#### H. R. Dolan, Appellee, v. E. P. Buckley et al., Appellants.

1 SET-OFF AND COUNTERCLAIM: Distinct Transaction. A eounter-claim need not arise out of the transaction on which plaintiff sues.

2 SET-OFF AND COUNTERCLAIM: Counterclaim by Surety. A surety, when sued jointly with the principal, may join with the principal in a counterclaim whieh the principal alone holds against the plaintiff.

,3 DEEDS: Construction — Merger—False Representations. A cause of aetion based on false representations as to the terms and conditions of an outstanding mortgage is not merged in the deed taken for the premises.

*1364
      *Appeal from Linn District Court.*— John T. Mofeit, Judge.

June 24, 1924.

Aotion on a promissory note. Defendants pleaded a counterclaim. A demurrer to tbe counterclaim was sustained. Defendants elected to stand upon tbe counterclaim, and judgment was entered dismissing tbe counterclaim, and in favor of the plaintiff for tbe amount due on tbe *note.*—

Reversed.

*Johnson, Donnelly & Lynch,*for appellants.

*C. J. Haas,*for appellee.

Faville, J.

l. set-ops- abb dfstSof^rans-1: aotion. Appellee sues on a promissory note signed by appellant E. P. Buckley as principal and Delia C. Buckley as surety. By way of counterclaim, appellants allege that appellant B. Buckley entered into a written eon-tract with appellee for tbe purchase of a certain farm. A copy of tbe contract is attached to tbe answer. Tbe contract provided for tbe conveyance of tbe premises at a futures date, and that tbe conveyance was to be subject to a certain mortgage, to run for a period of five years, with interest at five and one-half per cent per annum, payable annually. It is alleged in tbe counterclaim that, at tbe time of final settlement, appellee represented to tbe vendee (appellant E. P. Buckley) that be had placed a mortgage on tbe premises, conforming to the terms of tbe written contract as to tbe interest rate and ■date of payment. It is alleged that tbe said E. P. Buckley relied on the representations so made by appellee, and bad no knowledge that they were not true; that be accepted tbe deed, assuming the mortgage then upon tbe premises. It is alleged that the representations were untrue. Appellants sought to recover damages in tbe sum of $1,600.

Tbe demurrer is based upon several grounds. -

It is alleged that tbe counterclaim does not appear to arise out of tbe transaction pleaded in the' petition, and is not connected with tbe subject-matter of tbe action. It is not necessary that a counterclaim so arise or be so connected. Code Section 3570.

*1365
      2 set-oot and countefoiafmIM: by surety. It is contended that the counterclaim does not plead a cause of action existing in favor of all of the appellants against the appellee. The transaction out of which the counterclaim arose was between.appellee and appellant E. P. Buek-onty- Appellant Delia C. Buckley was not a party to that transaction. Is the counterclaim in favor of E. P. Buckley now available to both appellants in this action?

It is alleged in the counterclaim that Delia C. Buckley is a surety only on the obligation sued upon by appellee.

Under Code Section 3570, a counterclaim may be “any new matter constituting a cause of action in favor of the defendant, or all of the defendants, if more than one, against the plaintiff.” It is contended that no cause of action existed in favor of the defendant Delia against the plaintiff, and that, therefore, the de•murrer was well taken. Both appellants joined in the counterclaim. Was it available to Delia? As-stated,.she was but a surety on the note sued on by appellee. Assuming that she alone had been sued in this action, could she have pleaded in her behalf the counterclaim available to her principal?

The question was before us in *Reeves v. Chambers,*67 Iowa 81, wherein suit was brought against the principal and surety on an injunction bond. A counterclaim was pleaded, growing out of matters between the plaintiff and the principal on the bond only. It was contended that such a counterclaim was not available to the other defendant, the surety. We recognized the fundamental rule that a surety may set up any defense which would be available to his principal. If sued alone, the surety may, with the consent of the principal, avail himself, by way of counterclaim, of a debt due from the plaintiff to his principal. Code Section 3572.

The surety in this case has no personal claim against ap-pellee ; but the policy of the law is to avoid a circuity of actions. In the *Reeves*case, we said: *

> *‘ ‘*The position of the surety is such that the principal should be allowed to defeat recovery on the bond if he can.”

Under the facts alleged in the counterclaim, Subdivision 3 of Section 3570 is not. applicable, and the counterclaim was available to both defendants. As bearing on the question, see, *1366also, Beh v. Bay, 127 Iowa 246, 248; Cohn, Baer & Berman v. Bromberg, 185 Iowa 298, 305.

The demurrer raises the question that it appears from the facts pleaded in the counterclaim that the contract referred to was merged in the deed, and that the terms of the deed are final.

3. DEEDS: construction; merger: false representations. The allegations of the counterclaim do not present a case of merger. The counterclaim is predicated upon alleged misrepresentations of fact as to the terms and provisions of the then outstanding mortgage against the premise~. There were no recitals in the deed, so far as the counterclaim declares, respecting the items wbk.h it is claimed were misrepresented by appellee. The counterclaim alleges that, at the time of the delivery and acceptance of the deed, the vendor misrepresented the facts as to the terms and condilions. of the outstanding mortgage. This was an affirmative act. It was, in a way, independent of the contract and the deed. It presents a very different situation from one where a• deed is tendered and accepted without anything more. It is alleged that. affirmative representations were made, which were relied upon by the vendee, and which were false. Under such a situation, the appellant is not defeated of his right of action for the fraud committed, either by way of counterclaim or by independent action, as he may see fit, by acceptance of the deed withrnii~ 1i,w1~1,~c~ of tho f~i~ts

It is contended that fraud is not alleged in the counterclaim It is not essential that the words ``fraud" or ``fraudulent'' be used in an action based on deceit or false representations. The allegations of the counterclaim might well have been amplified, but they were sufficient to set out a case of damages by reason of false representations as to an existing fact.

The demurrer avers that the counterclaim does not allege that appellant E. P. Buckley has paid the interest on the incum-brance referred to. This was not a prerequisite to the maintenance of the cause of action pleaded in the counterclaim. No question of the proper measure of damages is involved in the ruling on the demurrer.

We reach the conclusion that the court erred in sustaining *1367tbe demurrer to appellants’ counterclaim, and the judgment is, *therefore,*— Reversed.

Arthur, C. J., Evans and PrestoN, JJ., concur.