No. 83-445
IN THE SUPREME COURT OF THE STATE OF MONTANA
1984
GEORGE MATTSON, DICK PRUGH AND
JAMES LENON, d/b/a DESIGN CONSTRUCTION,
Plaintiffs and Respondents,
-vs-
GORDON JULIAN,
Defendant and Appellant.
APPEAL FROM: District Court of the Eighteenth Judicial District,
In and for the County of Gallatin,
The Honorable Joseph B. Gary, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Larry W. Moran, Bozeman, Montana
For Respondents:
Gregory 0. Morgan, Bozeman, Montana
Submitted on Briefs: December 1, 1983
Decided: March 29, 1984
Filed: MUH t! 9 rse3
Mr. Justice Fred J. Weber delivered the Opinion of the Court.
Defendant Gordon Julian appeals from the judgment of the
Eighteenth Judicial District Court, Gallatin County, awarding
plaintiffs $6,382.33, plus interest, due on a house
construction contract. We affirm.
The issues are:
1. Whether evidence of defective performance is
admissible under a general denial?
2. Whether there is substantial evidence to support the
District Court's determination that cost estimates did not
limit the cost-plus payment term of the construction
contract?
3. Whether the District Court's finding of an account
stated was erroneous?
On June 1, 1978, George Mattson, Dick Prugh and James
Lenon, doing business as Design Construction, entered into a
contract for the construction of a house for Gordon Julian in
Bear Canyon, Gallatin County, Montana. The written contract
was a standard form agreement between the owner and the
contractor, printed by the American Institute of Architects,
with individual provisions filled in by the parties. The
contract provided that the contractor would be compensated
for services at 15% of the cost of the work. Such a contract
is known as a "cost-plus" contract.
Design Construction performed services, supplied
materials and submitted statements to Julian on a regular
basis from July 10, 1978 to January 5, 1979. Julian made
payments of $31,636.90 out of an alleged total of $38,519.23
due under the contract. On December 5, 1978, Design
Construction sent Julian a statement and a letter discussing
the work that remained to be done. No payment was made on
that statement. Another statement was sent on January 5,
1979 and no payment was received. Design Construction
contended that there remained an unpaid balance of $6,882.33.
Julian moved into the house in early December 1978.
On or about January 29, 1979, plaintiffs and Julian ~ . e t
to review the account. After the meeting, Design
Construction sent Julian several statements confirming
$6,882.33 as the amount due and on April 17, 1980, a letter
was sent reiterating the amount due and demanding payment.
On April 30, 1980, Julian paid $500 on the account, reducing
the balance to $6,382.33. No further payments were made by
Julian. Plaintiffs received no objection to the stated
amount due.
Plaintiffs filed their complaint on May 14, 1981.
Default was entered on June 5, 1981, but a motion to dismiss
was filed by Julian on June 8, 1981 and the District Court
allowed the d-efault to be set aside. On July 15, 1981,
Julian filed an answer, generally denying the claim of work
and services performed pursuant to the contract and generally
denying that an account had been stated. The answer
contained no specific denial of conditions precedent nor any
statement of counterclaim.
The case was heard by the District Court without a jury
on January 6 and 17, 1983. At trial Julian presented
evidence that some of the work performed by Design
Construction was defective. Other evidence established that
plaintiffs agreed to meet with Julian on two separate
occasions to review alleged defective work, but Julian failed
to appear. Also, Design Construction sent a mason to the
house to repair alleged defects but the mason was refused
entrance to the house. Plaintiffs objected to admission of
evidence on claimed defects because Julian had failed to
plead defects as a defense as required by the Rules of Civil
Procedure. Julian never attempted to amend his pleadings or
obtain a continuance. The Court ruled that failure to
specifically plead defects barred evidence of defects under
the Rules.
The Court found that the total cost of materials and
services by Design Construction was $38,519.23, or
approximately 10% over the estimated cost of $35,000. The
Court found that the $35,000 figure was merely an estimate
and that Julian's payment obligation was controlled by the
cost-plus agreement. The Court found that Design
Construction substantially performed the contract and that
the sum of $6,382.33 plus interest was due. Julian appeals.
I
Julian argues that defective workmanship defeats
recovery under the contract and that he is entitled to show
defects in workmanship under a general denial. He contends
that correction of defects was a condition precedent to
recovery and that evidence of defects is defensive and need
not be pled as a counterclaim. He contends tha.t the District
Court has deprived him of his right to present a defense. We
disagree.
Whether Julian's evidence of alleged defective
performance was intended to support a counterclaim or was
merely defensive does not affect the outcome of this issue.
In either event, Julian failed to properly plead and his
evidence was properly rejected by the District Court.
Julian contends that correction of defects was a
condition precedent to recovery by plaintiffs. Section
28-1-403, MCA defines "condition precedent" as "one which is
to be performed before some right dependent thereon accrues
or some act dependent thereon is performed." Julian's theory
was that alleged defective performance and failure to correct
by Design Construction precluded accrual of their right to
receive payment.
However, Rule 9(c), M.R.Civ.P. provides:
"In pleading the performance or occurrence of
conditions precedent, it is sufficient to aver
generally that all conditions precedent have been
performed or have occurred. A denial of performance
- occurrence shall - - d e specificTlly - -
or be m a and with
particularity." (emphasis added)
In Treasure State Industries v. Leigland (1968), 151 Mont.
288, 443 P.2d 22, decided after Montana's adoption of Rule
9 (c), we stated:
"The conditions precedent referred to in this rule
are those the performance or occurrence of which
are prerequisite to a claim upon which relief can
be granted. In most instances there is no question
of the performance of conditions precedent and Rule
9(c) thus puts the burden on the defendant to raise
the issue when there is actually a question. Under
- - -rule a general denial - - - -
this will not put the
erformance or occurrence of any condition in
Pssue . 1 5 r ~ o n t . at 295-96, 443 P.2d at 26
(emphasis added) .
Other authorities are in agreement with the Trea.sure State
Industries rule. 1 Moore's Federal Practice Rules Pamphlet
99.3 [3] (1984); McKee-Berger-Mansueto v. Board of Education
(7th Cir. 1980), 626 F.2d 559.
Plaintiffs alleged in their complaint that the parties
executed a construction contract on a cost-plus basis, that
plaintiffs had performed work under the contract and that
defendant owed plaintiffs $6,382.33. Julian ' s answer
generally denied all allegations in the complaint on the
basis of insufficient knowledge. Julian did not plead
defective performance or failure to correct. No specific
denial of any condition precedent appears in Julian's
pleadings. Julian never moved to amend his pleadings or for
a continuance despite the lengthy period between the filing
of pleadings and trial. Having failed to plead denial of a
condition precedent with specj-ficity or particularity,
Julian's testimony of alleged defective performance and
failure to correct was properly rejected. See Ha-nsen v.
Kiernan (1972), 159 Mont. 448, 457, 499 P.2d 787, 791;
Interstate Manufacturing Co. v. Interstate Products Co.
(1965), 146 Mont. 449, 452, 408 P.2d 478, 480.
The District Court rejected Julian's evidence also
because it appeared to be an attempt to raise a counterclaim
which had not been plead. Statements made by defense counsel
during trial suggested that Julian was seeking recoupment
based upon alleged defective performance. In Francisco v.
Francisco (1947), 120 Mont. 468, 191 P.2d 317, recoupment was
defined:
"'Recoupment, at common law, is the right of the
defendant, in the same action, to cut down the
pla.intifflsdemand either because the plaintiff has
not complied with some cross obligation of the
contract on which he sues or because he has
violated some duty which the law has imposed on him
in the making or performance of that contract.'"
120 Mont. at 474, 191 P.2d at 320, quoting 47
Arn.Jur. at 708.
Under Rule 13 (a), M.R.Civ.P. a counterclaim is any
claim, including recoupment or set-off, which one party has
against an opposing party. 3 Moore's Federal Practice
q13.02 (2d ed. 1983). Rule 13(a) requires that a party
plead a counterclaim that arises out of the same transaction.
Julian did not plead any counterclaim.
Because Julian did not plead or otherwise give notice of
his defects theory prior to trial, it was not clear whether
he was attempting to prove only failure of a condition
precedent or was also seeking recoupment. In either case
Julian failed to follow the simple pleading procedures
designed to give notice to the opposing party and to narrow
the issues for trial. Tabacco River Lumber Co., Inc. v.
yoppe (1978), 176 Mont. 267, 270, 577 ~ . 2 d 855, 856; 2~
Moore's Federal Practice 99.04 (2d ed. 1983). The District
Court was correct in refusing to admit evidence of defective
performance.
Julian next contends that the District Court erroneously
excluded evidence of cost estimates under the par01 evidence
rule. He contends the cost estimates were incorporated into
the contract by reference but that the court nonetheless
refused to consider them. We disagree.
The record shows that the District Court in fact
considered Julian's evidence of cost estimates but found the
estimates were not binding:
". .
. it was a possible violation of the terms of
the agreement which stated that [it] wa.s an
estimate of $35,000.00 for the job. However, - the
estimate - merely an estimate - - - bindin
was and was not
- - parties agreed -
and the to cost plus 15% a:
n
that is what was billed." (emphasis added)-
Thus, the District Court considered the evidence of cost
estimates but was not persuaded by Julian's contention that
the estimates limited the cost-plus term of the contract.
The District Court's findings will not be disturbed on appeal
where they are based on substantial evid-ence. Marriage of
Garst (Mont. 1983), 669 P.2d 1063, 1066, 40 St.Rep. 1526,
1529. The District Court's finding that services were to be
billed on a cost-plus basis is supported by substantial
evidence.
111
Finally, Julian contends there is insufficient evidence
to support a finding of an account stated. Julian argues the
account stated is subject to the contractual defenses of
defective performance and failure to correct. Julian ' s
position is without merit.
In Johnson v. Tindall (1981), 195 Mont. 165, 635 P.2d
266, we stated that the basic ingredient of an account stated
is an agreement that the items of the account and the balance
struck are correct and an express or implied agreement for
the payment of the balance. Implied agreement for the
payment of the balance may be presumed where there is a
course of dealings, an antecedent indebtedness, and retention
of a statement of the account for an unreasonable length of
time without objection. 195 Mont. at 169-70, 635 P.2d at
268. Here, the District Court found an implied agreement of
account stated based upon these factors.
The District Court found that plaintiffs sent Julian
numerous statements for services and materials from July 10,
1978 to January 5, 1979, totalling $31,636.90. All of these
amounts were paid. Additional services were performed by
plaintiffs and statements were sent to Julian on December 5,
1978 and January 5, 1979. After Julian failed to pay,
plaintiffs and Julian met on January 29, 1979 and discussed
the a.mount due. The next day, plaintiffs sent Julian a
letter confirming the amount due as $6,882.33. Other
statements and letters were sent reiterating the amount due.
No objection to these statements was made by Julian until
trial. In fact, Julian made a payment of $500 on the account
in April 1980, reducing the balance to $6,382.33. The
evidence of alleged defective performance was not before the
Court. Substantial evidence supports the District Court's
conclusion that there was an account stated.
: , ,?
Chief J u s t i c e
/
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