STANDARD AMUSEMENT COMPANY, Inc.
v.
R. O. TARKINGTON and wife, Mary Marsh Tarkington (Original Defendants); and Wayne Theatres, Inc.; Max Zager and Max Zager Enterprises (Additional Defendants).
No. 593.
Supreme Court of North Carolina.
January 10, 1958.*402 Block, Meyland & Lloyd, Greensboro, for plaintiff, appellee, and for additional defendant Max Zager, appellee.
McDougle, Ervin, Horack & Snepp, Charlotte, for additional defendant Wayne Theatres, Inc., appellee.
Daniel R. Dixon, Raleigh, for original defendants R. O. Tarkington and wife Mary Marsh Tarkington, appellants.
PARKER, Justice.
Ch. 971 of the 1955 Session Laws of North Carolina, which is an act amending Ch. 651 of the Public Laws of 1909, as amended, relating to the establishing of a municipal-county court in Guilford County, provides in Sec. 3(c) (2), that the municipal-county court shall have concurrent jurisdiction with the superior court of civil actions, excepting equity, divorce and those wherein title to real property is in controversy, wherein the sum demanded, exclusive of interest, does not exceed $3,000. Sec. 4, Rule 25(c) (4) of this act provides that if the defendant files in any suit a counterclaim in which a money judgment is in good faith sought to be recovered, or in which the stated value of property sought to be recovered is beyond the jurisdiction of this court, such counterclaim shall, nevertheless, be a valid and subsisting counterclaim for the amount or property alleged, but the action shall be at once transferred by order of either judge to the regular civil issue docket of the Superior Court of Guilford County, Greensboro Division, and stand for trial by jury in the usual course, unless *403 the parties file a stipulation that the case shall be placed upon the non-jury docket. Sec. 4, Rule 25(c) (3), of this act provides that upon the entry of an order of transfer, the clerk shall deliver all process, pleadings, orders, or other instruments and matters constituting the case papers to the Clerk of the Superior Court of Guilford County.
Upon motion of the Tarkington defendants, the Greensboro, Guilford County, Municipal-County Court, acting under Sec. 4, Rule 25,(c) (4), Ch. 971, of the 1955 Session Laws of North Carolina, transferred the case to the regular civil issue docket of Guilford County Superior Court, Greensboro Division, on the ground that the defendants Tarkington had filed a cross-action in which a money judgment is sought to be recovered which is beyond the jurisdiction of that court.
"As a general rule, it is within the constitutional powers conferred upon the legislature of a state to provide by statute for the removal of causes from one court to another * * *." 21 C.J.S. Courts § 502, p. 769.
Art. IV, Sec. 12, of the Constitution of North Carolina, vests the General Assembly of the State with the power to allot and distribute that portion of the power and jurisdiction of the Judicial Department, "which does not pertain to the Supreme Court among the other courts prescribed in this Constitution or which may be established by law, in such manner as it may deem best * * *." See Edmundson v. Edmundson, 222 N.C. 181, 22 S.E.2d 576.
In 21 C.J.S. Courts § 517, p. 783, it is said: "Where an order of removal of a cause from one court to another is properly made, the former court is thereby divested of jurisdiction and the jurisdiction of the latter court attaches and the cause proceeds as if originally instituted there."
The case having been properly transferred to the civil issue docket of the Guilford County Superior Court, Greensboro Division, Judge Rousseau presiding had jurisdiction to hear and determine the motions in the case originally made in the municipal-county court.
A study of the answer of the defendants Tarkington shows these admissions: One, the execution of the written lease between Wayne Theatres, Inc., as lessor, and themselves, as lessees, and the terms of the lease, as alleged in the complaint. Two, their entry into possession of the demised premises about 1 November 1953, and their continuous possession since. Three, their payment of rent under the lease from time to time to Wayne Theatres, Inc., to Max Zager Enterprises and to plaintiff. Four, they are now in arrears of payment of rent to plaintiff in the sum of $3,000.
Plaintiff alleges Wayne Theatres, Inc., assigned the lease to Max Zager about 1 December 1954, and about 1 March 1956 Max Zager assigned the lease to plaintiff, who is now the owner of the lease. Although the defendants Tarkington in their answer say they have no knowledge as to these assignments of the lease and as to plaintiff's ownership of the lease, and therefore deny the same, they assert in their brief "the plaintiff in the instant proceeding is the sub-assignee of the original lessor, and is not an original party to the lease," and their argument in their brief is based on the allegation in the complaint that plaintiff is the assignee of the lease.
It is well settled law in this jurisdiction that when plaintiff, according to the allegations of its complaint, became the assignee of this lease, a non-negotiable chose in action, it took it subject to any set-off or other defense which the lessees may have had against its assignors based on facts existing at the time of, or before notice of, the assignment, even though it *404 bought it for value, and in good faith. G.S. § 1-57; Iselin & Co. v. Saunders, 231 N.C. 642, 58 S.E.2d 614, and the numerous cases there cited. This Court said in Harris v. Burwell, 65 N.C. 584, speaking of the language of Sec. 55, C.C.P., now set forth in G.S. § 1-57, which subjects the assignee to any set-off or other defense existing at the time of, or before notice of, the assignment: "This language is as broad as it can well be; so that a note assigned after it is due, a half dozen times, will be subject to any set-off or other defense that the maker had against any one or all of the assignees at the date of the assignment, or before notice thereof." The assignor of a non-negotiable chose in action cannot confer upon an assignee a greater right than he has. Ricaud v. Alderman, 132 N.C. 62, 43 S.E. 543.
"It is well settled that in an action by an assignee, a claim in favor of defendant against the assignor can be allowed as a set-off, counterclaim, or reconvention only to the extent of the claim sued on, and judgment cannot be rendered against the assignee for the excess. Defendant is entitled to use his claim defensively, and not offensively * * *." 80 C.J.S. Set-Off and Counterclaim § 61, p. 121. To the same effect 47 Am.Jur., Setoff and Counterclaim, p. 756. See McIntosh, N.C. Practice & Procedure, 2nd Ed., Vol. I, p. 693.
Plaintiff alleges that it is the owner as assignee of Max Zager, who was an assignee of Wayne Theatres, Inc., of a written lease entered into between the defendants Tarkington, as lessees, and Wayne Theatres, Inc., as lessor, and sues the lessees for unpaid rent. The defendants Tarkington admit in their answer they owe plaintiff the exact amount of rent it sues for, and file a cross-action or counterclaim against Wayne Theatres, Inc., Max Zager, and Max Zager Enterprises to recover damages from them, to be reduced by an amount to be applied to the rent they owe plaintiff, upon the alleged ground that they were induced by the actionable fraud of Wayne Theatres, Inc., acting by its duly authorized agent Max Zager, to execute the lease upon which plaintiff sues. It appears from Max Zager's special appearance and motion to dismiss that Max Zager Enterprises is merely a trade name he uses. The defendants Tarkington seek no affirmative relief against plaintiff.
The purpose and intent of G.S. § 1-137(1) "is to permit the trial in one action of all causes of action arising out of any one contract or transaction." Hancammon v. Carr, 229 N.C. 52, 47 S.E.2d 614, 615.
The cross-action by a defendant against a codefendant or a third party permitted by the statute must arise out of the subject of the action as set out in the complaint, and have such relation to plaintiff's claim as that their adjustment is necessary to a full and complete determination of the cause. Schnepp v. Richardson, 222 N.C. 228, 22 S.E.2d 555; Beam v. Wright, 222 N.C. 174, 22 S.E.2d 270; Wingler v. Miller, 221 N.C. 137, 19 S.E.2d 247; Montgomery v. Blades, 217 N.C. 654, 9 S.E.2d 397; Wrenn v. Morgan, 148 N.C. 101, 61 S.E. 641; Branch v. Chappell, 119 N.C. 81, 25 S.E. 783; Hulbert v. Douglas, 94 N.C. 128; Bitting v. Thaxton, 72 N.C. 541; McIntosh, N.C. Practice & Procedure, 2nd Ed., Vol. I, Secs. 1238, 1239 and 1240. See Etheridge v. Wescott, 244 N.C. 637, 94 S.E.2d 846.
This court said in Hancammon v. Carr, supra:
"As the purpose of the two sections G.S. §§ 1-123 subd. 1, 1-137 subd. 1, is to authorize the litigation of all questions arising out of any one transaction, or series of transactions concerning the same subject matter, in one and the same action, and not to permit multifariousness, it must appear that there is but one subject of controversy. McIntosh, P. & P., 491; Street v. Andrews, 115 N.C. 417, 20 S.E. 450; McKinnon v. Morrison, 104 N.C. 354, 10 S.E. 513; Bitting v. Thaxton, 72 N.C. *405 541; Walsh v. Hall, 66 N.C. 233; Wilson v. Hughes, 94 N.C. 182; Smith v. Old Dominion Building & Loan Ass'n, 119 N.C. 257, 26 S.E. 40; Branch v. Chappell, 119 N.C. 81, 25 S.E. 783; Bazemore v. Bridgers, 105 N.C. 191, 10 S.E. 888; Smith & Co. v. French, 141 N.C. 1, 53 S.E. 435; Smith v. Smith, 225 N.C. 189, 34 S.E.2d 148, 160 A.L.R. 460; Pressley v. Great Atlantic & Pacific Tea Co., 226 N.C. 518, 39 S.E.2d 382."
Independent and irrelevant causes of action between two defendants, which do not come in question in settling the controversy involved in plaintiff's cause of action, cannot be litigated by crossaction. Horton v. Perry, 229 N.C. 319, 49 S.E.2d 734; Schnepp v. Richardson, supra; Beam v. Wright, supra; Wingler v. Miller, supra; Montgomery v. Blades, supra; Rose v. Fremont Warehouse & Improvement Co., 182 N.C. 107, 108 S.E. 389; Coulter v. Wilson, 171 N.C. 537, 88 S.E. 857; Hulbert v. Douglas, supra. Such controversies are wholly foreign to plaintiff's cause, and must be settled in another suit between the defendants. Gibson v. Barbour, 100 N.C. 192, 6 S.E. 766. Such defendants cannot engraft their independent and irrelevant causes upon plaintiff's cause, and compel him to stand by while they litigate their differences in his suit. Schnepp v. Richardson, supra; Montgomery v. Blades, supra.
A party has the right either to rescind what has been done as a result of fraud, or affirm what has been done, and sue for damages caused by the fraud, but he must choose which course he will pursue for the remedies are inconsistent. He cannot choose both. Surratt v. Chas. E. Lambeth Insurance Agency, 244 N.C. 121, 93 S.E.2d 72.
If Wayne Theatres, Inc., had not assigned the lease, and had sued the defendants Tarkington for unpaid rent, they could set up as a counterclaim against the cross-action they have filed in the instant case. Threadgill v. Faust, 213 N.C. 226, 195 S.E. 798. See Wilson v. Hughes, 94 N.C. 182; Walsh v. Hall, 66 N.C. 233.
The written lease entered into between Wayne Theatres, Inc., as lessor, and the defendants Tarkington, as lessees, is the sole ground set forth in the complaint as the base of plaintiff's action. All the claims asserted in the cross-action against the assignors of this lease arise out of the lease set forth in the complaint as the foundation of plaintiff's claim. It is not a remote, uncertain or partial connection, and the parties must have assumed to have had this connection and its consequences in view when they dealt with each other. The defendants Tarkington, to prove a defense against the plaintiff, assignee of the lease, for alleged fraud on the part of Wayne Theatres, Inc., and Max Zager, assignors of the lease, in inducing them to execute the lease, must show actionable fraud on the part of Wayne Theatres, Inc., or Max Zager, or both. The defendants' cross-action is so interwoven in plaintiff's cause of action that a complete story as to one cannot be told without telling the essential facts as to the other, and has such relation to plaintiff's claim that the adjustment of both is necessary to a full and final determination of the controversy. The cross-action of the defendants Tarkington is authorized by G.S. § 1-137(1), which is a statute very broad in its scope and terms, and which should be liberally construed by the court in furtherance of its desirable and beneficial purpose. Smith & Co. v. French, 141 N.C. 1, 53 S.E. 435. What is a proper counterclaim as the word is used in Sec. 4, Rule 25(c) (4), of Ch. 971 of the 1955 Session Laws of North Carolina, is to be determined by the provisions of G.S. § 1-137.
Judge Rousseau erred in holding that the cross-action is not a proper cross-action or counterclaim, and is not pleadable in this action, and that it is not a proper cross-action or counterclaim within the *406 requirements and meaning of Sec. 4, Rule 25 (c) (4), of Ch. 971, of the 1955 Session Laws of North Carolina, and that the cross-action or counterclaim constitutes a misjoinder of parties and causes, and is irrelevant, immaterial and fails to allege a proper defense to plaintiff's claim, and that the plaintiff's motion to strike, and the motions of the additional defendants to dismiss should have been granted. Sec. 4, Rule 25(c) (4), of Ch. 971 of the 1955 Session Laws of North Carolina, authorizes the filing of a counterclaim in which a money judgment is in good faith sought to be recovered beyond the jurisdiction of the court, and states such counterclaim shall be a valid and subsisting claim for the amount alleged, but the action shall be at once transferred by that court to the regular civil issue docket of the Superior Court of Guilford County, Greensboro Division. The contention of the additional defendants as set forth in their special appearance and motion to dismiss on the ground that the court had no jurisdiction over them or the cause of action alleged against them is without merit.
Judge Rousseau erred in entering judgment striking out the cross-action, in dismissing the cross-action against the additional defendants, in quashing the service of summons upon them, and in remanding the case to the Greensboro, Guilford County, Municipal-County Court for trial.
This Court said in Surratt v. Chas. E. Lambeth Insurance Agency, supra [244 N. C. 121, 93 S.E.2d 77]: "The exception to the signing and entry of judgment, the sole exception on this appeal, presents for decision the question as to whether the pleadings and admitted facts, on which the trial judge ruled, support the judgment."
The defendants Tarkington have excepted to the signing and entry of Judge Rousseau's judgment. The pleadings and admitted facts on which the learned judge ruled do not support his judgment.
Reversed.