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, 

-vsGORDON 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 ~.et 

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 

- or occurrence shall -- be made specificTlly -- 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 

--- this rule a general denial ---- will not put the 

erformance or occurrence of any condition in 

Pssue . 15r~ont. 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.intiffls demand 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 ~.2d 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 - was merely an estimate and --- was not bindin 

-- and the parties agreed - to cost plus 15% an: 

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. 
/ :, ,? ,]f&.j w*<v< 

Chief Justice