Court Opinion

ID: 7984169
Source: CourtListenerOpinion
Date Created: 2022-09-09 01:23:48.471571+00
Date Added: 2024-06-11T16:35:06.921477
License: Public Domain

Peyton, C. J..
This was an action of assumpsit, founded on three promissory notes, one for $5,000, and the others for $17,500 each, executed by the plaintiff in error, payable to the defendant in error.
In this action, the plaintiff in error pleaded the general issue, and three special pleas, alleging that the consideration of the notes sued on, for the greater part, was the sale and conveyance by the defendant in error, to the plaintiff in error, of a tract of land of about 1,067 acres, situated in Bolivar county; and in the first of said special pleas, that the defendant 'in error, at the time of the sale, warranted that said lands, by the building of a levee across the break on the Vick front, would, so long as the *16levee stood, be free from overflow by the waters of the Mississippi river, except that in case of a very high and long continued water in that river, a very small portion of the back lands on said tract, might be inundated. And the plea avers that said levee across the break on the Vick front, was built as the defendant in error indicated it should be, and the plaintiff in error, relying solely upon said warranty, made said purchase, and says that, in the year 1867, the year succeeding his purchase, with said cross levee standing unbroken, all of said lands were overflowed by the said river, whereby the said warranty was broken, and the plaintiff in error damaged to the amount of $35,000, And the other two special pleas are substantially the same as the first, except, that they charge that the plaintiff was induced to purchase said lands by the false and fraudulent representations of the defendant in error, with regard to the overflow of the waters from said river, by which he is injured and hath sustained damage to the amount of $35,000.
A demurrer was sustained to these pleas, and leave given to answer over to the declaration. Whereupon the plaintiff filed two other special pleas, in substance the same as the former, and the defendant in error demurred to these pleas also, and the demurrer was sustained and judgment rendered in favor of the defendant in error. And hence the case comes to this court by writ of error.
If, in consequence of false representations of the defendant in error, the plaintiff in error was induced to purchase the land, relying upon those representations with reference to the overflow, and actually sustained damage by the overflow of waters from the Mississippi river, he had a right to deduct those damages from the amount sued for in this action. He undoubtedly had this right, if the allegations and averments in his pleas are. true, and these are admitted by the demurrer.
But it is insisted, on the part of the defendant in error, *17that even had the plaintiff in error sustained any damages by inundation from the river, they are unliquidated, and cannot, therefore, be deducted from the amount sought to be recovered.
It must be conceded that unliquidated damages are not the subject of set-off. Yet there is a natural equity as to claims arising out of the same transaction, that one claim should compensate the other, and that the balance only should be recovered. It is a salutary principle to permit parties to adjust the whole controversy in one action, and out of this has grown the doctrine of recoupment, which is now almost universally applied. It tends to promote justice, and prevent needless litigation. It avoids circuity of action, and multiplicity of suits. It adjusts, by one action adverse claims growing out of the same subject matter. Such claims can, generally, be as well, if not better, settled in one action than in several. One demand is considered as reduced or liquidated by the other, and the surplus is regarded as the real cause of action. The defendant’s claim is deduced from that of the plaintiff, and the latter recovers the excess only. The defendant is not allowed to recover any balance. He uses his claim in mitigation of damages only. He may recoup to the extent of the plaintiff’s damages; but he cannot, as in the case of a set-off, recover any excess in his favor. In another respect, this kind of defence is unlike that of a set-off. The cross demand must grow out of the same transaction, and proceed from the same subject matter as the plaintiff’s right of action.
This mode of defence is of modern origin in this country, founded on a liberal application of the rules of law, which allow such deduction as a substitute for a cross action on a breach of contract, to avoid a circuity of action. The same rule of damages, therefore, must be adopted, as would be adopted in assessing damages in such cross action. Goodwin v. Morse, 9 Met. 278.
*18■ This modern doctrine of recoupment is hut a liberal and beneficent improvement upon the old doctrine of failure of consideration. It looks through the whole contract, treating it as an entirety, and treating the .-things done, and stipulated to be done on each side, as the consideration for the things done, and stipulated to be done, on the other. When either party seeks redress for the breach of stipulations in his favor, it sums up the-grievances on each side, instead of the plaintiff’s side only — strikes a balance, and gives the difference to the plaintiff, if it-is in his favor. Lufburrow v. Henderson, 30 Ga. 482.
This doctrine is well settled in New York. It is there held that when the demands of both parties spring out of the same contract or transaction, the defendant may recoup, although the damages on both sides are unliquidated; but he can only set off where the demands of both parties are liquidated, or capable of being ascertained by calculation. It was formerly supposed that there coúld he recoupment only where some fraud was imputed to the plaintiff in violation of the contract on which the action is founded; but it is now well settled that the doctrine is also applicable where the defendant imputes no fraud, and only complains that there has been a breach of contract on the part of the plaintiff. The defendant has his election whether he will set up his claim in answer to the plaintiff’s demand, or resort to a cross action; and whatever may be the amount of his damages, he can only set them up by way of abatement, either in whole or in part, of - the plaintiff’s demand. As before stated, he cannot, as in case of a set-off, go beyond that, and have a balance certified in his favor. And as this defence must arise out of the ' same transaction, there can, therefore, he no recoupment by setting up the breach of an independent contract on the part of the plaintiff. Batterman v. Pierce, 3 Hill, 171 ; Hensdell v. Weed, Denio, 172.
*19In the case of the Steamboat Wellsville v. Geisse, 3 Ohio St. Rep. 333, the right of a defendant, in a proper case, and under a proper state of pleadings, to reduce, by way of recoupment, the damages sought to be recovered by the plaintiff, was directly considered and fully recognized as the law of Ohio. The court say : “ It is a right so reasonable in itself, so necessary to the simple and economical administration of justice, and so entirely congenial to our system of jurisprudence, that, however, doubted or denied in some parts of the state, it has, in general, commended itself to our courts, and become well established.” And this doctrine has been reaffirmed in the case of Upton & Co. v. Julian & Co., 7 Ohio St. Rep. 95.
It has been repeatedly decided by learned and able judges in this country, not in virtue of any statutory provision, but upon principles of justice and convenience, and with a view of preventing litigation and expense, that where fraud has occurred in obtaining, or in the performance of, contracts, or where there has been a failure of consideration, total or partial, or a breach of warranty, fraudulent or otherwise, all or any of these facts may be relied on in defence by a party when sued upon such contract, in all cases where the title to real estate is not involved; and that he shall not be driven to assert them either for protection or as a ground for compensation in a cross action.
And although there is some diversity of judicial opinion upon the subject, it is believed to be the better opinion, that this defence cannot, in general, be made where the partial failure relates to title to real estate merely, and this is predicated upon the exclusive and peculiar jurisdiction of equity over the title to real estate in causing it to be perfected, and upon the further consideration that the vendee, in general, sustains no injury by a partial defect of title so long as he retains possession, as also because it would be without the prin*20ciple upon which recoupment is allowed in the common law courts, inasmuch as for want of that peculiar jurisdiction of the equity courts to cause defective titles to be perfected, they could not do final and complete justice in the premises and terminate all possible further litigation touching the contract.
When the failure relates to title merely, so long as the vendee holds possession he has a title maturing daily, which may, by mere efflux of time, ultimately ripen, and he cannot, therefore, in his conscience, say that he has received no advantage from the vendor, under whom he came into the possession, and this makes it difficult to say that the consideration has indeed totally failed. And we have seen that partial failure of title as to land is not within the principle of the common law, under the auspices of which recoupment has been recognized and grown up in her courts for want of power in the common law courts to compel the perfection of title, which alone exists in tíje equity courts. But in all other cases, whether the failure of consideration be total or partial, resulting from fraud or misrepresentation of quantity or quality, or other matter injuriously affecting the subject matter of the contract, the damages arising therefrom may be recouped in an action at law for ffhe recovery of the consideration money. Wheat v. Dolson, 7 Eng. 699 ; McHardy v. Wadsworth, 8 Michigan, 349.
In the case of Hammatt v. Emerson, 27 Me. 308, it was held that a partial failure of the title to real estate conveyed, has not been permitted to operate as a defence pro tanto to a note received in payment for it. In such cases, the parties have been considered as entitled to that remedy, which was secured to them by their own agreements in the covenants contained in their deeds, as best suited to the fair adjustment of their rights.
When the purchaser obtains a perfect title to the *21whole estate, and yet finds the estate to be different from what it was fraudulently represented to be, he can have no remedy upon any covenants usually found in conveyances. Not having contemplated such an event, he could not be expected to have provided a remedy for it by any covenant or special contract. He must, therefore, rely upon the remedy which the law may provide. That he finds an action on the case suited to enable him to recover damages for the injury thereby occasioned, when sued for the consideration money, he should be allowed to prove the amount of such damage and have it applied to reduce the amount sought to be recovered, and the principles of law and rules of evidence applicable to an action on the case, would guide the court and jury in making the estimate. The rights of the parties may be as well and as fully determined in one as in two suits; circuity of action may thereby be avoided, and should the vendor prove to be insolvent, the rights of the injured vendee may be better secured.
In the case of House v. Marshall, 18 Mo. 368, it was held that where the defendant does not wish to rescind the contract, he may be allowed to recoup the amount of injury and damage sustained by him by reason of the deceit put on him by the plaintiff. There is no necessity to compel the defendant to resort to his cross action when he can obtain all that the law allows him by way of recoupment of the damages which he has sustained by reason of the plaintiff’s fraud in the transaction which gives rise to the suit.
In an action for the price of land sold, the purchaser may set up in defence the fact that the vendor defrauded him by false representations as to the quantity, quality, condition or boundaries of the land. An offer to rescind the contract is not necessary in order to entitle the purchaser to maintain an action for damages for the fraud. It is necessary where' he seeks to recover back the consideration paid; then he must offer to *22return what he has received, and rescind the contract. The same rule applies if the party seeks, by way of defence, to avoid the whole contract, on the ground of fraud, where his damages occasioned by the fraud are less than .the plaintiff would otherwise be entitled to recover. But no offer to rescind is necessary to entitle the party defrauded to ' maintain an action for damages for the fraud, nor to entitle him to defend to the extent that he has suffered by the fraud, that is, to the extent that he would be entitled to recover in an action for damages founded on the fraud. The question may as well be tried in an action for the price, and the rights of the parties he settled in one suit, as to allow the plaintiff to recover the whole stipulated price, and then permit the other party to recover back the whole or a part in an action for the fraud. It is the policy of the law to avoid a multiplicity of suits. Kelly v. Pember, 35 Vt. 183.
There are some authorities to the effect that where the failure of consideration or damages sought to be deducted are pai’tial, and of an uncertain character, and to be assessed by the jury, and not a mere matter of computation, such partial defence cannot be received in an action on a promissory note. But it is difficult to perceive any good reason why such defence ought not he allowed in actions on notes and bills of exchange, as well as in other actions. There is no foundation in reason and justice for such a rule. It is sustained by no principle of policy or convenience. While a promissory note remains in the hands of the original contracting parties, there is no sound reason why it should receive any more protection or immunity in this respect than any other contract.
The principle of allowing the parties to adjust the whole controversy in one action, though commended by its natural equity, it must he conceded, has not been applied with entire uniformity. It is, however, believed *23to be now too firmly settled to be shaken by a few straggling cases, or the occasional dicta which seem to look in the opposite direction.
Recoupment is contra-distinguished from set-off in these three essential particulars : 1. In being confined to matters arising out of, and connected with, the transaction or contract upon which the suit is brought; 2. In having no regard to whether or not such matter be liquidated or unliquidated; and 3. That the judgment is not the subject of statutory regulation, but controlled by the rules of the common law.
It is said that it is where fraud entered into, but did not equitably go to, the entire prevention of a recovery by the plaintiff, that we find the first cases of the defence in question in the common law courts of England.
The defence by recoupment was an innovation upon, or departure from, the strict rules of law, sanctioned by the courts for the purpose of doing equity between parties, where it either could not be otherwise attained, or not without a circuitous and expensive process. And for that reason, courts favor this mode of. defence rather than drive a party to a separate action. Water, on Set-off and Recoup. 469 ; Clark v. Wildridge, 5 Ind. 175 ; Houston v. Young, 7 ib. 200
In the case under consideration, the «special pleas were not in bar of the action, but of a partial failure of consideration, and this fact seems not to have attracted the attention of counsel.
We think the court below erred in sustaining the demurrer of the plaintiff below to the second, third and fourth pleas of the defendant below, and for that reason the judgment must be reversed, the demurrer overruled, and the cause remanded.