Holloway v. Chrysler Credit Corp.

Singley, J., delivered the opinion of the Court. On 13 October 1965, Mr. and Mrs. Holloway purchased from a Virginia dealer a 1965 used Plymouth for $2481.85. They paid $200 in cash and financed the balance of $2281.85 under a conditional sales contract which called for 36 equal monthly installments of $80.94 each, commencing 15 November 1965. The sales contract was immediately assigned by the dealer to Chrysler Credit Corporation (Chrysler). ⁶⁶ The contract required the Holloways to insure the automobile against “substantial risk of damage, destruction, or loss for so long as any amount remains unpaid * * *” and, in the event of the Holloways’ failure to do so, permitted, but did not require, Chrysler to obtain such insurance and to add the premiums to the balance payable by the Holloways.

On 5 November 1965, the Holloways’ insurer notified Chrysler of its intention to cancel the insurance policy on the car on 19 November. On 10 January 1966, after the Holloways had made two monthly payments, the Plymouth was demolished in an accident. When no further payments were made, Chrysler brought suit against the Holloways in the People’s Court of Prince George’s County for the amount due under the sales contract, after crediting payments, salvage proceeds and unearned finance charges. The Holloways filed a general issue plea and prayed a jury trial.

The case was certified to the Circuit Court for Prince George’s County for trial before a jury. At the conclusion of all the testimony, Chrysler’s motion for a directed verdict for $2107.57 and costs was granted. The Holloways’ motion for a new trial was denied, and judgment was entered in Chrysler’s favor. This appeal followed.

The narrow question raised by the appeal is whether the Holloways’ defense to the action could be proved under their general issue plea. The rule of the Maryland cases is clear: in an action ex contractu, a claim arising out of an independent transaction (set-off) must be pleaded as a counterclaim, but one arising out of the same transaction (recoupment) need not be, and may be proved under the general issue plea, unless an affirmative judgment (i.e., for an amount in excess of the plaintiff’s claim) is sought. Maryland Rule 314 a 1 authorizes “any party against whom a claim * * * has been asserted” to “plead as a counterclaim any claim he has against any opposing party.” Although the words “recoupment” and “set-off” are not used, the Rule is broad enough to cover both, and the essential difference between them is preserved. Eisenberg v. Air Conditioning, Inc., 225 Md. 324, 337 , 170 A. 2d 743 (1961) ; District Agency Co. ⁶⁷ v. Suburban Delivery Service, Inc., 224 Md. 364 , 167 A. 2d 874 (1961); 1 Poe, Pleading and Practice § 615 (5th ed. 1925).

We are mindful of the fact that the Maryland Rules were amended after Eisenberg and District Agency were decided. Prior to 15 September 1961, Rule 314 d 1 required that all counterclaims be asserted in separate and distinct pleadings. Rule 342 c 1 c, as a corollary, required the defense of set-off to be specially pleaded. In order to eliminate this apparent conflict, Rule 314 d 1 was amended so that a counterclaim, unless it brings in a new party, may be combined with a responsive pleading and need not be pleaded separately, and Rule 342 c 1 c was dropped.

In the light of the well established distinction between recoupment and set-off we do not think that the rationale of the Eisenberg and the District Agency cases was altered by these changes in the Rules. The defense on which the Holloways attempted to rely arose from the following circumstances. On 5 November 1965, the Holloways’ insurer notified Chrysler of its intention to cancel the Holloways’ policy on 19 November. On that day, Chrysler sent Mr. Holloway a form letter: “Dear Customer: Thank you for the opportunity of allowing us to extend our services in the financing of your automobile.

We are happy to have you as a customer and are anxious to offer you the best possible service. We would be pleased to receive information of the required insurance coverage. It is necessary for the protection of your contract obligation and your own interest, that your car be insured against hazards of fire, theft and collision. IMPORTANT—IF YOU HAVE INSURANCE Please complete this section and instruct your agent to send us a copy of your policy with