might set off a similar kind of demand which he had against either the assignor or the assignee in the first case before notice of the assignment, or against the beneficiary in the second case, or against the assignor in the third case; but he could not by such set-off do more than defeat the plaintiff's recovery: he could not have a judgment for any balance due to himself. The reason for this latter rule is very plain; for in neither of these cases was the plaintiff the real party in interest and the debtor at the same time. § 607. * 731. Origin of Set-off and Recoupment. Resemblances and Dissimilarities. While set-off was entirely of statutory origin, the doctrine and practice of "recoupment of damages " had their inception in the law of judicial decision. From the notion of absolute non-performance as a total defence, the progress was easy and natural, through the partial defences of a part performance and a reduction of damages by means of unskilful or negligent performance, to the admission of a cross-demand in favor of the defendant for damages resulting from the acts or omissions of the plaintiff that amounted to a breach of the contract sued upon. In this manner the doctrine of recoupment took its rise, and it was developed by decision after decision until it became established in the courts of England and of the American States, a defence as well known and as widely admitted within its scope as the statutory set-off. There were resemblances and dissimilarities between these two defences. Both were confined to actions upon contract, and must themselves arise from contract; but here the resemblance ends. A set-off must be for a debt, a fixed certain sum, at least capable of being ascertained by computation: recoupment was of damages, often entirely unliquidated, and depending upon an assessment by a jury. A set-off was necessarily a demand arising upon a different contract from the one in suit: recoupment was necessarily of damages resulting from a breach of the very same contract sued upon. In set-off the defendant might sometimes recover a balance from the plaintiff: in recoupment this could never be done. The doctrine may be summarily stated. In an action upon a contract to recover either liquidated or unliquidated damages or a debt, the defendant might set up by way of defence and recoup the damages suffered by himself from any 1 [St. Louis Nat. Bank v. Gay (1894), 101 Cal. 286, 35 Pac. 876.] breach by the plaintiff of the same contract. At an early period it was supposed that only damages arising from the plaintiff's fraud in inducing the defendant to enter into the contract, or in executing the same, could be recouped; but it was subsequently settled that fraud was not a necessary element, and that any breach by the plaintiff of the same contract which he makes the basis of his action would admit the defence of recoupment. The rule was stated in the following manner in a case which arose a short time before the new system of procedure was adopted: "It cannot be denied, consistently with the doctrine now well established, but that, in an action for a breach of contract, the defendant may show that the plaintiff has not performed the same contract on his part, and may recoup his damages for such breach in the same action, whether they were liquidated or not, or may at his election bring a separate action."1 Recoupment was, however, used solely as a defence: it could do no more than defeat the plaintiff's recovery; even though the defendant's damages should exceed those proved by the plaintiff, he could have no judgment for the surplus.2 § 608.732. Illustrations of Recoupment. The nature, scope, and intent of the doctrine may be illustrated by a statement of some familiar instances in which recoupment was used; and it will be readily seen in all of them 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; 5 and in an action on a lease for rent or use and occupation, damages from the plaintiff's breach 1 Mayor, etc. of N. Y. v. Mabie, 13 N. Y. 151, 153, per Denio J.; and see Batterman v. Pierce, 3 Hill, 171; Murden v. Priment, 1 Hilt. 75. 2 Sickels v. Pattison, 14 Wend. 257. 3 Van Epps v. Harrison, 5 Hill, 63. 4 Reab v. McAlister, 8 Wend. 109. 5 Blanchard v. Ely, 21 Wend. 342; Sickels v. Pattison, 14 Wend. 257; Still v. Hall, 20 Wend. 51; Ives v. Van Epps, 22 Wend. 155. 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. But recoupment is confined to damages from a breach of the contract sued on.3 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, 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. 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 1 Whitbeck v. Skinner, 7 Hill, 53; Dorwin . Potter, 5 Denio, 306; Mayor v. Mabie, 13 N. Y. 151. 2 Allaire v. Whitney, 1 Hill, 484; Whitney v. Allaire, 1 N. Y. 305; 4 Denio, 554. 3 Seymour v. Davis, 2 Sandf. 239; 5 Deming v. Kemp, 4 Sandf. 147; Terrell 4 Butler v. Titus, 13 Wis. 429. 7 Slayback v. Jones, 9 Ind. 470. came upon defendant's farm, and destroyed crops thereon. The damages thus sustained were held to be the proper subject of recoupment.1 * § 609. 733. Mere Defences Distinguished from Set-off or Recoupment, Counter-Claim or Cross-Demand. Another species of defence, which existed at the common law and still exists, is sometimes confounded with recoupment or with counter-claim, 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 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 1 Hay v. Short, 49 Mo. 139, 142. [Foote & Davis Co. v. Malony (1902), 115 Ga. 985, 42 S. E. 413.] 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. 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 "counter-claim" or 66 cross-demand" under the new. Thus the defence of payment cannot, by any mode of averment, be made a counter-claim; 2 nor that of usury.3 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 counter-claim, 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 counter-claim, and of others which have nothing in common with, but are sometimes mistaken for, the counter-claim, 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." I. A General Description of the Counter-Claim; its Nature, Objects and Uses. $610. 734. Scope of Inquiry herein. 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 counter-claim, 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 counter-claim, and does not descend to its various special ele 1 Moffet v. Sackett, 18 N. Y. 522. 2 Burke v. Thorne, 44 Barb. 363. Prouty v. Eaton, 41 Barb. 409, 412, per T. A. Johnson J. [Smith v. Building Ass'n (1896), 119 N. C. 257, 26 S. E. 40; Gen. Elec. Co. v. Williams (1898), 123 N. C. 51,31 S. E. 288.] 4 Bledsoe v. Rader, 30 Ind. 354; Belleau v. Thompson, 33 Cal. 495. 5 [For a history of legislation upon the subject of set-off, and references, see Steck v. Colorado Fuel & Iron Co. (1894), 142 N. Y. 236, 31 N. E. 7.] |