Goldsmith v. Baker , 567 S.W.2d 590 ( 1978 )

O’QUINN, Justice.

Appellants, Edward Goldsmith and wife, Juliette Goldsmith, filed their petition for bill of review in district court seeking to set aside a default judgment taken against them in 1974, in a suit brought by Vernon R. Baker and wife, Audane Baker, appellees in this appeal, for damages growing out of sale to appellees of a giftshop franchise.

After hearing on the petition before the court without aid of a jury, the court entered judgment that the Goldsmiths take nothing upon the conclusion as a matter of law that “The Goldsmiths failed to prove by a preponderance of the evidence that they had a meritorious defense to the cause of action of the Bakers alleged to support the judgment in the prior suit.” (Emphasis added)

The Goldsmiths on appeal bring two points of error. We will sustain the points of error and reverse the judgment of the trial court.

In the original cause the Bakers sued the Goldsmiths, their son Warren Goldsmith, and Mark S. Barrow, claiming that the four defendants entered into a conspiracy to sell the Bakers a giftshop franchise, using as inducement to purchase fraudulent misrepresentations, and that in reliance the Bakers paid $10,000 for the franchise, incurred other expenses and losses, quit their jobs in another city and moved to Austin to establish the shop.

In their petition for bill of review the Goldsmiths alleged that after being served with citation in the original suit, they wrote and mailed an answer addressed to the judge of the district court in which the suit was pending and subsequently received a certified mail receipt from the Travis County courthouse prior to appearance day. Thereafter default judgment was entered against the Goldsmiths. The Goldsmiths alleged they received notice of the judgment more than thirty days after its entry, subsequent to which they filed their petition for bill of review.

To meet the requirement of showing a meritorious defense, appellants alleged that they had agreed with the Bakers only to take over a lease on the property located in Austin; that they made no misrepresentations; and that any representations made to the Bakers by appellants were true. The Goldsmiths further alleged that they did not receive from the Bakers a fee in exchange for a franchise, and that if the Bakers paid a franchise fee, payment was made either to the other defendants or to a corporation controlled by the other defendants, but that the Goldsmiths had no knowledge of any such payment. Appellants further asserted that the reason the Bakers were unsuccessful in their attempt to open the planned store lay in the fact that the Bakers were lacking in financial strength.

After hearing before the court, the trial court found as a matter of fact that the answer appellants sent to the court was delivered to the mail room of the Travis County courthouse, where it was properly received and forwarded to the office of the judge of the court in which suit was pending, after which it disappeared through no fault of the Goldsmiths. The trial court also concluded that the answer as a matter of law constituted answer to the suit; and found as a matter of fact that the Goldsmiths had no notice of the default judgment until more than thirty days after its entry.

The trial court entered judgment, nevertheless, that appellants take nothing by their suit because the court concluded as a matter of law that “ . . . the Goldsmiths failed to prove by a preponderance of the evidence that they had a meritorious defense to the cause of action of the Bakers alleged to support the judgment in the prior suit.” (Emphasis added)

The Goldsmiths have appealed and bring two points of error. First, appellants assert the court erred in entering a “take nothing” judgment against the Goldsmiths because the Goldsmiths did not have the burden of showing by a preponderance of evidence that they had a meritorious defense to the cause of action asserted by the Bakers. Second, appellants urge that the adverse finding is against the great weight and preponderance of the evidence.

In reaching a decision in this appeal, the Court’s determination must rest upon examination of the record on the basis of viewing the effort by the • Goldsmiths to reinstate themselves in court through a petition for bill of review, not by a suit against the Bakers. To succeed in a proceeding for bill of review to set aside the prior final judgment, the petitioner “ . . . must allege and prove: (1) a ' meritorious defense to the cause of action alleged to support the judgment, (2) which he was prevented from making by the fraud, accident or wrongful act of the opposite party, (3) unmixed with any fault or negligence of his own.” Alexander v. Hagedorn, 148 Tex. 565, 226 S.W.2d 996, 998 (1950).

It is well established, by decisions prior to and after the decision in Hagedorn, that proof of the elements there enumerated involves trial of two issues. First, the complaining party proves that he was prevented from presenting a meritorious defense to the original cause of action by fraud, accident, or by wrongful act of the opposite party, and petitioner was not himself negligent, thereby entitling petitioner to a retrial of the cause of action on the merits. Second, the cause of action is retried on the merits.

In 1961 the Supreme Court held, in an opinion by Chief Justice Calvert, that: “In a bill of review proceeding the plaintiff must allege and prove that he was not negligent in suffering the default judgment to be rendered against him and that he has a meritorious defense to the suit. Our decisions require that the two issues be tried together so that the court may render a new final judgment.” (Emphasis added) McEwen v. Harrison, 162 Tex. 125, 345 S.W.2d 706, 710 (1961).

The trial court in the case now on appeal held that the Goldsmiths “failed to prove by a preponderance of evidence that they had a meritorious defense . . . ” (Emphasis added) It is apparent that the trial court held that the Goldsmiths failed on the second issue described by the Supreme Court and held, further, that the Goldsmiths had the burden of persuasion on that issue.

The rule is settled that when a person has been deprived of his rights through no fault of his own, and a court of equity in due exercise of its discretionary powers grants relief, the grant is one of “ . . . relief by retrying the case upon its merits, and the former judgment may be set aside and such relief will be granted as is appropriate and warranted by pleading and proof on the entire case.” (Emphasis added) Texas Employers’ Ins. Ass’n v. Arnold, 126 Tex. 466, 88 S.W.2d 473, 474 (1935), citing with approval and quoting from Humphrey v. Harrell, 29 S.W.2d 963, 964 (Tex.Comm’n App.1930, jdgmt adopted).

McDonald states the rule in this language: “The controversy turns upon two issues: (I) Was the judgment complained of rendered as a result of fraud, accident, or mistake, without the negligence of the complainant either in the course of the former action or after judgment? (II) Was the judgment incorrect? The burden is upon the complainant to establish the affirmative of the elements of the first issue. If he does so, the burden of proof upon the second issue rests upon the party who would have had such burden had no judgment been entered.” (Emphasis added) 4 McDonald, Texas Civil Practice, sec. 18.29.

The trial court found that the Goldsmiths had met and discharged their burden under the first issue. Thereafter the burden of proof rested upon the Bakers who had the burden prior to entry of the default judgment.

It is obvious that the Supreme Court in McEwen v. Harrison, supra, expressly adopted the view found in McDonald, for there the Court declared, “If ... a defendant has not been negligent in suffering a default judgment to be rendered against him by a court which had jurisdictional power to render it, or in permitting it to become final, and if he has a meritorious defense to the suit, he may still have the suit tried on its merits with the right to require the plaintiff to prove his case and the corresponding right to establish his defense.” (Emphasis added) 345 S.W.2d 706, 710.

The language of the Supreme Court in McEwen clearly reiterates the rule as stated by that Court a century earlier. In Witt v. Kaufman, 25 Tex.Supp. 384, 387 (1860), Chief Justice Wheeler, speaking for the Court, after finding the defendant had established entitlement to have the judgment declared void, ordered, in the same proceeding, a retrial of the cause of action for the “purpose of doing full and complete justice between the parties . . ” and directed “ . . judgment for the plaintiff upon the cause of action on which the judgment . . . was rendered, if, upon the merits, the plaintiff was entitled to judgment.” (Emphasis added)

Once a meritorious defense has been shown, that is, a showing by probative evidence that the result probably would have been different, “ . . the parties are then relegated to their original status of plaintiff and defendant, with the burden of proof resting upon the plaintiff to make his case . ” (Emphasis added) Crosby v. Di Palma, 141 S.W. 321, 325 (Tex.Civ.App. El Paso 1911, writ ref’d).

The judgment of the trial court is reversed. The cause is remanded to the trial court with instructions that the suit be tried on the merits with the burden of proof on plaintiffs below to make their case, in conformity with this opinion.

Reversed and Remanded with Instructions.