Clapp, Goldmann and Ewart. The opinion of the court was delivered by Clapp, S.j.a.d.
[27 NJSuper Page 503] This action is for breach of warranty in connection with work done for the plaintiff by the defendant under a building contract. Judgment went for
the defendant after a motion for summary judgment. Plaintiff appeals.
The appeal presents, first, the question whether, by the settlement of a proper action, the plaintiff estopped itself from bringing the present action. In the prior action, the present defendant, the builder, sued the present plaintiff, the owner of the property built upon, for $13,589, the balance then due it on the contract mentioned above. Twenty-one days after the service of the complaint in the prior action and before service of an answer, the parties entered into a written agreement of settlement, whereby the owner agreed to pay the $13,589 over a period of time, with some remission of interest. The money was later paid, and the builder gave a release of its mechanic's lien. Later, under the rule now R.R. 1:30-3, the case was dismissed, the court being told the case was settled.
The builder relies upon Kelleher v. Lozzi , 7 N.J. 17 (1951), claiming, first, that the making of the settlement ipso facto gave rise to a reasonable expectation on its part that the owner then surrendered any claim it had for breach of warranty. Kelleher v. Lozzi involved two litigations over the same auto accident. Lozzi first sued Mrs. Kelleher for her negligence in that regard. She settled that suit. Then she sued him for his negligence. When in the settlement of the first suit she paid him, as she did, a large proportion of what he may have been entitled to, she thereby acknowledged she was negligent and he was not.
We will endeavor to lay out the analogy between this case and the Kelleher case, as the builder seems to conceive it. In the first place it is said that the builder could not, in the earlier action here, have made out its claim to the $13,589, without proving performance of the work agreed to be performed. Thence it is deduced that a valid claim for the money is inconsistent with a valid claim for nonperformance of the contract. Next it is said -- and we may concede it for the purposes of this argument -- that the major facts which would be required in order to establish nonperformance of the warranties would also be required in order
to establish nonperformance of the work agreed to be performed. Thus, we are brought along to the proposition, in the words of Kelleher v. Lozzi , that "it is logically and factually impossible to reconcile a valid claim" by the builder for the amount due under the contract, with a valid claim by the owner for nonperformance of the warranties. That leads, we are told, to the proposition which was to be demonstrated, namely, that an acknowledgment of liability upon the first claim is necessarily an acknowledgment that the warranties have been performed.
No case upon the point has been found in this State. Clearly, however, under the authorities elsewhere, when an action is instituted against an owner for the money due under a contract and he has a claim for breach of warranty, the law gives him the option either of setting up the claim in that action or thereafter of bringing a separate action upon the claim. Cf. Norton v. Sinkhorn , 63 N.J. Eq. 313, 320 (E. & A. 1901), where no warranty was involved. Furthermore, if judgment goes against him in the first action and, at any event, if his rights under the warranty are not actually litigated in that action, he is not precluded from thereafter bringing an action on the warranty. Davis v. Hedges, L.R. , 6 Q.B. 687 (1871); Virginia-Carolina Chemical Co. v. Kirven , 215 U.S. 252, 30 S. Ct. 78, 54 L. Ed. 179 (1909); Jones v. Charles Warner Co. , 2 Boyce (Del.) 566, 83 A. 131 (Super. Ct. 1912); Davison Chemical Co. v. Andrew Miller Co. , 122 Md. 134, 89 A. 401 (Ct. App. 1913); Gilmore v. Williams , 162 Mass. 351, 38 N.E. 976 (Sup. Jud. Ct. 1894); Minnaugh v. Partlin , 67 Mich. 391, 34 N.W. 717 (Sup. Ct. 1887); Thoreson v. Minneapolis Harvester Works , 29 Minn. 341, 13 N.W. 156 (Sup. Ct. 1882); Thibault v. Lambert , 87 N.H. 77, 174 A. 46 (Sup. Ct. 1934); McNight v. Devlin , 52 N.Y. 399 (1873); Holden v. Advance-Rumley Thresher Co. , 61 N.D. 584, 239 N.W. 479 (Sup. Ct. 1931); Himes v. Kiehl , 154 Pa. 190, 25 A. 632 (Sup. Ct. 1893); Davenport v. Hubbard , 46 Vt. 200, 14 Am. Rep. 620 (Sup. Ct. 1873).
It may seem, upon first inspecting the matter, that the doctrine of estoppel by judgment barely touches the doctrine of equitable estoppel relied upon here, and that there is nothing to be gained by looking at the matter from that tangent. However, the argument in this case, and indeed in the Kelleher case, seems to rest upon the doctrine of estoppel by judgment, and properly so in one respect. A judgment is a determination of the existence of certain minimal facts without which it could not have been rendered. Sbarbero v. Miller , 72 N.J. Eq. 248 (Ch. 1907), affirmed 74 N.J. Eq. 453 (E. & A. 1908). So viewed, the above cases become a determination that the builder's performance of those promises which constitute his warranties is not one of the minimal facts indispensable to his recovery of the money due under the contract. If that be so, then these cases establish that a valid claim for the amount due on the contract is not inconsistent with a valid claim on the warranties. We may proceed from there, without authority, to the proposition at stake here, namely, that a settlement of the first claim does not necessarily constitute a surrender of the second claim.
What is the theory of the cases? All of them have to do either with warranties or in a few instances, with the character of performance or the quality of goods furnished. The cases do not provide their own rationale. However, the line of authority finds its source in England and, as Justice Holmes suggests in Merchants Heat & Light Co. v. James B. Clow & Sons , 204 U.S. 286, 27 S. Ct. 285, 51 L. Ed. 488 (1906), no doubt goes back to the inefficiencies of the now obsolete defense of recoupment. If a hundred years ago the cases had decided the matter otherwise and a defendant had been obliged to set up a plea of recoupment in an action for the money due under a contract, not only would he have forfeited all rights he had to consequential damages, for example, for the cost of repairs made ...