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Klauck v. Federal Ins. Co.

Supreme Court of New York, Appellate Division

March 3, 1909

KLAUCK
v.
FEDERAL INS. CO. ET AL.

Appeal from Special Term, Erie County.

Action by John W. Klauck against the Federal Insurance Company and others. From a judgment overruling a demurrer to parts of the reply ( 60 Misc. 170, 182, 111 N.Y.Supp. 1037), defendants appeal. Reversed, and demurrer sustained.

[115 N.Y.S. 1051] Brown, Ely & Richards, H. D. Goulder, and D. J. Kenefick, for appellants.

Clinton & Clinton, for respondent.

Argued before McLENNAN, P. J., and SPRING, WILLIAMS, KRUSE, and ROBSON, JJ.

WILLIAMS, J.

The interlocutory judgment should be reversed, and the demurrer sustained, with costs and the usual leave to plead over.

The action was brought to recover the amount claimed to be due upon a contract made between plaintiff's assignor and the defendants, under which the plaintiff's assignor was to release certain lake freight vessels from the beach at Buffalo, where they had stranded. The plaintiff sued for the contract price, $39,500. He alleged in his complaint that his assignor had duly performed all the conditions of the contract, except as to the time of completion, and that the condition with respect thereto had been waived by the defendants. The defendants by their answer admitted many of the allegations of the complaint, and interposed a general denial to the remaining allegations, among which was that of waiver of the condition as to the time of completion of the contract. Then by the second and third defenses the defendants interposed counterclaims to the plaintiff's alleged cause of action. These two defenses related to the same counterclaims, and largely the facts alleged were the same. In both it was alleged (in brief) that the defendants were marine underwriters on the vessels in question; that the vessels were stranded January 20, 1907; that the owner thereof had the exclusive right under the policies to release the vessels itself, and the defendants were under obligation to reimburse the owner for the expense incurred in so doing; that the defendants, with the assent of the owner, however, called for proposals for releasing the vessels; that the plaintiff's assignor submitted a proposal to do the work for the amount above specified, and guaranteed [115 N.Y.S. 1052] to release the vessels by April 15, 1907, payment to be made upon the completion of the contract; that the owner thereupon waived its right to release the vessels itself, and consented that the defendants should undertake the release themselves; that the proposal of the plaintiff's assignor was then accepted by the defendants, and the work was entered upon under that contract, but the contract was not completed by the release of the vessels until June 26, and July 15, 1907, respectively, and then only with the assistance of the owner, its appliances, and the labor of its employés, at an expense to the owner of $9,624.50; that the owner was deprived of the use of the vessels from April 15th to June 26th and July 15th, and suffered damage by reason thereof in the sum of $39,250.20, in addition to the expense incurred as above stated. These are the amounts of the counterclaims set up in the two defenses; but they are primarily the damages of the owner of the vessels, and not of the defendants. For the purpose of making them proper subjects of counterclaims in this action, other allegations are made in these two defenses. The damages are the same in both; but the allegations are different, to support two different theories of the defense.

In the second it is alleged that in reliance upon the contract made by the defendants with plaintiff's assignor, and especially the time guaranty therein, the defendants made an agreement with the owner of the vessels whereby the owner agreed to waive its right under the policies to release the vessels itself, and require the defendants to reimburse it for the expense incurred in doing so, and to permit the defendants to release the vessels, and to make the contract with the plaintiff's assignor to do the work on the terms of the proposal; and in consideration thereof the defendants agreed with the owner that the vessels would be released by April 15, 1907, and thereupon the defendants made the contract with the plaintiff's assignor, for the purpose of enabling them to perform their obligation to the owner of the vessels under the policies, and their agreement with such owner as to the time limit of aforesaid, all of which was known to plaintiff's assignor, and that the defendants have become liable to the owner for the damage suffered by it, and have therefore suffered damage themselves in the like amount. In the third defense it is alleged that in consideration of and relying upon the proposal, and especially the time guaranty therein, the owner of the vessels agreed with the defendants that it would waive its right under the policies to release the vessels itself, and require the defendants to reimburse it for the expense incurred in doing so, and to permit the defendants to release the vessels, and to make the contract with the plaintiff's assignor to do the work on the terms of the proposal, for the benefit and use of the owner of the vessels, and thereupon the contract between the defendants and plaintiff's assignor was made, and that it was entered into, and especially the guaranty as to time was inserted, for the express benefit and use of the owner of the vessels, and for the purpose of enabling the defendants to perform their obligation to the owner of the vessels under the policies, all of which was known to the plaintiff's assignors, and that the defendants have become liable to the owner [115 N.Y.S. 1053] for the damages suffered by it, and have therefore suffered damages themselves in the like amount.

So far as we are able to discover, the difference in the two defenses is that in the former, it is alleged, first, that the defendants contracted with the owner that the vessels should be released by April 15, 1907, and, second, that they made the agreement with plaintiff's assignor for the purpose in part of enabling them to perform this provision in their agreement; while in the latter these two allegations are omitted, and it is alleged, instead thereof, first, that the owner permitted defendants to make the contract with plaintiff's assignor for the benefit and use of the owner of the vessels, and, second, that they did make the contract for the benefit and use of such owner. The claim is that by reason of these premises the defendants became liable over to the owners for these damages, and therefore may counterclaim them in this action.

The plaintiff replied to these two defenses by way of counterclaim, admitting some facts therein alleged, and denying others, and then set up new facts by way of affirmative answer and defense to the counterclaims. The replies to the two counterclaims are in substantially the same language. There are ten paragraphs in each reply, and the tenth is in precisely the same language in both, and these are the two paragraphs that are demurred to here. The allegations in these paragraphs are (in brief) that the defendants, soon after the commencement of this action, and before service of the answer, entered into a contract with the owner of the vessels wherein it was agreed that the owner should appear in the action and assume the full charge of the defense thereof and any other action on the same contract, at his own expense, with power to set up any defense, set-off, or counterclaims it desired, without let or hinderance from the defendants, and that the defendants would pay any judgment recovered against them in such cases, up to, but not to exceed, $39,500, with interest from July 20, 1907, and, if the judgment was less than that, to pay the judgment, and the balance of the above amount and interest to the owner, but the defendants' liability in no case to exceed that amount and interest, and that the owner would give security to the defendants to protect them against any other liability in these suits, and would dismiss suits brought by it against the defendants and against the plaintiff's assignor, and would enforce whatever claims it had, for damages or otherwise, against defendants, in relation to their operations in releasing the vessels, and the contract therefor with plaintiff's assignor, through defendants' right to recoup and recover over therefor against the plaintiff's assignor in this action, and would release defendants from said claims, except so far as they could be worked out in this action, and would not enforce them against defendants. And then the replies proceeded to allege that by this agreement the owner had waived all claims it had against defendants for the damages claimed, and the defendants were not entitled to counterclaim the same in this action.

The defendants by their demurrer contend that these facts are insufficient in law to constitute defenses to the counterclaims. First, the plaintiff contends that the defenses, by way of counterclaims, [115 N.Y.S. 1054] neither of them allege facts sufficient to constitute counterclaims to the cause of action alleged in the complaint. This plaintiff had a right to do under Baxter v. McDonnell, 154 N.Y. 432-436, 48 N.E. 816.If there were no good counterclaims set up in the answer, the defendants could not complain that the plaintiff failed to make a sufficient reply thereto.

The question as to each defense by counterclaim is whether, upon the allegations thereof, conceding them to be true, a counterclaim exists. Both counterclaims are based upon the proposition that the owner had the exclusive right to release the vessels itself. This must be deemed to be true, in view of the allegations in the pleadings and the law applicable to such policies as are here involved. In both it is alleged the owner agreed to waive this right-in the first, that this waiver was made in consideration that the defendants expressly agreed that the release should be effected by April 15th, and the defendants thereupon made the contract with plaintiff's assignor; in the second, that this waiver was made, relying upon the time guaranty in the contract with plaintiff's assignor made for the owner's express benefit. In the first the owner relies solely upon its agreement with the plaintiff, and the defendants rely upon that of the plaintiff's assignor. In the second the owner relies directly upon the guaranty made by the plaintiff's assignor for its express benefit. The counterclaims are based, not upon the whole contract with plaintiff's assignor, but the one provision, the time guaranty clause. It is alleged in both counterclaims that the plaintiff's assignor had full knowledge of all the matters set up therein.

As to the first counterclaim, the contention is that the defendants put the time guaranty clause in the contract with plaintiff's assignor in order to be able to fulfill the time guaranty agreement made with the owner, and this was known to plaintiff's assignor. Therefore the defendants may have such damages against plaintiff as the circumstances would indicate the defendants were likely to suffer. Sedgwick on Damages, § 161, and cases referred to; 8 Am. & Eng. Enc. 590, 591, and cases referred to; Booth v. Spuy. Duy. R. Mill. Co., 60 N.Y. 493; Murdock v. Jones, 3 A.D. 221, 38 N.Y.Supp. 461.In the Booth Case Chief Judge Church said:

" It is presumed that the parties contemplate the usual and natural consequences of a breach when the contract is made; and if the contract is made with reference to special circumstances, fixing or affecting the amount of damages, such special circumstances are regarded as within the ...

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