Deeves Son v. . Manhattan Life Ins. Co. , 195 N.Y. 324 ( 1909 )

I agree with my brother CHASE that the contract under which this litigation arises was in law an ordinary contract by which the plaintiff agreed to construct and complete a building for the defendant. The only peculiarity of the contract is the method by which the compensation that the defendant should make to the plaintiff was to be ascertained and determined. Tersely stated, the contract was this: It contemplated that the work other than the mason work should be done by sub-contractors, but such sub-contractors should be solely under contract with plaintiff. The plaintiff was to be paid the amount it might have to pay on the sub-contracts, the actual cost it might pay out for the mason work, and an additional sum of $20,000. This $20,000 was to be paid, $5,000 thereof when the roof was tight, $5,000 when the work was practically finished, and the remaining $10,000 when the work was completely finished according to the certificate of the architect. It also agreed that the cost of the building, including its own compensation, should not exceed $555,968, and that it would complete the work on or before March 1st, 1903. This uncertainty as to what might prove to be the compensation of the plaintiff in no way affected the rights of the parties under the contract so far as those rights are involved in this action.

The complaint set forth two causes of action; the first for the final payment of the $10,000 above mentioned, but the second was withdrawn at the trial. The complaint stated that the building was not completed by March 1st, 1903, but in excuse thereof alleged that the delay was caused by strikes (a delay which, under the terms of the contract, was not imputable to the plaintiff), by misconduct on the part of the defendant in failing to give possession of the premises, and other defaults not necessary to mention. To this complaint the defendant answered setting forth a provision of the contract by which the plaintiff agreed that the building should be completed on or before March 1st, 1903, and in case the said building should not be completed on said date, the plaintiff should relinquish the sum of $10,000 of the $20,000 compensation payable under the contract; that the building was not completed at said time, and denied the allegations of the complaint excusing the delay.

On the trial the plaintiff put the contract in evidence and gave testimony to the effect that it fully completed the work with the permission of the defendant about the 1st of January, 1904. It gave no evidence to excuse the delay in finishing the building. A motion for a nonsuit was denied and the plaintiff moved for the direction of a verdict in its favor before the defendant entered upon its proof. The defendant asked leave of the court to introduce evidence of its defense and offered to prove that it had suffered damage of more than $20,000 by the failure of the plaintiff to complete the building at the contract time, and also offered to prove that the delay was not due to any act of the defendant. The court denied the right of the defendant to introduce any evidence and directed a verdict against it for the amount claimed. The judgment entered on that verdict has been affirmed by the Appellate Division.

It is conceded that while the defendant, by suffering the plaintiff to continue the prosecution of the work after the expiration of the specified time to complete performance, waived the right to terminate the contract for such default, it did not waive its claim for any damages caused by plaintiff's delay. (Dunn v. Steubing, 120 N.Y. 232.) It is also conceded — indeed the learned counsel for the respondent insists — that the sum agreed to be relinquished by the plaintiff was liquidated damages. (Curtis v. Van Bergh, 161 N.Y. 47.) With these concessions it is plain that the only question presented on this appeal is one of pleading. If the facts set forth in the defendant's answer constituted a defense to the plaintiff's claim it should have been allowed to give evidence. If not, then the case was properly disposed of by the trial court.

The theory on which the trial court acted, and which the Appellate Division approved, seems to be that the defendant, in addition to alleging the covenant in the contract and its breach by the plaintiff, was required to plead it as a counterclaim, or at least as a set-off, and that because it had not so done it was not entitled to claim any benefit under its answer. I know of no principle on which this theory can rest. The defendant's plea was one of recoupment strictly, for it was the breach of a condition of the same contract on which the plaintiff sought to recover. Offsets and counterclaims are the creations of statutes; the latter having been first brought into existence by the Code of Procedure in 1848. The practice of recoupment was evolved by the courts at common law. It is not set off. "At common law, and independently of the statutes of set-off, a defendant is in general entitled to retain, or claim by way of deduction, all just allowances or demands accruing to him, or payments made by him, in respect of the same transaction or account, which forms the ground of action. But this cannot be termed a set-off in the strict legal sense of the word, because it is not in the nature of a cross demand or mutual debt, but rather constitutes a deduction, rendering the sum to be recovered by the plaintiff so much less." (Chitty on Pleadings, vol. 1 [16th Am. ed.], p. 595.) To the same effect see Waterman on Set-off, Recoupment and Counterclaim (§§ 413 et seq.). "It is not an independent cross-claim like a separate and distinct debt or item of account due from the plaintiff; but is confined to matters arising out of, or connected with, the contract or transaction which forms the basis of the plaintiff's claim." (Waterman, § 424.) "It is not a question of set-off, as the plaintiff's counsel seems to suppose, but of recoupment of damages. When the demands of both parties spring out of the same contract or transaction, the defendant may recoup, although the damages on both sides are unliquidated; but he can only set off where the demands of both parties are liquidated, or capable of being ascertained by calculation." (Batterman v. Pierce, 3 Hill, 171, 174.) Under our present system counterclaim may include any matter that might be the subject of recoupment or set-off, but it is not exclusive. Recoupment still exists (Vassear v. Livingston, 13 N.Y. 248), and a party has his election for the breach of a contract on which the plaintiff sues either to recoup or counterclaim, or bring his own independent action. Under the authorities in the lower courts recoupment might be more advantageous to a defendant than counterclaim, for the first would not prevent the maintenance of a cross suit for damages (Naylor v. Schenck, 3 E.D. Smith, 135), while the second would (Ansorge v. Kaiser, 22 Abb. [N.C.] 305), though, of course, the determination of the suit first tried would necessarily be conclusive of the other. Therefore, if the facts pleaded by the defendant would have stated a good cause of action in an independent suit, or a good counterclaim had it been pleaded as such, it set up a good defense of recoupment.

There is no defect in the answer. Doubtless, if the contract had contained no covenant for liquidated damages, it would have been necessary to allege and prove damages by the plaintiff's delay. But such is not the rule where the contract provides for liquidated damages. It is sufficient to allege the covenant and its breach. Such was the rule under the old system of pleading. (Chitty on Pleadings [16th Am. ed.], vol. 2, p. 204.) Even in an action for penalties under the old practice it was sufficient to aver the breach of the condition, leaving damages to be proved at the trial. (2 R.S. p. 378, §§ 5 and 6; Beers v. Shannon, 73 N.Y. 292.) I can find nothing to show that this rule of pleading has ever been changed. On the contrary, it has been expressly held by this court (Begley v.Peddie, 16 N.Y. 469) that in an action for liquidated damages on the breach of a covenant, it is not necessary to prove any actual damages, and ordinarily (though there are exceptions) it is not necessary to allege that which it is not necessary to prove. (See, also, opinion of GRAY, J., in Ward v. Hudson R.Bldg. Co., 125 N.Y. 230, and of VANN, J., in Tode v. Gross,127 N.Y. 480.)

Some reliance is placed by the respondent on the method of pleading recoupment at common law, but a mistaken deduction is drawn therefrom. At common law a plea had to go to the whole declaration or cause of action; otherwise on demurrer thereto the plaintiff would be entitled to judgment. (Hickok v. Coates, 2 Wend. 419.) Therefore, a defense which would merely reduce the plaintiff's recovery could not be pleaded. The only way to take advantage of such defense was under the general issue, which was far broader than our general denial. To prevent surprise in such cases the courts required that with the plea of the general issue special notice of the facts relied on for the recoupment be given. But whether notice was requisite or not depended on whether the recoupment only diminished the plaintiff's claim or defeated it. If the latter, notice was not necessary, but the defense could be made under the general issue. (Gleason v.Clark, 9 Cow. 57; Barber v. Rose, 5 Hill, 76.) Therefore, at common law the defendant in this case would have been entitled to prove its defense under the general issue. In reality this discussion is unnecessary, for the common-law system of pleading has been abolished by the Code, and now by its express provisions a partial defense may be pleaded. (Code Civ. Pro. § 508.)

The answer seems plainly good under the terms of the Code. By section 500 an answer should contain any new matter constituting a defense or counterclaim in ordinary and concise language without repetition. The plaintiff declares on a covenant in a contract by which on the completion of the work it was entitled to recover a specified sum. The defendant answered by setting forth another clause of the contract by which, on a certain contingency, the plaintiff was to relinquish the very sum for which it sues and the occurrence of that contingency. I am at a loss to see why under any system of pleading the defense is not good on its face. Nor can I see how the plaintiff is in any way injured by so holding, even if, as alleged on the argument, the defendant has brought a cross suit for damages. Whichever suit is tried first will be conclusive of the whole controversy, for the defendant can recover its damages only once, no matter in which action they may be allowed.

The judgment should be reversed and a new trial granted, with costs to abide the event.

EDWARD T. BARTLETT, WERNER and HISCOCK, JJ., concur with CHASE, J.; GRAY and WILLARD BARTLETT, JJ., concur with CULLEN, Ch. J.

Judgment affirmed.