Glaser v. Slate Const. Co.

Decision Date03 December 1952
Citation251 P.2d 441,196 Or. 625
PartiesGLASER et al. v. SLATE CONST. CO. et al.
CourtOregon Supreme Court

W. C. Winslow, of Salem, Norman K. Winslow, of Salem, on the brief, for plaintiffs-respondents, and defendant-respondent Pacific General Contractors, Inc., an Oregon corporation.

Sam Kyle, of Albany, Weatherford & Thompson, of Albany, on the brief, for defendant-appellant.

Before BRAND, C. J., and HAY, LUSK, LATOURETTE and TOOZE, JJ.

LUSK, Justice.

This is a suit to foreclose a chattel mortgage commenced by F. (Frank) T. Glaser, William Glaser, D. (David) E. Turnidge, and P. (Percy) L. Turnidge. The defendant, Slate Construction Company, counterclaimed to recover from the plaintiffs the reasonable rental value of certain personal property. At the conclusion of the trial the court entered a decree of foreclosure and dismissed the counterclaim. Slate Construction Company, hereinafter referred to as the defendant, appeals.

There is no controversy here about the validity of the mortgage or plaintiffs' right to foreclose, other than that the defendant contends that the balance owing on the mortgage has been more than fully paid by the amount claimed for rental of the personal property.

The mortgage, covering various pieces of road construction equipment, was executed under date of November 17, 1947, by the defendant in favor of the United States National Bank of Portland, Oregon, to secure a loan in the sum of $67,804.68. It was assigned by the bank to Investment Service Company, a corporation, which in turn assigned it to the plaintiffs, who were at the time stockholders in Pacific General Contractors, a corporation, hereinafter called Pacific. The last named corporation was the plaintiff in the case of Pacific General Contractors v. Slate Construction Company, Or., 251 P.2d 454, and which will hereinafter be referred to occasionally as the first case.

The articles of personal property involved in the counterclaim are likewise pieces of road construction equipment. They are described as two DW-10's with scrapers attached, one D-8 Caterpiller tractor (sometimes referred to in the testimony as RD-8), and a Chevrolet flat bed truck and mounted fuel tank. (These are different machines than those covered by the mortgage.) The counterclaim alleges that while the defendant was the owner thereof the plaintiffs 'had and received and leased the above personal property and agreed to pay the said defendant the reasonable value of the rental thereof'. The particular periods of time during which plaintiffs leased each piece of equipment, together with the reasonable rental value thereof, are alleged. It is further alleged:

'* * * that the plaintiffs agreed to pay said rent within a reasonable time and that a reasonable time has elapsed at the time of the filing of the amended complaint herein and that all of said rent is now due and owing from plaintiffs to the said defendant.

'VI.

'That it will be necessary to have an accounting to determine the exact amount due the said defendant from the plaintiffs for the rental of said equipment'.

A decree is sought 'determining by accounting the amounts due from the plaintiffs to the defendant, and for a decree in favor of the defendant and against the plaintiffs for the sum found due less the amount due the plaintiffs on the note set forth in plaintiffs' complaint, and for a decree that the said note and mortgage mentioned in plaintiffs' complaint has been paid in full'.

We are met at the outset with the objection that the facts pleaded do not constitute a counterclaim under the statute. The counterclaim is a part of the amended answer. The initial answer contained a counterclaim in all respects identical except that it said nothing of the necessity of an accounting and asked for a judgment in the sum of $127,780.17 with interest at the rate of six per cent per annum from May 2, 1950. The amendment was made without objection on the trial, after counsel for the plaintiffs had objected to the admission of evidence in support of the counterclaim on the ground that it did not state facts sufficient to constitute a counterclaim in equity and before the court had ruled on the objection. This objection was reiterated after the amendment had been allowed. Plaintiffs have argued the point in their brief in this court. Their counsel likewise referred to it on the oral argument. In the course of his discussion of the subject he said, in answer to a question from the bench as to whether he had any objection to the case being tried by the trial judge:

'No, he finally went ahead and entertained jurisdiction and tried it out, and decided it on the merits as far as that's concerned. And we had no objection to that. We don't make any objection to this court doing the same thing.' The governing statute is § 9-114, O.C.L.A.:

'The counterclaim of the defendant shall be one upon which a suit might be maintained by the defendant against the plaintiff in the suit; and in addition to the cases specified in the subdivisions of section 1-712, it is sufficient if it be connected with the subject of the suit.'

We have repeatedly held that under this statute the counterclaim on which a defendant may have affirmative relief in an equity suit must contain matters of equitable cognizance. Wiggins v. Hendrickson, 191 Or. 285, 287, 229 P.2d 652, and cases there cited. It is unnecessary to cite authority for the view that a pleading which seeks to recover the reasonable rental value of personal property does not state a cause of suit in equity but a pure legal claim, and therefore cannot constitute a counterclaim to foreclose a mortgage. Hanna v. Hope, 86 Or. 303, 310, 168 P. 618. The character of the pleading is not changed by alleging the necessity for an accounting when the facts stated demonstrate that no accounting is needed or would be involved. A jury is entirely competent to determine from the evidence whether a piece of equipment was rented (as is claimed in this case, under an implied agreement); if so, for how long; what was the reasonable rental value by the day or month; and to make the necessary calculation in order to figure the amount owing.

The defect, however, is one which can be waived by failure to demur and filing a reply, Hanna v. Hope, supra; Templeton v. Cook, 69 Or. 313, 317, 138 P. 230, though even in the absence of a demurrer it can be taken advantage of by objection to the introduction of any testimony offered to sustain it. McCargar v. Wiley, 112 Or. 215, 227, 229 P. 665; Eagle Point v. Hanscom, 121 Or. 40, 44, 252 P. 399; Kondo v. Aylsworth, 81 Or. 225, 228, 158 P. 946. This court has held in Maxwell v. Frazier, 52 Or. 183, 96 P. 548, 18 L.R.A.,N.S., 102, that where there is an entire lack of matter of equitable cognizance the objection is not waived by failure to interpose it at the proper time, but it is available at any stage of the proceeding, a distinction being made between that kind of a case and a case which falls within the field of equitable jurisdiction but in which an element essential to complete jurisdiction is lacking. See, also, Carroll v. McLaren, 60 Or. 233, 235, 118 P. 1034; Bowsman v. Anderson, 62 Or. 431, 436, 123 P. 1092, 125 P. 270. We are not disposed to extend the doctrine of those cases, however, to counterclaims, and we are of the opinion that in a suit in equity, where the defendant files a counterclaim which states a purely legal claim and one which does not come within the field of equitable jurisdiction, the objection may be waived. See, in this connection, Ingersoll v. Clapp, 179 Wash. 335, 37 P.2d 895. In the present case, while counsel for the plaintiff did, it is true, object to the introduction of evidence in support of the counterclaim, nevertheless in this court the statement made by him in argument which we have quoted amounted to an express waiver of the point, an invitation in fact to the court to take jurisdiction of the matters embraced in the counterclaim. We therefore conceive it to be our duty to determine the issue, trying the case de novo as a suit in equity.

The controversy comes as an aftermath of the case of Pacific General Contractors v. Slate Construction Co., Or., 251 P.2d 454. The transcript of testimony in that case, the exhibits and the pleadings, as well as the brief of Pacific General Contractors filed in this court, were all received in evidence in the present case without objection. As the record in the first case consists of nearly 800 pages of testimony and some 60 exhibits--much of this without bearing on the issues now before us--this procedure has added to the difficulty of determining a controversy already sufficiently involved.

It is conceded in the testimony that during the year 1949 the plaintiffs obtained possession of and used the two DW-10's and the D-8. It is also conceded that one of the plaintiffs, Percy Turnidge, took possession of the Chevrolet flat bed truck and mounted fuel tank; but it is contended that he did so in his capacity as president of Pacific and not as an individual. The defendant urges a two-pronged theory of recovery. First, that the equipment belonged to it, and that the plaintiffs are liable to it for its reasonable rental value under the law of quasi-contract; second, that, even though the equipment was the property of Pacific, still plaintiffs are liable because the equipment was used in the prosecution by the two corporations of a joint adventure in the building of a highway known as the North Umpqua Project, and that plaintiffs, as directors of Pacific, violated a fiduciary duty to the joint adventure and to the defendant by taking possession of the equipment and using it.

We will consider first the question of ownership of the two DW-10's and the D-8. From the standpoint of the money involved they are the most important, for the evidence tends to show that their rental value is very substantial. For reasons...

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