When that statute was passed, the constitution of Missouri of 1865 declared that "no property, real or personal, shall be exempt from taxation, except such as may be used exclusively for public schools, and such as may belong to the United States, to this state, to counties, or to municipal corporations within this state." Article 11, § 16.

∞

As, perhaps, every railroad company organized under the laws of the state, prior to the adoption of the constitution of 1865 had general authority to con- 1 struct branch roads, it is clear that the construction of the act of 1868 for* which the appellant contends cannot be accepted, except upon the theory that the legislature intended to evade the constitutional inhibition upon exemptions of property from taxation; for it is plain, from the provisions of the act of 1868, that the roads which it authorized to be built, although called branch roads, are, for all purposes of separate ownership and management. independent lines, quite as distinct from the main lines as if constructed and operated by other and different corporations. Such provisions as are to be found in that statute are rarely ever found in legislative enactments. An analysis of them shows that any "branch" road constructed under it must be designated by the name under which it is built; donations and subscriptions in aid of it must be received in that name; the cost of construction and management must be kept separate and distinct from expenses incurred on the main line; money may be borrowed and bonds issued secured by mortgage on the branch only; the branch road may be sold, operated, leased, or consolidated with any connecting road of another corporation, or disposed of separately from the main line; it is liable only for its own debts, and not for those of the main line; profits arising out of the business of such branch road can be divided only among its stockholders, and their interests are to be kept distinct from those of the stockholders of the main line; and the board of directors of the company owning the main line are required, in all matters relating especially to the interests of the stockholders of the branch road, to follow all instructions given by the latter, without regard to their effect upon the main line. In other words, the stockholders of a branch road constructed under the act of 1868 constitute, in effect, a separate organization, having no connection whatever with the stockholders of the main line, except that the main line and the branch road are, for purposes of convenience, managed by the same board of directors.

It may be conceded, for all the purposes of this case, that if the St. Joseph & Iowa Railroad Company, or the company which succeeded to its rights, privileges, and immunities, had built a branch road under the charter of 1857, it could, in respect to that branch, have stood upon the exemption contained in its charter. Any stock issued by it, and sold to aid in the construction of such a branch road, would, in that case, have been on the same footing in all respects as other stock it may have issued; and its main and branch lines would have been parts of the same system, controlled by the board of directors as they deemed proper. But the company elected not to adopt that course, for the reason, perhaps, that it could not, in that mode, have raised the money necessary to build a branch road. In the condition in which all the railroads of Missouri were left by the civil war, it would have been difficult to raise money to build branch roads if their future was to be endangered by connection with main lines which needed repairs, and the corporations owning which were without credit. It was doubtless for that reason the St. Joseph & Iowa Railroad Company, instead of constructing a branch road under the charter of 1857, determined to avail itself of the provisions of the statute of 1868, which permitted it to construct and maintain what is called a branch road, but what, in fact, would be a road having only nominal connection with the main line of the company. The branch roads to which the charter of the St. Joseph & Iowa Railroad Company referred were, in our judgment, such as would be subject to the same control and management as its main line, and

not roads that were branch roads only in name, but were distinct lines, operated solely with reference to the interests, and pursuant to the directions, of those holding stock therein, irrespective of the necessities of the main line. To avoid the conclusion that there was a purpose to devise a plan whereby railroad property should be exempt from taxation, which the constitution of 1865 intended should be taxed, we must assume that the legislature intended to invite railroad corporations having general power under their charters to construct branch roads, to waive the exercise of such power, and construct roads under the provisions of the act of 1868 which, although not granting an immunity from taxation, yet afforded peculiar protection to those whose money might be used in such construction. To say the least, it is not clear that the legislature intended that the exemption from taxation given by such charters as that granted to the St. Joseph & Iowa Railroad Company should be extended to branch roads constructed under the act of 1868. As that statute does not grant immunity from taxation to roads constructed under its provisions, and as the system established by it is complete in itself, without reference to other legislative enactments, the present claim to exemption must be denied; for it is the settled doctrine of this court that an immunity from taxation by the state will not be recognized unless granted in terms too plain to be mistaken. Providence Bank v. Billings, 4 Pet. 514; Philadelphia & W. R. R. v. Maryland, 10 How. 376; Memphis R. R. v. Commissioners, 112 U. S. 609, 617, 5 Sup. Ct. Rep. 299; Southwestern R. R. v. Wright, 116 U. S. 231, 236, 6 Sup. Ct. Rep, 375; Vicksburg, etc., R. Co. v. Dennis, 116 U. S. 665, 667, 6 Sup. Ct. Rep. 625.

As our conclusion upon this point accords with that of the state court, and is sufficient to dispose of the whole case, we omit any consideration of other questions presented in argument. Judgment affirmed.

(120 U. S. 630)

DUSHANE and another v. BENEDICT.
(March 14, 1887.)

1. RECOUPMENT GOODS SOLD-BREACH OF WARRANTY OR FRAUD-POSITIVE Damage. Under the Pennsylvania practice, as under the practice in this country generally, a defendant in an action for the price of goods sold may show, by way of recoupment or equitable defense, not only the diminished value of the goods, but also positive damage suffered by him by reason of breach of warranty or fraudulent representations.

2. SAME AVAILABLE ONLY IN DEFENSE.

But matter availed of by way of recoupment only goes in reduction of damages, or as a defense to the action, and cannot be made the ground for an affirmative judgment for damages in defendant's favor.

3. COUNTER-CLAIM-WHAT CLAIM IS SUBJECT OF.

By Pennsylvania practice, as under the practice generally, a defendant can only avail himself, under a counter-claim, of a claim sounding in contract.

4. SALE-WARRANTY-RAGS INFECTED WITH SMALL-POX.

Evidence that a contract for the purchase of rags was for clean rags, and that the rags delivered were filthy, and infected with the small-pox, and that they caused the breaking out of disease in the purchaser's mill, is evidence of a warranty and breach thereof.

5. FRAUD-SALE OF INFECTED RAGS-EVIDENCE OF KNOWLEDGE.

In an action for the price of rags sold as clean rags, but which defendant's evidence tended to show were infected with small-pox, and caused the small-pox to break out among his workmen, the plaintiff adniitted that the rags were collected in a region where the small-pox was raging, and that he bought from all dealers indiscriminately. He testifies that the rags had lain in his warehouse for a year, and that no disinfectants were used on them. A letter of plaintiff sent with the first invoice stated that he did not then have all the rags on hand; and workmen in defendant's mill testified that the rags, when opened, smelt strongly of disinfectants. Held, that there was sufficient evidence to go to the jury that plaintiff knew the rags to be infected.

6. DAMAGES-PROXIMATE AND REMOTE-DEFINITENESS-INFECTED RAGS.

Upon the question of damage caused by rags sold to purchaser being infected with small-pox, evidence that the rags caused the small-pox to break out among the purchaser's workmen; that he paid sums of money to support workmen thus disabled; and that, in consequence of the epidemic, he had to run his mill shorthanded, and lost a considerable part of a profitable trade: held to be competent, and sufficiently definite to go to the jury.

7. SAME-EVIDENCE-GENERAL ESTIMATE.

In such case a witness who has not testified to items of damages cannot give his estimate of the whole amount.

8. EVIDENCE-OPINION-CAUSE OF CATCHING SMALL-POX.

The testimony of workmen, not shown to be experts, that infected rags in a paper-mill where they worked were the cause of small-pox which they or their chil dren took, is incompetent.

In Error to the Circuit Court of the United States for the Western District of Pennsylvania.

Wm. Macrum and A. H. Clark, for plaintiff in error. W. F. Mattingly and S. Wolf, for defendant in error.

GRAY, J. This was an action of assumpsit by a rag-dealer against papermakers to recover $813.03 for rags sold and delivered by him to them. The, plea was in the peculiar form used in Pennsylvania, with a counter-claim. The plaintiff had a verdict and judgment, and the case comes before us on a writ of error sued out by the defendants.

The plaintiff's motion to dismiss the writ of error for want of a sufficient amount in dispute to give this court jurisdiction, cannot be sustained, since the record shows that the defendants sought to recover the sum of $7,000 in excess of the plaintiff's claim, and this sum was therefore in dispute. Ryan v. Bindley, 1 Wall. 66; Act February 16, 1875, c. 77, § 3, (18 St. 316.) Whether the defendants could lawfully recover it against the plaintiff in this case was a matter affecting the merits, and not the jurisdiction.

Before proceeding to consider the rulings and instructions at the trial as applied to the facts of the case, it will be convenient to refer to the general rules of law, and to the statute and decisions in Pennsylvania, which bear upon the subject. When a dealer contracts to sell goods which he deals in, to be applied to a particular purpose, and the buyer has no opportunity to inspect them before delivery, there is an implied warranty that they shall be reasonably fit for that purpose. Jones v. Just, L. R. 3 Q. B. 197, 203, 9 Best & S. 141, 150; Kellogg Bridge Co. v. Hamilton, 110 U.S. 108, 3 Sup. Ct. Rep. 537. In such a case, in Pennsylvania, as at common law, the action upon the warranty may be either in contract or in tort. Vanleer v. Earle, 26 Pa. St. 277; Schuchardt v. Allens, 1 Wall. 359, 368. If the seller falsely represents to the buyer that the goods are of a certain quality, or fit for a certain purpose, he is liable to an action for the fraudulent representations, although they are not in a form to constitute a warranty; and in such a case the action must be in tort, in the nature of an action of deceit, and must be supported by proof that he knew the representations to be false when he made them. Kimmel v. Lichty, 3 Yeates, 262; McFarland v. Newman, 9 Watts, 55; King v. Eagle Mills, 10 Allen, 548.

The damages recoverable for a breach of warranty, or for a false representation, include all damages which, in the contemplation of the parties, or according to the natural or usual course of things, may result from the wrongful act. For instance, if a man sells hay or grain for the purpose of being fed to cattle, or such as is ordinarily used to feed cattle, and it contains a substance which poisons the buyer's cattle, the seller is responsible for the injury. French v. Vining, 102 Mass. 132; Wilson v. Dunville, L. R. 4 Ir. 249, and L. R. 6 Ir. 210. So, if one sells an animal warranting or representing it to be sound, which is in fact infected with disease, he is responsible for the damages resulting from a communication of the disease to the buyer's other animals, either in an action of tort for the false representation,-Mullett v.

*635

889.

689.

Mason, L. R. 1 C. P. 559; Jeffrey v. Bigelow, 13 Wend. 518; Faris v. Lewis, 2 B. Mon. 375; Sherrod v. Langdon, 21 Iowa, 518; Marsh v. Webber, 16 Minn. 418, (Gil. 375;)—or in an action on the warranty, either in tort (Packard v. Slack, 32 Vt. 9; Smith v. Green, 1 C. P. Div. 92) or even in contract, (Black v. Elliot, 1 Fost. & F. 595.) See, also, Randall v. Newson, 2 Q. B. Div. 102.

In an action for the price of goods sold or of work done, the defendant may set up a breach of warranty, or a false representation as to the goods, or a defective performance of the work, by way of recoupment of the sum that the plaintiff may recover. In England this is only allowed so far as it affects the value of the goods sold, or of the work done. Davis v. Hedges, L. R. 6 Q. B. 687, and cases there cited. But in this country the courts, in order to avoid circuity of action, have gone further, and have allowed the defendant to recoup damages suffered by him from any fraud, breach of warranty, or negligence of the plaintiff, growing out of and relating to the transaction in question. It will be enough to cite a few cases in which the extent and the reason of the doctrine have been clearly brought out.

In a leading Massachusetts case, in which fraudulent representations as to the soundness of a horse sold were allowed to be set up in defense of an action on a promissory note given for the price, although the horse had not been returned to the seller, Mr. Justice DEWEY, after reviewing the previous decisions in England and in New York, said: "The strong argument for the admission of such evidence in reduction of damages in cases like the present is that it will avoid circuity of action. It is always desirable to prevent a crossaction where full and complete justice can be done to the parties in a single suit, and it is upon this ground that the courts have of late been disposed to extend to the greatest length compatible with the legal rights of the parties, the principle allowing evidence in defense or in reduction of damages to be introduced, rather than to compel the defendant to resort to his cross-action." Harrington v. Stratton, 22 Pick. 510, 517. And in a later case in that state, Chief Justice BIGELOW observed that the essential elements on which the application of the principle of recoupment depended, were two only: "The first is that the damages which the defendant seeks to set off shall have arisen from the same subject-matter, or sprung out of the same contract or transaction, as that on which the plaintiff relies to maintain his action. The other is that the claim for damages shall be against the plaintiff, so that their allowance by way of set-off or defense to the contract declared on shall operate to avoid circuity of action, and as a substitute for a distinct action against the plaintiff to recover the same damages as those relied on to defeat the action." Sawyer v. Wiswell, 9 Allen, 39, 42. In Bradley v. Rea, 14 Allen, 20, in an action to recover the price of a number of pigs sold in one lot, it was held that the defendant might set up in defense that the pigs sold were warranted or fraudulently represented by the plaintiff to be sound, and free from infectious or contagious diseases, and prove the existence of such a disease in some of the pigs at the time of the sale, which afterwards spread to the others, and of which they died. Mr. Justice HOAR, delivering judgment, after referring to Mullett v. Mason, L. R. 1 C. P. 559, above cited, in which it was held that, in an action for fraudulently misrepresenting that a cow sold was free from infectious disease, the buyer, if he placed the cow with others which thereby caught the disease and died, could recover as damages the value of all the cows, said: "The nature of the subject-matter of the warranty or deceit is such that when animals are sold in one lot together, the warranty or representation as to the whole being single, we can have no doubt that the same principle should apply to the extent of a recoupment; and that the right to recoup in damages should not be confined to the diminished value of those which are proved to have the disease at the time of the sale." 14 Allen, 23. A similar decision was made in Rose v. Wallace, 11 Ind. 112.

The later decisions of this court, modifying the earlier decision in Thornton

v. Wynn, 12 Wheat. 183, affirm the same doctrine. Withers v. Greene, 9 How. 213; Van Buren v. Digges, 11 How. 461; Winder v. Caldwell, 14 How. 434; Lyon v. Bertram, 20 How. 149, 154; Railroad Co. v. Smith, 21 Wall. 255; Marsh v. McPherson, 105 U.S. 709, 717. In Winder v. Caldwell, Mr. Justice GRIER, who was equally familiar with the common law and with the Pennsylvania practice, said: "Although it is true, as a general rule, that unliquidated damages cannot be the subject of set-off, yet it is well settled that a total or partial failure of consideration, acts of non-feasance or misfeasance immediately connected with the cause of action, or any equitable defense arising out of the same transaction, may be given in evidence in mitigation of damages or recouped, not strictly by way of defalcation or set-off, but for the purpose of defeating the plaintiff's action in whole or in part, and to avoid circuity of action." 14 How. 443. In Railroad Co. v. Smith, which was an action against a railroad corporation by a contractor to recover the price of a draw-bridge, it was held that the defendant might show that the construction of the bridge was so defective as to make it unfit for its purpose, and the draw worked so imperfectly as to hinder and delay the running of the cars over it, and might prove the number of hands required to work the bridge as it was built, and the number that would be necessary if it had been properly constructed. Mr. Justice FIELD, delivering judgment, said: "All damages directly arising from the imperfect character of the structure, which would have been avoided had the structure been made pursuant to the contract, and for which the defendant might have instituted a separate action against the contractors, were provable against their demand in the present action. The law does not require a party to pay for imperfect and defective work the price stipulated for a perfect structure, and, when the price is demanded, will allow him to deduct the difference between that price and the value of the inferior work, and also the amount of any direct damages flowing from existing defects, not exceeding the demand of the plaintiffs. This is a rule of strict justice, and the deduction is allowed in a suit upon the contract, to prevent circuity of action." 21 Wall. 261.

The courts of Pennsylvania, having originally had no jurisdiction in equity, have always allowed equitable defenses in actions at law, under what is there known as a "plea of payment with leave;" that is to say, with leave to prove any special matter. Swift v. Hawkins, (1768,) 1 Dall. 21; Lewis v. Morgan, (1824,) 11 Serg. & R. 234; Light v. Stoever, (1825,) 12 Serg. & R. 431, 433; Mackey v. Brownfield, (1825,) 13 Serg. & R. 239; Hawk v. Geddis, (1827,) 16 Serg. & R. 23; McConnel v. Hall, (1831,) 3 Pen. & W. 53; Uhler v. Sanderson, (1861,) 38 Pa. St. 128. And the practice was long ago recognized and acted on by Mr. Justice WASHINGTON in the circuit court. Latapee v. Pecholier, 2 Wash. C. C. 180, 184; Webster v. Warren, Id. 456, 458.

In matters of contract, the defendant's right of set-off, with the additional right to recover judgment against the plaintiff for any sum proved in excess of his claim, is given and regulated by a statute which has been in force in Pennsylvania since 1705, and is there commonly known as the "Defalcation Act," by which “if two or more, dealing together, be indebted to each other upon bonds, bills, bargains, promises, accounts, or the like, and one of them commence an action in any court of this province, if the defendant cannot gainsay the deed, bargain, or assumption upon which he is sued, it shall be lawful for such defendant to plead payment of all or part of the debt or sum demanded, and give any bond, bill, receipt, account, or bargain in evidence; and, if it shall appear that the defendant hath fully paid or satisfied the debt, or sum demanded, the jury shall find for the defendant, and judgment shall be entered that the plaintiff shall take nothing by bis writ, and shall pay the costs. And, if it shall appear that any part of the sum demanded be paid, then so much as is found to be paid shall be defalked, and the plaintiff shall have judgment for the residue only, with costs of suit. But, if it appear to the