Opinion ID: 1746157
Heading Depth: 1
Heading Rank: 2

Heading: Doctrine of Relation Back of Counterclaims

Text: The doctrine of relation back is applicable under the facts in this case because when Sharp filed suit against Shaw for the unpaid debt on the copiers, it sued in regard to a copier that had been the subject of representations at the Miami conference in August 1975. The parties do not dispute the fact that Sharp's suit against Shaw for nonpayment of the account was within the statute of limitations, and, likewise, there can be no dispute that if Shaw had not filed his claim concerning the SF 726 as a counterclaim to Sharp's action, he would have been forever barred from making that claim, because it arose out of a transaction to which plaintiff's complaint related. It is of no moment that the suit related back to the sales of other copiers that may not have been part of the same transaction; it is sufficient that the subject of one of the claims was a part of the same transaction. The problem in this case arises from our Rule 13, A.R.Civ.P., dealing with counterclaims and cross-claims. Rule 13(a) provides: (a) Compulsory Counterclaims. A pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim.... [Emphasis added.] Rule 13(c) provides: All counterclaims other than those maturing or acquired after pleading shall relate back to the time the original plaintiff's claim arose. Rule 13(b) provides: (b) Permissive Counterclaims. A pleading may state as a counterclaim any claim against an opposing party not arising out of the transaction or occurrence that is the subject matter of the opposing party's claim. According to the Committee Comments to Rule 13(c), the reason for the relation back of counterclaims was to harmonize Rule 13(c) with Title 7, § 355, Code of Alabama (1940). This statute is currently codified as Code 1975, § 6-8-84, and it provides: When the defendant pleads a counterclaim to the plaintiff's demand, to which the plaintiff replies the statute of limitations, the defendant is nevertheless entitled to his counterclaim, where it was a legal subsisting claim at the time the right of action accrued to the plaintiff on the claim in the action. As in the majority of American jurisdictions, Alabama case law has always applied the indestructability-of-recoupment doctrine. (Although a somewhat broader concept, the modern compulsory counterclaim is basically equivalent to common law recoupment. See A.R.Civ.P. 81(e).) For example, Harton v. Belcher, 195 Ala. 186, 190, 70 So. 141, 142 (1915), held: Defendant's claim sprung out of the contract between the parties and affected the considerations moving between them; it ran with the contract, so to speak, and, so far at least as it went to the consideration, as it did in the case here, defendant might rely on it without regard to the statute of limitation. So long as the contract, upon a breach of which the claim is predicated, subsists, and may be enforced, the claim itself may be pleaded in reduction, at least, of the demand on the contract; and this notwithstanding the matter of recoupment, independently considered, may be barred, not only when it is pleaded, but also when the right of action, against which it is asserted, accrued. Conner v. Smith, 88 Ala. 300, 7 So. 150 (1889) [Emphasis added.] As to other jurisdictions, Almost without exception the cases which deal with recoupments, so recognized and named, run to the effect that if a defendant's claim is in fact a recoupment the general statutes of limitation do not defeat it; on the contrary it may be availed of defensively so long as plaintiff's cause of action exists. Annot., 1 A.L.R.2d 666, 667 (1948) (emphasis added). In most jurisdictions, permissive counterclaims (basically equivalent to common law setoff, A.R.Civ.P. 81(e)), do not relate back. 6 Wright & Miller, Federal Practice and Procedure § 1425, p. 135 (1971): 51 Am. Jur.2d Limitation of Actions § 78, p. 657 (1970). The original version of § 6-8-84 was enacted to give relation-back effect to setoff in addition to recoupment. In time, the statute came to be applied to recoupment as well as setoff, Tennessee Valley Cotton Oil Mill v. Oakland Gin Co., 341 So.2d 153, 156 (Ala.Civ.App.1976); thus, the 1975 recodification of the statute replaced the term setoff with counterclaim (i.e., all counterclaims, compulsory and permissive). However, the statute has never been read to alter the indestructability of recoupment doctrine. [2] We admit that our cases have not clearly explained the rules of relation back of counterclaims. [3] As to our recent cases, since Campbell v. Regal Typewriter Co., 341 So.2d 120 (Ala.1976), it is not apparent from the opinions that the results of any of our cases were incorrectwe just did not adequately set out the correct rules. We take this opportunity to set the record straight. The rules of relation back of counterclaims are simply these: (1) Relation back is invoked only when the counterclaim would be time-barred judged from the date the counterclaim was filed. (2) All counterclaims, compulsory and permissive, relate back. Code 1975, § 6-8-84; Rule 13(c). (3) Omitted counterclaims allowed by the court pursuant to Rule 13(f) also relate back. Rules 13(c) and 15(c). See 1 C. Lyons, Alabama Practice § 13.10, p. 224 (1986). (4) Counterclaims relate back to the date the plaintiff's (or claimant's) action accrued. Because the statute requires the counterclaim to be a legal subsisting claim on the date the plaintiff's action accrued, a counterclaim that accrues after the date the plaintiff's action accrues but becomes time-barred before suit is filed cannot be used offensively, that is, to exceed the amount of plaintiff's recovery, if any. (5) Permissive counterclaims that were not legally subsisting claims on the date the plaintiff's action accrued (e.g., claims that became time-barred earlier) are subject to a statute of limitations defense. (6) Compulsory counterclaims that were not legally subsisting claims on the date the plaintiff's action accrued (e.g., claims that became time-barred earlier) cannot be used offensively. Such compulsory counterclaims that are still untimely under our relation back rules can be used defensively, that is, to cancel out the amount won by the plaintiff. Examples: (a) P wins $20,000 and D wins $50,000 on an untimely compulsory counterclaim. Judgment for zero, a wash. (b) P wins $20,000 and D wins $5,000. Judgment for P for $15,000. (c) P wins $20,000 and D wins $20,000. Judgment for zero. Our recent cases have not adequately distinguished between this offensive and defensive use of compulsory counterclaims. By quoting only half of the rule, we left the impression that all compulsory counterclaims can always be used offensively. For example, Campbell v. Regal Typewriter Co., 341 So.2d 120, 126 (Ala.1976), merely stated, Counterclaims in the nature of recoupment are not defeated by the general statutes of limitations. Although literally true, such statements ignored the offensive/defensive distinction. This distinction applies in the majority of jurisdictions, but in almost all other states counterclaims relate back only to the date of the plaintiff's complaint. Also, most other jurisdictions do not allow permissive counterclaims to relate back at all. See J. Hoffman, Fictitious Party Practice and Relation Back of Amendments and Counterclaims, in Selected Problems in Alabama and Federal Civil Practice, Section I, published by Cumberland School of Law, The Institute for Continuing Legal Education, for a seminar on December 12, 1986. Thus, the issue in this case is whether appellee/defendant Shaw can use his compulsory counterclaim offensively, or only defensively for the limited purpose of canceling out Sharp's $5,250.86 recovery. In other words, was Shaw's claim of fraud a legally subsisting claim at the time Sharp's breach of contract action accrued? Around 1975, Sharp made representations to Shaw about the quality and performance of Sharp's copiers. Shaw testified that it first occurred to him in the latter part of 1979, or in January 1980, that Sharp's representations about the three models of the copier were not true. Sharp filed suit against Shaw on December 11, 1980. The date of discovery of fraud is a jury issue. We restate the offensive/defensive use-of-the-counterclaim principle: Under the relation-back doctrine, Shaw's compulsory counterclaim may be used offensivelynot merely defensively as a creditif it was not time-barred on the date Sharp's cause of action accrued. There was evidence from which the jury could have determined that Shaw first discoveredor reasonably should have discoveredthe fraud no longer than one year prior to the accrual of Sharp's cause of action for breach of contract. Thus, Shaw's claim was not time-barred. Therefore, our doctrine of relation back of counterclaims would allow Shaw an offensive use of his counterclaim.