3

that the defendant's demand was based upon a breach of the contract which was the foundation of the action, although often of other stipulations or covenants in that agreement than the one which it was alleged he himself had broken. Thus, in an action brought to recover the price of land, the defendant could recoup the damages arising from the plaintiff's fraudulent representations concerning the land by which he had been induced to enter into the contract; and in an action for the price of goods sold, damages resulting from the plaintiff's breach of a warranty on the sale; and in an action for services, damages from the negligent or unskilful manner of their performance; and in an action on a lease for rent or use and occupation, damages from the plaintiff's breach of a covenant to repair, or covenant for quiet enjoyment; or damages from the plaintiff's fraud in inducing defendant to enter into the lease.5 But recoupment is confined to damages from a breach of the contract sued on. The same doctrine, which has thus far been illustrated exclusively from New York cases, prevailed in the other States to the same extent, and perhaps, in some of them, had even a wider application. A very few examples will suffice. In an action upon a promissory note, the answer alleging that the note was given by the defendant for the price of the plaintiff's services in constructing and mounting a water-wheel, and that the work was done and the wheel made and mounted in a very negligent and unskilful manner, to the defendant's damage, was held to state a proper case for a recoupment of defendant's damages; and in an action upon a sealed agreement to recover an amount due for certain sawing done by the plaintiff in pursuance thereof, and also damages from the defendant's failure to furnish the stipulated number of logs to be sawed, damages arising from the plaintiff's breach of other covenants were recouped; and damages from the plaintiff's failure to build according to the specifications were permitted to be recouped in an action for the price. In Indiana,

1 Van Epps v. Harrison, 5 Hill, 63. 2 Reab v. McAlister, 8 Wend. 109. 3 Blanchard v. Ely, 21 Wend. 842; Sickels v. Pattison, 14 Wend. 257; Still v. Hall, 20 Wend. 51; Ives v. Van Epps, 22 Wend. 155.

4 Whitbeck v. Skinner, 7 Hill, 53; Dorwin v. Potter, 5 Denio, 306; Mayor v. Mabie, 13 N. Y. 151.

5 Allaire v. Whitney, 1 Hill, 484; Whitney v. Allaire, 1 N. Y. 305; 4 Denio, 554.

6 Seymour v. Davis, 2 Sandf. 239; Deming v. Kemp, 4 Sandf. 147, Terrell v. Walker, 66 N. C. 244, 251.

7 Butler v. Titus, 13 Wisc. 429.

8 Morrison v. Lovejoy, 6 Minn. 319. 9 Mason v. Heyward, 3 Minn. 182.

where the defendant had given a note for the purchase-price of land sold him by the payee, and the latter had afterwards wrongfully entered upon the land and taken and converted the growing crops, it was held in an action upon the note that the damages resulting from these wrongful acts of the plaintiff could not be recouped, since they were independent trespasses, and not breaches of the contract.1 The doctrine was applied in Missouri to the following facts: The action was brought to recover rent of a farm leased to defendant by a verbal agreement: the answer set up, that, by further provisions of the same contract, the plaintiff stipulated to build and maintain a fence between the premises leased and other land occupied by himself; that he neglected to build the fence, and, by reason of his neglect, his cattle came upon defendant's farm, and destroyed crops thereon. The damages thus sustained were held to be the proper subject of recoupment.2

§ 733. Another species of defence, which existed at the common law and still exists, is sometimes confounded with recoupment or with counterclaim, although it bears no real resemblance to either, and should be carefully distinguished from both; namely, the reduction of the amount claimed to be due in suits for the price of goods sold or of services rendered in most instances when the action is on a quantum meruit or quantum valebant. In set-off and in recoupment, the essence of the defence consists in a cause of action against the plaintiff or some other person: whether a judgment is recovered or not is immaterial, but a right of action always lies at the bottom of the legal notion. In the defence referred to, there is no such right: it is simply a process of subtracting from the amount of the adverse claim, and therefore operates directly upon that demand. Set-off and recoupment, on the other hand, do not attack the adverse claim itself; and for that reason it is often said that they are not true defences: they admit the plaintiff's cause of action, and set up an affirmative cross-demand, so that the sums awarded for each may satisfy one another, leaving only a surplus to be received by the party who obtains the larger amount. The distinction is very plain ; but it has sometimes been overlooked. One example will be a sufficient illustration. In an action for the price of goods sold

1 Slayback v. Jones, 9 Ind. 470.

2 Hay v. Short, 49 Mo. 139, 142.

and delivered, and of work and labor done amounting as alleged to $197, the answer set up that the goods furnished and the work done were worth no more than $173, and as to that sum averred payment. On the trial, the defendant offered evidence tending to show that the articles were to be of a certain kind and quality; that they were, on the contrary, very inferior in quality; and the consequent diminution in value and price. This evidence was rejected on the ground that the reduction sought could only be claimed by way of "recoupment of damages or of set-off." The New York Court of Appeals, reversing this ruling, pronounced the defence admissible, since it was in no sense a claim for damages against the plaintiff, but simply a diminution of the value of the goods and the labor, as that had been established prima facie by the plaintiff.1 The same principle applies through the whole range of possible defences, under whatever forms they may be set up if they simply attack the cause of action, and show that by virtue thereof the plaintiff ought not to recover at all, or recover all that he demands, they are not, and cannot be, answers in the nature of "set-off" or "recoupment" under the old system, or of "counterclaim or cross-demand under the new. Thus the defence of payment cannot, by any mode of averment, be made a counterclaim; 2 nor that of usury. And generally, whenever the facts pleaded are merely in bar of the action, and the relief demanded by the defendant is only what would be the legal judgment in his favor upon those facts, the answer is not a counterclaim, nor, a fortiori, a cross-complaint, although it may be in the form of the latter species of pleading. From this preliminary statement of the former defences which contained some of the elements that are found in the modern counterclaim, and of others which have nothing in common with, but are sometimes mistaken for, the counterclaim, I now proceed to a direct discussion of the latter as it is defined and authorized by the codes, and shall follow the order of treatment already indicated.

1 Moffet v. Sackett, 18 N. Y. 522.

2 Burke v. Thorne, 44 Barb. 363.

3 Prouty v. Eaton, 41 Barb. 409, 412,

per T. A. Johnson J.

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4 Bledsoe v. Rader, 30 Ind. 354; Belleau v. Thompson, 33 Cal. 495.

48

I. A General Description of the Counterclaim; its Nature, Objects, and Uses.

§ 734. Under this subdivision I shall collect from leading judicial decisions such opinions, and portions of opinions, as have in the clearest and most accurate manner described the general nature, objects, and uses of the counterclaim, and shall add the comments and explanations that seem necessary to a full development of the subject. The discussion is here confined to the general properties of the counterclaim, and does not descend to its various special elements and features, which, depending upon the particular terms of the statutes, demand a more critical examination.

§ 735. There are certain conclusions which are evident upon the mere reading of the statute. Under the former procedure, the term "set-off" included two quite distinct classes of cases: namely, (1) those in which the defendant might recover an affirmative judgment for a "debt" against the plaintiff; and (2) those in which the demand in his favor could only be used defensively to diminish, or perhaps defeat, the recovery by the plaintiff. The codes provide for both these classes of cases. Those sections which permit the action to be brought by an assignee of a thing in action, and allow under certain circumstances the same matters to be interposed as a defence against him which would have been available against the assignor, and those sections which permit the action to be brought by a trustee of an express trust, and allow the same matters to be set up as a defence against him which would have been available against the party beneficially interested, these sections plainly embrace the second class of "set-offs" above mentioned; namely, those in which the demand could be used as a defence, but not as the basis of an affirmative recovery against the plaintiff. On the other hand, these cases are not included within the description given of a counterclaim. A defence, even though it consists of a claim for relief against some person, but does not permit a recovery against the plaintiff, is not a counterclaim. The first class of "set-offs" above mentioned is embraced within the definition of the counterclaim as given by those codes which constitute the first group according to the division made in a former paragraph.

In the codes which constitute the second group, the same class of "set-offs" is substantially described under the original name which belonged to that species of answer in the old procedure.

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§ 736. The recoupment of damages" has undergone a most important modification. It is confessedly covered by the definition of counterclaim given in all the codes without exception. In those forming the two principal groups according to the classification heretofore made, it is described by the express language, "a cause of action arising out of the contract set forth in the complaint [or petition] as the foundation of the plaintiff's claim;" in that of Indiana it is described by the language, "any matter arising out of or connected with the cause of action which might be the subject of an action in favor of the defendant, or which would tend to reduce the plaintiff's claim or demand for damages;" and in that of Iowa by the language, "a cause of action in favor of the defendants, or some of them, against the plaintiffs, or some of them, arising out of the contract set forth in the petition." It is beyond dispute, then, that the recoupment of damages, as the same was authorized by the courts under the old practice, is made a species of counterclaim by all. the codes. But its effects have been greatly enlarged. As it has been transferred into a counterclaim, it partakes of all the essential features conferred upon that kind of defence by the statute. For this reason, the defendant, who would formerly have set up the facts in recoupment of damages, and who now pleads the same facts as a species of counterclaim, may upon the basis of those facts obtain a judgment for damages in his favor against the plaintiff, if the proofs upon the trial warrant such a result.

§ 737. The two classes of affirmative relief mentioned in the foregoing paragraphs, important as they are, do not exhaust the scope and efficacy of the counterclaim. The causes of action which were the basis of a "recoupment of damages" or of a "set-off," as those terms were legally defined, all necessarily arose from a breach of contract. The language employed by the codes speaks of causes of action as constituting a counterclaim, which do not arise out of contract. It mentions three alternatives, causes of action (1) arising out of the contract set forth in the complaint, or (2) arising out of the transaction set forth in the complaint, or (3) connected with the subject of the action.