In an action to recover less than $5,000, in which the defendant
asks for judgment upon a counterclaim for more than that sum and
the circuit court renders a general judgment for the plaintiff, a
writ of error sued out by the defendant is within the jurisdiction
of this Court under the Act of February 15, 1875, c. 77, § 3.
In an action for goods sold and delivered, tried in the circuit
court of the United States in Pennsylvania, the defendant, under a
plea of "payment with leave" and by way of recoupment, may prove
damages resulting to him from a breach of warranty or from a
fraudulent representation of the seller that the goods were of a
certain quality or fit for a certain purpose.
Under the statute of Pennsylvania of 1705 which allows the
defendant, in an action upon a contract, to set off any matter of
contract and to recover judgment thereon against the plaintiff upon
proving that the plaintiff owes him more than he owes the
plaintiff, the defendant, in an action for goods sold and
delivered, may set off a claim in the nature of assumpsit upon a
warranty, but not a claim for a fraudulent representation or other
claim sounding in tort only.
If rags sold as clean and free from infection, and fit to be
manufactured into paper, are proved to have been infected with the
smallpox, and to have caused it to break out in the buyer's paper
mill, whereby some of the workmen died, others were disabled from
working, and the buyer paid certain sums to support those so
disabled, and was obliged to run his mill shorthanded, and lost a
considerable part of a profitable trade, and the seller testifies
that he bought the rags in a region where he knew
Page 120 U. S. 631
the smallpox was epidemic, from any and all dealers, not knowing
where they were collected, and that they were assorted and baled up
under his instructions, and falsely testifies that the rags sold
had been baled up in his warehouse for a year before, and had no
disinfectants in them, this is sufficient evidence to be submitted
to a jury of a breach of warranty or a fraudulent representation on
the part of the seller, and of damages to the buyer. But the court
may properly decline to permit the buyer to testify in general
terms what he estimates the amount of his damages to be without
stating the items of damage or any facts upon which his opinion is
based.
The testimony of witnesses not shown to be experts that the
infected condition of rats was the cause of a breaking out of the
smallpox is incompetent.
This was an action of assumpsit brought by Benedict, a citizen
of Pennsylvania and rag dealer at Pittsburgh, against Dushane and
Stonebraker, citizens of Maryland and papermakers at Hagerstown, to
recover $813.03 for rags sold and delivered by him to them on
February 7, 1882, as appeared by the plaintiff's affidavit to a
copy of the bill from his book of original entry.
Plea:
"Defendants plead payment, with leave &c., and the special
matter stated in affidavits of defense, and they claim damages upon
the cause of action stated in said affidavits in the sum of seven
thousand dollars in excess of the amount sued for by
plaintiff."
The defendants had filed, before their plea, two affidavits of
Stonebraker, the statements in the second of which included those
in the first, and were as follows
"The following facts are stated as a just defense to the whole
of plaintiff's claim. Plaintiff is a rag dealer, having his stock
in trade in the City of Pittsburgh. In February, 1882, he came to
see defendants at Hagerstown, Md., and solicited an order for rags
and paper. On behalf of defendant firm, I gave him an order for
substantially the quantities and kinds described in the exhibit
attached to his affidavit. Nicely assorted print and book rags were
designated as the subject matter of said contract, but no rags were
accepted, inspected, or even seen by defendants or anyone acting
for them. The rags which the plaintiff shipped from Pittsburgh,
professedly in fulfillment of said contract, were packed in bales,
and their
Page 120 U. S. 632
character could not be discovered until the bales were unpacked.
After some of them had been unpacked and used, nine of defendants'
sorters were stricken with smallpox and varioloid, and the disease
spread rapidly among the employees and those living near the mill,
causing the death of five persons and preventing many others from
working. Others became alarmed. When the reports of the epidemic
spread, customer's refused to buy defendants' paper. They were
unable to hire workmen at the usual rates, and some refused to work
on any terms. By reason of the premises and of the interruption of
defendants' business occasioned thereby, money paid for the support
of those disabled by said, disease, injury to defendants' said
business, &c., defendants suffered loss and were put to expense
far exceeding the amount of plaintiff's bill. The said rags were
infected with smallpox before plaintiff shipped them. I am informed
and believe, and expect to prove, that he well knew there to be
infected before he shipped them. If defendants had known them to be
infected, they would have refused to receive them. The rags they
contracted for and were to receive, according to the clear
understanding between there and plaintiff, were good merchantable
rags, free from infection. The infection conveyed in said rags was
the sole cause of the breaking out of said disease in the manner
above described, and they were shipped by plaintiff with intent to
deceive, cheat and defraud the said defendants. As soon as
practicable after the discovery of said infection, defendants wrote
to plaintiff, stating the facts and telling him that all the rags
not consumed before said discovery was made were held subject to
his order, and they were all still so held until defendants'
foreman, being compelled to remove the said rags and mistaking
defendants' orders to the contrary, turned them into the rotary
boiler without sorting them, for the purpose of getting rid of the
risk of infection attendant upon their remaining in the mill."
"For the rags so used, it is submitted that defendants ought not
to pay the price charged by plaintiff, but such amount only as they
were reasonably worth, if they were worth anything. Defendants will
ask for a certificate for the
Page 120 U. S. 633
amount of damages in excess of the true amount to which
plaintiff may be entitled."
The plaintiff, by counteraffidavit of claim, denied that the
rags were infected or that the contract provided that they should
be free from infection, or that the alleged infection was the cause
of the breaking out of the disease, or that he knew the rags to be
infected before he shipped them, or that he shipped them with any
intent of deceiving, cheating or defrauding the defendants, or that
the defendants suffered any loss in consequence of the alleged
infection.
At the trial, the plaintiff, having been called as a witness in
his own behalf, testified on cross-examination that the rags in
question were collected by him in Pittsburgh, Allegheny City, and
the country round about, and were assorted in his establishment and
baled under his special instructions by his foreman; that he bought
rags from any and all dealers who offered him merchantable rags,
not knowing where they were collected; that he thought the word
"clean" was not used in his offer to the defendants; that to the
best of his knowledge and belief, the rags shipped to the
defendants were clean, and there was no sulphur, carbolic acid or
other disinfectant in the bales; that he never used disinfectants
in his establishment; that he knew that the smallpox was epidemic
in those two cities at and before the time when the rags were
shipped, but that these rags had been baled up and lain in his
warehouse for a year or more before.
One of the defendants, being called as a witness in their
behalf, produced a letter received from the plaintiff with the
invoice of the rags, in which the plaintiff said that he had
shipped some of them that day, and expected to ship the rest the
next day, and that he might not have quite enough then, but would
send them a few days after. And three of the workwomen in the mill
testified that the rags, when opened, smelt strongly of sulphur and
carbolic acid.
The defendants also introduced evidence tending to show that the
contract was for clean, nicely assorted, print and book rags; that
the rags, when delivered at the mill,
"were packed in bales, which were immediately opened; that
the"
Page 120 U. S. 634
rags were very filthy, emitted a sickening smell, and were
infected with the smallpox; that twelve days afterwards, the
smallpox broke out in the mill, and caused the death of some of the
workpeople, disabled others, frightened away some, and prevented
customers from coming to the mill; that the infected condition of
the rags was the cause of the breaking out of the disease; that the
defendants supplied the sick with provisions and other necessaries
to the amount of $200, and were obliged to run their mill
shorthanded, made less paper, and lost a considerable part of a
profitable country trade, but offered no other evidence of the
particulars of the damage which they had suffered.
While one of the defendants was on the witness stand, their
counsel asked him what be estimated the amount of his damage to be.
The plaintiff's counsel objected to the question on the ground
"that it was not competent for the witness to give a lumping
estimate of the defendants' damages, but that he should specify the
items of damage, and testify to facts, his opinion being
inadmissible."
The court sustained the objection and excluded the evidence.
The court also excluded testimony of one of the persons who had
taken the smallpox that the breaking out of the disease was caused
by these rags, and testimony of another workman that two of his
children had taken the smallpox by playing with infected rags.
In answer to an inquiry of the court, just before charging the
jury, "what, under the proofs, the position of the defendants was,"
their counsel stated that "the defendants only insisted upon their
counterclaim for damages on the cause of action growing out of the
infected condition of the rags," and thereupon the court charged
the jury as follows:
"The sale at the price sued for and the delivery of the rags are
admitted, and it is shown that the defendants used the whole of
them in the manufacture of paper, which they disposed of. The
defendants, however, allege, and this is the sole ground of defense
insisted on, that the rags were infected with smallpox and
introduced the disease among the defendants' employees, a number of
whom took smallpox, and
Page 120 U. S. 635
several of whom died of the disease, and the defendants maintain
that by reason of such introduction of the disease into their mill,
they were injured in their business and sustained damages in excess
of the plaintiff's claim, and hence that they not only have a full
defense to this claim, but are entitled to a certificate for the
damages sustained by them in excess of his claim."
"
The defendants go to the length of charging that the
plaintiff knew the rags were infected with smallpox when he shipped
them to the defendants, and in so doing acted with positive bad
faith to the defendants. But it seems to me that the evidence would
not justify the jury in so finding or the court in submitting to
the jury the question of bad faith, nor can I now recall evidence
sufficiently showing that the plaintiff was even guilty of culpable
negligence in his purchase of those rags."
"
However, the damages claimed by the defendants, if not in
their nature to remote and speculative, are, it seems to me,
altogether uncertain under the evidence. I am of opinion, and
charge you, that the evidence in the case is not such as would
enable the jury to ascertain the amount of damages, if any, which
the defendants sustained."
"
Upon the whole case, the court instructs the jury to find a
verdict for the plaintiff for the mount of his claim."
The jury returned a verdict for the plaintiff accordingly, and
the defendants excepted to the rulings excluding evidence, and to
those portions of the charge above printed in italics, and sued out
this writ of error.
MR. JUSTICE GRAY delivered the opinion of the Court.
This was an action of assumpsit by a rag dealer against
papermakers to recover $813.03 for rags sold and delivered by him
to them. The plea was in the peculiar form used in Pennsylvania,
with a counterclaim. The plaintiff had a verdict and
Page 120 U. S. 636
judgment, and the case comes before us on a writ of error sued
out by the defendants.
The plaintiff's motion to dismiss the writ of error for want of
a sufficient amount in dispute to give this Court jurisdiction,
cannot be sustained, since the record shows that the defendants
sought to recover the sum of $7,000 in excess of the plaintiff's
claim, and this sum was therefore in dispute.
Ryan v.
Bindley, 1 Wall. 66; Act February 16, 1875, c. 77,
§ 3, 18 Stat. 316. Whether the defendants could lawfully recover it
against the plaintiff in this case was a matter affecting the
merits, and not the jurisdiction.
Before proceeding to consider the rulings and instructions at
the trial as applied to the facts of the case, it will be
convenient to refer to the general rules of law, and to the statute
and decisions in Pennsylvania which bear upon the subject.
When a dealer contracts to sell goods which he deals in to be
applied to a particular purpose, and the buyer has no opportunity
to inspect them before delivery, there is an implied warranty that
they shall be reasonably fit for that purpose.
Jones v.
Just, L.R. 3 Q.B. 197, 203, 9 B. & S. 141, 150;
Kellogg Bridge Co. v. Hamilton, 110 U.
S. 108. In such a case, in Pennsylvania, as at common
law, the action upon the warranty may be either in contract or in
tort.
Vanleer v. Earle, 26 Penn.St. 277;
Schuchardt
v. Allens, 1 Wall, 359,
68 U. S. 368.
If the seller falsely represents to the buyer that the goods are of
a certain quality or fit for a certain purpose, he is liable to an
action for the fraudulent representations, although they are not in
a form to constitute a warranty, and in such a case the action must
be in tort, in the nature of an action of deceit, and must be
supported by proof that he knew the representations to be false
when he made them.
Kimmel v. Lichty, 3 Yeates 262;
McFarland v. Newman, 9 Watts 55;
King v. Eagle
Mills, 10 Allen 548.
The damages recoverable for a breach of warranty or for a false
representation include all damages which, in the contemplation of
the parties, or according to the natural or usual course
Page 120 U. S. 637
of things, may result from the wrongful act. For instance, if a
man sells hay or grain for the purpose of being fed to cattle, or
such as is ordinarily used to feed cattle, and it contains a
substance which poisons the buyer's cattle, the seller is
responsible for the injury.
French v. Vining, 102 Mass.
132;
Wilson v. Dunville, L.R. 4 Ir. 249, and L.R. 6 Ir.
210. So if one sells an animal warranting or representing it to be
sound which is in fact infected with disease, he is responsible for
the damages resulting from a communication of the disease to the
buyer's other animals, either in an action of tort for the false
representation.
Mullett v. Mason, L.R. 1 C.P. 559;
Jeffrey v. Bigelow, 13 Wend. 518;
Faris v. Lewis,
2 B. Mon. 375;
Sherrod v. Langdon, 21 Ia. 518;
Marsh
v. Webber, 16 Minn. 418, or in an action on the warranty,
either in tort,
Packard v. Slack, 32 Vt. 9;
Smith v.
Green, 1 C.P.D. 92, or even in contract,
Black v.
Elliot, 1 Fost. & Finl. 595.
See also Randall v.
Newson, 2 Q.B.D. 102.
In an action for the price of goods sold or of work done, the
defendant may set up a breach of warranty, or a false
representation as to the goods, or a defective performance of the
work, by way of recoupment of the sum that the plaintiff may
recover. In England, this is only allowed so far as it affects the
value of the goods sold or of the work done.
Davis v.
Hedges, L.R. 6 Q.B. 687, and cases there cited. But in this
country, the courts, in order to avoid circuity of action, have
gone further and have allowed the defendant to recoup damages
suffered by him from any fraud, breach of warranty, or negligence
of the plaintiff, growing out of and relating to the transaction in
question. It will be enough to cite a few cases in which the extent
and the reason of the doctrine have been clearly brought out.
In a leading Massachusetts case in which fraudulent
representations as to the soundness of a horse sold were allowed to
be set up in defense of an action on a promissory note given for
the price, although the horse had not been returned to the seller,
Mr. Justice Dewey, after reviewing the previous decisions
Page 120 U. S. 638
in England and in New York, said:
"The strong argument for the admission of such evidence in
reduction of damages in cases like the present is that it will
avoid circuity of action. It is always desirable to prevent a
cross-action where full and complete justice can be done to the
parties in a single suit, and it is upon this ground that the
courts have of late been disposed to extend, to the greatest length
compatible with the legal rights of the parties, the principle
allowing evidence in defense or in reduction of damages to be
introduced, rather than to compel the defendant to resort to his
cross-action."
Harrington v. Stratton, 22 Pick. 510, 517. And in a
later case in that state, Chief Justice Bigelow observed that the
essential elements on which the application of the principle of
recoupment depended were 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 maintain his action. The other is that the claim for
damages shall be against the plaintiff, so that their allowance by
way of setoff or defense 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 on the defeat the action."
Sawyer v. Wiswell, 9 Allen 39, 42. In
Bradley v.
Rea, 14 Allen 20, in an action to recover the price of a
number of pigs sold in one lot, it was held that the defendant
might set up in defense that the pigs sold were warranted or
fraudulently represented by the plaintiff to be sound, and free
from infectious or contagious diseases, and prove the existence of
such a disease in some of the pigs at the time of the sale, which
afterwards spread to the others, and of which they died. Mr.
Justice Hoar, delivering judgment, after referring to
Mullett
v. Mason, L.R. 1 C.P. 559, above cited, in which it was held
that in an action for fraudulently misrepresenting that a cow sold
was free from infectious disease, the buyer, if he placed the cow
with others which thereby caught the disease and died, could
recover as damages the value of all the cows, said:
"The nature of the subject matter of the warranty
Page 120 U. S. 639
or deceit is such that when animals are sold in one lot
together, the warranty or representation as to the whole being
single, we can have no doubt that the same principle should apply
to the extent of a recoupment, and that the right to recoup in
damages should not be confined to the diminished value of those
which are proved to have the disease at the time of the sale."
14 Allen 23. A similar decision was made in
Rose v.
Wallace, 11 Ind. 112.
The later decisions of this Court, modifying the earlier
decision in
Thornton v.
Wynn, 12 Wheat. 183, affirm the same doctrine.
Withers v.
Greene, 9 How. 213;
Van Buren
v. Digges, 11 How. 461;
Winder v.
Caldwell, 14 How. 434;
Lyon v.
Bertram, 20 How. 149,
61 U. S. 154;
Railroad Co. v.
Smith, 21 Wall. 255;
Marsh v. McPherson,
105 U. S. 709,
105 U. S.
717.
In
Winder v. Caldwell, Mr. Justice Grier, who was
equally familiar with the common law and with the Pennsylvania
practice, said:
"Although it is true as a general rule that unliquidated damages
cannot be the subject of setoff, yet it is well settled that a
total or partial failure of consideration, acts of nonfeasance or
misfeasance immediately connected with the cause of action, or any
equitable defense arising out of the same transaction, may be given
in evidence in mitigation of damages or recouped, not strictly by
way of defalcation or setoff, but for the purpose of defeating the
plaintiff's action in whole or in part, and to avoid circuity of
action."
14 How.
55 U. S.
443.
In
Railroad Co. v. Smith, which was an action against a
railroad corporation by a contractor to recover the price of a
drawbridge, it was held that the defendant might show that the
construction of the bridge was so defective as to make it unfit for
its purpose, and the draw worked so imperfectly as to hinder and
delay the running of the cars over it, and might prove the number
of hands required to work the bridge as it was built and the number
that would be necessary if it had been properly constructed. MR.
JUSTICE FIELD, delivering judgment, said:
"All damages directly arising from the imperfect character of
the structure which would have been avoided had the structure been
made pursuant to the contract and for which the defendant might
have instituted a
Page 120 U. S. 640
separate action against the contractors were provable against
their demand in the present action. The law does not require a
party to pay for imperfect and defective work the price stipulated
for a perfect structure, and, when the price is demanded, will
allow him to deduct the difference between that price and the value
of the inferior work, and also the amount of any direct damages
flowing from existing defects, not exceeding the demand of the
plaintiffs. This is a rule of strict justice, and the deduction is
allowed in a suit upon the contract, to prevent circuity of
action."
21 Wall.
88 U. S.
261.
The courts of Pennsylvania, having originally had no
jurisdiction in equity, have always allowed equitable defenses in
actions at law, under what is there known as a "plea of payment
with leave" -- that is to say, with leave to prove any special
matter.
Swift v. Hawkins
(1768), 1 Dall. 21;
Lewis v. Morgan (1824), 11 S. & R.
234;
Light v. Stoever (1825), 12 S. & R. 431, 433;
Mackey v. Brownfield (1825), 13 S. & R. 239;
Howk
v. Geddis (1827), 16 S. & R. 23;
McConnel v. Hall
(1831), 3 Pen. & W. 53;
Uhler v. Sanderson (1861), 38
Penn.St. 128. And the practice was long ago recognized and acted on
by Mr. Justice Washington in the circuit court.
Latapee v.
Pecholier, 2 Wash.C.C. 180, 184;
Webster v. Warren, 2
Wash.C.C. 456, 458.
In matters of contract, the defendant's right of setoff, with
the additional right to recover judgment against the plaintiff for
any sum proved in excess of his claim, is given and regulated by a
statute which has been in force in Pennsylvania since 1705, and is
there commonly known as the "Defalcation Act," by which
"if two or more, dealing together, be indebted to each other
upon bonds, bills, bargains, promises, accounts, or the like, and
one of them commence an action in any court of this province, if
the defendant cannot gainsay the deed, bargain, or assumption upon
which he is sued, it shall be lawful for such defendant to plead
payment of all or part of the debt or sum demanded, and give any
bond, bill, receipt, account, or bargain in evidence, and if it
shall appear that the defendant hath fully paid or satisfied the
debt or sum demanded, the jury shall find for the defendant, and
judgment shall be
Page 120 U. S. 641
entered that the plaintiff shall take nothing by his writ, and
shall pay the costs. And if it shall appear that any part of the
sum demanded be paid, then so much as is found to be paid shall be
defalked, and the plaintiff shall have judgment for the residue
only, with costs of suit. But if it appear to the jury that the
plaintiff is overpaid, then they shall give in their verdict for
the defendant, and withal certify to the court how much they find
the plaintiff to be indebted or in arrears to the defendant, more
than will answer the debt or sum demanded,"
and the sum so certified shall be recorded with the verdict, and
be deemed a debt of record, and may be recovered by
scire
facias or, under an act of 1848, by judgment and execution
therefor. 1 Dall.Laws of Penn. p. 65; 1 Purd.Dig. (11th ed.) 603,
604.
This statute, in its very terms, embraces all matters of
contract, and no matter of tort, and so it has always been
construed. A breach of warranty is a breach of contract, and may be
sued on as such, and for that reason, and that only, has been
allowed to be given in evidence by the defendant, under the
statute, not only in an action on the same contract (in which it
might be admissible by way of recoupment only, without the aid of
the statute), but even in an action upon a distinct contract.
Steigleman v. Jeffries, 1 S. & R. 477;
Nickle v.
Baldwin, 4 W. & S. 290;
Phillips v. Lawrence, 6
W. & S. 150;
Carman v. Franklin Ins Co., 6 W. & S.
155;
Ellmaker v. Franklin Ins. Co., 6 W. & S. 439;
Hunt v. Gilmore, 59 Penn.St. 450;
Seigworth v.
Leffel, 76 Penn.St. 476;
Halfpenny v. Bell, 82
Penn.St. 128. But from the earliest to the latest times it has been
uniformly held that a claim of damages for a mere tort is not
within the statute.
Kachlin v.
Mulhallon (1795), 2 Dall. 237;
S.C. nom.
Kachlein v. Ralston, 1 Yeates, 571;
Heck v. Shener
(1818), 4 S. & R. 249;
Gogel v. Jacoby (1819), 5 S.
& R. 117;
Cornell v. Green (1823), 10 S. & R. 14;
Light v. Stoever (1825), 12 S. & R. 431;
Hubler v.
Tamney (1836), 5 Watts 51, 53;
Peterson v. Haight
(1838), 3 Whart. 150;
Hunt v. Gilmore (1868), 59 Pa Stat.
450, 452;
Ahl v. Rhoads (1877), 84 Pa Stat. 319, 325.
Page 120 U. S. 642
The distinction between the right of equitable defense or
recoupment, independent of any statute, which may arise even out of
a tortious act of the plaintiff immediately connected with the
contract sued on, and by which the defendant can do no more than
defeat the plaintiff's claim, in whole or in part, and the right of
counterclaim under this statute, which can be based only on
contract, and by which the defendant may not only defeat the
plaintiff's action, but recover an affirmative judgment against
him, has been clearly brought out in the judgments of Chief Justice
Tilghman.
In assumpsit to recover for services as a housekeeper, the
defendant pleaded non assumpsit and payment, with leave to give the
special matters in evidence, and offered to prove that the
plaintiff, while in his service, clandestinely took and sent away
goods of his from the house. Chief Justice Tilghman, after
observing that it was contended for the defendant "that the
evidence was proper, either by way of setoff, or, under the plea of
non assumpsit, as a defense to the action," expressed the opinion
that it was not admissible by way of setoff, because it had been
settled that the statute did not comprehend matters of a tortious
nature; but that, considering the impolicy of multiplying suits and
the hardship of not permitting the defendant to avail himself of
matters arising out of the very transaction on which the plaintiff
founds his suit, the evidence offered was admissible, under the
plea of non assumpsit to show that the plaintiff's services were
ill performed, and thus to affect the amount which she could
recover, and on this ground alone the judgment below, which
excluded the evidence, was reversed
Herk v. Shener, 4 S.
& R. 249.
So, in assumpsit for goods sold and delivered, it was held that
the defendant could not give in evidence, by way of setoff, that
the goods had been detained by the plaintiff, and conveyed by him
to third persons, and the same eminent judge said:
"Without undertaking at present to draw the line which limits
the right of defalcation, it may be safely affirmed that
defalcation is not permitted by reason of any demand against the
plaintiff for an act done by him of a tortious nature.
Page 120 U. S. 643
But there are cases in which the defendant is permitted to give
evidence of act of nonfeasance or misfeasance by the plaintiff,
where these acts are immediately connected with the plaintiff's
cause of action, although perhaps such evidence is not so properly
a defalcation as a defeating, in whole or in part the plaintiff's
action."
Gogel v. Jacoby, 5 S. & R. 117, 122.
Again, in debt against principal and surety on a bond given for
the purchase money of a mill sold by the plaintiff to the principal
defendant, the defendant proved that at the time of the sale the
grantee supposed the dam was at its lawful height, whereas it was
in fact as the plaintiff knew, so high as to overflow and injure
the land and mill of a neighbor without his consent, and that if
the grantee should lower his dam to its lawful height, the value of
his mill would be greatly reduced, and then offered to show how
much the value of his mill would be diminished by so lowering the
dam. It was held that the evidence, though going to prove
unliquidated damages, was admissible for reasons thus stated by
Chief Justice Tilghman:
"It is very true that these damages were not in the nature of a
debt which can be set off. But they were not offered as a setoff.
It was an equitable defense, showing that the plaintiff ought not
to be permitted to recover the whole purchase money, and, if not,
then it was necessary to show what would be a reasonable abatement.
Such defenses have always been admitted in our courts. Having no
court of chancery, we could not get along without them. To permit
the plaintiff to recover the whole purchase money and leave the
defendants to their remedy by an action for fraudulent concealment
would be most unjust. The purchase money and damages arise out of
the same transaction, and the proper time for inquiry was before
the money was taken from the pocket of the defendants. It might be
too late afterwards. And certainly the plaintiff has no right to
complain if the whole business is settled at once. What he is not,
in good conscience, entitled to receive he should not be permitted
to receive.
Light v. Stoever, 12 S. & R. 431,
433."
The result of the Pennsylvania decisions may be summed
Page 120 U. S. 644
up thus:
First. Independently of the statute, any matter, either of
contract or of tort, immediately connected with the plaintiff's
cause of action (which would seem to include everything that could
be set up by way of recoupment under the law as generally
understood and administered in the American courts) may be set up
by way of defense to the action and in abatement of the plaintiff's
damages only.
Second. Any matter of contract may be set up by way of
counterclaim under the statute not only to defeat the plaintiff's
action in whole or in part but also, if the defendant proves that
the plaintiff owes him more than he owes the plaintiff, for the
purpose of recovering the excess against the plaintiff.
Third. No mere matter of tort can be availed of by the defendant
under the statute.
The defendants in the present case pleaded "payment with leave,"
etc., and the special matter stated in the affidavits of defense
previously filed, with a counterclaim upon the cause of action
stated in those affidavits. Their purpose in so pleading apparently
was to give notice to the plaintiff both of the special matter to
defeat his claim and also of a defalcation or setoff on which the
defendants would ask for a certificate and judgment against the
plaintiff, under the statute, for any balance due from him. In the
words of Chief Justice Black:
"A notice of special matter must state the facts upon which the
defendant relies, and not either the evidence by which they are to
be established or the inferences to be drawn from them."
Hartman v. Keystone Ins. Co., 21 Penn.St. 466, 475. The
plaintiff might perhaps have objected to the admission of any other
evidence than of payment, for want of any notice to him,
independently of the affidavits, of the matters intended to be
relied on by way of defense and of counterclaim.
Finlay v.
Stewart, 56 Penn.St. 183. But, no such objection having been
made at the trial, it could not be taken for the first time in this
Court.
Calvin v. McClure, 17 S. & R. 385;
Rearich
v. Swinehart, 11 Penn.St. 233;
Partridge
v. Insurance Co., 15 Wall. 573,
82 U. S. 580.
Indeed, no objection to the sufficiency of the notice of special
matter was taken in argument here.
Page 120 U. S. 645
The special matter stated in the affidavits of defense was that
the plaintiff came to the defendants' mill, and there solicited and
obtained an order for good merchantable rags, free from infection;
that the defendants had no opportunity to inspect the rags before
delivery; that the rags sent were infected with the smallpox before
the plaintiff shipped them; that when some of them were unpacked,
and used at the defendant's mill, the infection in the rags caused
the smallpox to break out in the mill, in consequence of which some
of the workmen died, others were disabled from working, it became
impossible to hire new ones at the usual rates, and customers were
deterred from buying the defendants' paper; that by reason of the
interruption and injury to the defendants' business thereby
occasioned, and the money paid by the defendants to those disabled
by the disease, they were put to loss and expense far exceeding the
amount of the plaintiff's bill; that the plaintiff shipped the rags
knowing them to be infected, and intending to deceive, cheat, and
defraud the defendants, and that the defendants, as soon as they
discovered the infection, informed the plaintiff of the fact, and
held those which had not been consumed subject to his order, until
their foreman, by mistake, used them up. The affidavits concluded
by submitting that the defendants ought not to pay the prices
charged, but such amount only as the rags were reasonably worth, if
anything, and by asking for a certificate for the amount of their
damages in excess of what the plaintiff might be entitled to.
In short, the matter stated in the affidavits of defense was a
sale of rags upon a warranty or a fraudulent representation that
they were clean and free from infection, and a delivery by the
plaintiff, under that contract of sale, of rags infected with the
smallpox, causing the breaking out of the disease in the
defendants' mill and consequent injuries to their workmen and their
business. The plaintiff, by counteraffidavit of claim, met all the
issues so notified to him by the defendant's plea and
affidavits.
At the trial, the defendants, as appears by the answer of their
counsel to an inquiry of the court after the arguments to
Page 120 U. S. 646
the jury, and by the statement thereupon made by the court in
its charge, did not deny the sale and delivery of the rags at the
prices sued for, but relied on their counterclaim for damages on
the cause of action growing out of the infected condition of the
rags, both by way of a full defense to the plaintiff's action and
also as a ground for obtaining a certificate and judgment for the
damages sustained by them in excess of his claim.
The defendants offered evidence tending to show that the
contract was for clean rags; that the rags delivered were filthy
and infected with the smallpox, and that their infected condition
caused the breaking out of the disease in the defendants' mill.
This was of itself sufficient evidence to be submitted to the jury
of a warranty and a breach of it. A warranty, express or implied,
that rags sold are fit to be manufactured into paper is broken not
only if they will not make good paper, but equally if they cannot
be made into paper at all without killing or sickening those
employed in the manufacture.
Upon the question whether the plaintiff, when he shipped the
rags, knew them to be infected with the smallpox and fraudulently
represented to the defendants that they were clean and free from
infection, the evidence was as follows:
The plaintiff, having been called as a witness in his own
behalf, admitted on cross-examination that the rags were collected
by him in Pittsburgh and Allegheny City and the country round
about, where he knew that the smallpox was then epidemic, and that
he bought rags from any and all dealers, not knowing where they
were collected, and further testified that the rags were assorted
and baled up under his instructions in his establishment, and had
been baled up and laid in his warehouse for a year or more before;
that to the best of his knowledge and belief they were clean and
free from infection, and there was no sulphur, carbolic acid, or
other disinfectant in the bales, and that he never used
disinfectants in his establishment. In contradiction of this
testimony, the defendants produced a letter sent to them by him
with the first invoice of rags, showing that he did not then have
all the rest on hand, and introduced the testimony of three
workwomen in the mill
Page 120 U. S. 647
that the rags, when opened, smelt strongly of sulphur and
carbolic acid.
This evidence, taken in connection with that already mentioned,
was, in our opinion, sufficient to be submitted to the jury as
tending to prove that the plaintiff knew that the rage which he
sold and shipped as clean rags, fit to be used in the manufacture
of paper, were in fact infected with the smallpox, and that he
fraudulently represented them to be clean, intending to deceive and
defraud the defendants.
Upon the question of damages, there was distinct proof not only
of the rags' being so infected with the smallpox that they could
not be made into paper without injury to the workmen, but also of
sums paid by the defendants to support those workmen who had been
disabled by the disease, besides evidence that the defendants, in
consequence of the injury to their business by the smallpox
introduced in the rags, were obliged to run their mill shorthanded,
and lost a considerable part of a profitable country trade. This
evidence was competent for the consideration of the jury, and the
want of more full and definite proof of the amount of damages
resulting to the defendants from the unfitness of the rags to be
manufactured into paper, while it might lessen the sum which the
jury could find in the defendants' favor, did not justify the court
in withdrawing the defendants' claim from the jury.
In the rulings excluding evidence offered by the defendants in
the course of the trial, there was no error. The court might
properly decline to permit one of the defendants to testify in
general terms what he estimated the amount of their damages to be,
when he had not testified to the items of damages, or to any facts
upon which his opinion was based. The testimony of workmen, not
shown to be experts, that the infected rags were the cause of
smallpox which they or their children had taken was clearly
incompetent.
But, for the reasons above stated, we are of opinion that the
court erred in instructing the jury that the evidence admitted
would not justify them in finding that the plaintiff knowingly and
fraudulently shipped to the defendants rags infected with the
smallpox, as well as in instructing them that there was no
Page 120 U. S. 648
evidence which would enable the jury to estimate the amount of
damage, if any, which the defendants had sustained and in directing
the jury to return a verdict for the plaintiff for the whole amount
of his claim. The defendants' exceptions to these instructions must
therefore be sustained, and a new trial had.
For the guidance of the parties and their counsel, it may be
well to restate exactly what will be open to the defendants upon
another trial. By way of recoupment or equitable defense, which is
limited to defeating the plaintiff's action in whole or in part,
the defendants may avail themselves of any evidence tending to show
that by reason either of a breach of warranty or of a fraudulent
representation, the goods were worth less than they would have been
if they had been such as they were warranted or represented to be,
as well as of any evidence tending to show that the defendants
suffered damages which, in the contemplation of the parties or
according to the natural or usual course of things, were the
consequences of the breach of warranty or the fraudulent
representation. But under their counterclaim seeking, as permitted
by the statute of Pennsylvania, not only to defeat the plaintiff's
action but also to recover an affirmative judgment against him,
they can avail themselves only of claim sounding in contract in the
nature of an action of assumpsit upon the supposed warranty. If
they fail to prove a warranty, express or implied, the statute can
have no application, because it extends to no claim sounding in
tort only, whether, in the nature of an action of deceit or of such
an action as these defendants might maintain against a person with
whom they never had any contract who willfully or negligently
introduced the smallpox into their mill.
Judgment reversed, and case remanded to the circuit court,
with directions to set aside the verdict, and to order a new
trial.
