This matter comes before the court on cross-motions for summary judgment. Argument was heard on June 28, 1974 and supplemental argument on September 13, 1974, at which time the court rendered its opinion from the bench, granting the motion as to defendant and denying it as to plaintiffs. Notice of appeal was served on November 6, 1974. This supplemental opinion is filed in response to that notice pursuant to R. 2:5-1(b) to aid the appellate court in its determinations.
There is no controversy as to the material facts involved, thus making the matter ripe for summary disposition. R. 4:46-2; Judson v. Peoples Bank & Trust Co. of Westfield, 17 N.J. 67, 74 (1954). Plaintiffs are in the industrial paper business as distributors. Defendant is a California corporation authorized to transact an insurance business in New Jersey. On June 11, 1972 defendant issued to plaintiffs a comprehensive liability insurance policy. Such policy was in force on September 28, 1973 when Union Textile Co., a textile printing concern and customer of plaintiffs, suffered property damage allegedly caused by defects in steaming paper sold and delivered by plaintiffs. This paper was used by Union in a steaming process whereby printed color is locked in fast on the textile fabric. Apparently the paper sold to Union contained spots which were transferred to the material during the steaming process,
thus making the cloth valueless. As a result of its loss Union asserted a claim against plaintiffs which was settled by Union withholding $16,755.80 from amounts which it owed plaintiffs, such an offset being reflected in a letter dated November 30, 1973 from Union's president to plaintiffs, and in a letter accompanying a check sent to plaintiffs by Union on January 16, 1974. Plaintiffs sought to recover this amount under its liability policy but defendant, after investigation, denied liability on the claim in a letter to plaintiffs dated December 14, 1973. It is this denial of liability and refusal to pay the claim that prompted plaintiffs to institute suit.
The legal arguments advanced by both parties are straight-forward. Plaintiffs contend that they became legally obligated to Union at the time that the cloth was damaged; that defendant therefore became liable to plaintiffs at that time by the terms of the liability policy, and that by denying liability under the policy defendant is barred by waiver and estoppel from setting up terms of that policy as a defense to plaintiff's claim. Plaintiffs also attack parts of defendant's answer as defective under R. 4:5-4 and 4:5-8(b). Defendant argues that plaintiffs did not become legally obligated to pay damages to Union and that defendant, therefore, was not liable under the policy; that plaintiffs have not complied with the conditions of the policy and are barred from commencing action against the insurer, and that defendant has not waived any defenses under the policy and is not estopped from denying liability and raising terms of the policy in defense. The arguments of both parties go to their respective responsibilities under the liability contract, and thus involve issues of the insurer's obligation to make the insured whole, and the insured's duty to comply with terms and conditions of the policy.
Plaintiff's attack on the sufficiency of defendant's answer can be readily dealt with. Under R. 4:5-4 affirmative defenses must be pleaded "specifically and separately"; under R. 4:5-8(b) denial of performance of conditions
precedent must be made "specifically and with particularity." Plaintiffs assert that defendant's third, fourth, fifth and sixth separate defenses are not sufficiently precise under these rules and therefore should be stricken. The purpose in R. 4:5-4 of requiring that certain defenses be pleaded affirmatively is to avoid surprise. Faul v. Dennis, 118 N.J. Super. 338, 342 (Law Div. 1972). This same rationale would seem applicable to the requirement of specificity in the pleadings, particularly in view of the expression in 110-112 Van Wagenen Ave. Co. v. Julian, 101 N.J. Super. 230, 239 (App. Div. 1968), that the "intent and spirit of the rules" is to put adverse parties on notice of claims to be met. It cannot be said that the third, fourth, fifth and sixth separate defenses as asserted in the answer caused plaintiffs unfair surprise or failed to apprise them of the claims asserted by defendant. To strike pleadings in view of this would be to give effect to technical niceties of pleading over the spirit and purpose of the rules, thereby obfuscating the intent of the rules themselves. This being the case, the objection raised by plaintiffs must be rejected.
In its sale of steaming paper to Union plaintiffs made implied warranties of merchantability and fitness of purpose to the buyer pursuant to N.J.S.A. 12A:2-314 and 2-315. Plaintiffs also contend that the goods were sold under an express warranty. N.J.S.A. 12A:2-313, but as no proof is offered of such a warranty it is not before the court for consideration. Exclusion (a) of the policy expressly provides that losses occasioned by breach of a warranty of fitness or quality of the insured's products is within the coverage of the policy. However, although the harm suffered may be within the coverage liability for payment by the insurer under the coverage is controlled by other provisions of the insurance contract, notably Part I: "The Company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of * * * Coverage B. property damage." (Emphasis supplied). On the facts of this case plaintiffs contend that as a result of Union's loss
they became legally obligated to Union for damages under N.J.S.A. 12A:2-714 and 2-715; that pursuant to N.J.S.A. 12A:2-717 and in light of this obligation Union properly withheld payment as an offset for the damage suffered, and that therefore defendant was required under Coverage B to pay such damages. This theory of liability necessarily rests upon the degree to which the above-cited statutes establish plaintiffs' legal obligation to pay Union.
N.J.S.A. 12A:2-714, 2-715 and 2-717 are provisions of the Uniform Commercial Code dealing with buyer's remedies for breach of contract by seller after the buyer has accepted the subject goods. These sections are applicable insofar as seller (plaintiffs) did breach their implied warranties to buyer (Union). Both N.J.S.A. 12A:2-714 and 2-715 deal with buyer's measure of damages. N.J.S.A. 12A:2-717 provides the buyer with an alternative means of recovery through recoupment. To assert its remedies under N.J.S.A. 12A:2-714 and 2-715 the buyer must notify the seller within a reasonable time after he discovers, or should have discovered, the breach. N.J.S.A. 12A:2-607(3)(a); Buff v. Giglio, 124 N.J. Super. 94, 98 (App. Div. 1973). Here it appears that Union notified plaintiffs of the damage to its fabric, and thus of the defect in the steaming paper, as soon as the damage was observed. Although no proof is offered as to the nature of the handling and use of such paper to indicate whether this was, in fact, a reasonable time for such notification, it seems that this substantially complied with N.J.S.A. 12A:2-607(3)(a) and therefore entitled Union to damages as provided in N.J.S.A. 12A:2-714 and 2-715. Union could also deduct these damages from money owed on the same contract under N.J.S.A. 12A:2-717, providing the seller was properly noticed. The ...