Under the doctrine of Erie Railroad Co. v. Tompkins, 304 U.S. 78 (1938), the court has applied state substantive law. Under West Virginia law, a defendant may not set off against a plaintiff's demand a claim for unliquidated damages arising out of a different transaction than that sued upon, unless the claim is susceptible of accurate calculation as provided by the contract. Johns-Manville Sales Corp. v. Connelly, 108 S.E.2d 836, 838 (W. Va. 1959) (citations omitted). Although the calculation of damages in a set-off claim arising from a coal purchase agreement may prove to be complicated, depending on the terms of the contract, see Hooper-Mankin Fuel Co. v. Shrewsbury Coal Co., 119 S.E. 176 (W. Va. 1923), that issue is not before the court at this time.
Most jurisdictions follow the rule that an unliquidated claim cannot be set off against a liquidated claim. See, McGuire v. Gerstley, 204 U.S. 489, 27 S. Ct. 332, 51 L. Ed. 581 (1907); Webber v. Johnson, 342 Mass. 455, 174 N.E.2d 40 (1961); Johns-Manville v. Connelly, 144 W. Va. 498, 108 S.E.2d 836 (1959); Lehigh c. Co. v. Company, 89 N.H. 274, 197 A. 410 (1938); Kortz v. Union Cent. Life Ins. Co., 264 Ky. 750, 95 S.W.2d 611 (1936); Kress v. Central Trust Company, 153 Misc. 397, 275 N.Y.S. 14 (1934), aff'd 246 App. Div. 76, 283 N.Y.S. 467 (1935); In re Estate of Nairn, 215 Iowa 920, 247 N.W. 220 (1933); Mack v. Hugger Bros. Const. Co., 153 Tenn. 260, 283 S.W. 448 (1925); Suhs v. Homewood Rice Land Syndicate, 128 Ark. 19, 193 S.W. 271 (1917); Tidewater Quarry Co. v. Scott, 105 Va. 160, 52 S.E. 835 (1906). It is worth noting, however, that the bankruptcy code creates exceptions to the foregoing rules, as it provides for the estimation of immature, contingent, and unliquidated debts.
This case would appear to follow the so-called Massachusetts Rule and it distinguished the Eagle Glass Manufacturing Co. case on the ground that the property was used in the buyer's business and the Ohio River Contract Co. case on the ground that the buyer had to rescind within a reasonable time, although these cases appear to have been decided under the principles of the New York Rule which in effect is that one can not rescind an executed sale. The decisions in the later cases of Dixie Appliance Company v. Bourne, 138 W. Va. 810, 77 S.E.2d 879, and Johns-Manville Sales Corp. v. Connelly, 144 W. Va. 498, 108 S.E.2d 836, did not involve the question presented in the case at bar for disposition and the reference thereto in these cases is merely dicta. It will be noted that the Kemble case involved an express warranty and the earlier cases dealt with an implied warranty. However, this is immaterial at the present time because the Uniform Commercial Code makes no distinction between an express warranty and implied warranty in such cases.
The counterclaim of set-off was not known to the common law and is of statutory origin. When used by a defendant in an action on a contract, it must be for a liquidated amount arising out of a different transaction than that sued on, and in the absence of a plea or notice specifying the items claimed, proof thereof is inadmissible. Teter v. George, 86 W. Va. 454, 103 S.E. 275; Johns-Manville Sales Corporation v. Connelly, 144 W. Va. 498, 108 S.E.2d 836. The counterclaim of recoupment is of common law origin and must arise out of the same transaction. Notice of such claim with items listed therein is required before it can be asserted under the general issue. See Hogg's Pleading and Forms, Fourth Edition, ยงยง 310, 700; Sterling Organ Co. v. House, 25 W. Va. 64; Cheuvront v. Bee et al., 44 W. Va. 103, 28 S.E. 751; Franklin v. T. H. Lilly Lumber Co., 66 W. Va. 164, 66 S.E. 225; Wilson v. Wiggin, 73 W. Va. 560, 81 S.E. 842; Monongahela Tie Lumber Co. v. Flannigan, 77 W. Va. 162, 87 S.E. 161.