
    Rose v. Wallace.
    Action by the assignee against the maker of a promissory note. Answer that the note was given for sheep; that the payees represented themselves as dealers in sheep, and acquainted with their diseases, and that the sheep were sound; that defendant was ignorant of the disease called foot-rot; that he relied upon the representations of the payees; that the sheep had foot-rot, ■which is contagious; that he had five thousand other sheep with which he desired those purchased to ran, of which the sellers had notice; that before he knew that they were diseased, and whilst they were running with Ids other sheep, the latter were infected; that he was damaged, &c., 1,500 dollars. Held, that this was a good defense.
    The second paragraph of the complaint set up representations, and the third a warranty, of soundness, &c. Reply, that the price to be paid was 2,100 dollars ; that two notes were executed payable at the same time, the one now sued on, and one yet unpaid and held by the payees for 1,000 dollars; that ' the sheep wore worth to the defendant the full amount for which suit is brought; that if the sheep were diseased, their value was not thereby diminished to an amount equal to the other note. Held, that the reply was bad on demurrer; that the defendant might set up the damages against either note.
    In a suit by the assignee of a promissory note against the maker, the defendant cannot set up the invalidity of the note as between himself and the payee, if the plaintiff purchased the note upon the promise of the defendant to pay it.
    
      Hmm&r 23
    APPEAL from the Laporte Circuit Court.
    
      
       Mr. Osborn cited the following authorities:
      The demurrer to the fourth paragraph of the answer should have been overruled. It was not such as the statute contemplates. Lane v. The State, 7 Ind. R. 427.
      Eecoupment will be allowed whenever an action for damages can be sustained, and circuity of action thus avoided. Houston v. Young, 7 Ind. R. 200.
    
    
      
       Mr. Niles, in his brief, cited authorities to the following- points:
      It will bo noticed that no fraud, on the part of the payees of the note, is alleged, and consequently none will be presumed. This counterclaim pleaded as a defense, amounts, then, simply to this, that the sellers of the sheep honestly believed and represented them to be sound, when they were not, and that the defendant suffered damage by allowing them to run with his other sheep. The question now is not whether this representation was a warranty of the sheep, and whether the defendant may bo entitled to have a part or the whole of the price deducted on account of a failure of a warranty, but whether he is entitled to recover damages done to his other sheep, by his own act of allowing these to run with them. It is, indeed, stated that the defendant, when he purchased the sheep, -was desirous of allowing them to run with his other flock, but it is not shown that the spreading of the disease among them was a necessary consequence, or one which might not have been avoided by reasonable and ordinary care, and the defendant shall not be allowed to recover damages for an injury to which, for aught that he shows, his own negligence may have contributed. Wright v. Brown, 4 Ind. R. 95.—Brownell v. Flagler, 5 Hill, 282.—Bush v. Brainard, 1 Cow. 78.—2 Kent’s Comm. 282, note 1.
      This is not like the case of an article bought for a specific purpose and warranted to be fit for that purpose; for tbe defendant does not show that there was any pecuniary value attached to the privilege of letting the sheep run with his other flock. Were fraud alleged, a different question might arise. Damages will not, in general, be given for the consequences of wrong-doing or of the failure of a warranty, which are not the natural consequences; because it is only for such that a party is liable. 2 Parsons on Contracts, p. 454, and note.
      The damages claimed are too remote to be the proper subject of a counterclaim, even if otherwise recoverable. See Voorhies’ N. Y. Code, p. 166, and authorities there cited.
      According to the second paragraph of the reply, the defendant owes, on his purchase of the sheep, fully the amount of the note sued on, and for which this judgment is rendered; and the question in effect is, on which of the notes ought he to pay it — on that which has been assigned, and on which the suit is brought, or, so far as is necessary to pay it, on that which is still hold by the payee, and the balance on the note in suit. In other words, were the money justly due, brought into Court under a bill of interpleader, to which of the parties, Wallace, or Norman Lewis & Co., would the Court direct that the money he paid1? Clearly to Wallace. The right of a party to direct the application of payments does not apply to payments made ad invitum, or by compulsion of legal process. Blackstone Bank v. Hill, 10 Pick. 129.—7 Cranch, 572. And where the application of a payment devolves on the Court, they will make such application as is reasonable and equitable. 1 Am Lead. Cases, p. 147, and note. That the application of the money due, on this note, would be more just than to apply it on the other, is too plain for argument.
      The third paragraph of the reply amounts to what is often called an equitable estoppel. Rose having induced Wallace to part with his money, in reliance on his representations, will not now be permitted to set up this defense as against him. To rule otherwise would be to open the door to frauds, and to reverse the whole doctrine in regard to equitable estoppels. See Sugden on Vendors, Brookfield ed., from 9th Lond. ed., vol. 1, p. 10, vol. 2, p, 263; Gatling v. Rodman, 6 Ind. R. 289; Laney v. Laney, 4 id. 149.
      In his petition for a rehearing, Mr. Niles referred to the following authorities:
      Were both notes yet held by the payees, Cox v. Reynolds, 7 Ind. R. 260, might be applicable; but this case is governed by different principles. This may bo illustrated by the doctrine relative to the application of payments. The civil law applied payments so as most to favor the debtor, and this was held to be the doctrine of the common law in Pattison v. Heath, 9 Com. 747; but that case is entirely exploded, and, on the contrary, when the application of a payment devolves upon the Court, it will be applied upon the debt which is least secured. 1 Am. Lead. Cas. 151.—Id. 283, new edition. In some cases the rule is altogether discretionary, proceeding upon the justice of the particular ease, in view of all the circumstances attending it. Ibid. It is not inequitable, when one debt is well secured and another is not, that a payment be applied to that which is most precarious. Ibid.—Field v. Holland, 6 Cranch, 8. When the application of payments is made by the Court, it will act according to its own ideas of justice. Story, J., in 9 Wheat. 720. When a debtor is indebted on bond and on judgment, and sells his land, and the purchaser of the land makes a payment, the law will apply it to the judgment debt, in exoneration of the land. Gwinn v. Whitaker, 1 Har. and J. 754. Again, when a judgment-creditor has a right upon two funds, and another upon one only of them, the former may be compelled to apply first to the fund which cannot be reached by the second judgment. Story’s Eq. Juris. § 633. “Whon there is a lien upon different parcels of land for the payment of the same debt, and some of the lands still belong to the person who in equity owes or ought to pay the debt, and other parcels of the land have been transferred by Mm to third persons, Ms part of the land, as between himself and them, shall be primarily chargeable with the debt.” Id. § 1233.—Cohen v. Hannegan, 2 Ind. R. 379.—Russell v. Houston, 5 id. 180.
      Fraud should be charged in the most direct and unmistakable manner. Otherwise, the rule, secundum allegata et probata does not hold good. See 2 Chit. Pl. 679 to 710, 12th ed., and the standard forms passim, and compare with the pleadings in this case. “As it is am intendment of law that a person is innocent of fraud and every imputation affecting his reputation, the party insisting upon the contrary must state it in his pleadings. Chit. Pl. 221, 12th ed. Whore fraud exists, it must, from its nature, be known to the party guilty of it. The words “of all which the defendant then and there had notice,” have acquired a quasi technical significance, and are used with reference to some fact peculiarly within the knowledge of the party pleading. See a form in 2 Chit. Pl. 118, whore the words refer only to the facts of presentment and non-payment. See, also, the same, 328.
    
   Hanna, J.

Wallace, as assignee of Lewis & Co., brought an action upon a promissory note against Rose, the maker.

Rose answered in four paragraphs:

1. A general denial, which need not be further noticed.

The fourth paragraph was in substance as follows:

4. That the note was given for sheep; that the payees represented themselves as dealers in sheep, and acquainted with their diseases, and the sheep were sound and free from disease; that defendant was ignorant of the disease called foot-rot; that he relied upon the representations of the payees; that in fact the sheep were diseased with the foot-rot, which is contagious; that he was then the owner of five thousand other sheep, with which he desired those purchased to run, of all of which the sellers had notice; that before he had any knowledge that they were diseased, and whilst they were running with his other sheep, the latter became diseased with said foot-rot; that he has been compelled to expend, &c., and been damaged by reason of allowing said sheep to run with his other sheep, to the amount of 1,500 dollars.

There was a demurrer filed and sustained to this paragraph of the answer.

It is argued that the paragraph attempts to set up damages for which the payees of the note cannot be held responsible, for the reason that they are too remote, &c. The answer is sufficient. The damage was the proximate and natural result of the wrongful act of the payees of the note. It was a fraud upon the purchaser; for the seller, having notice that his sheep were affected with a contagious disease, and that the purchaser was ignorant thereof, and designed to turn them with other sheep not so affected, to sell them to him. Jeffrey v. Bigelow, 13 Wend. 518.—Sedg. on Dam. pp. 60, 90.

The second paragraph of the answer was, that the note was given for sheep sold by the payees to the defendant, and by them represented to be sound and free from disease, when, in fact, they were diseased and valueless. And the third paragraph was, that they were warranted sound, and that they were diseased and wholly worthless.

To these two paragraphs of the answer there was a reply, filed in three paragraphs, to-wit:

1. A denial.

2. That the price to be paid for said sheep was 2,100 dollars; that two notes were executed, payable at the same time, the one now sued on, and one yet unpaid, and held by the payees, and for 1,000 dollars; that the sheep were worth to the defendant the full amount for which this suit is brought; that'whilst he protests that the sheep were not diseased, nor were false representations made, &c., yet, if they were in any manner diseased, their value was not thereby diminished to a sum equal to the other note.

There was a demurrer to this paragraph of the reply, which should have been, but was not, sustained. The defendant had a right to set up the damages against either note. Cox v. Reynolds, 7 Ind. R. 260.

.> The third paragraph of the reply was, that before he purchased said note, the defendant, having knowledge that he was about to do so, stated to him, upon application made for information, that the note was good and would be paid, and that relying upon said representations he purchased it.

A. L. Osborn, for the appellant .

J. B. Niles, for the appellee .

As to this paragraph of the reply, the demurrer was correctly overruled. Similar representations as to the validity of a note have been held binding. Sloan v. The Richmond Tra. and Man. Co., 6 Blackf. 175.—Muchmore v. Bates, 1 id. 248.—Williams v. Rank, 1 Ind. R. 231 .

There was a finding and judgment for the plaintiff.

The evidence is not in the record, and we are, therefore, not apprised whether the plaintiff sustained the third paragraph of his reply or not. The finding of the Court may have been produced by evidence given under the second paragraph of the reply, or by a failure of the defendant to sustain the second and third paragraphs of the answer, when he might have sustained the fourth.

The judgment must, therefore, be reversed.

Per Curiam.— The judgment is reversed. Cause remanded, &c. 
      
      
        See Powers v. Talbott, ante, I.
     