Court Opinion

ID: 8188688
Source: CourtListenerOpinion
Date Created: 2022-09-09 23:11:31.935878+00
Date Added: 2024-06-11T16:40:31.394417
License: Public Domain

Siebecker, J.
Plaintiff’s contention that defendants’ counterclaim is not available because Mullen was not a party to this action was properly overruled. It appears that defendants conducted all the negotiations for the purchase of a part interest in the property of the Eish & Mullen Lumber Company, of which plaintiff was a member, with Mullen. It is also shown that plaintiff made a sale of one half of his one-quarter interest in this company through Mullen as his agent for the sum of $2,000. It is obvious from the transaction that plaintiff’s transfer of part of his interest amounted to a separate sale by him, and was independent of the transfer made by Mullen to defendants. Each of them took a separate note for the consideration, fixed at $2,000, which defendants agreed to pay each of them separately. Under these circumstances the counterclaim for a proportionate amount of the damages could be properly asserted in his suit on the note, if defendants have a valid diaim.
The contention is made that defendants’ alleged counterclaim is insufficient in that it fails to show facts sufficient to constitute a fraud, and that if sufficient in this respect they *442cannot avail themselves of any relief under it, because no rescission of tbe contract is alleged. These same questions are raised upon the merits of the case, and we may therefore consider them as to both phases of the case. No claim is made that there was a rescission of the sale. This fact obviates the necessity of considering what would be the rights of the parties had a rescission taken' place. The situation then is: Plaintiff brings this action on a note evidencing the consideration defendants agreed to pay him for the sale and transfer of one half of his interest in the net assets of the Eish & Mullen Lumber Company. If the defendants were in fact damaged" in the transaction and have a valid claim, can they assert such damage to reduce plaintiff’s demand on the note? The practice of allowing damages arising from fraud, mistake, partial failure of consideration, or nonperformance of some of the contract obligations to he counterclaimed by way of recoupment in actions for the recovery of the consideration agreed upon in such cases has been established to avoid circuity of actions and multiplicity of suits when such a claim can be adjusted in a suit to enforce payment of'the consideration of such transfer without depriving the parties of any of their rights in the matter. Such defense has been recognized as proper in an action on a note given to evidence the consideration. The following cases in this and otlier courts may be consulted as sustaining this practice: Griffiths v. Parry, 16 Wis. 218; Peterson v. Johnson, 22 Wis. 21; Butler v. Titus, 13 Wis. 429; Gamache v. Grimm, 23 Mo. 38; Wyckoff v. Runyon, 33 N. J. Law, 107; Stacy v. Kemp, 97 Mass. 166; Burnett v. Smith, 4 Gray, 50; Hodgkins v. Moulton, 100 Mass. 309; Davis v. Wait, 12 Oreg. 425, 8 Pac. 356; Herbert v. Ford, 29 Me. 546; Mercer v. Clark, 3 Bibb, 224; South Mil. B. H. Co. v. Harte, 95 Wis. 592, 70 N. W. 821. The right to counterclaim damages under such circumstances in actions by one of the parties to the contract has been repeatedly upheld by this court. Miner v. Medbury, 6 Wis. 295; *443Rosebrook v. Runals, 32 Wis. 415; Smith v. Carter, 25 Wis. 283; Schweickhart v. Stuewe, 71 Wis. 1, 36 N. W. 605; Montreal River L. Co. v. Mihills, 80 Wis. 540, 50 N. W. 507; Standard Mfg. Co. v. Slot, 121 Wis. 14, 98 N. W. 923; Bird v. Kleiner, 41 Wis. 134; Rogers v. Humphrey, 39 Me. 382; Hathaway v. Hagan, 59 Vt. 75, 8 Atl. 678; Racine Co. Bank v. Keep, 13 Wis. 209; Walker v. Wilson, 13 Wis. 522; Akerly v. Vilas, 15 Wis. 401; Akerly v. Vilas, 21 Wis. 88.
It appears that defendants made tbe purchase of an interest in tbe firm property and business in reliance on tbe statements in tbe inventory, purporting to give a full, complete, and correct statement of tbe resources and tbe liabilities of tbe firm. It is now admitted to bave been incorrect in botb respects, by overstating tbe resources in tbe sum of $1,050 and in omitting liabilities to tbe amount of $1,573.76. True, it does not appear that sucb misstatements were wilfully made. Tbis, however, does not affect tbe right of defendants to recoup against plaintiff. Tbe fact that defendants were led to pay tbe consideration upon tbe admitted representations that they were to have an interest in property valued at $1,050, which plaintiff and bis associates did not possess, and that they were required to contribute their share to pay $1,573.76 of prior debts, not included in the statement of liabilities, and for which they became obligated through tbe incorrect statements of tbe inventory and the representations of plaintiff’s agent Mullen, establishes a partial failure of consideration and is a defense pro tanto, and may properly be enforced by way of counterclaim in tbe action to' recover tbe consideration for tbe purchase of tbe property involved. If the statements of tbe inventory were in fact untrue, though tbe party making' them at tbe time believed them true, it is a legal wrong for which relief is awarded, upon tbe ground that tbe party making them must be held to respond for tbe injury done in assuming to know and to represent as facts things which did not actually exist, but on which tbe other party *444relied to Ms damage in making the purchase. Its operation is in the nature of a constructive fraud. We are not clear whether the trial court regarded the evidence in this light or whether the stipulation of the parties was held to be an agreement that there was a partial failure of consideration, and that an allowance of damages, on the basis of the items stipulated, was to be made defendants by way of reduction of plaintiff’s claim. However that may-be, we are of the opinion that, under the evidence and facts stipulated, the court was justified in proceeding upon either theory. Whichever one was followed would lead to the same result, namely, that defendants were entitled to a reduction of plaintiff’s claim on account of the loss they sustained by reason of the errors in the inventory.
The court allowed defendants one eighth of the damages against plaintiff. This must have been upon the ground that plaintiff was liable to this extent because defendants acquired a one-eighth interest in the business and property of the firm. We perceive no error in applying this rule to the amount of liabilities they paid in addition to those specified in the inventory, but we do not find that this would be the correct measure of damage for the $1,050 deficiency in resources. Defendants purchased into the firm on the basis of $16,000 net assets, while the inventory showed an amount somewhat over $18,500. Under these circumstances the amount allowed should be not to exceed one eighth of thirty-two thirty-sevenths of the whole as the proportional loss due to such $1,050, to be borne by plaintiff, because of the 'diminution of resources. This would be substantially the sum of $113.20, which is to be deducted instead of the full one eighth allowed by the court. This with $196.72, which is one eighth of the excess of liabilities, make the total which should have been allowed. This matter was not specifically brought to the attention of the lower court. Had it been, the court would undoubtedly have made the allowance in this amount. We will therefore *445modify the judgment in this respect and affirm it in all other respects.
By the Court. — The judgment is modified by deducting the sum of $18.05 from the sum allowed as damages to the defendants, so that plaintiff shall have judgment for $763.67, and as so modified the judgment is affirmed; neither party to recover costs on this appeal, but respondent to pay the clerk’s fees in this court.