No. 83-445 IN THE SUPREME COURTOF THE STATEOF MONTANA 1984

GEORGEMATTSON, DICK PRUGHAND JAMESLENON,d/b/a DESIGN CONSTRUCTION, Plaintiffsand Respondents,

-vsGORDON JULIAN, Defendantand Appellant.

APPEAL FROM: District Court of the Eighteenth JudicialDistrict, Inand for the County of Gallatin, TheHonorable JosephB. Gary, Judgepresiding.

COUNSEL OF RECORD: ForAppellant: Larry

### W. Moran, Bozeman,Montana

For Respondents: Gregory 0.Morgan, Bozeman,Montana

Submitted on Briefs: December 1, 1983 Decided: March 29, 1984

Filed: 

### MUHt!9

## rse3Mr. Justice Fred J. Weber delivered the Opinion of the Court.

Defendant Gordon Julian appeals from the judgmentof the Eighteenth JudicialDistrict Court,Gallatin County,awarding plaintiffs $6,382.33, plus interest, due on a house constructioncontract. We affirm. The issues are: 1. Whether evidence of defective performance is admissible under a generaldenial? 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 statedwas erroneous? On June 1, 1978, George Mattson, Dick Prugh and James Lenon, doing business as Design Construction,entered into a contract for the constructionof a house forGordon Julian in Bear Canyon, Gallatin County,Montana. Thewritten contract

was a standard form agreement between the owner and the contractor, printed by the American InstituteofArchitects, with individual provisions filled in by the parties. The contract provided that the contractor would be compensated for servicesat 15% of the cost of thework. 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 statementand a letter discussing the work that remained to be done. No payment was made onthat statement. Another statement was sent on January 5, 1979 and no payment was received. Design Construction contended that there remained anunpaid balance of $6,882.33. Julianmoved 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-efaultto be set aside. On July 15, 1981, Julian filed an answer, generally denying the claim ofwork and servicesperformed pursuant to the contractand generally denying that an account had been stated. The answer contained no specific denial of conditionsprecedent nor any statementof 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 Constructionwas defective. Other evidence established that plaintiffs agreed to meet with Julian on two separate occasions to review alleged defectivework,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 toplead 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 interestwas 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 contendstha.ttheDistrict Court has deprived him ofhis right topresent 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 evidencewasproperly rejectedby the DistrictCourt. Julian contends that correction of defects was a condition precedent to recovery by plaintiffs. Section 28-1-403, MCA defines "conditionprecedent" as "onewhich is to be performed before some right dependent thereon accrues

or some act dependent thereon isperformed." Julian's theory

### was that alleged defectiveperformance and failure to correct by Design Construction precluded accrual of their right to receivepayment. 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 orhave occurred. A denial ofperformance or occurrence shall be madespecificTlly 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 conditionsprecedent referred to in this rule are 

### those the performance or occurrence of which are prerequisite to a claim upon which relief can be granted. Inmost instances there is no question of theperformance of conditionsprecedent 

### and Rule 9(c) thusputs theburden on thedefendant to raise the issuewhen 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), 626F.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 nevermoved 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 acondition precedent with specj-ficity or particularity, Julian's testimony of alleged defective performance and failure to correct was properly rejected. See Ha-nsenv. 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),120Mont. 468, 191 P.2d 317,recoupmentwas 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 plaintiffhas not complied with some cross obligation of the contract on which he sues or because he has violated somedutywhich the lawhas imposed onhim 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. Juliandid not plead any counterclaim. Because Juliandid notplead 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.

Juliannext 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 estimateswere 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

## - wasmerely an estimate andwas not bindin 

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

### -- 

### - that iswhatwas billed." (emphasisadded)- 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 DistrictCourt's findingswill 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 serviceswere to be billed on a cost-plus basis is supported by substantial evidence. 111 Finally,Julian contends there is insufficient evidence to support a findingof an account stated. Julianargues the account stated is subject to the contractual defenses of defective performance and failure to correct. Julian

### 's position iswithoutmerit.In Johnson v. Tindall (1981), 195 Mont. 165, 635 P.2d 266,we stated that thebasic ingredientof 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 DistrictCourt found an implied agreement of account statedbased 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.mountdue. 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 apayment of $500on the account in April 1980, reducing the balance to $6,382.33. The evidence of alleged defective performancewas not before the Court. Substantial evidence supports the District Court's conclusion that therewas an account stated./ 

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