General Underwriting Co. v. Stilwell

Carr, J.:

This is an action to foreclose a mortgage on real property. The defendant has pleaded a partial setoff against the amount due on the face of the mortgage. To his defense of setoff the plaintiff demurred, and from an interlocutory judgment sustaining the demurrer the-defendant Van Mater Stilwell now appeals.- The question of law involved is interesting but'simple, if the facts be kept clearly in mind. The plaintiff is the assignee of the mortgage in suit. The defendant, . in his defense of setoff, alleges that the plaintiff is but acting as the agent for certain codefendants W ood, who are the beneficial owners of the mortgage. Assuming the truth of this allegation, as must be done on demurrer, then the defense is to be considered as if the codefendants "Wood were in fact. the. plaintiffs. The setoff is claimed against the defendants Wood'. It arises, according to the-defense, from the fact that the Wood parties conveyed the land in question to one Kraft by a full covenant warranty deed, including a covenant against incumbrances, and that Kraft-conveyed the land to the defendant Stilwell by a similar deed. At the time of the conveyance from the grantors Wood there, were assessments on the-land, which still remain undischarged. Kraft’s conveyance to Stil-.. well constituted an assignment of a right of action against Kraft’s grantors for the breach of the covenant against incumbrances. (Geiszler v. De Graaf, 166 N. Y. 339.) Hence Stilwell has now a cause of action against the Wood parties for damages. The question then is, can he set it off against the plaintiff, which represents the Woods who, for the purposes of this demurrer, are the true plaintiffs ?' If he cannot do so, the result will be that on the sale under foreclosure the referee will pay. the assessments out of the proceeds of sale, and Stilwell will be relegated to an action at law to recover against the Wood parties" on the covenant. It is claimed by the respondent that-this is.the only result which can be reached in this action, but I think this claim is' clearly wrong. This is an action in equity, and the dominant rule in equity is to ■ dispose at one time^ of all the causes of action between the same parties arising from the' same subject-matter, in order to avoid multiplicity and circuity of actions. It is, of course, true that in an action at law Stilwell could not recover against Wood for the breach of the covenant more than nominal damages unless the assessments were actually paid by him. (Delavergne v. Norris, 7 Johns. 358 ; McGuckin v. Milbank, 152 N. Y. 297.) Here,- however, the action is in equity and, as an ordinary incident of this action, the assessments must be paid by the referee out of the proceeds of the sale. Hence a judgment of sale in this action itself will convert the nominal damages into actual damages. There is no precedent cited by the respondent, nor can I find any myself, which sustains its contention as to facts similar to those at bar, while the principle declared in Merritt v. Gouley (58 Hun, 372) is quite in point in support of the appellant Stilwell. The respondent relies quite strongly upon D'Amelio v. Abraham (54 Misc. Rep. 386), which is a well-considered case, but not at all in point. There it was held that, as against an assignee of a mortgage, without notice of the equity, a defendant in a foreclosure action could not counterclaim for damages for breach of a covenant against incumbrances made by the.assignor of the mortgage where the damages arose from the payment of an assessment after the assignment, but which was a lien upon the land at the time of the original conveyance. That is not the question here. The defense which has been demurred to alleges that this plaintiff is but a cloak for the Wood parties, and that they are the true plaintiffs. If so, then no question of the rights of an assignee, without notice, arises, and the case is to be determined as if the Woods were the plaintiffs instead of being defendants. This being so, then the defense of partial setoff was available to the defendant Stilwell, and the demurrer should have been overruled.

I recommend that the interlocutory judgment sustaining the demurrer be reversed, with costs, and that the demurrer be overruled, with thirty dollars costs, with leave to the plaintiff to reply to the defense set up in the answer within twenty days, upon payment of the costs.

Jenks and Rich, JJ., concurred; Burr and Thomas, JJ., dissented.

Interlocutory judgment sustaining demurrer reversed, with costs, and demurrer overruled, with thirty dollars costs, with leave to plaintiff to reply to defense set up in the answer within twenty days, upon payment of costs.