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Effect of Failure to Seek Relief by Counterclaim, Setoff, or Cross Action

An action will generally be abated if the claim on which it is based can be pleaded as a setoff or counterclaim in a pending action[i].  If a party files a counterclaim in the earlier action, then the latter action for the same cause will abate[ii].

A party is not forced to assert his/her cause of action by a cross claim in the first action; if it is uncertain whether the first court can provide the requested relief.  The court can suspend the latter suit in its discretion until the first suit is determined.  However, latter suit can be revived if there is any further scope of litigation[iii].

Whereas, when the actions are brought separately, the second action cannot be abated only because it might have been included in the first action[iv].  If the second action seeks a different relief from that asserted in a counterclaim there is also no ground for abatement.

In National Fire Ins. Co. v. Hughes[v], an insurance company issued a policy that insured one of the two buildings owned by the insured.  By reason of a mutual mistake, the policy failed to correctly mention which building was insured.  One of the buildings burned and the insured brought an action to recover.

The insurance company put forward the equitable defense of mutual mistake, and asked that the policy be reformed.  While that action was pending, the insurance company tried to reform the policy.  The insured alleged the pendency of the other action by him against the insurance company.  The court ruled in favor of the insurance company.

The court observed that the actions were not for the same cause.  One was a legal action to recover on a contract, and the other was an equitable action to reform the contract.

[i] Taiwan Shrimp Farm Village Ass’n v. U.S.A. Shrimp Farm Dev., 915 S.W.2d 61 (Tex. App. Corpus Christi 1996)

[ii] Capitol Chevrolet Co. v. Lawrence Warehouse Co., 227 F.2d 169 (9th Cir. Cal. 1955)

[iii] Haney v. Temple Trust Co., 55 S.W.2d 891 (Tex. Civ. App. 1932)

[iv] Conley v. Marshall, 304 Ky. 745 (Ky. 1947)

[v] 189 N.Y. 84 (N.Y. 1907)

Inside Effect of Failure to Seek Relief by Counterclaim, Setoff, or Cross Action