of the purchase price, on said contract; that plaintiff defended therein by setting up the breach of said guaranty as now averred in his petition; that the justice of the peace rendered judgment for defendant therein (this plaintiff), whereupon an appeal was taken to the district court, and upon that a like result reached; that as this petition is based on the identical contract and breach thereof, and the parties are the same, plaintiff is estopped from prosecuting this action. To this plea the plaintiff demurred on the ground, in substance, that there has been no adjudication of the claim stated in the petition. The demurrer was overruled, and, as plaintiff elected to stand on the ruling, the petition was dismissed, and he appeals. Reversed. LADD, J.: Upon the failure of deefndant's guaranty, plaintiff had the election of two remedies: He could either pay for and retain the plant, and sue for damages, or rescind the contract by the return of the plant, and demand the portion of the purchase price previously paid. According to the petition, he pursued the latter course; and it must be conceded, for the purposes of the case, that there was a failure to comply with the terms of the agreement, and, owing to this, a timely tender of the return of the apparatus to the defendant. A good cause of action for the $315 paid was then stated. And the same facts furnished an equally good defense to the action by defendant in the justice court, and on appeal in the district court, for the portion of the purchase price ($75) which had not been paid. On what theory can it be said that, because these facts have been successfully pleaded in defense of a claim asserted by defendant, they may not furnish the basis of an action for recovery by the plaintiff? The latter could not have pleaded his cause of action by way of counterclaim, as it exceeded in amount the jurisdiction of the justice. Section 4477, code. Nor was he bound to do so. Section 3440, Id. Is he without a remedy? It is well settled that a set-off or counterclaim may or may not be pleaded, as the defendant shall elect; and, unless it is pleaded, the right to sue upon it as an independent cause of action, or to rely upon it in defense of another action by the same plaintiff, is in no wise affected or impaired by a judgment for or against the defendant. In other words, if the matter of set-off or counterclaim is presented and passed upon in a suit, it is barred by the judgment; if not, the defendant may make it the subject of a separate and distinct action. Hunt v. Brown, 146 Mass. 253, 15 N. E. 587; Roach v. Privett, 90 Ala. 391, 7 South. 808; Minnaugh v. Partlin, 67 Mich. 391, 34 N. W. 717. See 19 Enc. Pl. & Prac. 731, and cases collected. The statutes in some states require an existing claim held by the defendant in an action to be pleaded as a counterclaim, while in others, in apparent exception to the above rule, a judgment on a cause of action is treated as a bar to a subsequent suit on a claim involving the same rights, which had been available as a defense in the former action. The best-reasoned case on this latter proposition, based on the notion that the right has once been adjudicated, is Bellinger v. Craigue, 31 Barb. 534. This court, however, took the opposite view in Fairfield v. McNany, 37 Iowa, 75; and, indeed, as there said, the matter is disposed of by our statute, which provides that a "judgment does not prevent the recovery of any claim, though such claim might have been used by way of set-off, counterclaim or cross-demand in the 'action in which judgment was recovered." Section 3440, code. We discover no tenable ground for the order overruling the demurrer, and it is reversed.1 1 In some states there are statutes providing that a cause of action properly the subject of a counter-claim shall be so used or it shall be forfeited: Çalifornia, Code Civ. Pro. § 439; Idaho, Rev. Codes, § 4185; Montana, Code Civ. Pro. 697; Utah, Comp. Laws, 1907, § 2970. In other states the penalty provided for failure to use such a cause of action as a counter-claim is that it can be subsequently prosecuted by the defendant only at his own costs: Indiana, Burn's St., 1908, § 356; Nebraska, Code Civ. Pro. § 102; Oklahoma, Comp. Laws, 1909, § 5636; Wyoming, Comp St., 1910, § 4398. In Ohio the statute expressly authorizes a counter-claim to be withdrawn at any time before final submission of the cause, to be subsequently proceeded with as a separate action. Gen. Code, 1910, § 11337. (h) Effect of Assignment on Right to Counterclaim. STADLER v. FIRST NATIONAL BANK OF HELENA. Supreme Court of Montana. 1898. 22 Montana, 190. Action by Louis Stadler and another against the First National Bank of Helena and another. From the judgment of the court below, plaintiffs appeal; and from a part thereof the First National Bank of Butte, defendant, appeals. Modified. This was a suit to obtain a decree setting off certain deposits made by the plaintiffs in the First National Bank of Helena, hereinafter called the "Helena Bank," against the amount of a promissory note made by them as a firm to said bank, and transferred to the defendant the First National Bank of Butte, hereinafter called the "Butte Bank." The Butte Bank set up a counterclaim for the amount of the note. Trial was had by the court sitting with a jury. It appears that Stadler & Kaufman is a co-partnership composed of Louis Stadler and Louis Kaufman. On July 18, 1896, Stadler & Kaufman, for value received, executed to the Helena Bank a promissory note, of which the following is a copy: "$6,000.00. Helena, Montana, July 18th, 1896. Sixty days after date, for value received, we or either of us, promise to pay to the First National Bank of Helena, Montana, or order, six thousand dollars, negotiable and payable at the First National Bank of Helena, Montana, with interest at the rate of 8 per cent. per annum from date until paid. The makers and indorsers hereby waive presentment, demand, protest, and notice of each and all thereof, and of non-payment, and agree to pay reasonable attorney's fees in case of suit on this note. Stadler & Kaufman.” When the note was made, Stadler & Kaufman had on deposit in the Helena bank, subject to check, the sum of $413.37. Kaufman individually had then on deposit in that bank, $4,240, represented by a certificate of deposit dated January 8, 1896, by the terms of which the Helena bank promised to pay to his order said sum at 6 months after date, with interest at the rate of 5 per cent. per annum. Kaufman at that time had also on deposit in the Helena bank $5,000, for which the bank had issued its certificate of deposit of November 6, 1895, whereby it promised to pay to the order of Kaufman $5,000, 12 months after date, with interest at the rate of 6 per cent. per annum. On said July 18, 1896, Stadler had on deposit in the Helena bank $5,000, for which he held its certificate of deposit dated November 6, 1895, whereby the bank promised to pay to his order that sum 12 months after date, with interest at the rate of 6 per cent. per annum. On the day the note was made, July 18, 1896, the Helena bank, by its formal indorsement, transferred the $6,000 promissory note to the Butte bank, for which note the latter bank paid to the Helena bank the principal sum of the note. Ever since that time the Butte bank has been the owner and holder of the note, no part whereof has been paid, The Helena bank, on September 4, 1896, by reason of its insolvency, closed its doors, suspended business, and was taken possession of by the comptroller of the currency, and since that day has been in charge of defendant receiver. Prior to September 8, 1896, plaintiffs had not been notified, nor were they aware, that their note had been transferred to the Butte bank. No demand for the payment of any of the deposits standing to the credit of plaintiffs, or to the credit of either of them, was made until after September 4, 1896. PIGOTT, J.: 1. The Butte bank acquired the $6,000 note of Stadler & Kaufman by indorsement, in the ordinary course of business, in good faith, for value, and before maturity; hence it is apparent that, if the note be commercial paper, the Butte bank acquired an absolute title thereto, notwithstanding any defect in the title of the Helena bauk (Civ. Code, §§ 4034, 4035); that is to say, the Butte bank took it free of, and discharged from, any defense, legal or equitable, which existed as between the makers and the payee, and therefore the Butte bank would be entitled to a judgment for the full amount thereof, without reduction by reason of any set-off claimed by plaintiffs. The contention of defendants is that the note is negotiable, while plaintiffs insist that the agreement therein contained to pay attorney's fees in case of suit destroys the quality of negotiability otherwise possessed by it. It has been a much-debated question whether such a promise is fatal to negotiability, and the courts are pretty evenly divided upon the subject. 2. The note is nonnegotiable. It therefore becomes necessary to inquire into the title obtained thereto by the Butte bank, and for that purpose convenience may be attained by regarding the action as one brought by the Butte bank upon the $6,000 note, in which Stadler and Kaufman, as a co-partnership and as individual persons, claim the right to set off deposits to their credit in the Helena bank. The Butte bank took the note subject to the provisions of section 1982 of the civil code, and of sections 571, 690-692, and 698 of the code of civil procedure. Section 1982 provides that "a nonnegotiable written contract for the payment of money or personal property may be transferred by endorsement in like manner with negotiable instruments. Such endorsement shall transfer all the rights of the assignor under the instrument to the assignee, subject to all equities and defenses existing in favor of the maker at the time of the endorsement." Section 571 provides, in substance, that an action by the assignee of a nonnegotiable thing in action "is without prejudice to any set-off or other defense existing at the time of, or before notice of, the assignment."" By section 690, the defendant may plead a counterclaim, which, by section 691, "must tend in some way to diminish or defeat the plaintiff's recovery, and must be one of the following causes of action against the plaintiff, or, in a proper case, against the person whom he represents, and in favor of the defendant, or of one or more defendants, between whom and the plaintiff a separate judgment may be had in the action: (2) In an action on contract, any other cause of action on contract, existing at the commencement of the action." So much of section 692 as is pertinent reads: "But the counterclaim specified in subdivision two of the last section, is subject to the following rules: (1) If the action is founded upon a contract, which has been assigned by the party thereto, other than a negotiable promissory note or bill of exchange, a demand, existing against the party thereto, or an assignee * 1 Almost all of the codes have a provision of this character, most of them adding the following limitation: "But this section shall not apply to a negotiable promissory note or bill of exchange transferred in good faith and upon valuable consideration before due." C. P.-33 |