Stewart Lumber Co. v. Downs

Sherwin, J.

The petition alleged that on the 24th of October, 1904, "the defendants, Fred Downs and Sophia Downs, made and delivered to the plaintiff their promissory note for $1,008, and secured the same by a mortgage on real estate. Judgment for the amount thereof and for a foreclosure of the mortgage was asked against said defendants. In an amendment to the petition it was alleged: That in 1903 the defendant M. Need obtained a judgment against her codefendant, Fred Downs, for the sum of $770.45 and costs. That prior to the rendition of said judgment Downs had -made payments to M. Need on her claim against him aggregating about $450, which she failed and refused to credit and indorse thereon, although the same should have been so indorsed.. That the judgment against Downs was rendered on his default, and without any knowledge on his part that he had not been given credit for the payments so made. The petition further alleged that the action of the said M. Need in so failing and refusing to credit Downs was in fraud of the plaintiff’s rights. The plaintiff prayed that the sums so paid by Downs be credited on the Need judgment. The defendant Need demurred to the amended petition, and the demurrer was sustained. The plaintiff thereupon electing to stand on its pleading, judgment was entered dismissing its petition as to M. Need, and this appeal followed.

For the purposes of this case, it must be conceded that the Need judgment against Downs was so far as the amount thereof is concerned the result of fraud or mistake. The demurrer admitted that it was too large by the aggregate amount of the payments alleged to have been theretofore made by Downs, and that Downs suffered a default judgment to be taken against him, believing that he had been properly credited with the amount so paid. If the payments were in fact made as alleged, one of two things must be true: The defendant Reed took the judgment for the amount she did either through fraud or mistake. At the time such judgment was taken, the plaintiff was a creditor of Downs, and its security was seriously impaired, if not wholly destroyed, by such erroneous or fraudulent judgment.

The question for determination, then, is whether the plaintiff may have the judgment corrected as to its amount in this direct equitable proceeding. That this suit is a direct attack on the judgment in the respect indicated can not, we think, be seriously questioned. A direct attack on a judgment is an attempt to -amend,, correct, reform, vacate, or enjoin the execution of the same in a proceeding instituted for that purpose; and it is a general rule that, when the elements of fraud or mistake are involved in the issue, the attack is direct. Earle v. Earle, 91 Ind. 27. Thompson v. McCoekle, 136 Ind. 484 (34 N. E. 813, 36 N. E. 211, 43 Am. St. Rep. 334); Morrill v. Morrill, 20 Or., 96 (25 Pac. 362, 11 L. R. A. 155, 23 Am. St. Rep. 95). The plaintiff was not a party to the suit between Reed and Downs, nor could it have been made a party because at that time its claim against Downs was not secured by the mortgage which it now seeks to foreclose. Nor would it have been a necessary party had it been otherwise, for the suit of the defendant Reed was based on notes which'were unsecured. Not being a party nor a privy to the action or judgment against Downs, the plaintiff could not have the judgment reviewed by appeal or writ, and 'hence its' only remedy lies in an appeal to a court of equity to have the same corrected. That a stranger .to a judgment which is the result of fraud or collusion whose rights are affected thereby may so proceed we think is well settled by the authorities and sustained by equitable principles which can hardly be denied. The principles of natural justice and sound morals will not permit a man to gain an advantage by fraudulent acts; and when one has gained an unfair advantage in proceedings at law by fraud or misconduct, whereby the court is made an instrument of injustice, equity will interfere to prevent him from reaping the benefit of such unfair advantage. It would be grossly inequitable to allow a fraudulent judgment to defeat a just claim against the judgment debtor, and the authorities are practically unanimous in holding that á judgment procured by the fraud and collusion of the judgment creditor and debtor may be attacked by a creditor who will be injured if it be allowed to stand. The petition, in substance, alleged that Mrs. Heed took a judgment against Downs for $500 more than was due her, and that by so doing she perpetrated a fraud on the plaintiff and on Downs.' If such was the fact, and the demurrer admitted as much, she should not in my judgment be permitted to profit' thereby to the detriment of the plaintiff.

On the proposition that a stranger to a judgment may impeach it for fraud or mistake, see the following cases: Marine Ins. Co. v. Hodgson, 7 Cranch, 332 (3 L. Ed. 362); Beeler v. Bullit, 3 A. K. Marsh. (Ky.) 280 (13 Am. Dec. 161); Downs v. Fuller, 2 Metc. (Mass.) 135 (35 Am. Dec. 393); Nason v. Blaisdell, 12 Vt. 165 (36 Am. Dec. 331); Vose v. Morton, 4 Cush. (Mass.) 27 (50 Am. Dec. 750); Scoville v. Brock, 79 Vt. 449 (65 Atl. 577, 118 Am. St. Rep. 975); Delaney v. Brown, 72 Vt. 344 (47 Atl. 1067); Inman v. Mead, 97 Mass. 310; Sargent v. Salmond, 27 Me. 539; Edson v. Cumings, 52 Mich. 52 (17 N. W. 693); Bergamn v. Hutcheson, 60 Miss. 872; Mechanics' Nat. Bank v. Manufacturing Co., 33 N. J. Eq. 486; Freeman on Judgments, section 336, 337, 512; Freeman on Executions (3d Ed.) section 136; Bixby v. Adams County, 49 Iowa, 507. That fraud or mistake in the amount of a judgment may be corrected by a court of equity is settled by our own decisions. Bernard & Co. v. Douglas et al., 10 Iowa, 370; Partridge v. Harrow, 27 Iowa, 97; Barthell v. Roderick, 34 Iowa, 517; Snyder v. Ives, 42 Iowa, 157; Bixby v. Adams, supra; Milliman v. Eddie, 115 Iowa, 530. In Bernard & Co. v. Douglas the plaintiffs brought an action in equity to set aside a judgment by confession. They were junior creditors and strangers to the judgment; but it was held that they might maintain the action. The transaction under consideration is analogous to fraudulent conveyances or to collusive and fraudulent legal proceedings which are everywhere held to be subject to attack by existing creditors. A judgment obtained by fraudulent and collusive legal proceedings is no more sacred than any other form of fraudulent conveyance and may be attacked by creditors, no matter how legal it may be in form. 20 Cyc. 397, and cases cited.

The appellee urges that, under section 3440 of the Code, the judgment against Downs can not be modified. The section was evidently intended to apply only to parties or privies to the judgment, and not to those in the plaintiff’s situation. Otherwise there could be no attack on a fraudulent judgment by any stranger thereto, no matter whether a creditor or not.

The sufficiency of the petition is challenged and it must be admitted that it is not clear and definite 'in its allegations of either fraud or mistake. But it was not properly attacked in the trial court, and, for the purposes of this appeal, I am of the opinion that it should be held to fairly present the issue discussed. A majority of the court disagree with me as to the right of the plaintiff to have the judgment corrected as to its amount, and hold that a judgment rendered for a larger amount than is due the judgment creditor can not be challenged or corrected at the suit of a stranger thereto, unless it be shown that it was procured by the fraud and collusion of the judgment debtor and creditor. This conclusion is based on the general rule that, where no fraud or collusion has been shown in the recovery of the judgment, it is conclusive of the fact and the amount of the indebtedness of the judgment debtor, and can not be collaterally impeached by third persons in a subsequent suit where such indebtedness is called in question. 23 Cyc. 1286-1287, and cases cited; Freeman on Judgments, sections 335, 336; Black on Judgments, section 293, 294, 317. It is true that the petition does not allege fraud and collusion on the part of Mrs. Need and Downs. It goes no farther than to allege that a judgment by default was taken against Downs for a much larger amount than was due Mrs. Heed from him, and that such act on the part of Mrs. Heed was in fraud of the plaintiffs rights.

A majority of the court think the judgment should he affirmed, and it is so ordered. — Affirmed.

Deemer, J. — I concur in the result.