not avoid a contract. A unilateral mistake accompanied by other facts may be sufficient, however. It is said that mistake may be a good defense where hardship amounting to injustice would be inflicted on a party by holding him to his apparent bargain and where it is unreasonable to hold him to it.
12 Am. Jur., sec. 133.
The party making the mistake in the signing of the document is required to show, when he applies for a rescission, that he has exercised diligence and care. We submit we have shown diligence and care, that the conduct of appellee meets the requirements of the opinion of the court in Crosby v. Andrews, 55 So. 57, and likewise the requirement that the appellee acted as a reasonably conscientious man would act.
Knowledge by one party of the other's mistake regarding the expression of the agreement is equivalent to mutual mistake.
12 Am. Jur., Contracts, sec. 138; Continental Casualty Co. v. City of Ocala, 149 So. 386.
We submit that this is a case of a mistake of one party in the expression of the agreement, where notice was given most promptly to the other party.
12 Am. Jur., Contracts, sec. 133.
The effect of knowledge by one party of the mistake of the other as to the expression of the agreement should be and was equivalent to a mutual mistake.
12 Am. Jur., Constracts, sec. 138.
A mutual mistake will permit of reformation of the document; a unilateral mistake would allow rescission of the document with restoration of the parties to the status quo ante. The restoration of the status quo of the parties should only be allowed where one of the parties has been misled by the document to his prejudice and has acted upon the document and its expression. Where a party, however, has notice that the document has been repudiated and that it does not express the true intent and agreement of the parties, and that there was no meeting of the minds respecting the expression in the document, and has this notice some fifteen days before the note would prescribe, and has the opportunity of proceeding on its note without delay, but with knowledge of the one person's mistake elects to stand on the document, we submit it does not appear — it should not appear — to any court, and did not so appear to the trial court, how there has been such a reliance on the document causing the defendant (appellant) to act to his prejudice as would entitle a restoration of the status quo, the evidence showing that knowledge was brought to the defendant (appellant) of the mistake in the expression of the document, and that it was something the complainant (appellee) had no intention of agreeing to, and that the document did not express his purpose and understanding, and that such was done before the statute had run and at a time when the appellant had ample time to proceed with his foreclosure before any question of the running of the statute could be injected into the case.
The rule under which a reformation for a mutual mistake is allowed is clearly set forth in Restatement of the Law of Contracts, Volume 2, Section 504: "Except as stated in Sections 506 and 509-511, where both parties have an identical intention as to the terms to be embodied
in a proposed written conveyance, assignment, contract or discharge, and a writing executed by them is materially at variance with that intention, either party can get a decree that the writing shall be reformed so that it shall express the intention of the parties, if innocent third persons will not be unfairly affected thereby."
2 Restatement of the Law of Contracts, sec. 505.
The courts of this state have not hesitated to reform instruments where a mutual mistake is clearly shown.
Wall v. Wall, 171 So. 675 ; Brimm v. McGee, 80 So. 379; McDaniel v. Inzer, 52 So. 359; Dochterman v. Marshall, 46 So. 542, 92 Miss. 747 ; Newman v. J.J. White Lbr. Co., 139 So. 838 ; 162 Miss. 581 .
Where reformation is possible it is generally the only remedy permissible, since the mistake of the parties related to their expression only, and to decree rescission and freedom from all obligation would be unnecessary violation of their intent. But where the error is in the substance of the bargain, not in its expression that is where the mistake relates to the way the agreed terms will apply to the external world rescission with restitution of whatever has been parted with is the only relief possible, though this may be sought in a variety of ways appropriate for different situations.
5 Williston on Contracts, sec. 1557; 12 C.J.S. 945; Churchill v. Meade, 82 P. 368, 92 Or. 626 .
It is well settled that where, due to a mutual mistake of fact, the minds of the contracting parties fail to meet, equity may rescind the apparent contract and, further, that a unilateral mistake of fact going to the essence of the contract may be ground for equitable cancellation, but not for reformation.
Liddell v. Sims, 9 S. M. 596; Lewis v. Starke, 10 S. M. 120; Harrison v. Stowers, Walker 165.
A rescission of a contract demands as a general rule the restoration of the status quo of the parties; but a change in the status of the party after he has received
notice of demand for rescission, and which he could have prevented, will not prevent a rescission.
13 C.J., Contracts, pages 601, 619; Ralya v. Atkins, 157 Ind. 331 , 61 N.E. 726; Moline Jewelry Co. v. Crew, 171 Ala. 415 , 55 So. 144; Hayden v. Boyd, 8 Ala. 323 ; Hobbs v. Columbia Falls Brick Co., 157 Mass. 109 , 31 N.E. 756; Kingman Colony Irr. Co. v. Payne, 78 Or. 238 , 152 P. 891; Kelly v. Short, 75 S.W. 877; White v. Trotter, 14 S. M. 30; Hanser v. Field, 41 Miss. 712 ; Deans v. Robertson, 64 Miss. 195 ; Webb v. Webb, 99 Miss. 234 ; Pounds v. Clarke, Hood Co., 70 Miss. 263 .
In the case at bar, appellee, in rescinding the contract, did so promptly and restored the appellant to its prior position before he had sustained any injury and before he had changed his position. Appellant immediately, by implication if not otherwise, acquiesced in the rescission and was thereafter bound by it.
It is only where a party induces the other party to delay commencement of his suit that an estoppel against pleading the statute of limitations arises.
37 C.J., Limitations of Action, page 725, sec. 44, and page 729, sec. 45.
In answer to the inquiry of the court as to whether appellee was entitled to a rescission or to a reformation of the instrument, we reply that he is entitled to a reformation and if not a reformation certainly a rescission, under the rule laid down in 12 Corpus Juris Secundum, page 979: "Where the material mistake of plaintiff is accompanied by fraud or other unconscionable action on the part of the other party, or where the mistake is entertained by plaintiff with the knowledge of defendant under circumstances imposing on him the duty to correct it, equity will decree a rescission. As to the necessity that the unilateral mistake be accompanied by fraud or other inequitable circumstance for which the other party is responsible there is a division of opinion; it is the rule in some jurisdictions that intentional fraud is not required, and that a substantial mistake of the party seeking
relief will be sufficient if such course is in accordance with established rules of equity and seems reasonable and just to the court under all of the circumstances of the case; in other jurisdictions, however, it seems to be the rule that an instrument will not be set aside on the ground of a mistake of one of the parties unless such mistake has been superinduced by the fraud of the other, and that the showing as to the fraud must be convincing."
If the court should, despite the argument of the appellee, reverse the decision of the lower court, it should unquestionably remand the case for further action of the lower court on the question of the relief prayed for under the moratorium statute. The lower court withheld any decision on this question, stating that, in view of the findings which it had made to the effect that the extension contract was rescinded and the debt barred by the statute of limitations and therefore unenforceable, there was no reason to find on this question one way or the other. As a consequence this record appears before the court without any action or findings of the lower court on this proposition. It is therefore an open one for decision by the lower court before the Supreme Court can pass upon it, as this court is not a court of original jurisdiction but one only of appellate jurisdiction and can only pass upon questions that have been decided one way or another by the lower court.
Argued orally by H.P. Farish, for appellant, and by C.F. Engle, for appellee.