Case Name: The Lancaster, Ohio, Manufacturing Company v. Charles Colgate
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1861-12
Citations: 12 Ohio St. 344
Docket Number: 
Parties: The Lancaster, Ohio, Manufacturing Company v. Charles Colgate.
Judges: Suture, Peck, Gholson and Brinkerhoee, J J., concurred.
Reporter: Ohio State Reports, New Service
Volume: 12
Pages: 344–358

Head Matter:
The Lancaster, Ohio, Manufacturing Company v. Charles Colgate.
1. In a suit upon a contract, a certain state of facts may, at the same time, constitute a defense to the action, and be a proper ground of counterclaim. And if pleaded by the defendant, in this double aspect, upon a single statement of facts, and without formally separating the defense from the counterclaim, the defect, if it be one, is merely formal, and objection thereto can only be made by motion.
2. Upon the trial of such action by the court, it is error to treat such a plead ing as a counterclaim only, without a finding upon the issue arising upon it ar, a ground of defense.
3. Section 108 of the justice’s act (1 S. & C. Stat. 788), which allows a defendant to set off a part of the amount due him from the plaintiff, when the whole ■ amount so due exceeds the jurisdiction of the justice, without remitting the excess, and which allows a subsequent action to be brought for the recovery of the amount so withheld, refers only to such liquidated demands as are the proper subject of setoff, and does not authorize the subdivision of a claim for unliquidated damages arising from a single transaction, and which may be the proper subject of counterclaim, but not of setoff.
4. When, in a suit before a justice of the peace, a defendant, by his bill of particulars, claims such unliquidated damages, to an extent exceeding the jurisdiction of the justice, and attempts to subdivide the-same, by expressly withholding the excess, for future recovery, the justice acquires thereby no jurisdiction to pass upon the merits of such claim, either in whole or in part. Such abortive attempt to invoke a jurisdiction not possessed by the justice, will not preclude the party from setting up his claim for such damages, in a subsequent action between the same parties.
Error to the district court of Fairfield county.
The original action was brought by the defendant in error, in the court of common pleas, to recover compensation for three months time, during which he was in attendance, ready and willing to perform and discharge his duties, according to the terms of a written contract between the parties, by which he was to be paid $150 per month for his services.
A copy of the contract is attached to, and made part of his petition; from which, with the averments of the petition, it appears that the plaintiff, on the 18th day of December, 1856, contracted with the defendant, and covenanted to perform the duties of “ superintendent of the factory ” of the defendant, then in process of erection, for the manufacture of starch from indian corn and other articles; and to devote his whole and exclusive time, talents and skill to the interests of the company in the manufacture of starch from indian corn, etc., as he might have knowledge and skill in manufacturing, and as should be determined on by the. board of directors, for and during the term of three years, from and after the average time of getting into full operation in successful manufacture of starch from indian corn as aforesaid; which said average time should thereafter be agreed upon and fixed by the parties.
That in consideration thereof, said company agree to declare and allow to the plaintiff, to be received on the first day of January of each year, during the term of his service as superintendent as aforesaid, and subject to certain provisions and limitations after specified, one equal half of the net profits of said business of manufacturing starch or other articles over and above twenty-five per cent, per annum of said business.
That to arrive at said profits, the said contract stipulated : that there should be charged to the regular expense account ten per cent, on the gross cost of the building and machinery, to an extent equal to the daily consumption of six hundred bushels of corn, and ten per cent, on the cost of any new or additional buildings or machinery which might be added during said term not proper to be classed as current or ordinary repairs, as compensation to the company for depreciation in buildings and machinery; to ascertain the sum, which said ten per cent, would annually produce, the secretary should keep accurate accounts of the cost of buildings and machinery, up to the time when the establishment should be put into full and complete operation, and for all new buildings and machinery which might be put up thereafter. That the manufactured product on hand should be entered on the list of assets at the prime cost, estimating the value of the raw material at the then market value, and the unmanufactured stock on hand at its true cash value, for the purpose of ascertaining profits.
That on declaring dividends of profits, the amount due to stockholders or the plaintiff as superintendent, to be passed to the credit of the party entitled, and be paid as soon as cir cumstances should permit in the opinion of the directors— the same to bear interest if not paid in thirty days.
That the plaintiff also covenanted to act as, and to discharge the duties of, building superintendent, during the time of the erection and completion of the necessary buildings and the setting and putting up of the machinery therein. He was to have full power and control of all the operations in the erection of the buildings; the making, and putting up of said machinery; the supervision and adoption of all plans, and the management of the hands, until the whole- was completed and ready for the manufacture of starch, and until his services should commence as superintendent in the manufacture of starch, at the average time, and upon the terms of compensation as before provided; and the company covenanted to pay the plaintiff for his services as such building superintendent at the rate of $150 per month, commencing on the 1st day of September, 1856, and terminating as before provided.
That the plaintiff should have the right and be entitled to draw on said company at the rate of $150 per month, commencing when his salary as building superintendent should have ceased, at such times and in such sums as should be proper, etc., to he charged to him in account, etc.
• That the plaintiff covenanted to bring to the process of manufacturing starch, in said establishment, as superintendent thereof and while in the service of said company, the necessary knowledge, skill and service appertaining to a full, perfect and successful manufacture of starch, and that he was possessed of a full knowledge of the art and mystery appertaining to the chemical, as well as manual manufacture of starch from indian corn.
That the plaintiff should have power, and it should be his duty, to select and employ competent operatives to prosecute said business and fix their compensation, subject to approval by the directors; also' have the entire charge of the factory after it should go into operation, and all operatives be under his direction, subject to discharge for cause, etc.
That the plaintiff was in the discharge of the duties of' building superintendent when the contract was entered into and conducted and discharged all the duties of said post to the acceptance, and with the assent of the defendant to the 12th day of April, 1858, when the defendant wrongfully and forcibly ejected him from the building (erected as after stated), and was and still is prevented from discharging the duties of' said post, though then, and still ready to perform all and singular the matters required of him as superintendent as aforesaid.
That as building superintendent he proceeded in the erection of the buildings, machinery and fixtures under said contract; but was forcibly ejected as aforesaid, and the same remain incompleted; and said factory has not been got or put into full operation in the manufacture of starch as aforesaid.
That when the plaintiff was so ejected, and ever since, said factory has had furnished and provided within it, only partial and incomplete equipments and machinery, capable of the daily consumption of not exceeding three hundred bushels of corn; that when fully completed it will be equal to and have capacity for six hundred bushels daily.
That while engaged in the active discharge of the duties of building superintendent, he honestly and faithfully discharged all the duties and covenants incumbent on him in that behalf, and brought to their discharge competent, .scientific and manual knowledge and practice.
That during the months of June, July and August, 1858, he was in attendance, ready and willing, to discharge his duties as building superintendent, but was prevented by the defendant to his damage, $450.
The petition avers non-payment of the monthly installments of $150, for June, July and August, and prays judgment for the same with interest.
To this petition the defendant below answered, setting up by way of defense—
1. That the plaintiff, as superintendent of said factory, pro ceeded with its erection, after said contract was entered into, till it was afterward, on the 7th of December, 1857, so far completed, as to be in readiness to commence manufacturing starch therein; that on that day said business of manufacturing was commenced under the superintendence of the plaintiff by authority of said contract, and was continued in said factory till the same was got into full operation in the successful manufacture of starch, and that the average time of so getting into full operation in the successful manufacture of starch, was on the 31st day of December, 1857, on which day the services of the plaintiff, pursuant to the stipulations of said contract, commenced as superintendent of the manufacture of starch, and that said business of the manufacture of starch was thereafter continued under the superintendence of the plaintiff till he was thereafter, for sufficient cause, and not unlawfully, as in the petition alleged, discharged, etc.
2. That the plaintiff, according to the contract, was entrusted with the control and management of ordering, planning and erecting said factory; that although the same was proceeded with and got into full operation in the successful manufacture of starch at the days and times in the first part of the answer set forth, and the business of manufacturing carried on, as set forth in said first part, yet said factory was not by the plaintiff so planned, arranged, ordered, designed and contrived, as that, when completed in conformity with said plan and arrangement, it can or will be competent to manufacture six hundred bushels of corn into starch per day in the due and regular course of business within the true intent and meaning of said contract. Its capacity, if completed as begun, will not be more ‘than a greatly less quantity, to-wit, not more than four hundred and fifty or five hundred bushels of corn per day; which deficiency was and'is the result of design, ignorance or oversight of the plaintiff without the authority, request or consent of the defendant, and in breach of the duty of the plaintiff, as superintendent of building. By reason whereof the defendant lawfully did for this and other causes discharge the plaintiff from said employment. having first paid him in full for his services rendered therein. Therefore, the plaintiff has no right, etc.
3. It is not true, as alleged in the petition, that the plaintiff conducted and discharged all of the duties of superintendent, according to said contract, to the acceptance of the- defendant to April 12, 1858; on the contrary, being engaged in the business of manufacturing starch, as above in first branch of defense set forth, to said 12th day of April, 1858, the day on which he was discharged, he failed and neglected to superintend and carry on said business with proper care and skill for the successful prosecution thereof, and for want of which a greatly less quantity of starch was produced from the quantity of corn manufactured than might and would have been, with such proper care and skill, amounting- to a great loss to the defendant in the quantity of starch produced, viz., 92,000 lbs. of the value of $3276 TV„; therefore, the plaintiff hath broken his covenant in said contract contained, and for that cause the defendant discharged the plaintiff out of said employment. And defendant insists that for the cause aforesaid, the plaintiff is liable to pay the defendant said sum of $3276 TyT damages sustained by his said breach of contract — and defendant prays judgment for the same.
To the first and second defenses the plaintiff demurred, as not stating facts sufficient to constitute a defense. To the third defense the plaintiff replied:
1. That on the 4th of June, 1858, plaintiff brought a suit before A. McVeigh, J. P., against the defendant on a cause of action other than that mentioned in the petition herein, but arising from and connected with the same writing stated in said petition. That the defendant filed before said justice a bill of particulars of a counterclaim for damages on the same agreements in the third ground of defense or counterclaim of the answer herein. That said action was afterward contested and tried by a jury, and a final judgment thereon rendered by the'justice; from which judgment an appeal was taken by the plaintiff to the common pleas, and the original bill of particulars of the plaintiff and of the defendant’s counterclaim were certified by''the justice into said court; as by the record, etc. That the parties are the same and the cause so appealed is still pending: Wherefore, plaintiff prays judgment, as in his petition, notwithstanding the matter of the third defense.
2. For a further reply to said third defense, the plaintiff says he has not violated his covenants in said contract contained.
To this reply of the plaintiff, the defendant demurred, and this demurrer having been overruled, the defendant replied :
1. That said counterclaim and bill of particulars of defendant, pending.before said justice, were not exhibited before said justice in said action for the recovery by the defendant from the plaintiff of the amount of damages to which the defendant was entitled, but only for a part thereof equal in amount to the plaintiff’s demand ($300), before the justice, not exceeding the amount of the justice’s jurisdiction, reserving the right to recover the residue as might be lawful; and said bill of particulars exceeds the justice’s jurisdiction, $2976 88, which was not and is not asserted as a counterclaim in the case appealed from the justice.
2. Said bill of particulars has not, since said appeal, been pleaded or asserted as a counterclaim in said action.
To this reply of defendant, the plaintiff demurred.
The demurrers of the plaintiff to the first and second defenses, and to the reply of the defendant in regard to the counterclaim, were all sustained by the court, and the defendant excepted.
The case having been submitted to the court upon the issues of fact, the court found the facts of the first reply to the third answer or counterclaim to be true, and adjudged that said third answer or counterclaim be quashed and abated; and, with the assent of the plaintiff, found that there was due him from the defendant $450 — with interest, for which, with costs, judgment Was rendered.
Upon petition in error, this judgment was affirmed by the district court; and the defendant below now seeks to reverse this judgment of affirmance.
The assignment of error brings in question the several rulings of the court of common pleas upon the issues of law presented by the pleadings.
Hunter 8? Daugherty, for plaintiff in error.
Thurman and Martin Sehleieh, for defendant in error.

Opinion:
Scott, C.J.
The determination of the question made by the demurrer to the first defense set up in the answer, involves a construction, to some extent, of that part of the contract which relates to the compensation of the plaintiff.
At the time of entering into the contract, the factory buildings were in process of erection. The plaintiff below was charged by the contract with a double duty, that of superintending the erection of the buildings and placing therein the .necessary machinery and apparatus, and also the superintending of the business of manufacturing starch, after the necessary buildings should be erected, and the machinery got in operation.
As evidence of his faith in the success of the enterprise, he agreed, that his compensation should, after a certain time, consist only of a part of the net profits after deducting interest on cost of buildings, and machinery, etc. But, until this time should arrive, he was to be paid $150 00 per month.
The terms of the contract leave no room for doubt, that the parties expected to commenoe the manufacture of starch, before the whole of the buildings, then contemplated, should be erected and furnished with their appropriate machinery. So soon as necessary buildings and the machinery required in the various departments and processes of the manufacture, should be erected and fitted for use, they expected to commence manufacturing, and to extend the business as the farther buildings, then contemplated, should be fitted for use, and appropriately furnished, until the plan, then designed, should be fully carried out.
The plaintiff below would, therefore, for a time, be limited in his duties solely to superintending the erection of build ings, and setting up machinery; and when manufacturing would commence, his superintendency would extend to both building and manufacture; and when the buildings and machinery then contemplated should be completed, his time and talents were to be devoted exclusively to manufacturing.
Though the plaintiff thus undertook a twofold duty, yet the contract was entire. He was to be paid, for a time, by the month; after that, by a share in the net profits for the term of three years. The contract provides that this change in the terms and measure of his compensation should take place, and the three years, during which the contract was to remain in force, should commence, at " the average time of getting into full operation in successful manufacture of starch from indian corn, as aforesaid; which said average time shall hereafter he agreed upon and fixed hy the parties."
Some of the provisions of the contract clearly show that the parties expected the factory, when completed, to have a capacity" at least equal to the daily consumption of six hundred bushels of corn, if not more. And we might suppose, that by " the time of getting into full operation," the parties intended to designate the time when the factory should be so far completed as to have attained this capacity. But what was intended by "-the average time of getting into full operation in the successful manufacture of starch," is not so apparent. An " average time of getting into full operrtion," would seem to imply a comparison of a time when the operation of the factory would be partial, and fall short of the expected standard, with the time when the full completion of the works would give it a capacity exceeding this standard. But, however this may be, it is sufficient, for the purposes of the case, to know that the parties regarded this " average time " as ascertainable only by' investigation and calculation, when the results of the operations of the factory, during its progress toward completion, would be before them ; and they provided, therefore, by the contract, for 'the future fixing of this average time, by the agreement of the parties.
So long as the defendant below made no claim to the plaintiff that the average time of getting into full operation had arrived, and asked for no examination or ascertainment of tbe facts which would enable the parties to determine, by agreement, the time 'when the plaintiff's fixed compensation by the month should end; and the mode of graduating his compensation by the amount of net profits commence; the plaintiff might well assume, that the defendant was assenting to the continuance of the monthly stipend of $150 00. So long as both parties failed to claim a right to change the mode of estimating the plaintiff's compensation, they must be regarded as mutually waiving such right,'if it existed; for the time of making the change was to be ascertained and fixed by their mutual agreement.
This first defense, then, resting, as it does, on an alleged change in the mode and measure of plaintiff's compensation, is defective, in neither averring that the time'of such change rvas agreed upon by the parties, as provided by the contract, nor assigning any excuse for the want of such agreement. And the demurrer to this defense was properly sustained- by the court.
The second defense rests upon the alleged fact that the plaintiff had failed so to plan, arrange, order, design and contrive said factory, as that when completed, in conformity with the plan, it would be competent to manufacture six hundred bushels of corn into starch, per day, and that for this breach of his- duty, and for other causes, the defendant had discharged him from employment, as building superintendent, having first fully paid him for his services rendered. Was the failure here charged to the plaintiff a sufficient cause for his discharge ? This must depend upon the terms of the contract. The erection of the factory buildings, appears to have been progressing, at the time the contract was executed. Its plan must have been previously originated and devised, but by whom, does not appear. Both parties seem to have been satisfied with it, when the contract was entered into, and as we have already said, from its terms, there is no reason to doubt, that all the parties interested expected that the factory, when completed according to the contemplated plan, would have a capacity equal to the daily consumption of six hundred bushels of corn, if not more. The undertaking was expected to prove profitable, and the amount of the net profits, it was, no doubt, supposed, would depend, mainly, on the extent of the business. Each of the parties was equally interested in the realization of their expectations, for the net profits were to be equally divided between the plaintiff and defendant. But, while the defendant covenanted to act as building superintendent, and stipulated, for his own security, that he should have the full control of -all the operations in the erection of the buildings, and the putting up of the machinery, and the supervision and adoption of all plans, and the management of the hands until the whole should be completed and ready for the manufacture of starch ; and though he further covenanted, for the security of the defendant, that he was possessed of a full knowledge of the art and mystery, chemical as well as manual, pertaining to the manufacture of starch, and that he would bring the necessary knowledge and skill to the process of manufacturing, while in the service of the defendant, and would devote his whole time, talents and skill to the interests of the company, in the contemplated business; yet, we find, in the contract no covenant or undertaking, on the part of. the plaintiff, that the buildings and machinery would have, when completed, a capacity equal to the consumption of any specified quantity of corn. There is, upon his part, no warranty of definite results, further than that his knowledge, skill and attention should be adequate to the full, perfect and successful manufacture of starch. By the contract it was made the interest of the plaintiff, that the enterprise should prove successful. And upon this security for good faith, the company -would seem to have relied, and asked for no further guaranties. We think, therefore, that the partial failure of the factory, when completed, to realize fully the expectations of the parties, as to the extent of its capacity, though unfortunate, perhaps, for both parties, was not a breach of the plaintiff's covenants, and that the demurrer to this defense was properly sustained by the court.
We pass, then, to the third defense, which seems to have been regarded in the court below merely as a counterclaim. It traverses the averment of the petition that Colgate discharged his duties as superintendent according to the contract, to the acceptance of the company, till April 12,1858; and avers that, on the contrary, being engaged in the manufacture of starch from December, 1857, till the 12th of April, 1858, he so far failed to superintend and carry on the business with proper care and skill, that from the quantity of corn consumed during that time, he produced 92,000 lbs. of starch less than should have been, and, with proper care and skill, would have been produced from the said corn — that this deficiency in starch, caused by his want of care and skill, amounted in value to $3276 tVV; that he had thereby broken his covenants, and was for this cause discharged from said employment, by the defendant.
These averments, if true, show that the failure of Colgate to carry on the business contemplated by the contract, with the care and skill which he had covenanted to bring to the management of the factory, was causing to the company a monthly loss of about $1000. A breach of his covenants, forming such an essential part of the contract, would clearly justify the company in discharging him from their service. Such neglect of duty, upon his part, as would defeat the whole object of the enterprise, by rendering it unprofitable, must give the company a right to put an end to the contract. And the company, having exercised this right, by discharging him from their service, it is clear that his subsequent readiness and willingness to continue in their service, can lay no foundation for a claim to compensation under the contract. The facts stated in the third defense, seem to us, therefore, to constitute a sufficient bar to the plaintiff's action. They appear to be stated in the answer as a ground of defense, and are regularly numbered as such, according to the requirements of the code. It is true, that they are followed by a counterclaim for the amount of damages sustained by the defendant below, by reason of the same breaches of covenant for which the plaintiff was lawfully discharged. Wo see no good reason why the same breaches of covenant on the part of the plaintiff below, might not justify his discharge, and thus constitute a defense to the action; and, at the same time, he a ground of counterclaim for damages. And^ it would, perhaps, be unnecessary to restate the facts in making the counterclaim. But if this-mode of attaching a counterclaim to a defense, where both are predicated on the same facts, be formally defective, the objection to the pleading could only be properly taken by motion. But no objection was made to this defense or to the mode of stating it, either by motion or demurrer. The plaintiff replied to it, as "the third defense or counterclaim." The reply was twofold; the second count of it consisting of a denial of the alleged breaches of his covenants. This reply to the third defense raised an issue of fact, upon which the record shows no finding of the court. Instead of such finding, it was considered by the court " that said counterclaim and third defense of the defendant be quashed and abated."
In thus failing to pass upon the issue raised by the third defense and the reply thereto, and in quashing the same, we think the court of common pleas erred.
To the counterclaim connected with the third defense, the plaintiff answered that in a former suit brought by him before a justice of the peace against the defendant, on a cause of action other than the one stated in his petition, but arising from the same contract, the defendant filed a bill of particulars of a counterclaim for damages on the same agreements stated in the present counterclaim. That said action was tried by a jury, and a final judgment rendered thereon by the justice, from which an appeal was taken by the plaintiff to the common pleas, and the bills of particulars of the parties were certified to said court by the justice, and that the cause is still pending. To this answer the defendant replied, in substance, that the whole amount .of damages stated in the bill of particulars filed before the justice, exceeded his jurisdiction by $2976 88; that a counterclaim had been set up before the justice, only for $300, part of said damages, reserving the right to recover the residue, being said excess, as might be lawful; and that said counterclaim has not, since the appeal, been pleaded or asserted in the action. The reply was demurred to by the plaintiff, and the demurrer was sustained by the court.
It is claimed by the defendant, that under the provisions of section 108 of the justices act (1 S. & C. Stat. 788), a counterclaim could be made before the justice for such portion of the damages claimed as would not exceed the jurisdiction of the justice, resevering the right to a subsequent recovery of the residue. That section reads thus :
" When the amount due to either party exceeds the sum for which the justice is authorized to enter judgment, such party may remit the excess; and judgment may be entered for the residue. A defendant need not remit such excess, and may withhold setting the same off, and a recovery for the amount set off and allowed, or any part thereof, shall not be a bar to his subsequent action for the amount withheld."
But we think it clear, that this section, in speaking of "the amount due to either party," and in permitting a defendant to set ©ff a part of such amount, when the whole exceeds the jurisdiction of the justice, without remitting the excess, refers only to such liquidated demands as are the proper subject of setoff, and not to unliquidated damages, which only become the subject of counterclaim, when " arising out of the contract or transaction set forth in the petition as the foundation of the plaintiff's claim, or connected with the subject of the action." A claim for unliquidated damages on account of a single transaction, is in its nature entire, the ascertainment of the amount due thereon, involves an inquiry into the whole transaction, and the judgment of a court on the subject, rendered in the exercise of proper jurisdiction, njust, while in force, conclude the parties. The subdivision of such a counterclaim would involve repeated trials of the same issue, between the same parties, resulting in judgments inconsistent with each other, but all binding upon the parties — and yet leaving the subject of controversy still open. We can not suppose that a construction of the statute leading to such anomalous and absurd results, is the proper one. What, then, was the effect of the defendant's attempt to set up a counterclaim, before the justice, for a part of the unliquidated damages claimed, and expressly withholding the residue? The whole claim far exceeded the justice's jurisdiction, and the defendant declined to give him jurisdiction by remitting the excess. It could not be subdivided, as the defendant proposed, and the consequence was that the justice could take no jurisdiction of the counterclaim as it was stated in the defendant's bill of particulars. We think the reply of the defendant shows that no part of the counterclaim here set up, was so pleaded before the justice as to bring it within his jurisdiction; and not having been pleaded at all in the court of common pleas, it can not be said to be there pending, as alleged by the plaintiff. We see no reason why an abortive attempt to invoke a jurisdiction, not possessed by the justice, should forever preclude the party from all right to redress in another action. We think, therefore, that the court erred in sustaining the demurrer to the defendant's reply on the subject of the counterclaim, and that the same should have been, overruled.
Eor the errors we have indicated, the judgment of the district court and that of the court of common pleas will be reversed, and the cause remanded to the court of common pleas.
Suture, Peck, Gholson and Brinkerhoee, J J., concurred.