most frequently arisen in suits for the infringement of patents which are discussed in the following section. In a suit to rescind a contract and to cancel notes, the defendant may set up a counter-claim for the collection of the notes.14 It has been held that where plaintiff sued at law for breach of contract, it was admissible for defendant by cross-petition to seek reformation of the contract.15 That in a suit by prior mortgagees to foreclose, a subsequent mortgagee can not complain, by way of set-off or counter-claim, for a diversion of the funds acquired through the prior mortgages, though the mortgagors are insolvent.16 In determining when a counter-claim arises out of the transaction which is the subject-matter of the suit, cases under the former practice in equity and those under the code practice may be considered. Where pending a suit by an insurance company to cancel a policy for misrepresentation the insured died and by supplemental bill the beneficiary was restrained from suing at law upon the policy, it was held that he could only assert his claim by a cross-bill.17 It has been held under the New York Code of Civil Procedure that the following causes of action arise out of the contract or transaction set forth in the complaint as the foundation of the plaintiff's claim or were connected with the subject of the action: In an action brought to recover the purchase price of stock, a claim that the contract of sale was procured by fraudulent representations, with a prayer that it should be rescinded.18 In an action by an heir to set aside so much of a will as created a trust, a counter-claim by the defendant trustee for the rents of the land collected by the plaintiff since the testator's death.19 In a foreclosure suit, it is intended to be embraced in the word 'reply.' Certainly this at least is very doubtful. I am therefore of the opinion that the words 'and may, without cross-bill, set-off or counter-claim against the plaintiff, which might be the subject of an independent suit in equity against him,' apply only to such counterclaims as arise out of the transaction which is the subject-matter of the suit." 14 Knupp v. Bell, C. C. A., 243 Fed. 157; Howard v. Leete, C. C. A., 257 Fed. 918. See Central Trust Co. v. Wheeling & L. E. R. Co., 211 Fed. 515. 15 Upson Nut Co. v. American Shipbuilding Co., 251 Fed. 707. 16 Mississippi Valley Trust Co. v. Washington N. R. Co., 212 Fed. 776. 17 Royal Union Mut. Life Ins. Co. v. Wynn, 177 Fed. 289. 18 Delano v. Rice, 23 App. Div. (N. Y.) 327. 19 O'Brien v. Garniss, 25 Hun. (N. Y.) 446. a counter-claim for usury and to set aside the cloud by the mortgage on the title to the premises.20 In an action to enforce the statutory lien created on an award in condemnation proceedings, a counter-claim for a breach of a contract for the sale of the premises condemned, which was made during the condemnation proceedings.21 In an action to enjoin a foreclosure action, a counter-claim for rent due from the equitable owner of the mortgage.22 It has been held, in England, that in an action by the vendor for specific performance, the defendant may, by a counter-claim, pray for the review of a previous decision as to the title.23 The following cases, amongst others, under the New York Code have held that counter-claims could not be pleaded. In an action brought to restrain a party from interference with the plaintiff's trade, a counter-claim for damages arising out of the breach of a contract between some of the plaintiffs and the assignor of the defendant.24 In an action to set aside an assignment and to procure a reassignment of bonds and mortgages, a counter-claim that the agent, acting under a power of attorney from the plaintiff, together with two others, acting under a previous power of attorney, had subsequently assigned to the defendant three other bonds and mortgages which plaintiff refused to deliver.25 In an action to recover money collected under color of a contract by fraud, a counter-claim for a balance due for work under the contract.26 In an action to recover a debt for which a lien had been filed, a counterclaim for the expense of removing the lien and of preparation of the defense of an action anticipates to foreclose the same.27 20 Myers v. Wheeler, 24 App. Div. (N. Y.) 327, 48 N. Y. Supp. 611; Queen City Bank v. Brown, 75 Hun, (N. Y.) 259, 58 St. Rep. 286, 28 N. Y. Supp. 1016. 21 Cottle v. N. Y., W. S. & B. Ry. Co., 27 App. Div. (N. Y.) 604, 50 N. Y. Supp. 1008. 22 Austin v. Rapelye, 45 St. Rep. 480. 23 Scott v. Alvarez (1895), 1 Ch. 24 Sugden v. Magnolia Metal Co., 58 App. Div. (N. Y.) 236. 25 Bradhurst V. Townsend, 11 Hun (N. Y.) 104. 26 People v. Dennison, 84 N. Y. 272, affirming 81 N. C. (N. Y.) 129, affirming 59 How. Pr. (N. Y.) 157. 27 Biershenk v. Stokes, 18 N. Y. Supp. 854, reversing 43 St. Rep. (N. Y.) 788. The rules furthermore permit any set-off or counter-claim which might be the subject of an independent suit in equity against the plaintiff.28 This abrogates the former doctrine, that a cross-bill must be germane to the subject-matter of the original bill.29 § 198a. Counter-claims in patent and trade-mark cases. Before the equity rules of 1912, in a suit to compel the issue of a patent,1 or for relief on account of interfering patents, a crossbill because of the infringement of the defendant's patent in question could not be maintained. Where, on a bill by several persons to restrain the infringement of a patent and for an account, the defense being invalidity of the patent and a license, the court sustained the patent and decreed damages; a bill was not sustained as a cross-bill which set up a judgment in another suit against one of the complainants, and prayed that they all set forth and discover what share of the damages was claimed by each, so that the defendant who filed the cross-bill might set off his judgment against the share claimed by his judgment creditor. Where the plaintiff, claiming the exclusive right under a contract to use the name of defendant in the sale of patent medicines, filed a bill against the latter to enjoin a violation thereof, and the latter filed an alleged cross-bill to enjoin complainant from making use of the name not authorized by the contract it was held that this latter bill was not a true cross-bill, but an original bill.4 Since the adoption of the rules of 1912, the following decisions have been made. In a suit to recover royalties under a contract for an exclusive license, defendant may be permitted to set up a counter-claim disputing the validity of the 28 Eq. Rule 30. 29 It has been held: that a crossbill may be filed in a suit to foreclose a mechanic's lien for the cancellation of the record of the lien, with damages for a breach of the mechanic's contract (Springfield M. 261); in a suit to foreclose a vendor's lien, for the foreclosure of a subsequent vendor's lien after the cross-complainant has secured the payment of the amount due the Fed. Prac. Vol. II-2 original plaintiff (Cox v. Price, 2 Va. Dec. 170, 22 S. E. 512). See supra, note 4 and $ 197, note 16. § 198a. 1 Kilbourn V. Hirner, 163 Fed. 539, supra, § 147. 2 Stonemetz Printers' Mach. Co. V. Brown Folding Mach. Co., 46 Fed. 851, supra, § 147. 3 Rubber Co. v. Goodyear, 9 Wall. 807. 4 Chattanooga Medicine Co. V. Thedford, 58 Fed. 347. patent owned by the licensor, not for the purpose of avoiding payment of royalties, but in order to obtain a decree terminating the contract, when the license provides that the royalties shall terminate upon a decree which declares the patent void. In a suit for the infringement of a patent a counter-claim may seek relief for the infringement of another patent, the invention covered by which is used in connection with the invention protected by the patent of the complainant, or is con nected with the same subject-matter.6 It has been held that in a suit to enjoin the infringement of a trade-mark and for unfair competition a counter-claim will lie which seeks an injunction for an infringement of the defendant's patent by the sale of complainant's articles upon which the trade-mark is used. That in a suit to enjoin the infringement of a patent the defendant may counter-claim for unfair competition by threats and advertisements in connection with the patents in suit.8 A number of cases hold that in a suit for the infringement of a patent the counter-claim cannot pray relief because of the infringement of another patent for an invention absolutely unconnected with that protected by the patent of plaintiff. There are other cases of equal authority which sustain such counterclaims.10 5 Miami Cycle & Mfg. Co. v. Robinson, C. C. A., 245 Fed. 556. 6 U. S. Expansion Bolt Co. v. H. G. Kroncke H. Co., 216 Fed. 186, approved but reversed upon another point, C. C. A., 234 Fed. 868, 872. Contra, Christensen V. Westinghouse Traction Brake Co., 235 Fed. 898. 7 Champion Spark Plug Co. v. Champion Ignition Co., 247 Fed. 200. 8 Buffalo Specialty Co. v. Van Cleef, 217 Fed. 910; Salts Text. Mfg. Co. v. Tingue Mfg. Co., 208 Fed. 156. Cf. Vacuum Cleaner Co. v. Am. Rotary Valve Co., 208 Fed. 419. Contra, Williams Patent Crusher & Fertilizer Co. v. Kinsey Mfg. Co., 205 Fed. 375; U. S. Exp. Bolt Co. v. H. G. Kroncke Hard ware Co., C. C. A., 234 Fed. 868, 875, reversing 216 Fed. 186 (where there was no diversity of citizenship). 9 Terry Steam Turbine Co. v. B. F. Sturtevant Co. (D. C. Mass.), 204 Fed. 103; Marconi Wireless Tel. Co. v. Nat. El. Sig. Co., 206 Fed. 295; Adamson v. Shaler, (D. C. E. D. Wisc.), 208 Fed. 566; KlauderWeldon Dyeing Mach. Co. v. Giles (D. C. W. Mass.), 212 Fed. 452; Christensen v. Westinghouse Traction Brake Co. (D. C. W. D. Pa.), 235 Fed. 898. 10 Marconi Wireless Tel. Co. v. Nat. El. Signal Co. (D. C. E. D. N. Y.), 206 Fed. 295; Salt's Text. Mfg. Co. v. Tingue Mfg. Co., 208 Fed. 156; Vacuum Cleaner Co. v. A. M. Rotary Valve Co. (D. C. S. § 198b. Set-offs. The distinction between a set-off and a counter-claim may be one of importance, since in case of bankruptey or insolvency of the complainant the defendant might be allowed the full amount of his set-offs and be obliged to share proportionately with the other creditors in the dividend upon his counter-claims.1 "A set-off is a statutory defense to an action. A counter-claim is a cross-action." A set-off is generally considered to be a matter capable of use as an off-set to a recovery by the plaintiff. A counter-claim is a matter capable of use as a basis for a judgment for relief against the plaintiff and in a proper case may be also used as a set-off.3 The terms are not mutually exclusive. Upon the foreclosure by the trustee of a mortgage to secure bonds of a corporation, it was held that in the distribution of the fund the court would not set off against the claims of such bondholders as were stockholders of the mortgagor, the amounts due for failure to pay their subscriptions in full.5 In England, it has been said that "set-off is the ereature of statute; to be allowed a set-off you must show a statutory right." There a set-off remains precisely what it used to be under the status of George II. It must there be a cross-claim for a liquidated amount and it can be pleaded only to a liquidated claim.8 § 198c. Distinction between counter-claim and defense. There may also be some importance in the distinction between a defense. and a counter-claim, since a reply is required to the latter, but not without special order to the former. The former cases, holding when a cross-bill should be filed, and when not, may con D. N. Y.), 208 Fed. 419; El. Boat § 198b. 1 Odgers Principles of Pleading, 4th ed., p. 228. 2 Lord Esher, M. R., in Sykes v. Sacerdoti, 15 Q. B. D. 423. 8 Marconi Wireless Tel. Co. V. Nat. El. Sig. Co., 206 Fed. 295, 299, per Chatfield, J. 4 Ibid. 5 Fidelity Trust Co. v. Washington-Oregon Corp., 217 Fed. 588. See infra, §§ 645, 648. 6 Liskeard, etc., Ry. Co. v. Liskeard & Caradon Ry. Co., 18 Times Rep. 1; Ann. Pr. 1913, p. 360. 72 Geo. II, Ch. 22; 8 Geo. II, Ch. 24. 8 Rees v. Watts, 11 Ex. 410; Ann. Pr. 1913, p. 360. § 198e. 1 Eq. Rule 31. |