Morris v. Achen Const. Co., Inc.

Decision Date03 April 1986
Docket NumberCA-CIV
PartiesJohn P. MORRIS and Barbara D. Morris, husband and wife, Defendants/Counter- Claimants/Appellants/Cross-Appellees, v. ACHEN CONSTRUCTION COMPANY, INC., an Arizona corporation; Sanders T. Achen and Roxanne M. Achen, husband and wife; Brett J. Hunsinger; Jalma Hunsinger, Plaintiffs/Counter-Defendants/Appellees/Cross-Appellants. 25670.
CourtArizona Court of Appeals
OPINION

HATHAWAY, Chief Judge.

Defendants/counter-claimants John P. Morris and Barbara D. Morris (Morris) contest the trial court's allowance of recoupment in favor of appellee Achen Construction Company, Inc. (Achen), the failure to instruct on Morris' false lien claim, the failure to grant Morris' attorney's fees and the granting of attorney's fees in favor of counter-defendants Brett J. Hunsinger and Jalma Hunsinger. Cross-appellant Achen contests the trial court's dismissal of its action based upon A.R.S. § 32-1167 and the trial court's denial of Achen's attorney's fees. We agree with the trial court on all issues except the false lien.

The Morrises own a plot of land in the Echo Canyon area. In May 1982, the Morrises entered into an oral agreement with Achen for construction of a residence on that land. Achen had been recommended by Jalma Hunsinger. Achen possessed a Class B contractor's license issued by the Registrar of Contractors. John Achen, a New Mexico resident, was the qualifying party for Achen's contractor's license. He later disassociated himself from the company.

Involved in the construction of this project as employees of Achen were Brett Hunsinger and Sanders Achen. Disputes arose among the parties during the course of construction as to the quality of work. Morris eventually dismissed Achen from the job. On October 4, 1982, Sanders Achen gave Morris a bill for costs This bill was not paid by Morris. Achen filed a mechanic's lien on Morris' property on October 7, 1982. The lien was released by Achen on October 18, 1982.

On December 3, 1982, Achen, Sanders Achen, Roxanne Achen and Brett Hunsinger filed suit against Morris for breach of contract to construct a residence for Morris. The complaint sought $40,000 in damages together with attorney's fees and costs. On March 10, 1983, Morris filed an answer and counterclaim. The counterclaim contained claims for breach of contract, negligence and fraud. In addition, Jalma Hunsinger, Carol Hunsinger and Hunsinger Homes, Inc., were brought into the litigation as counter-defendants on the fraud claims. On January 3, 1984, Morris moved to dismiss the claims of the individual plaintiffs on the ground that they were unlicensed contractors. The motion was granted, and the claims of Sanders Achen, Roxanne Achen and Brett Hunsinger were dismissed.

Beginning October 9, 1984, the case was tried to a jury. At the close of the contractor's case, the trial court directed a verdict in favor of Morris on the basis that John Achen, the qualifying party for Achen Construction Company, had disassociated himself from the company, resulting in suspension of the company's contractor's license pursuant to A.R.S. § 32-1167. At the conclusion of all the evidence, the trial court instructed the jury that in the event it determined that the contractors had breached the contract by performing defective work, the damages suffered by Morris should be reduced by the part of the contract price that was due but unpaid.

The jury found that the contractors had breached their contract with Morris and that Morris had been damaged in the sum of $16,500. The jury also determined, however, that $18,437.19 remained due on the contract price and therefore awarded no damages. The jury also found for Jalma Hunsinger, Sanders Achen and Brett Hunsinger on the fraud claim. All parties moved for an award of their attorney's fees, and the trial court awarded the counter-defendants Hunsinger $60,000 but denied the applications of all of the Achens and Morris. Morris moved for a new trial, which was denied by the trial court. Morris filed a timely appeal; Achen cross-appealed.

Morris raises five issues on appeal: (1) the trial court's instructions improperly allowed the jury to grant a set off in favor of an unlicensed contractor; (2) the trial court improperly refused to instruct the jury that it could award damages to the Morrises as a result of the filing of a false lien against their property by the contractors; (3) the trial court abused its discretion in refusing to award attorney's fees to the Morrises as the prevailing party against the contractors; (4) the trial court improperly awarded attorney's fees under A.R.S. § 12-341.01(A) to the Hunsingers as prevailing parties on a fraud claim; (5) in the event the court upholds an award of attorney's fees in favor of the Hunsingers, that portion of the fees attributable to representation of Brett Hunsinger should be disallowed.

Cross-appellant Achen raises two issues on appeal: (1) the trial court erred in dismissing Achens' complaint based upon A.R.S. § 32-1167 and (2) the trial court erred in denying the petition for attorney's fees filed by Sanders Achen, Roxanne Achen and John Achen.

I. RECOUPMENT

At trial, the court instructed the jury:

"If you find that Achen Construction Company, Sanders Achen and Brett Hunsinger or any of them had a contract with the Morrises and breached that contract by performing defective work, the measure of damages for that breach is the cost of remedying the defects less any part of the contract price that is due but unpaid."

The jury did in fact find that, while Morris had been damaged in the amount of $16,500, because $18,437.19 was as yet unpaid, there were zero damages. Morris argues that the trial court's instruction was in error because the inability of Achen to pursue its cause of action due to the provisions of A.R.S. § 32-1167 barred any right to offset the damages due against the unpaid contract price. It is indeed the law in Arizona that where a party is not entitled to relief in a direct action, that party is not entitled to a set off or counterclaim. Occidental Chemical Company v. Connor, 124 Ariz. 341, 604 P.2d 605 (1979); W.J. Kroeger Company v. Travelers Indemnity Company, 112 Ariz. 285, 541 P.2d 385 (1975).

The instruction by the trial court, however, was in the nature of a recoupment, not a set off. Although related concepts, set offs and counterclaims are distinguishable from recoupment. A set off or counterclaim is a demand which the defendant has against the plaintiff arising out of a transaction extrinsic to the plaintiff's cause of action, whereas a recoupment is a reduction by the defendant of part of the plaintiff's claim because of a right in the defendant arising out of the same transaction. Black's Law Dictionary 1146 (5th ed. 1979). See also W.J. Kroeger Company v. Travelers Indemnity Company, supra. Additionally, the instruction represents the proper measure of damages for recoupment. 20 Am.Jur.2d, Counterclaim, Recoupment and Setoff, § 158 (1965); 80 C.J.S. Set Off and Counterclaim, § 2 (1953).

In the current situation, the demand of Achen arose out of the same transaction on which Morris is counterclaiming. It is not an extrinsic transaction; therefore recoupment is the proper equitable remedy to be sought. In Arizona, recoupment is a defense which can be successfully asserted, even if the party is not entitled to relief in a direct action. W.J. Kroeger Company v. Travelers Indemnity Company, supra; Aetna Finance Company v. Pasquali, 128 Ariz. 471, 626 P.2d 1103 (App.1981). In Aetna, the claim of the defendant was barred by the statute of limitations. The court, however, permitted the recoupment defense despite this statutory limitation. The same reasoning holds true here. The claim of the counter-defendant Achen is barred by § 32-1167. However, since Achen's claim arose out of the same transaction, the defense of recoupment is available. We cannot distinguish this situation from Aetna. The instruction given by the trial court was correct. We do note, however, that in some jurisdictions, neither set off, counterclaim nor recoupment will be allowed if the defendant could not maintain an independent action. See 20 Am.Jur.2d, Counterclaim, Recoupment and Setoff, §§ 54-55 (1965). This, however, is not the law in Arizona. Any error in the instruction on the basis of failure to enunciate equitable defenses was waived by appellant due to failure to object or provide alternative instructions.

II. FALSE LIEN

Counts eight and nine of Morris' counterclaim sought damages as a result of the filing of a false lien against their property on October 7, 1982. In its lien, Achen stated that there was a written contract and that the building was completed. Neither statement was true. Pursuant to A.R.S. § 33-420(A), 1 the Morrises argued that they were entitled to damages of $1,000 or treble the actual damages caused by the filing of the false lien, together with reasonable attorney's fees and costs. Achen argues that since the lien was voluntarily released within 20 days of filing, the limiting language of A.R.S. § 33-420(C) applies. We disagree. The lien was invalid. A.R.S. § 33-1002(B). A.R.S. § 33-420(A) provides a remedy for an invalid lien, and it is distinct from the one provided in § 33-420(C). Richey v. Western Pacific Development Corporation, 140 Ariz. 597, 684 P.2d 169 (App.1984). Therefore, appellant was entitled to relief. The version of A.R.S. § 33-420(A) in effect at...

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