## Facts

- Sellers sued Reeth in the Alaska territorial district court to recover $5,402.65 for goods sold and checks cashed for him.
- Reeth admitted the debt but filed a counterclaim alleging that he owned a hydraulic mining plant shipped from San Francisco to Alaska for use on his placer mining ground.
- The equipment was unloaded and stored roughly 40 miles below Reeth’s mining camp and remained there through several seasons.
- Reeth alleged the sellers wrongfully took possession of the equipment, transported it to Bethel, converted it to their own use, and sold part of it.
- Reeth alleged the equipment was worth $10,000 to him at the location and time of taking and pleaded that he “waived the tort” of conversion, asserting instead an implied contract to pay him that value.
- The sellers admitted taking the equipment but claimed they acted to save it from flood destruction and contended its local value was shown by a $550 sale price.
- The trial court found Reeth owed the sellers $8,690.21 on the account, but awarded Reeth $12,480 on the counterclaim (including interest), based on a finding that the equipment had no market value there but had an $8,000 reasonable value to Reeth based on its utility; judgment entered for Reeth for the difference.

## Issues

1. Whether a defendant in a contract action may waive the tort of conversion and plead an implied-contract counterclaim to satisfy Alaska’s statutory requirement that counterclaims in contract actions must also arise on contract.
2. Whether Alaska’s counterclaim statute permits a counterclaim that is substantively tort-based to be treated as “arising on contract” through pleading form.
3. Whether valuing the property by subjective “use value” to the owner is consistent with a purported implied-contract theory used to justify the counterclaim.

## Decision

- The Ninth Circuit held Reeth’s counterclaim was not maintainable as a contract counterclaim under Comp. Laws Alaska 1913 § 896.
- The court treated the waiver-of-tort/implied-assumpsit framing as a limited fiction that could not change the substantive character of the claim from tort to contract for statutory counterclaim purposes.
- The court modified the judgment by rejecting the counterclaim in its contractual guise, thereby removing the offset that produced a net judgment for Reeth.

## Legal Principles

- Under Comp. Laws Alaska 1913 § 896, in an action on contract, a counterclaim must arise from the same transaction or be another cause of action genuinely arising on contract and existing when the action commenced.
- A conversion claim is tortious in substance; labeling it as implied contract by “waiving the tort” does not, by itself, make it a contract claim within a statute that limits counterclaims to contractual causes of action.
- Courts will look to the real nature of the cause of action, not the pleader’s chosen form, when applying statutory counterclaim limits.
- Valuation keyed to special usefulness to the owner, particularly where market value is absent, tends to reflect tort concepts of loss rather than a contractual “price” implied by treating the taker as a purchaser.

## Conclusion

The Ninth Circuit refused to allow a conversion-based counterclaim to be recast as an implied-contract claim to fit Alaska’s contract-counterclaim statute, and it modified the judgment to disallow the counterclaim as an offset against the plaintiffs’ contract recovery.


Felder v. Reeth, 34 F.2d 744 (9th Cir. 1929)