Sawyer v. Wiswell

Bigelow, C. J. We can see no valid reason why the defendant should not be allowed to recoup in this action the damages which he has sustained' by the false and fraudulent representations of the plaintiff. In the first place, the note declared on is not held by the plaintiff as indorsee, nor does he trace his title to it in this action through a negotiation of it to a third person, who received it for value and transferred it back again to the plaintiff for a valuable consideration. The action is brought on a note of which the plaintiff is the payee, and the promise on which recovery is sought is made directly to the plaintiff himself. The case therefore would seem to fall within the ordinary rule by which a note, as between the original parties to it, is held to be open to all the equities properly arising thereon. But were it otherwise, if it were possible to regard the plaintiff’s present title to the note as having been derived through an innocent indorsee for value, who had received it before its maturity, and had indorsed it to the plaintiff, the original payee, for a good consideration, we do not see that the right of the defendant to make a defence to this note on the ground of the fraudulent nature of the original consideration of it would be in any degree affected or impaired. The doctrine of recoupment, as understood and applied in the modern cases in our courts, would still be applicable to the case. That doctrine does not rest on the nature of the right which a plaintiff has in the contract which he seeks to enforce, nor on the fact that his interest in it is the same at the time of suit brought .as when it was originally entered into. The essential elements on which its application depends are two only. The first is, that the damages which the defendant seeks to set off shall have arisen from the same subject matter, or sprung out of the same contract or transaction as that on which the plaintiff relies to main tain his action. The other is," that the claim for damages shall be against the plaintiff, so that their allowance by way of set-off or defence to the contract declared on, shall operate to avoid circuity of action, and as a substitute for a distinct action against the plaintiff to recover the same damages as those relied [43] on to defeat the action. Still v. Hall, 20 Wend. 51. Batterman v. Pierce, 3 Hill, 171. Harrington v. Stratton, 22 Pick. 510. The case at bar clearly falls within this rule, and the principles on which it is founded. The claim of the defendant for damages arises directly out of the note in suit, inasmuch as it rests on the invalidity of the consideration for which it was given, and the fraud of the plaintiff in obtaining it. If the defendant should pay the note without insisting on this claim by way of set-off, he would have a good cause of action against the plaintiff to recover the same amount back which he had paid without consideration, and upon false and fraudulent representations. The allowance of the defence prevents a needless circuity of remedy, which the law always seeks to avoid. Thus, a first indorser of a note, to whom it is subsequently reindorsed, cannot maintain an action upon it as indorsee against prior intermediate indorsers, because they in their turn would be entitled to recover back again from the plaintiff the same sum which the latter had received from them. The result of the actions would be to place the parties in the same situation precisely as before any action was brought. Bishop v. Hayward, 4 T. R. 470. Britten v. Webb, 2 B. & C. 483; S. C. 3 D. & R. 650. So here: if the plaintiff should recover in this action the amount of the note, the defendant in another action would recover the same amount against the plaintiff. No good reason can be given for requiring two actions to be brought in order to accomplish a result which can be as well attained, and at less cost, in one. It is urged by the counsel for the plaintiff that the defendant would have been compelled to pay the whole amount of the note in suit to the indorsee to whom the plaintiff negotiated it or value before its maturity, and that he could not have set up ne ground of. defence on which he now relies if an action had been brought upon it by him. This is certainly true; but we do not see that the suggestion has any material bearing on the rights of the parties to this suit. While the notes were in the hands of the indorsee, the defendant still retained his claim for damages against the nresent plaintiff. The transfer of the note in no way affected or impaired the right of the plaintiff to [44] recover those damages. It affected only the form of his rem« edy, limiting it to a right of action against the plaintiff. But on the redelivery of the note to the plaintiff, and the commencement of an action by him to enforce it, the remedy by recoupment revived. Nor can we see that it is at all material that the plaintiff, when he took back the note in suit, paid a valuable consideration for it to the person to whom he had previously negotiated it. The rights of the defendant could not be affected by the dealings of the plaintiff with third parties with whom he had no concern. The plaintiff could not purge the fraud with which the note was tainted so as to get rid of the claim for damages on account thereof, which the defendant had against him. This still remained to be enforced either by a separate action or by recoupment, according as the rules of law might make either form of remedy appropriate and applicable, when the defendant sought to avail himself of it. The other ground of exception is, that the court erred in' ruling that there was no sufficient evidence of a new consideration for the note in suit arising out of the contract entered into in July 1860 for a dissolution of the copartnership previously existing between the plaintiff and defendant. But we think there is no foundation in fact for this exception. On looking at the written agreement for such dissolution, which is said to embody the whole transaction, we can find no promise by the defendant to pay this note. The sale of certain interests in patent rights is made conditional on the payment by the defendant of the joint debts of the previous firm, and of the several debts of the separate copartners which were due to the plaintiff. But there is no agreement or new promise to pay such individual debts. But even if such new promise was proved, we do not think the plaintiff could avail himself of it to shut the defendant out of his defence to this note. This is not an action brought on such new promise, but on the note itself. No new consideration for the note has ever passed between the parties. It stands on the original consideration. Nor has there been any waiver of or intention to abandon the grounds of defence arising out of the [45] fraudulent character of such original consideration. No such waiver or abandonment could be inferred from the alleged new promise or agreement to pay the note, because at the time it is said to have been made the defendant was ignorant of the fact that he had been defrauded by the plaintiff in the transaction as part of which the note now in suit was given. Exceptions overruled.