Hanna v. Hope

Mr. Justice McCamant delivered the opinion of the court. 1. This suit is brought under Section 516, L. O. L., which is as follows: “Any person claiming an interest or estate in real estate not in the actual possession of another may maintain a suit in equity against another who claims an interest or estate therein adverse to him, for the pur — 307 — pose of determining such conflicting or adverse claims, interests, or estates.” The complaint alleges that plaintiff is the owner and in possession of the real property in question and that the defendants Hope claim an interest therein. These allegations are sufficient: Zumwalt v. Madden, 23 Or. 185 (31 Pac. 400); Savage v. Savage, 51 Or. 167, 170 (94 Pac. 182). 2, 3. The answer of defendants Hope alleges the ownership of a mortgage given them by plaintiff and on appropriate allegations prays for its foreclosure. It has been held that the foreclosure of a mortgage may be decreed on the defendant’s cross-bill in a suit to quiet title or a suit to remove a cloud from the title: Jenkins v. Jonas Schwab Company, 138 Ala. 664 (35 South. 649); Cassell v. Lowry, 164 Ind. 1 (72 N. E. 640); Newaygo County Mfg. Co. v. Stevens, 79 Mich. 398, 406 (44 N. W. 852); Switz v. Black, 45 Iowa, 597. Plaintiff did not demur to the defendants’ counterclaim, but replied thereto. He must therefore be deemed to have waived any objection otherwise available to him to question the propriety of the relief demanded in the instant ease: Templeton v. Cook, 69 Or. 313, 317 (138 Pac. 230); Johnson v. Taylor, 150 Cal. 201 (88 Pac. 903, 907, 119 Am. St. Rep. 181, 10 L. R. A. (N. S.) 818). 4-6. With respect to the issues arising on the counterclaim, the defendants Hope became the 'moving parties (Walton v. Perkins, 28 Minn. 413 [10 N. W. 424, 425]), and plaintiff was entitled to set up in his reply any defensive matter to the counterclaim which he could have pleaded if the defendants Hope had filed a complaint for the foreclosure of their mortgage. The first affirmative reply alleges that the mortgage in question was a purchase-money mortgage and the purchase was — 308 — induced by fraudulent representations of the defendants Hope. The materiality of the representations, the intent to deceive and the reliance on the representations are sufficiently alleged. It has been repeatedly held in this jurisdiction that in such case the party defrauded has an election to return what he has received and rescind the contract of purchase or to retain what he has received and sue for damages: Scott v. Walton, 32 Or. 460, 464 (52 Pac. 180); Whitney v. Bissell, 75 Or. 28, 34, 35 (146 Pac. 141, L. R. A. 1915D, 257); T. B. Potter Realty Co. v. Breitling, 79 Or. 293, 304, 305 (155 Pac. 179); Kruse v. Bush, 85 Or. 394 (167 Pac. 308, 309). Plaintiff must be deemed to have elected to pursue the latter remedy. In recoupment against the claim asserted by the defendants Hope he may set up the damages alleged to flow from their fraud in inducing the purchase for which the mortgage was given: Caples v. Morgan, 81 Or. 692, 696 (160 Pac. 1154); Kreinbring v. Mathews, 81 Or. 243 (159 Pac. 75). 7. The defendants Hope are correct in their contention that this affirmative reply fails to state a good estoppel; these defendants are alleging nothing in this suit inconsistent with the representations alleged to have been made by them when plaintiff purchased the property. But the claim by plaintiff that the facts set up constitute an estoppel does not deprive him of the benefit of the facts which he pleads. It has been held that where the facts alleged constitute an estoppel they will be so treated even if they are not pleaded as an estoppel: Carlyle v. Sloan, 44 Or. 357, 369, 370 (75 Pac. 217); Grand Prize Hydraulic Mines v. Boswell, 83 Or. 1, 20 (151 Pac. 368, 162 Pac. 1063). We think the converse of this proposition is true. A party is entitled to the relief arising under the law from the facts — 309 — alleged and proved by bim even though he claims for them a value which they do not possess. We think, therefore, that the lower court erred in sustaining the demurrer to this first affirmative reply. 8. The second affirmative reply stands on a different footing. It is informal in that it does not allege the facts on which the pleader relies, but refers to another part of the reply in which they are set up: Potter v. Earnest, 45 Ind. 416, 418; Knarr v. Conaway, 42 Ind. 260, 264; National Bank of Michigan v. Green, 33 Iowa, 140, 144, 146. Plaintiff is asking affirmative relief in the shape of unliquidated damages. His right to litigate this part of his claim, if it exists at all, must be predicated on Section 401, L. O. L., which is as follows: “The counterclaim of the defendant shall be one upon which a suit might be maintained by the defendant against the plaintiff in the suit; and in addition to the cases specified in the subdivisions of Section 74, it is sufficient if it be connected .with the subject of the suit. * * ” The subdivisions of Section 74 in this connection are as follows: “A cause of action arising out of the contract, or transaction set forth in the complaint, as the foundation of the plaintiff’s claim; “ In an action arising on contract, any other cause of action arising also on contract, and existing at the commencement of the action. ’ ’ The foregoing statutes are the remedy provided by our Code as a substitute for the cross-bill in chancery: Dove v. Hayden, 5 Or. 500-502; Maffett v. Thompson, 32 Or. 546, 551 (52 Pac. 565, 53 Pac. 854). It is a principle of the chancery practice that a cross-bill must be germane to the subject matter of the original bill: 1 Bates’ Federal Equity Procedure, 376; 1 Beach on — 310 — Modern Equity Practice, 433; Cross v. De Valle, 1 Wall, (68 U. S.) 1, 14 (17 L. Ed. 515); Ayers v. Chicago, 101 U. S. 184, 187 (25 L. Ed. 838); Stonemetz Printers’ Mach. Co. v. Brown Folding Mach. Co., 46 Fed. 851-853; Johnson Railroad Signal Co. v. Union Switch etc. Co., 43 Fed. 331, 332; Krueger v. Ferry, 41 N. J. Eq. 432, 435, 436 (5 Atl. 452); Carpenter v. Gray, 37 N. J. Eq. 389, 393. After a careful search of the authorities we have found no case where in a foreclosure suit a chancery court has awarded a money judgment against the mortgagee on a cross-bill setting up damages arising out of a purely legal claim. 9. A proper interpretation of Section 401, L. O. L., harmonizes the practice in this state with the chancery practice: Templeton v. Cook, 69 Or. 313, 317 (138 Pac. 230); Howe v. Kern, 63 Or. 487, 495 (125 Pac. 834, 128 Pac. 818). The distinction between actions at law and suits in equity runs through our Code. We must assume that the word “suit” was used advisedly in Section 401. The counterclaim on which a defendant may have affirmative relief in an equity suit must contain matters of equitable cognizance. This principle is clearly announced in the concurring opinion of Mr. Justice Burnett in Foulkes v. Sengstacken, 83 Or. 118, 136 (158 Pac. 952, 163 Pac. 311), nor does the majority opinion in that case take issue with the principle so announced. In further support of this principle, see First National Bank v. Seaweard, 78 Or. 567, 579 (152 Pac. 883). This construction of the statute is in harmony with the rule announced in Burrage v. Bonanza etc. Min. Co., 12 Or. 169, 175, 176 (6 Pac. 766), and Sears v. Martin, 22 Or. 311, 313 (29 Pac. 890). We think that the defendants Hope are entitled to a trial by jury on the matters alleged in the second affirmative reply and that the lower court did not err — 311 — in sustaining the demurrer thereto. The distinction between recoupment, which is the subject matter of the first affirmative reply, and a counterclaim by way of setoff, which is alleged in the second affirmative reply, is clearly and accurately stated by Mr. Justice Moore in Krausse v. Greenfield, 61 Or. 502, 507, 508 (123 Pac. 392, Ann. Cas. 1914B, 115). The stipulation as to facts does not preclude the prosecution of plaintiff’s appeal. The right of appeal is expressly reserved by the stipulation and the facts stipulated do not negative the affirmative allegations of the amended reply. The defendants Hope are, of course, entitled to controvert the allegations of the first affirmative reply. The decree of the lower court is reversed and the cause remanded for further proceedings not inconsistent herewith. Reversed and Remanded.