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Linderman Machine Co. v. Hillenbrand

Indiana Appellate Court · Civil Procedure

Civil ProcedureRes judicataCounterclaims/Cross-complaintsFraud damagesres judicatacross-complaintcounterclaimfraud

Facts

Appellant sold appellee a "jointer and matcher" machine and later sued in federal court to recover the purchase price when appellee did not pay. In that suit, appellee defended on grounds including fraud and obtained a judgment that appellant take nothing. Appellee then sued appellant for fraud and deceit, alleging appellant fraudulently induced it to sign an order for a machine to be delivered on trial and subject to approval, and that appellee incurred expense in freight, installation, removal, and lost material and time while attempting to operate it. Appellant argued that appellee's only remedy was rejection of the machine and that the present action was barred because appellee had not sought affirmative relief by cross-complaint in the federal action.

Issue

Whether a buyer who rejected goods after being fraudulently induced into the transaction may recover special damages caused by the fraud, and whether that claim is barred because the buyer previously asserted fraud only as a defense in the seller's prior suit for the purchase price without filing a cross-complaint.

Rule

A defrauded purchaser who rescinds or rejects the sale may recover special damages that are the natural, direct, and proximate consequence of the fraud, even though general damages founded on the continued existence of the sale are ordinarily unavailable after rescission. Also, while a defendant must assert all defenses in the original action, the defendant is not compelled to file a cross-complaint for affirmative relief, and a prior judgment is not res judicata as to an affirmative claim that was not put in issue by the pleadings.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Blue Mesa Fabrication, a Nevada company, sold a custom press to Harbor Point Millworks in Indianapolis. After Harbor Point refused to pay, Blue Mesa sued in federal court for the purchase price; Harbor Point answered with fraud and failure of conditions as defenses, won a take-nothing judgment, and never filed any cross-complaint. Harbor Point then sued in Indiana state court for freight, rigging, and removal costs caused by the seller's fraudulent inducement.

Is Harbor Point's later state-court fraud action most likely barred by the earlier federal judgment?

Explanation. The majority held that while a defendant must interpose available defenses in the original action, the defendant is not required to file a cross-complaint for affirmative relief. A later suit is not barred unless the affirmative right was actually put in issue by the pleadings and adjudicated. Because the earlier case determined only the seller's right to the price and the buyer's defenses, the later claim for affirmative fraud damages is not precluded.