Fitzgerald v. Wiley , 22 App. D.C. 329 ( 1903 )

Mr. Justice Shepard

delivered the opinion of the Court:

1. The counterclaim as alleged in the cross bill arises out of the transactions between Wiley and the two Gombers and Eitzgerald, relating to the purchase and assignment of the several inventions, and obtaining patents thereon in foreign countries, of which the mortgage forms a part. It is founded on the failure of those parties to perform their cross-obligations to Wiley, for which the mortgage executed by him is the chief consideration. Tinder the allegations of the bill, which must be taken as true upon the demurrer, these damages are not open to the objection of remoteness or uncertainty. The profits lost by the prevention of sales of patents abroad are not of the uncertain, speculative character for the recovery of which the law affords no remedy.

It is alleged that a bona fide sale was made of certain patents at a fixed price, the consummation of which, and the receipt of the money, were alone prevented by the failure of the other contracting parties to perform their obligations. The case is the same a& the loss of a contracted sale of any other kind of property, the consummation of which has been prevented by the refusal of the defendant to make delivery or perfect title in accordance with the terms of a previous obligation, on the faith of which the plaintiff had contracted with the third party.

2. Were this, therefore, an action at law against Wiley for the failure to perform the obligations of his contract for the payment of the money according to the terms of the mortgage, he could recoup or set off the damages alleged by virtue of the provisions of § 1503 of the Code, which reads as follows:

“Mutual debts and claims under contract between the parties to a common-law action [or between any of the several defendants and the plaintiff], or between one party and the testator or intestate of the other, or between the testators or intestates of both parties, may be set off against each other by plea in bar, whether said debts or claims be of the same or a different nature or degree, and whether the claims be for liquidated debts or unliquidated damages for breach of contract, and if either debt be in the form of the penalty of a bond, the exact sum to be set off shall be stated in the plea.”

By further allegation of the cross bill, that must be taken as true, the assignment of the mortgage debt is colorable, and George W. Gomber and Fitzgerald remain the substantial owners of the claim arising thereunder, and are the real plaintiffs; but were it otherwise, the counterclaim would nevertheless be maintainable against the demands of the assignees under another section of the Code (15G5).

3. Foreclosure of the mortgage being desired, the suit was filed in equity by Harry F. Gomber and his assignees, Dreher and others, omitting Fitzgerald, who is not only the owner of an undivided interest therein, but is also, by the express terms of the instrument, made the trustee for the receipt of the money secured thereby, and George W. Gomber, the inventor who furnished the consideration. These, as we have seen, were made parties defendant, by amendment of the original bill, after the answer of Wiley thereto was filed in which their interest was alleged.

The provision of the Code, heretofore recited, would seem by its terms to be limited to actions at law, and we do not deem it necessary, under the allegations of the cross bill, to determine whether it should not be considered as furnishing a rule for adoption in equity in a ease where its jurisdiction is invoked by reason of certain conditions rendering the same necessary to complete relief in one proceeding.

In our opinion, the allegations of the cross bill bring the present ease within the rule laid down by the Supreme Court of the United States in North Chicago Rolling Mill Co. v. St. Louis Ore & Steel Co., 152 U. S. 596, 615, 38 L. ed. 565, 572, 14 Sup. Ct. Rep. 710, 715.

Briefly stated, that was a case growing out of a contract made between the two companies relating to the manufacture and delivery of certain iron rails by the former to the latter. During the performance of the contract, the St. Louis company passed temporarily into the hands of a receiver who declined to receive any more deliveries under the contract. On the day that the receiver was appointed in Missouri, certain creditors of the St. Louis company instituted attachment suits in Illinois and obtained writs of garnishment against the Chicago company. Answering thereto, the Chicago company admitted an indebtedness to the St. Louis company, but set up certain counterclaims by way of set-off thereto, one of which consisted of damages sustained by reason of the failure of the St. Louis company to receive deliveries of rails in pursuance of the terms of the contract. This counterclaim was disallowed by the court because, being for unliquidated damages, it could not properly be set off at law. The garnishment proceeding, under the laws of Illinois, was in the name of the St. Louis company, and judgment was rendered in its name against the Chicago company for the balance of its indebtedness, after allowing certain counterclaims that were entertained. The Chicago company, having obtained a stay of execution, filed its bill against the St. Louis company and the garnishment creditors, setting out the contract and the damages sustained by it through non-performance, and after reciting the proceedings and alleging the insolvency and nonresidence of the St. Louis company, prayed to have its damages ascertained and then set off against the judgments in the attachment suits before mentioned.

The circuit court, holding that the claim for unliquidated damages had no connection with the debt under which the Chicago company had been held as garnishee, dismissed the bill.

That decree was reversed on appeal. In delivering the opinion of the court Mr. Justice Jackson said: “That it sustained damages to the extent of the difference between the contract and the market price of steel rails is clear beyond all controversy. The liability of the St. Louis Company for these damages is equally clear, but the amount thereof being unliquidated could not properly be set off in the attachment proceeding at law. Under these circumstances and conditions, has the Chicago company any right to relief in equity by way of equitable set-off ? Would it be just and equitable to compel the garnishee to pay its indebtedness to the St. Louis company for the benefit of a stranger, and then be left to either lose its valid claim for damages, or follow its nonresident insolvent debtor into another jurisdiction in the effort, more or less experimental and expensive, to collect such claim % * * * Cross-demands and counterclaims, whether arising out of the same or wholly disconnected transactions, and whether liquidated or unliquidated, may be enforced by way of set-off whenever the circumstances are such as to warrant the interference of equity to prevent wrong and injustice. * * * The adjustment of demands by counterclaim or set-off, rather than by independent suit, is favored and encouraged by the law to avoid circuity of action and injustice. Florida R. Co. v. Smith, 21 Wall. 255, 22 L. ed. 513.

“By the decided weight of authority it is settled that the insolvency of the party against whom the set-off is claimed is a sufficient ground for equitable interference. * * * In addition to insolvency, it is' held by many well-considered decisions, including those of Illinois, that the non-residence of the party against whom the set-off is asserted is good ground for equitable relief.” ■

In the case at bar both of the Gombers are shown to be residents of the State of Pennsylvania. Fitzgerald alone is a resident of the District of Columbia, but he, as well as the Gombers, is alleged to be insolvent.

Moreover, the use of the name of Harry F. Gomber, as the payee in the mortgage, and the assignment to Dreher and other complainants joined with him in the original bill, are alleged to have been made with fraudulent intent.

4. What has been said applies directly to the counterclaim based on the alleged loss of the sale of the British and other foreign patents; but that relating to the loss of the French patent stands upon a somewhat different ground. It is pleaded against Fitzgerald alone as due to his failure to perform his duty as the attorney charged with obtaining that patent. It does not appear that Fitzgerald’s interest in the mortgage was in consideration of future services to be rendered in obtaining the foreign patents, and his negligence, causing loss, may not, therefore, be directly connected with the other transactions, but the result of the breách of a subsequent contract made with him for the continuation of his services. As the Gombers had no connection with this particular transaction, the damage caused by Fitzgerald’s negligence cannot be set off against them, but must be limited to tbe interest which the latter has in the recovery sought in the original bill. His alleged insolvency brings him within the rule of the case before cited.

For the reasons given the decree overruling the demurrer to the cross bill will be affirmed with costs, and the cause will be remanded for further proceedings in due course. It is so ordered.

Affirmed.