Uvalde Asphalt Paving Co. v. Morgan Contracting Co.

The action is to foreclose a mechanic’s lien and for a personal judgment against the appellants. The defendant Morgan Contracting Company entered into a contract with the Realty Associates for the erection of certain buildings, and sublet the work to the plaintiff. The plaintiff filed a lien for the amount claimed to be unpaid and due, and the defendant Metropolitan Surety Company was the surety upon the undertaking given to discharge the lien. The counterclaim alleges the contract and the subcontract, and avers that after the plaintiff had entered upon the performance of the subcontract “it began in every way it could to annoy and injure said defendant Morgan Contracting Company”; that the plaintiff was paid from time to time under its contract all moneys it could justly and reasonably demand, but nevertheless the plaintiff filed a mechanic’s lien against the property for the purpose of in jurying the credit of the Morgan Contracting Company; that, after the lien was discharged by the giving of a bond, the plaintiff filed another lien for the same claim with the same purpose; and that with the same end in view the plaintiff, through its representatives, agents, and officers, circulated stories of the lack of financial responsibility of the defendant Morgan Contracting Company among its debtors, and induced many of them to default in payments due the said defendant. The counterclaim alleges that all such statements were false, and known to be false by the plaintiff when made, and were for the purpose of injuring the Morgan Contracting Company, which was thereby damaged. The plaintiff demurred to the counterclaim on the ground that it is not of the character specified in section 501 of the Code of Civil Procedure, in that it does not arise out of the contracts or transactions set forth in the complaint as the foundation of the plaintiff’s claim, nor is it connected with the subject of the action, nor does it tend to diminish or defeat the plaintiff’s recovery. These are the only grounds stated of the demurrer.

Section 501 of the Code of Civil Procedure reads as follows:

“The counterclaim, specified in the last section, must tend in some way, to diminish or defeat the plaintiff’s recovery, and must be one of the following causes of action against the plaintiff, or, in a proper case, against the person whom he represents, and in favor of the defendant, or of one or more defendants, between whom and the plaintiff a separate judgment may be had in the action: (1) A cause of action arising out of the contract or transaction set forth in the complaint as the foundation of the plaintiff’s claim, or connected with the subject of the action. (2) In an action on contract, any other cause of action on contract, existing at the commencement of the action.”

It is clear that the counterclaim does not set forth a cause of action on contract, and hence, under subdivision 1 of section 501 of the Code of Civil Procedure, supra, the defendants may not assert the counterclaim appearing in the answer, unless the matters there alleged arose out of the contract or transactions set forth in the complaint or were connected with the subject of the answer. In our opinion the demurrer was properly sustained. The transaction alleged in the complaint, and the subject-matter of the action, deal with the performance of the subcontract between the plaintiff and the defendant Morgan Contracting Company, and the unfulfilled promise of the latter to pay. It is apparent that the allegations concerning the lien filed by the plaintiff pertain to the remedy and the method of enforcing the payment of the judgment, rather than to the nature of the action. The conduct of the plaintiff’s agents in an effort to injure the credit of the defendant Morgan Contracting Company is in no way connected with the subject of the plaintiff’s action, nor does it arise out of the subcontract; for it has nothing to do with the manner or extent of performance of the subcontract, the acceptance of the work done under the subcontract, or the payment of the moneys therein provided. As well might a defendant, sued for money loaned, allege a counterclaim that the plaintiff, in seeking to enforce his claim, slandered the defendant in respect to his business or profession, as that the counterclaim of the defendant here should be permitted. See People v. Dennison, 84 N. Y. 272 ; Haupt v. Ames, 26 App. Div. 550 , 50 N. Y. Supp. 495 ; Lundine v. Callaghan, 82 App. Div. 621 , 81 N. Y. Supp. 1052 .

The interlocutory judgment should therefore be affirmed, with costs. All concur.