Otis v. Shantz — 38 N.Y. St. Rep. 434

Majority

p. 434

John L. Otis et al, Trustees, Resp’ts, v. Moses B. Shantz, App’lt.^[1]

(Court of Appeals,

Filed June 2, 1891.)

Headnote

1. Pleading—Answer.

In an action upon notes given for property purchased by defendant of trustees appointed to liquidate the debts of a corporation, the answer alleged that defendant was induced to become a party to the liquidation by fraud of the corporation and asked that it be canceled. Held, that this answer was no defense, as the proper parties were not represented in this litigation to entitle the defendant to judgment upon this issue.

2. Same.

The fact that defendant was induced to execute the agreement by fraud is no answer to his obligation arising on a purchase from the trustees, nor does it enable him to set off against the debt a claim against the corporation.

3. Same—Demurrer—Code Civ. Pro., § 495.

Section 495, Code Civ. Pro., only applies where defendant demands affirmative judgment on his counterclaim, and has no application where the defendant seeks to use his counterclaim for the purpose simply of extinguishing the claim of the plaintiff.

Appeal from judgment of the supreme court, general term, fifth department, reversing interlocutory judgment entered on the decision of the court at special term, overruling the plaintiff’s demurrer to defendant’s answer.

Myron T. Bly, for app’lt; Henry M. Hill, for resp’ts.

The plaintiffs do not sue to enforce any obligation under the “agreement in liquidation.” The action is upon notes given for property purchased by the defendant of the trustees after they had assumed the trust The first count in the answer alleges that the defendant was induced to become a party to the liquidation agreement by fraudulent representations made by the Mill River Button Company, its agent, officers and directors, and asks for judgment setting aside and cancelling as to him the agreement This answer was not a defense. The agreement was between the corporation, the creditors and the trustees. The proper parties are not represented in this litigation to entitle the defendant to judgment upon this issue. Neither the corporation nor the other creditors are before the court, and both have an interest and are entitled to be heard on the adjudication of this

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question. Moreover, fraud in procuring the execution of the agreement by the defendant would constitute no ground for exempting him from the performance of an independent contract entered into between him and the trustees subsequent to the execution of the agreement in liquidation and founded upon a new consideration.

The first answer was clearly insufficient, because, admitting its averments, the defendant would be entitled to no relief.

The second, third, fourth and fifth answers are founded upon alleged counterclaims. They all set up transactions between The Mill River Button Company, its officers and agents, and the defendant, which took place prior to the execution of the liquidation agreement

The second answer seeks to counterclaim damages alleged to-have been sustained by the defendant, arising from the fraud and deceit of the corporation connected with an advance of money made by the defendant to the corporation. The third answer counterclaims damages alleged to have been sustained by the defendant by the fraudulent refusal of the corporation to perform its contract to deliver a portion of its capital stock to the defendant in consideration of money advanced by the defendant. The fourth-answer alleges an indebtedness of the corporation to the defendant in the sum of $2,800 for money loaned. The fifth answer alleges a violation by the company of a contract of employment, whereby the defendant sustained damages in the sum of $3,000.

The defendant, in his answer, does not ask any affirmative judgment on his counterclaims, but as to each he asks simply that he be permitted to set off sufficient thereof to satisfy the claim of the plaintiff.

It is very clear that neither of the answers alleging counterclaims set up any claim that can be set off against the causes of action in the complaint The alleged counterclaims are not against the plaintiff. They are founded upon transactions with the corporation prior to the appointment of the plaintiffs as trustees. The plaintiffs’ claims have no connection therewith, and were subsequent to the execution of the liquidation agreement, upon contracts not tainted with the alleged fraud in the concoction of the agreement The fact that the defendant was induced to execute the agreement by fraud is no answer to his obligation arising on a purchase from the trustees, nor does it enable him to setoff against the debt a claim against the corporation. This would be giving him an inequitable preference.

The plaintiff demurred to the several answers setting up counterclaims, on the ground “ that they were insufficient in law upon the face thereof.” Section 494 of the Code of Civil Procedure-makes this a ground of demurrer to a counterclaim. But it is claimed that where the defect in an answer alleging a counterclaim is that the cause of action sought to be counterclaimed did not arise out of the contract or transaction set forth in the complaint, or was not connected with the subject of the action, or that it does not state facts sufficient to constitute a cause of action, these objections must be specifically taken under § 495, and

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that they are not raised by a demurrer for insufficiency. That the answers were insufficient as answers of counterclaims we cannot doubt. They set up no cause of action against the plaintiffs. The claims alleged, if they existed, were wholly irrelevant to the claims sued upon. Assuming that they were statements of good causes of action, they did not exist against the plaintiffs.

It is a decisive answer to the defendant’s contention that the demurrer should have been drawn under § 495 that that section only applies where the defendant demands affirmative judgment on his counterclaim, and has no application where the defendant seeks to use his counterclaim for the purpose simply of extinguishing the claim of the plaintiff.

We think the judgment of the general term was right, and should therefore be affirmed.

Judgment affirmed, with costs.

All concur.