Summary
In Telmark, unlike the instant case, a lease agreement between the parties contractually precluded the defendants from suing the plaintiff for consequential damages and so recoupment could not be used as a "back-door" mechanism for raising the issue.
Summary of this case from Beka Industries, Inc. v. Worcester County Board of EducationOpinion
December 20, 1985
Appeal from the Supreme Court, Onondaga County, Lawton, J.
Present — Callahan, J.P., Denman, Boomer, Green and Schnepp, JJ.
Order unanimously reversed, on the law, without costs. Memorandum: Defendants entered into a lease agreement with Agway, Inc., for the construction and rental of a building used to board horses. Agway assigned the lease to the plaintiff. Defendants ceased paying rent after the roof of the building leaked causing considerable damage and preventing full utilization of the building. When Agway did not adequately remedy the problem, plaintiff sued defendants for the balance of rent due under the lease and defendants asserted some counterclaims for consequential and incidental damages. Plaintiff moved to dismiss those counterclaims on the ground that the terms of the lease specifically precluded its liability for consequential and incidental damages.
Special Term sua sponte dismissed those counterclaims but granted defendants leave to amend their answer to assert the claims for consequential and incidental damages by way of the defense of equitable recoupment. That was error. In order to assert the defense of equitable recoupment, a party must have a legally subsisting cause of action upon which it could maintain an independent claim (see, Seibert v Dunn, 216 N.Y. 237; Constantino v State of New York, 99 Misc.2d 362, 365; see also, 20 Am Jur. 2d, Counterclaim, Recoupment and Setoff, §§ 11, 12, 17; 80 CJS, Set-Off and Counterclaim, § 25). Since "under no circumstances" can the defendants have a cause of action against plaintiff for consequential damages, they cannot assert such claim in recoupment.
Further, the defense of recoupment does not include a claim for damages purely consequential but is limited to allowance for diminution in the value of the subject matter of the contract (see, Matter of Marchant v Mead-Morrison Mfg. Co., 252 N.Y. 284, 301, appeal dismissed 282 U.S. 808). Singer Co. v Alka Knitting Mills ( 41 A.D.2d 856), relied on by Special Term, is not to the contrary. Defendant there combined in one "AFFIRMATIVE DEFENSE, OFFSET AND COUNTERCLAIM" claims for consequential damages for lost profits and a claim for return of a down payment on a machine it never received. The court dismissed the claim as pleaded but permitted the defendant to replead to assert the down payment as a defense of setoff. The doctrine of recoupment was not involved.