(dissenting).
The facts concerning the law action are stated correctly,'so far as they go. It can be seen from the statement that the issue raised by the affirmative defenses and the reply in that action was whether an accord and satisfaction had been made. No issue of mistake in reaching the accord was made by these pleadings. There is nothing in the record to show that such issue of mistake arose in the evidence. The point actually decided is shown by the trial court’s opinion that by “accepting and cashing a check, the minds of the parties met, and the contract of accord and satisfaction was complete”. It is certain, therefore, that the only point decided in the action at law was that the alleged debt was extinguished by the accord and satisfaction.
The suit in equity was then commenced. It prayed that the judgment in the law action be set aside; that the contract of accord and satisfaction be reformed; and that appellee 'recover judgment. The bill accepted the fact that the judgment was made, but alleged that it was based on the accord and satisfaction arising from acceptance of the check and that such acceptance was made by mistake. Appellant, by answer denied the mistake, and urged the judgment in the law action as res judi-cata. The trial court’s finding, insofar as it is sustained by the evidence, was that ap-pellee manifested his assent to the accord and satisfaction under a mistake of fact, and held that the judgment in the law action was not res judicata.
■ Since the mistake was not “mutual” I think the court below should not have reformed the statement appearing on the check, but should have rescinded it insofar as it related to “loading” costs. Mitchell v. Holman, 30 Or. 280, 47 P. 616; Churchill v. Meade, 92 Or. 626, 634, 182 P. 368; Hearne v. Marine Insurance Company, 87 U.S. 488, 20 Wall. 488, 491, 22 L.Ed. 395; Moffett, Hodgkins & C. Co. v. Rochester, 178 U.S. 373, 385, 20 S.Ct. 957, 44 L.Ed. 1108. Rescission, however, would not change the result, but only the form of equitable relief to be granted.
The majority hold: (1) That the defense of “mistake” was one which could have been urged in the action at law; and (2) that since such defense could have been urged in the action at law, the judgment therein precludes assertion of “mistake” as the basis for this suit in equity. I think both conclusions are clearly erroneous.
First. It is not made clear in the majority opinion whether the issue of mistake could be raised as a purely legal defense, or whether it could be raised only as a basis for equitable relief.
Considering it as a sufficient basis for both a legal defense and a claim for equitable relief, it is not one which could have been raised in the action at law, under the *727practice in Oregon. The defense raised was that no accord and satisfaction had been made. A defense that such accord and satisfaction was made, but should be rescinded for mistake is inconsistent with the former, as shown by Peters v. Queen City Ins. Co., 63 Or. 382, 385, 126 P. 1005, 1006, that: “The denial of the execution and delivery of an instrument is inconsistent with a separate defense which admits the execution of the instrument, or which is founded upon the instrument being in existence and binding.” In Oregon, a party may not rely on both of such inconsistent defenses, and if he pleads them, he may be compelled to elect one and abandon the other. Duncan Lumber Co. v. Willapa Lumber Co., 93 Or. 386, 403, 182 P. 172, 183 P. 476. None of the authorities2 relied on by the majority hold or intimate that such inconsistent defenses may both be raised, and therefore are not in point. That such authorities are inapplicable is shown by the following from Horn v. Detroit Dry Dock Co., 150 U.S. 610, 626, 14 S.Ct. 214, 218, 37 L.Ed. 1199:
“ * * * it is urged by counsel for the appellant that her receipt * * * is open to explanation by parol proof for the purpose of showing what the real consideration was, under the rule recognized and applied in Fire Ins. Ass’n v. Wickham, 141 U.S. 564, 12 S.Ct. 84 [35 L.Ed. 860]. While this may be true in respect to receipts generally, the fact is overlooked that the issue made by the replication was simply the existence of the receipt as set forth in the plea. The complainant, neither in her bill nor in her replication to the plea, raised any question as to the correctness of the receipt executed by her. Her replication, as already stated, simply put in issue the truth of the plea, and, that being established, the dismissal of the bill necessarily followed, under the authorities referred to. Her claim of a mistake in the receipt was wholly foreign to the issue which she, by her pleadings, had presented for the determination of the court. No such question as she now raises was properly presented in the court below, or is available here.
* * * But this [mistake in accord and satisfaction] is equally unavailable, if such a mistake were shown to exist, for the simple reason that it was not put in issue, in any shape, by the pleadings. While an accord and satisfaction may be set aside, if it is shown that the parties to the transaction were mutually mistaken, in regard to the material facts, such mistake must be set up by proper pleading. It is not available where it is neither averred in the bill, nor referred to in a plea in bar and a general replication thereto, which merely puts in issue the truth of the plea.” (Italics supplied.)
Appellant having raised the issue that no accord and satisfaction had been made, could not thereafter raise the inconsistent issue of mistake in the action at law. Since the Oregon law is binding on the federal courts in that state,3 it seems to me that the reason advanced for the conclusion reached by the majority is erroneous.
Second. While it is true that 28 U.S.C.A. § 398 and 1 Ore.Code Ann. 1930, § 6-102, permit an equitable claim to be asserted by reply, neither is in any sense a statement of a rule of res judicata, but merely governs a mode of proceeding. Nothing in either statute compels a party to assert his equitable claim. City of Orlando v. Murphy, 5 Cir., 77 F.2d 702, 703; Churchill v. Meade, supra, 92 Or. 632, 182 P. 368. Appellee here was compelled to assert the equitable claim, if at all, by operation of the rule of res judicata.
I think the rule of res judicata is one of substantive law, and a question to be determined under the Oregon law. Ruhlin v. New York Life Ins. Co., 304 U.S. 202, 209, 58 S.Ct. 860, 82 L.Ed. 1290. Under the law of Oregon, the judgment in the action at law is not res judicata. Taylor v. Winn, 104 Or. 383, 386, 207 P. 1096.
On the other hand, considering the question to be one upon which the “federal” law is controlling, I think the judgment in the action at law is not res judicata here. As is said in 2 Freeman on Judgments, 5th Ed., 1422, § 675: “the general expression, often found in the reports, that a judgment is conclusive of every matter which *728the parties might have litigated in the action, is misleading”. As shown above the equitable claim here in issue was one which could.not be litigated in the action at law, and therefore, the rule does not apply. However, even if we assume that it could have been litigated, then the judgment, I think, was not res judicata. The applicable rule is expressed in Brown v. First Nat. Bank, 8 Cir., 132 F. 450, 452, certiorari denied 196 U.S. 641, 25 S.Ct. 796, 49 L.Ed. 631, as. follows: “* * * where the facts which establish his defense also constitute an affirmative cause of action' against the plaintiff, he has the option to interpose them as a defense, or to reserve them for an independent or cross action. If he refrains from presenting them as a defense, the judgment in the action against him does not bar or adjudicate his affirmative cause of action upon them, and he is free to subsequently maintain it. * * * ” See also: Watkins v. American Nat. Bank, 8 Cir., 134 F. 36, 40, writ of error dismissed 199 U.S. 599, 26 S.Ct. 746, 50 L.Ed. 327; Pierce v. National Bank of Commerce, 8 Cir., 268 F. 487, 496; Independent Harvester Co. v. Tinsman, 7 Cir., 253 F. 935, 936; Young v. Baker, Fentress & Co., 7 Cir., 74 F.2d 422, 423; 83 A.L.R. 642, annotation. Compare: Union Cent. Life Ins. Co. v. Drake, 8 Cir., 214 F. 536, 547. If a party is not precluded, in a subsequent action at law,, by a former judgment, even though the subsequent action is based on a cause of action which could have been asserted as a legal defense in the prior action, reason compels the conclusion that an equitable defense need not be raised.
I think it is clear that the judgment in the action at law is not res -judicata here.
Since a court of equity found that a judgment, based upon an accord and satisfaction of appellee's claim entered into by mistake, was rendered in an action at law, such court of equity has power to- cancel the accord and satisfaction, and allow recovery by appellee on his claim. Northern Assur. Co. v. Grand View Building Ass’n, 203 U.S. 106, 107, 27 S.Ct. 27, 51 L.Ed. 109.
I think the decree should be modified by striking therefrom the provisions reforming the instrument, and by inserting in lieu thereef a provision rescinding the agreement purported to be expressed in the instrument insofar as it relates to “loading” charges; and as so modified, the decree should be affirmed.
Fire Ins. Ass’n v. Wickham, 141 U. S. 564, 12 S.Ct. 84, 35 L.Ed. 860; Williams v. Poppleton, 3 Or. 139; Marks v. Twohy Bros. Co., 68 Or. 514, 527, 194 P. 675; Pierce v. Northern P. R. Co., 127 Or. 461, 271 P. 976, 62 A.L.R. 644; Mickel v. Associated Oil Co., 147 Or. 81, 30 P.2d 352; 48 C.J. 639, 640, § 82(3).
28 U.S.C.A. §§ 724, 725; Phillips, & C. Const. Co. v. Seymour et al., 91 U. S. 646, 655, 23 L.Ed. 341; Tomkins v. Paterson, D.C.Wash., 239 F. 402.