CHAPTER XVII. SET-OFF AND RECOUPMENT OF DAMAGES. No Set-off at Common Law-Introduced by the Courts of Equity-Statutes on the subject-Original meaning of Recoupment-Cases in England-Where suit brought on the original contract; or on a Bill or Note given under it—Where Fraud set up-Necessity of notice-American signification of the term-Cases in this country-Payment after suit brought. BEFORE We leave the examination of compensation in actions of contract, we have to consider the principles upon which an acknowledged right for redress or remuneration is reduced in its amount by the establishment of an adverse or cross claim, which is taken into consideration in the same suit, to use technical language, by way of set-off, or recoupment, or counter-claim. An analogous rule exists in regard to actions of tort, where, however, it is known by the term mitigation. The doctrine of set-off is so fully treated in the various treatises devoted to that particular subject, that it would be improper to do more than allude to it here. It is sufficient to say, that at common law no right of set-off existed, it being the object of the system to confine every suit to the particular subject of litigation which gave rise to it. The courts of equity, however, in this, as in many other cases, lent a ready ear to the appeals made to them. from the narrow remedies and harsh doctrines of the common law; and to prevent circuity of action and multiplicity of litigation, introduced the principle of set-off, a principle well known to the civil law by the name of compensation. This doctrine, which is nothing more than a system of settling cross-demands in one suit, finally appeared so equitable, that legislation was resorted to, to get rid of the necessity of applying to a court of equity; and the principle of set-off is now fully established in both American and English legis- [428] lation. It is unnecessary here to enter upon an examina tion of the various statutes of set-off; it is sufficient to say, that, as a general rule, where adverse or cross claims of a pecuniary character exist between the same parties, (1) and the demands are liquidated, the principle is applied. But the object of the statutes of set-off is to settle' mutual accounts and debts. Wrongs or torts done, and unliquidated damages claimed, have never been permitted to be set off. (x) And unliquidated damages have been defined as follows: "Unliquidated damages are such as rest in opinion only, and must be ascertained by a jury, the verdict being regulated by the peculiar circumstances of each particular case, which cannot be ascertained by computation or calculation, as damage for not using a farm in a workmanlike manner, for not building a house in a good and sufficient manner, on warranty in the sale of a horse, for not skillfully amputating a limb, and other cases of like character." (y) In Illinois, however, unliquidated damages arising out of contract, express or implied, may be set off in actions ex contractu, unless they are totally disconnected with the plaintiff's cause of action. (z) The same reasons which operated to introduce the original doctrine of set-off, have tended to enlarge it; and the severity of the statute has introduced the practice of Recoupment. Recoupment, or as it was originally called, Recouper, is a very ancient term of our law; but had at one period fallen into considerable disuse. It has been recently revived in this country, with, however, a material modification of its meaning. As far back as the reign of Henry VIII. (22) we find it laid down, "If a man dis (x) Butts v. Neilson, 13 Wend., 156; McDonald v. Neilson, 2 Cowen, 140; Hick v. Sheener, 4 Serg. & R., 249; 10 S. & R., 14; U. S. v. Robison, 9 Pet., 325; U. S. v. Buchanan, 8 Howard, 83; Howlet v. Strickland, Cowp., 56; Freeman v. Hyatt, 1 W. Black., 394. (y) Butts v. Collins, 18 Wend., 139. (2) Sargeant v. Kellogg, 5 Gilman, 273 ; Kaskaskia Bridge Co. v. Shannon, 1 Gilman, 15. (zz) Dyer's Reports, 2, b. (1) A surety cannot, in an action against him by the creditor of his principal, recoup or set off a claim to damages in favor of his principal against the creditor, although such claim might be a defense in an action against the principal. La Farge v. Halsey, 4 Abbott's Pr. R., 397. seise me of land, out of which a rent charge is issuant which has been in arrear for several years, and the disseisor pay it, if [429] the disseisee recover in an assize, the rent that the disseisor has paid shall be recouped in damages." Lord Coke also says, (a) "If a man makes a lease for life rendering rent, or if there be lord and tenant by fealty and rent, and the rent is behind two years, and afterward the lessor, or the lord, disseises the terre-tenant, and afterwards the tenant recovers against him in an assize, and the rent which incurred during the disseisin is recouped in damages, yet the lord or lessor shall recover in the assize the arrearages before the disseisin, and the bar of the later years is no bar of the arrearages before." And so he again says, (b) "And as to the case of recouper in damages in the case of rent service, charge, or seck, it was resolved that the reason of the recouper in such case is, because otherwise, when the disseisee re-enters, the arrearages of the rent service, charge, or seck would be revived; and therefore to avoid circuity of action-and circuitus est evitândus, et boni judicis est lites dirimere, ne lis ex lite oriatur—the arrearages during the disseisin shall be recouped in damages.” (c) So, again, (d) where an appeal of maihem was brought, and for the defense it was urged that the plaintiff had recovered in a previous action of trespass in assault and battery, and it was held a good bar, it is cited in the index as a case "where recouper of damages shall lie, because the plaintiff recovered in another action before." (e) And again (f) if the feoffee or lessee of the second disseisor sows the land, or cuts down trees or grass, &c., and carries away, yet after the regress of the disseisee, he may take as well the corn as the trees, &c., to what place soever they are carried; and if the disseisee takes them, they shall be recouped in damages against the disseisor. (g) (a) Pennant's Case, Rep., Part III., 65. (b) Coulter's Case, Rep., Part V., 2, 31. (c) And in this case it was held, that an executor of his own wrong could not recoupe or retain out of goods in his own hands the amount of a debt due him by the decedent. In the case, however, above cited from Dyer, it was held that executors might pay the debts of the testator out of their own money, and retain so much of the effects of the testator as would be necessary to satisfy them; and this was held good under a plea of plene administraverunt. Other cases of recouper or retention will be found referred to in this (Coulter's) case, chiefly from the Year Books; See also, as to Recouper, a note to the case of Icely v. Grew, 6 Nev. & Man., 467. 36 E. C. L. R., 440. (d) Part IV., 43. Cases of Appeal, &c. (e) So again in Slade's case, Part IV., 94. But this is not a case of former recovery. (f) Richard Lilford's case, Part XI., 51 and 52. (g) And in the same sense the maxim of the civil law is applied: nemo locupletior faciendus est ex aliena jactura. So Grotius, "Minus autem quis habere ac In this same sense the phrase is used in a modern Eng- [430] lish case, where (h) suit was brought upon a policy on the life of Mr. Pitt. The plaintiffs had been creditors of Mr. Pitt, and insured his life for their own protection. After his death, however, the debt was paid by his executors out of moneys voted by Parliament to relieve his estate, and it was held that the plaintiffs could not recover, having received no damage; and in the case next cited, Lord Ellenborough likened this to a case of recoupment. (2) So where an action () was brought on a policy of insurance to Russia, with a provision that if the cargo were denied permission to be landed, the master should, on his return, receive in London, £2,500; the outward cargo was denied landing, but the master, instead of returning direct, went by Stockholm and earned freight. The plaintiff claimed to recover the £2,500; but it was held that the freight earned was to be recouped; and the principle of this case has been recognized in this country. (k) Again, in a case of assumpsit by underwriters (7) on freight, after abandonment and payment of total loss, to recover freight earned after the abandonment, it was insisted by counsel arguendo, that whether entitled under the abandonment or not, the plaintiff ought to have his damages recouped pro tanto, out of the freight earned by the defendants on the homeward voyage. (m) proinde damnum fecisse intelligetur, non in re tantum, sed in fructibus qui propriæ rei fructus sunt, sive illi percepti sunt sive non, si tamen ipse eos percepturus fuerat, deductis impensise quibus res melior facta est aut que ad fructus percipiendos fuerunt necessaria, ex regula quæ nos velat locupletiores fieri cum aliena jactu ra."-De Jur. Bel. et Pac., Lib. II., C. cxvii.; § 4. Rutherforth's Institutes, Book I., chap. 17. (h) Godsall v. Boldero, 9 East. 72. See this case cited with approbation in the Court of Errors in New York, Tyler v. Ætna Fire Ins. Co., 16 Wend., 385. It has been overruled in England. See Dalby v. India and London Life Assurance Company, 15 C. B. (6 J. Scott), p. 365, and supra p. 271, on the ground that a Contract of Life Assurance is not a Contract of Indemnity. (i) Mr. Ellis says (Insurance, 126), that notwithstanding this decision, the office paid the amount before leaving court. It does not appear, but it may be supposed that the suit was brought for the benefit of the estate. (j) Pullen v. Staniforth. 11 East, 232. (k) Hecksher v. M'Crea, 24 Wend., 304. See also, Costigan v. Mohawk and Hudson R. R. Co., 2 Denio, 610. (1) Barclay v. Stirling, 5 M. & Sel., 6 and 10. (m) See also, Richardson arguendo, in Williams v. London Ass. Co., 1 M. & Sel., 318 and 323. And such is the definition given of the word in the Lexicons; "Recoupe," says Jacobs (in Voc.), "from the French Recouper, signifies the keeping back or stopping something which is due, and in our law we use it for defaulk or discount." The term defaulk is obsolete. and is only known now through the substantive defalcation, used in promissory notes in Pennsylvania to signify deduction; and discount has become appropri ated almost exclusively to banking operations. [431] Thus, it is evident that recouper or recoupment, in its original sense, was a mere right of deduction from the amount of the plaintiff's recovery, on the ground that his damages were not really as high as he alleged. (n) But this is not the sense in which the phrase has been lately used with us in this country. In Mr. Barbour's valuable compilation on the law of Set-off, he says, p. 26, "Before entering upon the subject of set-off more minutely, it will be proper to notice a species of defense somewhat analogous to it in character, which a defendant is in some cases allowed to make, and which is called recoupment. This is where the defense is not presented as a matter of set-off arising on an independent contract, but for the purpose of reducing the plaintiff's damages, for the reason that he himself has not complied with the cross-obligations arising under the same contract. Thus, in an action to recover compensation for services rendered, the employer is entitled to show by way of recoupment of damages, loss sustained by him through the negligence of the person employed; and so in regard to a breach of warranty." Mr. Barbour is unquestionably right in the fact he states, that recoupment is thus used; but it is equally certain that this is an entirely new application of the word, and that while it originally merely implied a deduction from the plaintiff's demand, arising from payment in whole or in part, or from recovery, or some analogous fact, it is now understood to embrace counterclaims of the defendant, and to be, in short, a kind of irregular and unliquidated set-off, which has crept in notwithstanding the rigorous terms of the statute. (1) It is always desirable to use technical terms in their strict signification; but leaving this to those who alone are competent to set us right in the matter, I propose now to consider the law of recoupment in its broader, and, as I must think, less correct interpretation. (2) It will be better understood from a careful examination of the cases. (n) And so, too, it appears from Viner's Abridgment, where various uses of the term in its ancient sense, will be found under the head of Discount; Pl. 3, 4, 9 and 10. (1) Compare Barber v. Chapin, 28 Vt., 413. (2) Recoupment will be allowed whenever an action for damages can be maintained. In order to avoid circuity of action, the courts will favor recoupment. Houston v. Young, 7 Ind., 200. But the right only exists where a cross-action could be maintained. Clark v. Wildridge, 5 Ib., 176. And defendant may elect between |