Opinion ID: 1660198
Heading Depth: 1
Heading Rank: 2

Heading: Sewer Taps

Text: Interim and Romar contend that the trial court erred in holding that their counterclaim for recovery of fees for sewer taps that Interim had provided to service Gulf View Square was barred by the statute of limitations. It is undisputed that Interim had, pursuant to Paragraph C of the March 15 contract, provided for the use of Gulf View Square 34 sewer taps and that it received no payment for those taps. Also, the six-year limitations period in which Interim could have sought affirmative recoupment or recovery of the sewer fees in a claim for breach of contract had expired before Romar and Interim blocked the shopping center. [3] Moreover, Gulf View's claim requests only equitable relief, specifically, an injunction and a declaratory judgment, not damages. The issue, therefore, is whether Romar and Interim may seek monetary relief, which would represent an affirmative recovery on their counterclaim, where Gulf View's claim seeks only equitable relief. At the outset, we note that recovery on both the counterclaim and the claim turn on Paragraphs C and B, respectively, of the March 15 contract. Where the claim and the counterclaim allege respective breaches of the same contract, the counterclaim is compulsory. Cooper v. Reaves, 365 So.2d 670, 671 (Ala.1978); see also Ewing & Gaines v. Shaw & Co., 83 Ala. 333, 335, 3 So. 692, 693 (1888) (recoupment authorizes the recovery of any damages sustained by the defendant, which grow out of, or are connected with, the matters set forth in the plaintiff's complaint, and in breach of the contract upon which his suit is founded, or in violation of any duty imposed by the contract). In other words, the counterclaim arises out of the transaction or occurrence that is the subject matter of the opposing party's claim, and it is, therefore, a compulsory counterclaim. Ala.R.Civ.P. 13(a). [4] In considering this issue, we are constrained to revisit Sharp Electronics Corp. v. Shaw, 524 So.2d 586 (Ala.1987). That case involved an action begun in December 1980 by Sharp Electronics Corporation (Sharp), a manufacturer of photocopier equipment, in which it claimed that Shaw, one of its dealers, had failed to pay for photocopy equipment Sharp had supplied. Shaw counterclaimed against Sharp, alleging misrepresentation in connection with statements made in August 1975 by Sharp's agents regarding the quality of its photocopy equipment. The trial court entered a judgment on a jury verdict in favor of Sharp for $5,250.86, and in favor of Shaw on his counterclaim for $100,000. Id. at 588. Thus, one of the issues on appeal was the extent to which Shaw's counterclaim, based on an alleged misrepresentation made five years before the commencement of the action, was barred by the statute limiting the time in which to begin actions for misrepresentation, that is, whether... Shaw [could] use his compulsory [5] counterclaim offensively, or only defensively for the limited purpose of canceling out Sharp's $5,250.86 recovery. Id. at 591 (footnote added). The Court ultimately held that the evidence justified the jury's finding that the misrepresentation had not been, and could not reasonably have been, discovered more than one year before the accrual of Sharp's cause of action, and, consequently, that Shaw was entitled to recover an amount exceeding Sharp's recovery. Id. at 591. However, it also concluded that a defendant may not recover on a compulsory counterclaim an amount exceeding the amount of the plaintiff's claim, if the limitations period in which the counterclaim could have been asserted as an independent cause of action has expired before the plaintiff's cause of action accrues. Id. The same year Shaw was decided, the Florida Supreme Court expressly adopted the opposite rule, concluding that a defendant may recover on a compulsory counterclaim an amount exceeding the amount of the plaintiff's claim, regardless of whether the limitations period has expired on the counterclaim before the plaintiff's cause of action accrues. Allie v. Ionata, 503 So.2d 1237 (Fla.1987) (approving Cherney v. Moody, 413 So.2d 866 (Fla.Dist.Ct.App.1982)). In our view, this conflict in authority warrants a thorough reexamination of Shaw 's analysis and rationale, beginning with a historical review of recoupment and set-offthe antecedents of modern compulsory and permissive counterclaims, respectivelyand the developments of those concepts in Alabama.
Pleas of set-off were purely statutory. Alabama Power Co. v. Kendrick, 219 Ala. 692, 695, 123 So. 215, 218 (1929); Merchants Bank v. Acme Lumber & Mfg. Co., 160 Ala. 435, 441, 49 So. 782, 784 (1909). T. Waterman, A Treatise on the Law of Set-Off, Recoupment, and Counter Claim § 10, at 11 (2d ed. 1872). Even so, set-off was characterized by a number of common features relevant to this case. First, set-off was a counter demand which the defendant [held] against the plaintiff arising out of a transaction extrinsic to the plaintiff's cause of action. Id. § 2, at 3 (emphasis added). Second, [t]he demand to be set off must have been a subsisting cause of action at the commencement of the plaintiff's suit ... and upon which an action might have been sustained. Id. § 66, at 78. Third, the amount recovered by the defendant under a plea of set-off could exceed the amount recovered by the plaintiff on the original claim. Id. § 469, at 483-84. These features of the plea of set-off were represented in Acts of the Legislative Council and House of Representatives of the Mississippi Territory of 1799. A Law Concerning Defalcation, February 28, 1799, Sargent's Code: A Collection of the Original Laws of the Mississippi Territory Enacted 1799-1800 by Governor Winthrop Sargent and the Territorial Judges 26-27 (1939). The substance of these provisions was codified in Ala.Code 1852, §§ 2240 and 2241. Specifically, those sections provided: [Section 2240]. Mutual debts, liquidated or unliquidated demands not sounding in damages merely, subsisting between the parties at the time of suit brought, may be set-off, one against the other, by the defendant or his personal representative, whether the legal title be in the defendant or not; and such set-off, if found for the defendant, extinguishes either in whole or in part, as the case may be, the plaintiff's demand. [Section 2241]. If the debt or demand so offered to be set-off, exceed the amount of the plaintiff's demand, the amount of such excess being found by the jury, judgment must be rendered against the plaintiff for costs, and in favor of the defendant for such excess.  (Emphasis added.) These sections passed unchanged in matters relevant to this case into the next seven Codes. For the recodification of § 2240, see Ala.Code 1867, § 2642; Ala.Code 1876, § 2991; Ala.Code 1887, § 2678; Ala.Code 1896, § 3728; Ala.Code 1907, § 5858; Ala.Code 1923, § 10172; Ala. Code 1940 (Recomp.1958), Tit. 7, § 350. For the recodification of § 2241, see Ala.Code 1867, § 2643; Ala.Code 1876, § 2992; Ala. Code 1887, § 2679; Ala.Code 1896, § 3729; Ala.Code 1907, § 5860; Ala.Code 1923, § 10174; Ala.Code 1940 (Recomp.1958), Tit. 7, § 352. In 1867, the legislature expanded the availability of pleas of set-off. Act No. 631, 1867 Ala. Acts 676 (first codified at Ala.Code 1867, § 2647) (the relation-back provision), provided [f]or the allowance of offsets in certain cases, where [the] statute of limitation is pleaded. More specifically, it provided: That in cases in the courts of this State where the defendant pleads a set-off to the plaintiff's demand, to which the plaintiff pleads the statute of limitation, the defendant, notwithstanding such plea, shall be entitled to have the benefit of his debt as a set-off, where such set-off was a legal subsisting claim at the time the right of action accrued to the plaintiff, on the claim sued on. (Emphasis added.) The primary purpose of this section was to toll periods prescribed by statutes of limitations during the time between the accrual of the plaintiff's cause of action and the commencement of the action thereon. Washington v. Timberlake, 74 Ala. 259, 264 (1883) (the precise object the legislature had in view was, that demands held by defendants when the adversary plaintiff's right of action accrued, if then free from the infirmity of age, should not afterwards lose their availability as a defense, by mere lapse of time). Thus, § 2647 operated as an exception or qualification to the efficacy of applicable statutes of limitations. Dunham Lumber Co. v. Holt, 124 Ala. 181, 185, 27 So. 556, 558 (1900). This section was recodified without relevant change in the next six Codes. See Ala.Code 1876, § 2996; Ala. Code 1887, § 2682; Ala.Code 1896, § 3732; Ala.Code 1907, § 5863; Ala.Code 1923, § 10177; Ala.Code 1940 (Recomp.1958), Tit. 7, § 355.
Unlike its statutory counterpart, recoupment was of common-law origin. It was an innovation upon, or departure from, the strict rules of law, sanctioned by the courts for the purpose of doing equity between parties, where it either could not otherwise be attained, or not without a circuitous and expensive process. T. Waterman, A Treatise on the Law of Set-Off, Recoupment, and Counter Claim § 463, at 480 (2d ed. 1872); see also J.C. Lysle Milling Co. v. North Alabama Grocery Co., 201 Ala. 222, 223, 77 So. 748, 749 (1917). Recoupment applie[d], when the abatement claimed [sprang] out of the very contract, or transaction, on which the recovery [was] sought. Washington v. Timberlake, 74 Ala. 259, 263 (1883). At common law, recoupment could be asserted as a mere right of deduction from the amount of the plaintiff's recovery, T. Waterman, supra, § 460, at 480, that is, the defendant could not recover an amount in excess of the amount awarded the plaintiff on his claim. Id. § 469, at 483. As a corollary of this latter principle, recoupment was not subject to statutes of limitations. It was said to run with the instrument out of which the plaintiff's breach-of-contract claim arose and was not time-barred as long as that contract was executory and enforceable. Conner v. Smith, 88 Ala. 300, 311, 7 So. 150, 153 (1889); see also City of Grand Rapids v. McCurdy, 136 F.2d 615, 619 (6th Cir.1943) (The defense of recoupment exists as long as the plaintiff's cause of action exists and may be asserted, though the claim as an independent cause of action is barred by limitations). Shaw aptly referred to this aspect of recoupment as the `indestructibility-of-recoupment' doctrine. 524 So.2d at 589. In contrast to set-off, which had been the subject of legislation as early as 1799, recoupment first received the attention of our legislature in 1879. Act No. 126, 1879 Ala. Acts 154 (codified at Ala.Code 1886, § 2683) (the affirmative-recoupment rule). Section 2683 provided: On a plea of recoupment, if the claim or demand of the defendant equals the claim or demand of the plaintiff, judgment must be rendered for the defendant; if the claim or demand of the defendant exceeds the claim or demand of the plaintiff, and the plaintiff be the party liable to its satisfaction, judgment must be rendered against him in favor of the defendant for such excess and all costs. (Emphasis added.) This section modified common-law recoupment by authorizing an affirmative recovery on a counterdemand, that is, the recovery of an amount exceeding the amount of the original claim. The affirmative-recoupment provision was recodified without relevant change in the next four Codes. See Ala.Code 1896, § 3734; Ala. Code 1907, § 5865; Ala.Code 1923, § 10179; Ala.Code 1940 (Recomp.1958), Tit. 7, § 357. As this history indicates, the indestructibility-of-recoupment doctrine was, before 1879, clearly established in Alabama. After passage of the affirmative-recoupment provision, a defendant could recoup an amount in excess of the plaintiff's claim. Inevitably, of course, the question would arise whether the affirmative-recoupment provision, that is, the provision allowing a recovery of an amount exceeding the original claim, had effectively incorporated the indestructibility-of-recoupment rule to authorize an affirmative recovery without regard to statutes of limitations, or whether the relation-back provision qualified the indestructibility-of-recoupment rule to foreclose this result. The first opinion in which this Court considered recoupment after the enactment of the affirmative-recoupment provision suggested, albeit in dicta, that the claim could be asserted without regard to the statute of limitations. In Conner v. Smith, 88 Ala. 300, 7 So. 150 (1889), the Court stated: Such a claim [recoupment] runs with the contract, so to speak, and may, at least when it goes to the consideration, as it generally does in some sort, and as in the case here, be relied on without regard to the statute of limitations. So long as the contract, upon a breach of which the claim is predicated, subsists, and may be enforced, the claim itself may be pleaded in reduction, at least, of the demand on the contract; and this notwithstanding the matter of recoupment, independently considered, may be barred, not only when it is pleaded, but also when the right of action, against which it is asserted, accrued. 88 Ala. at 311, 7 So. at 153 (emphasis added). In explaining that recoupment would at least reduce or cancel the amount of the claim without regard to timeliness, the Court implicitly construed § 2683 as incorporating the indestructibility-of-recoupment rule to allow an affirmative recovery without regard to the statute of limitations. The Conner dicta were subsequently quoted verbatim in cases both preceding and succeeding the adoption of the Alabama Rules of Civil Procedure in 1973. Snow v. Baldwin, 491 So.2d 900 (Ala.1986); Campbell v. Regal Typewriter Co., 341 So.2d 120 (Ala. 1976), holding modified, Sharp Electronics Corp. v. Shaw, 524 So.2d 586 (Ala.1987); Downing v. Williams, 238 Ala. 551, 191 So. 221 (1939); Wilson v. Montgomery Bank & Trust Co., 203 Ala. 340, 83 So. 64 (1919); Harton v. Belcher, 195 Ala. 186, 70 So. 141 (1915). Thus, when this Court adopted the Rules of Civil Procedure, the concept of incorporation of the two rules was represented in our cases.
Among the changes effected in 1973 by the Rules was the modernization of terminology. Ala.R.Civ.P. 81(e). Specifically, Rule 81(e) converts the terms recoupment to compulsory counterclaim, and set-off to permissive counterclaim. Additionally, Rule 13 set out the scopes of those counterclaims and the extent to which they may be barred by applicable statutes of limitations. Rule 13 provides in pertinent part: (a) Compulsory Counterclaims. A pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim.... (b) Permissive Counterclaims. A pleading may state as a counterclaim any claim against an opposing party not arising out of the transaction or occurrence that is the subject matter of the opposing party's claim. (c) Counterclaim Exceeding Opposing Claim. A counterclaim may or may not diminish or defeat the recovery sought by the opposing party. It may claim relief exceeding in amount or different in kind from that sought in the pleading of the opposing party. All counterclaims other than those maturing or acquired after pleading shall relate back to the time the original plaintiff's claim arose. The adoption of the Civil Rules in 1973 was closely followed by the general recodification of Alabama statutes in the 1975 Code, which became effective in 1977. The 1975 Code significantly altered the terminology of Ala. Code 1940 (Recomp.1958), Tit. 7, § 352 (set-off), § 355 (relation back), and § 357 (affirmative recoupment). Those sections were replaced by Ala.Code 1975, §§ 6-8-85, -84, and -86, respectively, which provided: § 6-8-85. Judgment for defendant Permissive counterclaims. If the debt or demand permissively counterclaimed exceeds the amount of the plaintiff's demand, the amount of such excess being found by the jury or court trying the same, judgment must be entered against the plaintiff for costs and in favor of the defendant for such excess, and where there is more than one defendant and the debt or demand permissively counterclaimed belongs to only one defendant, then judgment for such excess must be entered in favor of such defendant for such excess. § 6-8-86. Judgment for defendant Compulsory counterclaims. On a compulsory counterclaim, if the claim or demand of the defendant equals the claim or demand of the plaintiff, judgment must be entered for the defendant; if the claim or demand of the defendant exceeds the claim or demand of the plaintiff and the plaintiff is the party liable to its satisfaction, judgment must be entered against him in favor of the defendant for such excess and all costs. § 6-8-84. Effect of statute of limitations. When the defendant pleads a counterclaim to the plaintiff's demand, to which the plaintiff replies the statute of limitations, the defendant is nevertheless entitled to his counterclaim, where it was a legal subsisting claim at the time the right of action accrued to the plaintiff on the claim in the action. (Emphasis in original.) Obviously, these sections replaced the traditional terminology set-off and recoupmentwith the modern terminology used in the Rules. Thus, while §§ 352 and 357 of Tit. 7, Ala.Code 1940 (Recomp.1958), spoke of set-off and recoupment, respectively, Ala.Code 1975, §§ 6-8-85 and -86 speak of permissive counterclaims and compulsory counterclaims, respectively. The most significant change, however, was the substitution of the term counterclaim in § 6-8-84 for the term set-off in its predecessor section. Against this historical background, we are compelled to disagree with the analysis and conclusions expressed in Sharp Electronics Corp. v. Shaw, 524 So.2d 586 (Ala. 1987), regarding the efficacy of statute-of-limitations defenses to compulsory counterclaims. First, we disagree with the implications in the statement that [r]elation back doctrines became necessary when statutes altered common law rules and allowed affirmative recoveries under counterclaims. Shaw, 524 So.2d at 590 n. 2. This assertion is inconsistent with the statutory history of set-off, which, as we have already discussed, authorized affirmative recoveries as early as 1799. The first relation-back provision, the predecessor of § 6-8-84, did not appear until 1867. More significantly, the relation-back provision, by its express terms, applied only to set-off. Indeed, it enlarged defendants' opportunities to interpose pleas of set-off, Dunham Lumber Co. v. Holt, 124 Ala. 181, 185, 27 So. 556, 558 (1900). It did not, as suggested in Shaw, narrow defendants' opportunities to interpose pleas of recoupment. Second, we cannot conclude, as did Shaw, that [t]he original version of § 6-8-84 was enacted to give relation-back effect to setoff in addition to recoupment. Shaw, 524 So.2d at 590 (emphasis added). This statement necessarily implies that the first affirmative-recoupment provision predated the first relation-back provision. As we discussed above, the statutes were enacted in the opposite sequence. Most significantly, however, we disagree with the conclusion that § 6-8-84, which replaced the term `setoff' with `counterclaim' (i.e., all counterclaims, compulsory and permissive), Shaw, 524 So.2d at 590, brought compulsory counterclaims within its scope, thereby modifying the indestructibility-of-recoupment rule so as to prevent an affirmative recovery on an untimely compulsory counterclaim. To be sure, Ala.R.Civ.P. 13(c) states:  All counterclaims other than those maturing or acquired after pleading shall relate back to the time the original plaintiff's claim arose. (Emphasis added.) However, this Rule, which was adopted in 1973, was drafted to harmonize with Ala.Code 1940 (Recomp.1958), Tit. 7, § 355, the predecessor of § 6-8-84. Rule 13(c) committee comments. Of course, § 355 applied by its terms only to pleas of set-off, that is, to permissive counterclaims. Moreover, when Rule 13(c) was adopted it was by no means settled in Alabama that defendants could not affirmatively recover on an untimely compulsory counterclaim. Indeed, post-1973 case law is replete with opinions unqualifiedly stating that compulsory counterclaims are not subject to statute of limitations defenses. See, e.g., Snow v. Baldwin, 491 So.2d 900 (Ala.1986); Vincent v. F. Hood Craddock Mem. Clinic, 482 So.2d 270 (Ala.1985); Turner v. Lassiter, 484 So.2d 378 (Ala.1985); Safeco Ins. Co. of America v. Sims, 435 So.2d 1219 (Ala.1983) (Jones, J., concurring); Ex parte Fletcher, 429 So.2d 1041 (Ala.1982); Cooper v. Reaves, 365 So.2d 670 (Ala.1978); Campbell v. Regal Typewriter Co., 341 So.2d 120 (Ala.1976), holding modified, Sharp Electronics Corp. v. Shaw, 524 So.2d 586 (Ala.1987); Adams v. Coblentz G.M.C. Truck Sales, 506 So.2d 1023 (Ala.Civ. App.1987). A comparison of the terminology of Rule 13(c) with that of § 6-8-84drafted just two years laterconvinces us that the legislature, in substituting the term counterclaim for set-off, merely harmonized § 6-8-84 with Rule 13(c), which, we conclude, does not refer to compulsory counterclaims. Thus, we now hold, in accordance with the dicta in Conner v. Smith, 88 Ala. 300, 7 So. 150 (1889), that a defendant may recover on a compulsory counterclaim an amount exceeding the amount claimed or recovered on the original claim, regardless of whether the counterclaim would have been barred by the statute of limitations when the original cause of action accrued. The rationale for treating compulsory counterclaims and permissive counterclaims differently in this respect was aptly explained in Allie v. Ionata, 503 So.2d 1237, 1239 (Fla. 1987) (adopting a rule permit[ting] the recovery of an affirmative judgment in recoupment when the statute of limitations would bar the desired relief as an independent cause of action). The court explained: The expiration of a statute of limitation does not resolve the underlying merits of the consequently barred claim in favor of either party; it merely cuts off the remedy of the party who has slept on his rights. See Hoagland v. Railway Express Agency, 75 So.2d 822, 827 (Fla.1954). See also Osmundsen v. Todd Pacific Shipyard, 755 F.2d 730, 733 (9th Cir.1985). Limitation statutes are designed as shields to protect defendants against unreasonable delays in filing law suits and to prevent unexpected enforcement of stale claims. Nardone v. Reynolds, 333 So.2d 25, 36 (Fla.1976); Foremost Properties, Inc. v. Gladman, 100 So.2d 669, 672 (Fla. 1st DCA 1958).... Such statutes protect defendants against claims asserted when all proper vouchers and evidence are lost and after the facts have become obscure from the lapse of time, defective memory or death and removal of witnesses. Whaley v. Wotring, 225 So.2d 177, 181 (Fla. 1st DCA 1969). It is the recognition of the inapplicability of these purposes which has led courts to develop the rule that one may raise as a defense [emphasis in Allie ] a claim which would otherwise be barred by the statute of limitations. See Beekner v. L.P. Kaufman, Inc. [, 145 Fla. 152, 198 So. 794 (1940)]; Payne v. Nicholson [, 100 Fla. 1459, 131 So. 324 (1930)]. A party who seeks affirmative relief, whether through an original complaint or a counterclaim, effectively asserts that he is prepared to prosecute all aspects of that matter. Having sufficient knowledge of the facts to support a complaint and sufficient evidence to prosecute that complaint, he must be prepared to defend against any affirmative defenses arising therefrom. Thus, once a party files an affirmative action, he cannot thereafter profess to be surprised by or prejudiced by affirmative defenses or compulsory counterclaims that stem from that action. The same rationale which permits the defense of recoupment at all on a claim which would be barred by the statute of limitations supports the recovery of affirmative relief. We can perceive no logical reason to prohibit an affirmative judgment in such cases.  Allie, 503 So.2d at 1239-40 (emphasis added). In our view, this reasoning sufficiently answers any arguments in favor of affording a limited statute of limitations defense to compulsory counterclaims, such as was adopted in Shaw. Consequently, to the extent that Shaw holds that recovery under an untimely compulsory counterclaim is limited to the amount of the claim, Shaw is overruled, and we hold that Ala.Code 1975, § 6-2-34(9), does not bar the counterclaim seeking recovery of sewer tap fees in this case. The trial court's judgment, to the extent that it held the counterclaim to be barred by § 6-2-34(9), is reversed and the cause is remanded for further proceedings. Consistent with the foregoing discussion, the rules regarding permissive and compulsory counterclaims on which the limitations period has expired when the claimant's cause of action accrued may be stated as follows: (1) Compulsory counterclaims for money damages are not subject to statutes of limitations and permit recoveries in excess of the amount of the claim. (2) Because of the preceding rule, Ala. Code 1975, § 6-8-84, and Ala.R.Civ.P. 13(c) apply only to permissive counterclaims. (3) A permissive counterclaim is subject to the statute of limitations defense, and, therefore, allows no recovery.