Sooy v. Cerf

The principal question presented on this appeal may be stated as follows: In a suit by one partner against another, after dissolution of the partnership, upon his individual promissory note, may the defendant partner, in order to diminish or defeat plaintiff’s recovery, set up by way of counterclaim a cause of action for an accounting for money of the dissolved partnership collected by the plaintiff partner after the dissolution, in which counterclaim it is alleged that such accounting will show that there is in the hands of plaintiff and belonging to defendant partner a sum in excess of the amount owing on the note?

Plaintiff instituted this action to recover the balance due and unpaid on a joint and several promissory note, executed in plaintiff’s favor by the defendants, one of whom was Marcel B. Cerf, who filed a separate answer and alleged therein that the note had been paid. He also pleaded as a separate defense to said action and by way of counterclaim certain facts which, if true, would have entitled him to an accounting for moneys of a dissolved partnership comprised of plaintiff and said defendant Marcel B. Cerf and which had been collected by plaintiff after the dissolution of said partnership, no part of which had been paid to said Marcel B. Cerf. It was further alleged that upon such an accounting it would be found that there was a balance in the hands of plaintiff belonging to defendant Marcel B. Cerf from money collected by said plaintiff on account of the business of the partnership in excess of the amount then owing on said promissory note. Substantially the same matters were set up in a cross-complaint by Marcel E. Cerf. The other defendants set up similar pleadings setting up the same defenses as those interposed by the defendant Marcel ,B. Cerf. Upon plaintiff’s motion the pleadings of these defendants, in so far as they attempted to set up said counterclaims and said cross-complaints were

Measured by the requirements of section 438 the counterclaim interposed by the defendant Marcel E. Cerf in his answer possesses all the essential elements of a counterclaim. It tends to diminish or defeat plaintiff’s recovery. It exists between the plaintiff and defendant Marcel E. Cerf and between said two parties a several judgment might be had in said action. The fact that plaintiff’s action on the promissory note is an action at law, and the defense by counterclaim asking for an accounting is equitable in character does not deprive the defendant of his right to interpose said defense. In Terry Trading Corp. v. Barsky, 210 Cal. 428 , 437 [ 292 Pac. 474 ], this court said: “It is well settled that under the .system of code pleading equitable defenses and equitable counterclaims may be set up in actions at law, as well as legal defenses and counterclaims in suits in equity.” The reason for permitting such procedure is clearly set forth by Professor Pomeroy as follows: “In an equitable action, a counterclaim consisting of an equitable cause of action, and demanding equitable relief, may be interposed if it possesses all the other elements required by the definition. ... As the codes in express terms permit equitable defenses in such actions, and as in the self-same provision, and by means of the same language, the statute authorizes the joining of as many defenses and counterclaims, whether legal or equitable, or both, as the defendant may have, to deny the possibility of an equitable counterclaim in a legal action, would make it necessary, if any consistency were preserved, to deny also the possibility of an equitable defense. The courts, as may be seen from the citations made below, have, with a few unim

The case of Terry Trading Corp. v. Barsky, supra, has been followed by this court in a recent opinion wherein it was said: “Under the 1927 amendment to section 438, Code of Civil Procedure, the sole requisites of a counterclaim are that it ‘must tend to diminish or defeat the plaintiff's recovery, and must exist in favor of a defendant and against a plaintiff between whom a several judgment might be had in the action’. Under this amendment it is not necessary that there be any connection between the cause of action set up in.the complaint and that which forms the basis of the counterclaim. (Terry Trading Corp. v. Barsky, 210 Cal. 428 , at p. 435 [ 292 Pac. 474 ].) The facts of the cited case are particularly germane to the case now before us. In that case plaintiff sued on a note given for services performed by virtue of a written contract. In the instant case the plaintiff sued for the price of goods sold under a written contract. There, as here, the defendants averred an assignment to plaintiff of accounts receivable and prayed for an accounting. Defendants therein also prayed for damages for failure of the services performed by plaintiff to comply with the contract. In the instant case defendants seek damages because, they allege, the product sold to them was not as represented by plaintiff. In disposing of the appeal in Terry Trading Corp. v. Barsky, supra, we held that obviously the claims for accounting and damages were the subject of counterclaim under the section as amended.” (Luse v. Peters, 219 Cal. 625 [ 28 Pac. (2d) 357 ].)

Respondent concedes the force and effect of the above authorities, but contends that they do not apply to an action between partners or between persons who were formerly partners, when the equitable defense relates to matters growing out of the partnership business. The position of the respondent is that in an action at law between partners upon a claim not connected with the partnership

Our conclusion therefore is that the trial court erred in striking out the counterclaim filed herein by the former partner of the plaintiff. As we view the question, any other conclusion would run directly counter to the plain provisions of section 438 of the Code of Civil Procedure, which since its amendment in 1927, provides that a counterclaim may be filed when it tends “to diminish or defeat the plaintiff’s recovery and must exist in favor of a defendant and against a plaintiff between whom a several judgment might be had in the action”. This conclusion is in line with our recent decision in Luse v. Peters, 219 Cal. 625 [ 28 Pac. (2d) 357 ], where we held that “Under the 1927 amendment of section 438, Code of Civil Procedure, the sole requisites of a counterclaim are that it ‘must tend to diminish or defeat the plaintiff’s recovery and must exist in favor of a defendant and against a plaintiff between whom a several judgment might be had in the action’.” It is true, as respondent says, that this was not an action where the counterclaim involved a partnership accounting. But we see no

It is conceded by the plaintiff that if the defendant Marcel E'. Cerf, one of the makers of the note, had the right in this action to set up the counterclaim pleaded, then the right to set up the same defense by way of counterclaim was available to the other defendants, since the note sued on was joint and several.

It follows that the court erred in striking out each of the counterclaims filed herein. For this reason the judgment should be reversed, and it is so ordered.

Preston, J., Shenk, J., and Waste, C. J., concurred.