be pleaded in actions founded on contract, and must be a cause of action arising upon contract, or ascertained by a decision of the court." The codes of Indiana and of Iowa cannot be referred to either of these two general groups: their provisions are quite different in language from the common type, and much broader in meaning. They will be found quoted at large in section first of this chapter. In several of the States a special provision is made for the introduction of new parties made necessary by the pleading of a " counterclaim" or set-off." 2 The counterclaim in the ordinary form must be in favor of a defendant and against a plaintiff between whom a several judgment on the action is possible. This requirement, as will be seen in the sequel, may sometimes fail of working complete justice between the parties. Thus, for example, when a surety is sued, and a cross-demand against the plaintiff exists in favor of the principal debtor, the surety cannot interpose this claim because it is not in his own favor. To obviate this and similar difficulties, the codes of Indiana and of Iowa have added special provisions covering the class of cases described, and authorizing one defendant, under certain specified circumstances, to avail himself of a counterclaim or set-off existing in favor of a codefendant, when the liability of both to the plaintiff is joint, or one is a surety for the other.3 From a comparison of the various clauses above quoted or referred to, it is plain that the judicial decisions giving a construction to the sections of the codes embraced in the first and second groups can all be used in constructing the full theory of the "counterclaim" which forms so marked and important an element in the new procedure. In all these States, the "counterclaim" singly, or the "counterclaim" and "set-off" taken together, are not only the same in substance, but are defined in almost exactly the same language, so that the interpretation given by the courts of one State can aid in determining the questions which may arise in another. The decisions made in Indiana and Iowa, however, must to a certain extent stand by themselves; for they are based upon statutes which are in many respects special in their terms, and different in their meaning.

1 See supra, §§ 583, 584.

2 Ohio, §§ 96, 98; Kansas, §§ 97, 99; Nebraska, §§ 103, 105; Indiana, § 63; Iowa, § 2662. See supra, § 584 (n.), where

these sections of the statutes are given in full.

3 Indiana, § 58; Iowa, § 2661. See supra, § 584 (n.), for these sections in full.

§ 727. The subject-matter of this section will be arranged in the following order, and distributed into the following sub'divisions: I. A general description of the "counterclaim," its nature, objects, and uses. II. The parties in their relations with the counterclaim; including the requirements that the demand must be, 1. In favor of the defendant who pleads it; and, 2. Against the plaintiff; and, 3. When it may be set up in favor of one or some of several defendants, or against one or some of several plaintiffs; that is, when a several judgment may be had in the action between such defendant and plaintiff. III. The subject-matter of the counterclaim, or, in other words, the nature of the causes of action which may be pleaded as counterclaims. This most important subdivision will include several heads: viz., 1. Whether a counterclaim must be a legal claim for damages, -like the set-off or the recoupment of the former system, or whether it may be for equitable or other special relief; 2. When the counterclaim is, or is alleged to be, a cause of action arising out of the contract set forth in the complaint or petition as the foundation of the plaintiff's claim; 3. When it is, or is alleged to be, a cause of action arising out of the transaction set forth in the complaint or petition as the foundation of the plaintiff's claim; 4. When it is, or is alleged to be, a cause of action connected with the subject of the action. The discussion of these topics will require the special examination and interpretation of certain phrases and clauses of the statute, upon the true meaning of which they all to a great extent depend: namely, (a) the interpretation of "the foundation of the plaintiff's claim," or when is a contract or transaction "the foundation of the plaintiff's claim"? (b) interpretation of "arising out of," or when does a cause of action "arise out of" a contract or transaction? (c) interpretation of "transaction," (d) and of “ subject of the action;" (e) and of "connected with the subject of the action," or when is a cause of action "connected with the subject of the action"? Resuming the statement of subordinate heads: 5. In actions founded on contract, a counterclaim founded on another contract, which embraces in particular (a) the power of electing between actions in form founded on contract and those in form founded on tort; and (b) the requirement that the cause of action must exist at the time when the suit was commenced. IV. Set-off as defined in several of the codes.

V. Certain miscellaneous rules applicable to all counterclaims and set-offs. VI. The special provisions found in the codes of certain States, and especially in those of Indiana and of Iowa. VII. The reply. This arrangement, although perhaps not strictly scientific, is in exact conformity with the order pursued by the statute, and is, therefore, the one best adapted for our present purpose. A full discussion of all the topics mentioned. will certainly cover the whole ground, and will develop the complete theory of the "counterclaim" as it appears in the codes. § 728. It will materially aid in determining the exact province and scope of the counterclaim if we compare it with the crossdemands in legal actions permitted by the former system of procedure. I shall therefore, by way of preface, and without going into unnecessary details, state the fundamental principles upon which those cross-demands were based, and the general rules which governed their use.

§ 729. The Cross-Demands allowed by the former Procedure. The cross-demands in legal actions allowed by the former procedure were "set-off" and "recoupment of damages." Originally the common law acknowledged no such defence or proceeding on the part of a defendant: the primitive notion of an action. did not admit the possibility of a defendant being an actor and interposing a claim against the plaintiff to be tried in the one suit. The legislature effected the change, and invented the "set-off." Being entirely of statutory origin, the "set-off," when used in actions at law, was necessarily kept within the limits prescribed by the terms of the enactment, and was not extended beyond their fair import. The court of chancery, not acting directly in pursuance of this legislation, but being guided rather by its analogies, was never restricted to its exact provisions, and created an "equitable set-off" broader and more comprehensive than that administered by the courts of law. The original English statute permitted a set-off only in the case of mutual "debts." As this word had a well-known technical meaning in the legal procedure, it served to restrict the use of the set-off to the single class of demands which were at the common law described by the term "debt;" namely, those which arise from contract, and are fixed and certain in their amount. There could not, therefore, be a set-off of general "damages " resulting from the breach of contracts, but only of those claims,

the amount of which had been ascertained and settled by the promise itself, so that there could be no discretion in the jury, and no 66 assessment" by them. This original notion of the setoff was generally perpetuated in the legislation of the various States prior to the Codes of Procedure; although in some its scope had been enlarged, and made to embrace any pecuniary demand arising from contract, whether "debt" or "damages." Where the original notion was preserved, the exact language of the English statute was not always retained; but its force and effect were not materially changed. I have given in the note an abstract of the New York statute as an example of the legislation, since it does not substantially differ from that of other States.1

§ 730. It is not necessary to discuss this statute, nor to cite cases illustrating its meaning. It has been displaced by the more comprehensive provisions of the code. It is clear that if the plaintiff's action was on a contract and for a "debt," "debt," for the more extended language of the statute describes only a "debt," - and the defendant held another" debt" due from the plaintiff personally, and existing in his own favor, and which did so exist at the commencement of the action, he could plead such demand as a set-off; and if it exceeded the amount of the plaintiff 's claim, he could have judgment against the plaintiff for the surplus. Also in an action for the same kind of demand, brought by a plaintiff who had really assigned the claim, and was therefore a nominal party only, or brought by a plaintiff who was a trustee, or sued on behalf of another person, or brought by an assignee of negotiable paper transferred after it became due, the defendant might set off a similar kind of demand which he had against either the assignor or the assignee in the first case before notice of the assignment, or against the beneficiary in the second case, or against the assignor in the third case; but he could not by such set-off do more than defeat the plaintiff's recovery: he could not have a judgment for any balance due to himself. The reason for this latter rule is very plain; for in neither of these cases was the plaintiff the real party in interest and the debtor at the same time.

§ 731. While set-off was entirely of statutory origin, the doctrine and practice of "recoupment of damages" had their inception in the law of judicial decision. From the notion of absolute nonperformance as a total defence, the progress was easy and natural, through the partial defences of a part performance and a reduction of damages by means of unskilful or negligent performance, to the admission of a cross-demand in favor of the defendant for damages resulting from the acts or omissions of the plaintiff that amounted to a breach of the contract sued upon. In this manner the doctrine of recoupment took its rise, and it was developed by decision after decision until it became established in the courts of England and of the American States, a defence as well known and as widely admitted within its scope as the statutory

amount thereof; except that no such judgment shall be rendered against the plaintiff when the contract upon which the suit is founded shall have been as

signed before the commencement of the suit, nor when the balance is due from any other person than the plaintiff in the action.