Same here.
If I surround an army and kill/capture all his units, or if a lay seige to or take a settlement an army is holed up in, then yes, they should be destroyed. But if they have a line of retreat open, and manage to get off the field, units should be able to rally and recover and rebuild for another battle. It would definately make the campaign game tougher (without requiring you to give the AI huge stat bonuses or otherwise handicap yourself in battle).
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