## Facts

- Chandler Improvement Company (Chandler) owned approximately 20 acres of land near Chandler, Arizona, and offered it for sale through a real-estate agent, Crenshaw.
- Chandler authorized Crenshaw to show the property and negotiate terms with prospective buyers, but did not authorize Crenshaw to make representations about the land’s quality or value.
- G. P. Light, along with H. A. Berry and May W. Berry, met with Crenshaw after seeing the property advertised and inspected the land briefly.
- According to defendants’ evidence, Crenshaw represented that the land was fertile, suitable for farming, would produce crops (including cotton), and contained no “slick” or “tight” soil.
- Defendants purchased the land, paid part of the price in cash, received a deed from Chandler, and executed purchase-money notes and a mortgage back to Chandler for the balance.
- Over the following years, Light attempted to farm the property with multiple crops, but the crops failed, and Light became unable to make the mortgage payments.
- Light informed Chandler that he could not continue paying and requested that the sale be undone; Chandler refused.
- Chandler sued in the Superior Court of Maricopa County to foreclose the mortgage.
- Defendants answered alleging fraud and deceit in inducing the purchase, sought cancellation or satisfaction of the notes and mortgage, and sought money relief by way of recoupment based on the difference between what was paid and the land’s asserted value.
- The case was tried with a jury, but because foreclosure is equitable, the jury’s verdict would be advisory; at the close of defendants’ evidence, the trial court directed a verdict for Chandler and entered a foreclosure judgment.
- Defendants appealed to the Arizona Supreme Court.

## Issues

1. Whether a fraud claim asserted defensively in recoupment, arising out of the same land-sale and purchase-money mortgage transaction, is barred by the statute of limitations even though the foreclosure action on the notes and mortgage is timely.
2. Whether Chandler could be held responsible for Crenshaw’s alleged misrepresentations about soil quality and farming suitability when Crenshaw was authorized to find a purchaser and negotiate terms, but not authorized to make quality/value representations, and there was no showing Chandler knew of the statements before the sale closed.
3. Whether the trial court properly directed a verdict for Chandler at the close of defendants’ evidence in an equity foreclosure tried with an advisory jury, viewing the evidence most favorably to defendants.

## Decision

- The Arizona Supreme Court affirmed the foreclosure judgment for Chandler.
- The court accepted the general rule that recoupment arising out of the same transaction may be asserted defensively as long as the plaintiff’s claim on that transaction remains enforceable, even if an independent fraud action would be time-barred.
- Even assuming Crenshaw made the claimed statements and defendants relied on them, defendants did not present sufficient evidence that Chandler expressly authorized Crenshaw to make representations about the land’s quality or value.
- Defendants also failed to show Chandler knew of Crenshaw’s statements before the transaction was completed in a way that would support ratification.
- Because the proof did not support imputing Crenshaw’s alleged fraud to Chandler, defendants’ fraud defense and requested recoupment failed as a matter of law, and directing a verdict for Chandler was proper.

## Legal Principles

- A defense in the nature of recoupment, based on the same transaction as the plaintiff’s claim, may be asserted to reduce or defeat the plaintiff’s recovery while the plaintiff’s claim remains timely, even if a separate affirmative suit would be barred by limitations.
- A real-estate broker authorized only to find a purchaser (and not to convey and not given authority to speak on quality or value) generally cannot bind the principal by representations about the land’s quality or value unless the broker had express authority to make those statements.
- A principal may become responsible for an agent’s unauthorized misrepresentations if the principal, with knowledge of the material statements, accepts the benefits of the transaction or insists on holding the other party to the deal, amounting to ratification.
- In an equity foreclosure tried with a jury, the jury’s role is advisory, but a directed verdict is proper when the party bearing the burden lacks evidence on an element necessary for relief or defense.

## Conclusion

The court affirmed foreclosure because, although defendants could assert fraud by way of recoupment despite the limitations period in principle, they did not produce evidence that Chandler authorized Crenshaw’s soil and farming representations or knew of them in time to ratify them, so the alleged fraud could not be charged to Chandler and the directed verdict was proper.


Light v. Chandler Improvement Co., 261 P. 969 (1928)