Kelly v. Struth

ises were sold to the defendant, who on or about the 7th day of July, 1898, “with the consent and with the knowledge and acquiescence of these plaintiffs, entered into and has ever since remained in possession of said premises,” and has paid taxes and assessments duly levied thereon, amounting, exclusive of interest, to the sum of $2,200.

[1,2] In the counterclaim, the defendant pleads that the mortgagor failed to pay the interest due and payable on November 10, 1896, pursuant to the bond, and the subsequent installments of interest, and that thereupon defendant elected to declare the entire principal immediately due and payable, and on the 4th day of January, 1898, brought an action for the foreclosure of the mortgage, and named and served plaintiffs as parties defendant, and on the foreclosure sale bid in the premises for the sum of $1,800, and paid the amount of his bid to the referee, from whom he received a deed in the premises bearing date July 7, 1898, and entered into possession claiming ownership pursuant to said deed, and still remains in possession; that the mortgagor and the plaintiffs failed tó comply with the conditions of the bond by omitting to pay the principal of $1,500 and interest from May 10, 1896, secured by the mortgage; that at the time defendant entered into possession there was a frame structure on the premises so out of repair as to be unfit for occupation and of no value, and that he expended in repairing the building and in constructing an additional building on the premises the sum of $5,400, and has paid the sum of $2,200 for taxes and assessments which had become liens on the premises, relying upon an affidavit of due service upon the plaintiffs contained in the judgment roll, which the plaintiffs now claim was erroneous; that said expenditures and disbursements were made by the defendant in good faith and in the belief that he was the absolute and unquestioned owner of the premises, and that plaintiffs had actual knowledge of said expenditures and acquiesced therein; and that there is now justly due and owing to the defendant on the bond and mortgage the sum of $1,500, with interest at 6 per centum per annum from the 10th da\ of May, 1896, and the sum of $2,200 paid for taxes and assessments, with interest at the rate of 6 per centum per annum from the respective dates of payment, and the sum of $5,400 paid for improvements, with interest from the date of payment. The defendant demands judgment that the complaint be dismissed, with costs, and, in the event that it shall be adjudged that plaintiffs’ interest has not been cut off by the foreclosure, that defendant have judgment for the foreclosure and sale of the premises, and that plaintiffs and all persons claiming under them subsequent to the commencement of this action may be barred and foreclosed of all right, claim, lien, and equity of redemption, and that from the moneys arising from the sale the defendant be paid the amount due on the bond and mortgage, together with interest, and all disbursements incurred by the defendant for taxes, assessments, and improvements, with interest, together with costs of the action, and for such other and further relief in the premises as may be just and equitable.

The demurrer interposed by the plaintiffs is upon the ground that it appears upon the face of the counterclaim that it “is not of the char

acter specified in section 501 of- the Code of Civil Procedure, in that it in no way tends to diminish or defeat the plaintiffs’ recovery.”

[3, 4] In Vought v. Levin, 142 App. Div. 623 , 127 N. Y. Supp. 479 , this court held that where persons, having an interest subordinate to a mortgage, claim that their interest has not been extinguished, owing to the fact that the summons was not seiwed upon them in an action to foreclose the mortgage, the purchaser at the foreclosure sale will be deemed, as against them, to be a mortgagee in possession, and may again foreclose the mortgage as to their claims. If it shall be established on the trial that the plaintiffs were served in the foreclosure action, then they are concluded by the judgment therein; - and if it shall not be so established, then manifestly the defendant is lawfully in possession as mortgagee; and in neither event are the plaintiffs entitled to possession. The contention of the plaintiffs is that the counterclaim is not a cause of action against the plaintiffs in favor of the defendant, which tends in some way to diminish or defeat their recovery, within the provisions of section 501 of the Code of Civil Procedure. We are of opinion that the counterclaim as pleaded is a cause or causes of action in favor of the defendant against the plaintiffs, and that it is connected with the subject of the action within the purview of said section, and does tend to diminish or defeat their right to recover possession of the premises and damages. The subject of the action is the alleged right of the plaintiffs to possession of the premises, and the counterclaim shows that the defendant is in any event in lawful possession of the premises as mortgagee, and is entitled to retain possession, and to have the right, claim, and interest of the plaintiffs foreclosed, if not already foreclosed. Moreover, the defendant is in any event a tenant in common with the plaintiffs, and has made expenditures and disbursements, for part of which, at least, either at law or in equity, he is entitled to contribution, which would here be an effect to the claim of the plaintiffs for damages, or for use and occupation, or rental value. See Jones v. Duerck, 25 App. Div. 551 , 49 N. Y. Supp. 987 ; Adams v. Bristol, 126 App. Div. 660 , 111 N. Y. Supp. 231 ; Reeves on Real Property, vol. 2, § 686; Campbell v. Mesier, 4 Johns. Ch. 334 , 8 Am. Dec. 570 ; Dickinson v. Williams, 11 Cush. (65 Mass.) 258, 59 Am. Dec. 142 ; Clark v. Platt, 39 App. Div. 670 , 58 N. Y. Supp. 361 . See, also, Putnam v. Ritchie, 6 Paige, 390; Cosgriff v. Foss, 152 N. Y. 104 -108, 46 N. E. 307 , 36 L. R. A. 753 , 57 Am. St. Rep. 500 ; Satterlee v. Kobbe, 173 N. Y. 91 , 97, 65 N. E. 952 ; Adams v. Bristol, 126 App. Div. 660 , 111 N. Y. Supp. 231 , affirmed 196 N. Y. 510 , 89 N. E. 1095 ; Conklin v. Conklin, 3 Sandf. Ch. 64 ; Prentice et al. v. Janssen et al., 79 N. Y. 478 .

The cause of action for foreclosure pleaded in the counterclaim is one upon which the defendant could sue the plaintiffs, under our de-. cisión in Vought v. Levin, supra, for the plaintiffs are asserting that their interest has not been cut off by the foreclosure, .which affords sufficient basis for a mortgagee in possession to institute a foreclosure action against them. It is quite clear on the facts that that cause of action exists in favor of the defendant; but it is unnecessary for the defendant to assert it, unless it shall be established that the plaintiffs

were not served in the foreclosure action. The situation, therefore, is' that the defendant pleads in the counterclaim a sufficient cause of action against the plaintiffs, and the sufficiency thereof as a counterclaim is not affected by the fact that he states that he desires to assert it only if it shall become necessary to do so. It is manifest that-the counterclaim tends to diminish or defeat the plaintiffs’ recovery, for it shows that the defendant, while lawfully in possession as mortgagee, in good faith and with the knowledge and acquiescence of plaintiffs, expended money for the preservation and maintenance of the property, which gives him an equitable lien on the premises and offset against plaintiffs’ claim for damages, and cause of action for reimbursement. Miner v. Beekman, 50 N. Y. 337 ; Jones v. Duerck, 25 App. Div. 551 , 49 N. Y. Supp. 987 ; Adams v. Bristol, 126 App. Div. 660 , 111 N. Y. Supp. 231 , affirmed 196 N. Y. 510 , 89 N. E. 1095 . And, furthermore, he would have an offset for contribution against his cotenants, since he made the disbursements under the erroneous belief that he owned the entire premises.

[5] The defendant has pleaded the facts, and he is not to be deprived of offsetting his claim for expenditures and disbursements against the amount to which the plaintiffs might otherwise be entitled by his failure to specifically demand that such expenditures and disbursements be offset.

[6, 7] Counsel for the appellants claims that the counterclaim is to be construed merely as a cause of action in favor of the defendant against the plaintiffs for the foreclosure of the mortgage, and that the other facts pleaded in the counterclaim are to be disregarded. That construction is altogether too narrow, for the defendant is entitled to the benefit of the facts pleaded, both as counterclaiming an offset and as a counterclaim for affirmative relief. Rando v. Nat. Park Bank, 137 App. Div. 190 , 121 N. Y. Supp. 1048 ; Barber v. Ellingwood, 137 App. Div. 704 —710, 122 N. Y. Supp. 369 . The plaintiffs claim in effect that, assuming the facts pleaded in the counterclaim to be true, the court upon the trial of the action would be obliged, if it were found that the plaintiffs were not served in the foreclosure action, to award plaintiffs possession of the premises, notwithstanding that by the same decree the defendants would be entitled to judgment of foreclosure and sale. That contention disregards the rule that a mortgagee lawfully in possession after default, as the defendant is here according to the facts pleaded in the counterclaim, is entitled to retain possession until the premises are redeemed. Madison Ave. Baptist Church v. Oliver St. Baptist Church, 73 N. Y. 82 ; Becker v. McCrea, 149 App. Div. 211 , 133 N. Y. Supp. 771 ; Barson v. Mulligan, 191 N. Y. 306 , 84 N. E. 75 , 16 L. R. A. (N. S.) 151 .

It follows that the order should be affirmed, with $10 costs and disbursements. All concur.