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Automatic Extinction of Cross-Demands: Compensatio from Rome to California

1965; UC Berkeley School of Law; Volume: 53; Issue: 1 Linguagem: Inglês

10.2307/3479096

1942-6542

Michael E. Tigar,

Corporate Taxation and Avoidance

A client tells the following story: his auto was struck from the rear by a department store delivery truck, and he incurred minor injuries.The circumstances indicate that the truck driver was negligent and that the department store will be liable.Having established this, the attorney's next inquiry should be: has the client a charge account with the store?For if so, he may withhold payments on his charge account to recompense him for his injuries and the damage to his car; his charge account bill is paid to that extent.This result is dictated by Section 440 of the California Code of Civil Procedure:When cross-demands have existed between persons under such circumstances that, if one had brought an action against the other, a counterclaim could have been set up, the two demands shall be deemed compensated, so far as they equal each other, and neither can be deprived of the benefit thereof by the assignment or death of the other. 1One possible meaning of the statute, and that which California courts have given it, is that cross-demands are automatically extinguished: they need only coexist at a moment in time at which the counterclaim requirement of Code of Civil Procedure Section 438 is satisfied.When these conditions are met, section 440 operates, and -the respective demands are "compensated-paid, discharged, acquitted-to the amount of the lesser demand.This legal extinction of the claims takes place automatically, without the knowledge or agreement of the debtors.'A striking recent example is King Brothers Productions, Inc. v. RKO Teleradio Pictures, Inc.a King sued for breach of RKO's agreement to distribute King's motion pictures.RKO counterclaimed, alleging that the script for one of the pictures was the property of RKO and that King had "converted said script to its own use; the value of said script was in excess of Two hundred and fifty thousand dollars."1 4 The counterclaim was more than two years old; under Code of Civil Procedure section 339 it would ordinarily be barred.But on King's motion for partial 1 CAL.CoDE Civ.PRoc.