Metropolitan Trust Co. v. Tonawanda Valley & Cuba Railroad , 18 Abb. N. Cas. 368 ( 1887 )

Bradley, J.:

The plaintiff was at liberty to make the senior mortgagees parties defendant so as to have the amount secured by their mortgages ascertained and determined by the judgment, that they might be paid out of the proceeds of the sale, and their lien discharged, or that the sale might be made subject to the known amount of their liens. (Western Ins. Co. v. Eagle Fire Ins. Co., 1 Paige, 284; Vanderkemp v. Shelton, 11 id., 29 ; Holcomb v. Holcomb, 2 Barb., 20 ; Emigrant Industrial Savings Bank v. Goldman, 75 N. Y., 127.) The desire expressed in the complaint is to have .the amount of those mortgages ascertained, that the amount may be paid out of the proceeds of the sale, or that the premises may be sold subject to their liens, and judgment is in like manner in the alternative demanded.

The question is, whether the defendant, the Farmers’ Loan and Trust Company, could properly set up in the answer, and make available by the judgment, the matter alleged, and the demand for affirmative relief by way of foreclosure of its mortgage, and sale of the premises and property covered by it. This defendant could have brought its action in the nature of a cross bill for such relief. The right to seek it as a defendant, is dependent wholly upon the statute. And the inquiry arises whether it is a counter-claim within the meaning of the statute, which provides that the answer may contain a statement of new matter constituting a counter-claim ( Code Civil Pro., § 500), that the counter-claim “ must tend in some way to diminish or defeat the plaintiff’s recovery,” and must be a cause of action “ against the plaintiff, or, in a proper case, against the person whom he represents, and in favor of the defendant, or of one or more defendants, between whom and the plaintiff a separate judgment may be had in the action.” And such cause of action must arise “out of the contract, or transaction set forth in the complaint as the foundation of the plaintiff’s claim, or connected with the subject of the action; ” or 2. “ In an action on contract, any other cause of action on contract, existing at the compiencemerit of the action.” (Id., § 501.) And in such case, when entitled thereto the defendant may have judgment for the affirmative relief demanded in the answer. (Id., § 504.) The subject of the plaintiff’s action is the mortgage made by the consolidated company, and the property covered by it, which embraces that in the senior mortgage of the defendant, and the purpose of the action is to foreclose the mortgage, and sell the property. It is contended, on the part of the plaintiff, that the cause of action alleged in the answer is not a cause of action against the plaintiff, and does not tend to diminish, or defeat the plaintiff’s recovery, and that it is not connected with the subject of the action.

The plaintiff, as a junior mortgagee, would be a necessary party defendant, in an action to foreclose the senior mortgage. That situation seems to be sufficient to constitute a cause of action against the plaintiff within the meaning of the statute. The affirmative relief demanded by the answer, and given by the judgment, in some sense qualifies or diminishes the plaintiff’s recovery in view of the allegations of the complaint and the relief demanded by it, and yet preserves all the rights to which the junior mortgagee is entitled, and affords to the senior one only such priority as it is entitled to. And this is a legitimate result, if the matter alleged in the answer is in other respects within the requirement of a counter-claim.

In Vassear v. Livingston (13 N. Y., 248), the plaintiff was not a proper party to any action in favor of the defendant upon the claim alleged; and it was not a counter-claim, because it was no cause of action against the plaintiff. And to the same effect is Frick v. White (57 N. Y., 103-107). While the defendant is not a necessary party defendant to the action for the foreclosure of the plaintiff’s mortgage, and the defendant’s cause of action may not arise out of the contract or transaction set forth in the complaint as the foundation of the plaintiff’s claim, it seems to be connected with the subject of the action. The requisite of connection of the defendant’s cause of action with the subject of the plaintiff’s action is not defined or restricted by the provisions of the statute. There must only be some connection. And it has been said that it “ must have such relation to, and connection with, the subject of the action, that it will be just and equitable that the controversy between the parties as to the matters alleged in the complaint and in the counterclaim, should be settled in one action, by one litigation.” (Carpenter v. Manhattan Life Ins. Co., 93 N. Y., 556)

The theory and policy of the statute, providing for the disposition of controversies by actions, is that the rights of all parties to an action as between the plaintiff and all or any of the defendants, and as between the defendants themselves, shall be adjusted and declared by the judgment, when the relation between them and the subjects involved, are such as to permit it to be done within the practice prescribed. (Code Civil Pro., § 1204; Derham v. Lee, 87 N. Y., 599.)

In Rafferty v. Williams (34 Hun, 544), cited by the plaintiff’s, counsel, the controversy presented by the answer was wholly between the defendants, and had no relation to the subject of the action ; and the court held that it was not within section 1204 of the Code. But prior to the present Code, the affirmative relief sought by the defendant in this action was not available as a counter-claim, because the practice did not provide for service of pleadings by one defendant upon another, and thus permit to be brought before the court, upon the cause of action so alleged by a defendant, the other parties defendant requisite to the determination of the claim. The statute now, in view of such practice, provides that “ where the judgment may determine the ultimate rights of two or more defendants as between themselves, a defendant who requires such a determination, must demand it in his answer, and must, at least twenty days before the trial, serve a copy of his answer upon the attorney for each of the defendants affected by the determination,” etc, (Code Civil Pro., § 521.) This service was made, and all the parties requisite to the relief, so far as appears, were thus brought into the con-, troversy tendered by the defendants answer of the alleged counterclaim. That section and this proceeding under it extended the application and practical effect of Code of Civil Procedure (§ 1204). (Kenney v. Apgar, 93 N. Y., 539, 547). And as the alleged claim of the defendant embraces both a cause of action against the plaintiff and against some of the co-defendants, and is connected with the subject of the action, and in some degree may go to diminish the plaintiff’s recovery as measured by the relief within the demand and allegations of the complaint, the relief asked for and obtained by this defendant seems to come within the meaning of the statute defining a counter-claim. This does not necessarily result from, or require the conclusion of any enlargement of the power of the court by the provisions of section 521; but, as a matter of practice, extended and regulated by that section, the manner of the exercise of the power of the court is enlarged and the means are provided to parties defendant in proper cases to extend the operation and effect of the provisions of section 1204, and embrace within the term counter-claim some claims which, before then, the practice provided by the statute did not permit to be made available as such. (Albany Savings Inst. v. Burdick, 87 N. Y., 40.)

The practice as applied to a case of this character, and the judgment as rendered in this action, we think, are not in contravention of any provision of the statute providing for the foreclosure of mortgages by action and the sale of the premises pursuant to judgments therein. And there seems to be no impropriety in providing for and pursuing the practice adopted in this case. The rights of the parties are as effectually preserved in the one as they could have been in two distinct actions; and it is not seen that the interest of the parties represented by the plaintiff are prejudiced by the dual relief given by the judgment.

There is no force in the objection that the answer did not, in express terms, define as a counter-claim the matter set up as such, inasmuch as it distinctly appears by the relief demanded that it was intended as a counter-claim. None of the plaintiff’s exceptions presented here for consideration seem to have been well taken.

The portion of the judgment appealed from should be affirmed.

Barker and Haigiit, JJ., concurred; Smith, R. J., not sitting.

Judgment affirmed, with costs.