Storrs v. Storrs

Judgment was entered in the Circuit Court of Walton County against the plaintiff in error, H.C. Storrs, in favor of the defendant in error, R.W. Storrs, on a promissory note for $6,500.00, payable on the 1st day of November, 1930, which plaintiff below averred had not been paid. The declaration was in one count, to which defendant below interposed three separate pleas, all of which went out upon demurrer, with the result that the judgment now appealed from was entered upon the pleadings as thus constituted and filed.

The second amended pleas upon which the judgment was entered upon plaintiff's demurrer thereto were as follows: (1) fraud in the procurement of the note sued on; (2) failure of consideration, and (3) counter claim in the nature of recoupment or set-off. All of the pleadings, except for the technical conclusions therein, are substantially the same, that is, each of the pleas is based upon the same state of facts in so far as it undertakes to set up the identical transaction between the parties, out of which the note sued on came to be given and the defense attempted to be interposed thereto is claimed to have arisen.

In substance, the pleas allege as follows: That the plaintiff, R.W. Storrs, lived in DeFuniak Springs, Florida, where he had been operating a newspaper plant referred to as "The Breeze," that the defendant had not been to Florida except on a visit to his brother, the plaintiff; that after returning to Missouri he observed a published advertisement reading as follows:

"NEWSPAPER FOR SALE "THE BEST EQUIPPED WEEKLY NEWSPAPER in the best section of Florida, where there is the brightest prospects for a future, is offered for sale for the very best of reasons. Very favorable terms to a man who can show that he has made good elsewhere. High, healthy locality, splendid schools and churches. Full particulars to those who mean business, but no time for curiosity seekers. It will take $2,500.00 cash to start; balance can be paid from earnings. Box 387, DeFuniak Springs, Fla."

That the defendant prior to the said notice was ignorant of and knew nothing about the section of Florida referred to nor of the equipment of the newspaper plant advertised for sale; that in correspondence between plaintiff and defendant, plaintiff informed defendant that he had been offered $15,000.00 for the plant, but upon negotiations between the parties $9,000 was finally agreed upon as a purchase price, upon which the defendant immediately forwarded to plaintiff a cash payment of $2,500.00; that in consideration thereof and the execution of the note sued upon plaintiff delivered to the defendant a newspaper plant which defendant later learned was of a value not exceeding $895, although such value was unknown to defendant at the time he closed the deal in agreeing to pay $9,000.00 for the same; that throughout the transaction defendant relied upon plaintiff and plaintiff's representations as to the value and earning capacity of the newspaper plant known as "The Breeze," and that plaintiff taking advantage of the situation of defendant and his reliance upon plaintiff's representations took advantage of defendant by deceitfully misleading him to his injury, in consequence of which defendant became possessed of a newspaper plant of little value compared to the extent of the obligation he had signed in the course of the transaction of acquiring it and that by reason thereof defendant had been defrauded out of the difference between the $9,000.00 that he had contracted to pay plaintiff and had partly paid plaintiff and the $895.00 which was all that the plant in question was worth according to a fair valuation.

In so far as the pleas of fraudulent inducement of the note and failure of consideration are concerned, we find no error in the ruling of the Circuit Judge sustaining plaintiff's demurrer thereto. The pleas on their face admit, for the purposes of the demurrer, that the note sued on was given by plaintiff in error to defendant in error on November 1, 1925, two years or more after defendant had taken over, operated and run the business for which the note was representative of the purchase price. It is therefore plain from the face of the pleas themselves that the transaction of bargain and sale of the newspaper plant as a consideration for the note had been affirmed by the conduct and actions of the maker of the note and that accordingly the plea of partial failure of consideration and fraudulent inducement could not be set up as a pure defense tothe note itself. Franklin Phosphate Co. v. International Harvester Co., 62 Fla. 185, 57 Sou. Rep. 206, Ann. Cas. 1913C, 1247; Padgett v. Lewis, 54 Fla. 177, 45 Sou. Rep. 29; Roess Lumber Co. v. State Exchange Bank, 68 Fla. 324, 67 Sou. Rep. 188, L.R.A. 1918E 297, Ann. Cas. 1916B 327.

But as to the plea denominated as a plea of "set-off," which is in reality one that could be described as a plea in recoupment, the situation is different. A plea of "recoupment" implies that plaintiff has a cause of action, but asserts that defendant also has a counter cause of action growing out of the transaction on which plaintiff's action is founded, or for some other cause connected with the particular obligation upon which plaintiff is suing. Marianna Lime Products Co. v. McKay, 109 Fla. 275,147 Sou. Rep. 264.

Where the purchaser of property has been induced by the fraudulent representation of the vendor to become the purchaser of a particular property represented to have a substantial good will as part of the value of same, in consideration of which he gave a promissory note in payment, the defrauded buyer may, instead of rescinding the transaction and demanding his note back, stand by the bargain, even after he has discovered the fraud, and may thereupon have and recover his damages therefor, either in an independent action for the tort that has been committed through the opposite party's fraud and deceit, or may plead in recoupment in diminution of plaintiff's claim his own damages sustained, if sued by the vendor for the purchase price represented by the note given therefor. In such cases the implied affirmance of the contract of purchase and sale by the vendee after discovery of the fraud may not amount, as amatter of law to be decided on the pleadings, to a waiver of the right to complain of the fraud for any purpose, even though it may have extinguished the right of the purchaser to rescind the transaction of purchase and sale, or to interpose a plea of total or partial failure of consideration to a note given as part of the purchase price.

Thus it has been said by the Supreme Court of Illinois in the case of Allen v. Henn, 197 Ill. 501, 64 N.E. Rep. 250: "In cases of fraud upon the part of the vendor, the vendee, who alone has a right to claim a rescission, may remain silent and bring his action to recover damages for the fraud, or may rely on it by way of defense to the action of the vendor, although there has been full acceptance of the property, with knowledge of its defects. An affirmance of the contract by the vendee with such knowledge merely extinguishes his right to rescind the sale, but his other remedies remain unimpaired."

In such cases, says the court just quoted from, the vendee may still retain the clear right to recoup, as against a claim for the purchase price, any damages occasioned by the vendor's actionable fraud practiced in bringing about the bargain and sale, if such it is shown to be, when sued for the purchase price, whether the purchase price be sued for as such, or sued for in an action wherein it is represented by a note or mortgage given in closing the transaction. This is so, even though by affirming the contract of sale, or by remaining silent and failing to rescind the whole transaction within a reasonable time after the discovery of the fraud, the vendee may have estopped himself to do other than affirm the contract, remain obligated to pay the agreed purchase price and stand remitted to whatever recoupment he may be able to establish in the nature of a counter claim for damages when sued for the amount of purchase price represented by a note or mortgage given at the time the transaction was closed.

We think that the second amended third plea filed by the defendant sufficiently discloses a justiciable defense of recoupment against the cause of action sued upon by the plaintiff within the rule of Allen v. Henn, supra, and Mariana Lime Products Co. v. McKay, supra, and that it was accordingly error for the court below to have sustained a general demurrer to said plea and thereupon enter final judgment against the defendant thereon without requiring a replication or other reply, or a joinder of issue and a trial of the issues raised by said plea in due course of procedure. In so holding, however, we call attention to the rule of law reiterated in the case last cited to the effect that pleas of recoupment are purely defensive and go solely in reduction of plaintiff's claim to the extent of the right of recoupment pleaded and proved. An appropriate amendment should be allowed, and, indeed, compelled to confine the issue raised by a plea setting up matters only pleadable in recoupment, to the compass applicable to pleas of recoupment, when matters in recoupment are attempted to be pleaded as matters of set-off. This is on the theory that when a plea is bad, but does not wholly fail to set up a substantial defense, a motion for compulsory amendment, not a general demurrer, is the appropriate remedy by which to attack it as to its form. Hartford Fire Ins. Co. v. Hollis, 58 Fla. 268,50 Sou. Rep. 985; Johnson v. City of Sebring, 104 Fla. 584,140 Sou. Rep. 672; Co-operative Sanitary Baking Co. v. Shields, 71 Fla. 110,70 Sou. Rep. 934; Florida East Coast R. Co. v. Knowles,68 Fla. 400, 67 Sou. Rep. 122.

The judgment for plaintiff is reversed, with directions to overrule the demurrer to defendant's second amended third plea to plaintiff's declaration and have further proceedings in this cause not inconsistent with this opinion.

ELLIS, C.J., and WHITFIELD, TERRELL and BUFORD, J.J., concur.

BROWN, J., dissents in part.