Lathrop v. Godfrey — 10 N.Y. Sup. Ct. 739

Majority

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WILLIAM G. LATHROP, Respondent, v. MARIE ALICE GODFREY and JOHN A. GODFREY, Impleaded, etc., Appellants.

Headnote

Answer—if not dem/wrred, to or stricken out as frivolous, informalities which could be cured by amendment, and variance in proof are not grounds for excluding evidence within its general scope — Foreclosure — set-off—Fraudulent assignment.

When the plaintiff does not demur to the answer, nor move to strike it out as sham or frivolous, but suffers it to form an issue of fact which he brings on for trial, evidence, tending to establish a legal or equitable defense, cannot be excluded on account of informalities in the answer, or any defect that can be cured by amendment; or when, the evidence being within the general scope and object of the answer, the pleading can be made to conform to the proof, under section 173 of the Code.

Whether the evidence is sufficient to accomplish the purpose of the party, is a question upon which he is entitled to the deliberation of-the court or a jury.

The defendant in a mortgage foreclosure suit, who is personally liable for the debt, or whose land is bound by the lien of the mortgage, may introduce a set-off to reduce or extinguish the plaintiff’s claim, and may show that the plaintiff has received only a colorable and fraudulent assignment of the mortgage, and holds it for the benefit of one against whom such set-off exists.

Appeal from a judgment, entered on a decision of the court at Special Term.

B. W. Huntington, for the appellants.

“ When there is fraud, the party deceived, on discovering the fraud, may rescind the contract; but if he does not do that, the contract on his part remains entire, not broken and not modified, and he is bound to perform it fully according to its terms; he has, however, arising from the fraud a distinct cause of action, the amount of which he may set off against any liability on his part, growing out of the transaction in which the fraud was perpetrated.” (Gillespie v. Torrance, 25 N. Y., 306 .) There is a distinction in foreclosure suits between defenses by parties against whom personal claims are made, and those against whom such claims are not made. (National Fire Insurance Co. v. McKay, 21 N. Y., 191 .) “An assignee of a mortgage takes it subject not only to any latent equities that exist in favor of the mortgagor, but also to the like equities in favor of third

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persons.” (Schafer v. Reilly, 7 Albany Law J., number dated April 12th, 1873, p. 230.) The fraud in the sale was none the less that of Mrs. Bramhall because committed by her husband, as her agent. (Baum v. Mullen, 47 N. Y., 577 .) Striking out evidence, or refusing to receive it because the answer does not state a defense, is severely criticised. (Smith v. Countryman, 30 N. Y., 655 .) Fraudulent misrepresentations in sales of real estate are a valid ground of recoupment. (Van Epps v. Harrison, 5 Hill, 63 ; cited and approved by the Court- of Appeals in 1 N. Y., 312 ; 25 id., 309; 30 id., 669.)

/S'. B. Brownell, for the respondent.

A defendant in a foreclosure suit cannot set up a counter-claim arising upon an independent tort; the alleged tort has no connection with the subject of the action. (Code, §§ 149, 150, 153.) The subject of the action is the cause of action, to wit, the foreclosure of the mortgage. The pretended counter-claim is in no wise connected with the mortgage or its foreclosure. (Chamboret v. Cagney, 2 Sweeney, 398; Moffat v. Van Doran, 4 Bosw., 609 ; Brown v. Buckingham, 21 How., 190 ; Gotter v. Babcock, 11 Abb., 392 ; Lawrence v. Bank of Republic, 35 N. Y., 320 ; reversing S. C., 3 Robt., 142.) -The pretended counter-claim is not against the plaintiff, but against other parties, arising a year or more after the assignment to the plaintiff of the mortgage in suit. The answer, so far as it attempts to set up such a counter-claim against the plaintiff, is frivolous. A grantee of mortgaged premises, subject to a mortgage, who assumes the^ payment as a part of the consideration or purchase-money, cannot set up any defense to the mortgage. (Freeman v. Auld, 45 N. Y., 50 ; Ricord v. Sanderson, 4 id., 179 .)

This action was brought to foreclose a mortgage, executed by the defendants Bramhall and wife to one William G. Lathrop, Jr., on the 11th of June, 1869, to secure $8,000, and alleged to have b.een assigned by the mortgagee to plaintiff, on the 19th day of June, 1869. On or about the 10th day of December, 1870, the mortgaged premises were sold and conveyed by the defendants Bramhall and wife to the defendant Marie Alice Godfrey, who. by the terms of the sale and,

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conveyance, assumed the payment of the mortgage in question as part of the purchase-money. In the answer of the appellants to the complaint, they put in issue the alleged assignment by Wm. G. Lathrop, Jr., to the plaintiff, and alleged that “ the plaintiff is collusively the holder of the mortgage for the purpose of hindering the said Marie Alice Godfrey in the recoupment of damages claimed by her,” as thereinafter set forth; and charged that the “ plaintiff’s holding of the mortgage is subject to the equities of the defendant Marie Alice Godfrey, against the said William G. Lathrop, Jr., and the defendant Bramhall,” as thereinafter set forth. The defendants, after setting forth other matters, alleged in substance, that Charles A. Bramhall, as agent of Maria A. Bramhall, his wife (who was owner of the premises), and the said William G. Lathrop, Jr., conspired and confederated to deceive and defraud the said Marie Alice Godfrey; and, to induce her to purchase the said premises, falsely and fraudulently represented to her that the house was built in good workmanlike manner ; that the cellar was a dry cellar; that the walls were dry walls and uncracked, and that the foundation walls were well and securely built, and the sewers and plumbing in complete order; that said Marie believed such representations to be true, and trusted in them, and was induced by them to purchase the premises ; that the contrary of each and every of such false and fraudulent representations was true ; and that by reason of the fraud and falsity of such representations, she was greatly injured; and by reason of the fraud and falsity of such representations, and by reason that said house was defective in each of the represented particulars, she was obliged to expend about $3,500 in repairs, to make said house inhabitable with safety to life and health, and lost the use of said house to the value of $2,000 while such repairs were going on; which damages she claimed to have applied on said mortgage, and that judgment should only be given for the balance. On the trial of the case, the plaintiff produced the mortgage and an assignment thereof to him; and, after proving the amount unpaid, with interest, rested. The defendants called a witness, “ and offered to prove the facts set up in the answer as the defense of the defendants, on the ground of fraud alleged by their answer.” The counsel for the plaintiff objected that the answer did not state any defense, and that the defense

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stated was entirely, inapplicable to the defendants. The court excluded the evidence, saying: “I exclude the evidence as not being a defense and because the answer does not state any defense.” The defendants duly excepted. The court directed judgment of foreclosure, and for deficiency, if any, against the defendants Bramhall, and the defendant Marie Alice Godfrey.

The plaintiff did not demur to the answer, nor move to strike it out as sham or frivolous; but suffered it to form an issue of fact which he brought on for trial at the Special Term. This was in accordance with the course indicated by Mullih, J., in his opinion in Smith v. Countryman,^[2] as one competent for the plaintiff to pursue. But where that course is taken, and on objection that the answer sets up no defense, all evidence is excluded, it must be clearly apparent that no evidence which could be properly admitted under the pleadings, would tend to establish any legal or equitable defense to the action. The evidence cannot be excluded on account of informalities in the answer, or any defect of pleading that could be cured by amendment on the trial, nor where the evidence being within the general scope and object of the answer, it would be in the power of the court to conform the pleading to the proofs under section 173, of the Code.

When evidence under the answer would tend to establish a legal or equitable defense, it should be received for consideration by the court or jury, because whether its tendency is sufficient to accomplish the purpose of the party, is a question upon which he is entitled to the deliberation of the court or jury with the evidence before them. The question then in this case, is, whether the defendants could properly have been permitted, under the issues, to have proved any facts tending to establish a defense, partial or total, upon which they would be legally entitled to claim the consideration and judgment of the court. Under the pleadings they would have been entitled to show that the mortgage had not been assigned to plaintiff, but still remained legally or equitably the property of William G. Lathrop, Jr.; that the assignment produced was collusive or colorable, and that plaintiff was holding the mortgage collusively for the purpose of hindering the said Marie Alice Godfrey in the recoupment of her damages. That the said William

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G. Lathrop, Jr., and the defendant Bramhall, conspired together to deceive and defraud Mrs. Godfrey, and induce her, by false and fraudulent representations, to purchase the premises and assume the payment of the mortgage as a personal liability, as part of the purchase-price of the property. That they (or either of them in pursuance of a conspiracy) made the several alleged representations, and that they were false and fraudulent, and she relied upon and was induced thereby to make the purchase and assume the mortgage, and that she suffered the alleged damages and the amount thereof; and of course all the incidents and circumstances of the transaction tending to show either of these things would be admissible in evidence. If the court, on receiving the evidence, had found favorably to the defendants, in respect to every fact it tended to prove, would there be any defense against the mortgage or bond, or personal covenant of Mrs. Godfrey to pay the mortgage as part of the purchase-money ? The bond and mortgage would, in that case, be found to be the property of William G. Lathrop, Jr., and that plaintiff held only a naked legal title with no real interest; and the personal obligation of Mrs. Godfrey would equitably be to the plaintiff in interest, and any defense of Mrs. Godfrey which she could interpose, if William G. Lathrop, Jr., were plaintiff on record, would be admissible against the present plaintiff. It. would be found also, that William G. Lathrop, Jr., the equitable owner of the mortgage, had conspired with the defendant Bramhall to commit the alleged fraud, and had made the fraudulent representations which induced Mrs. Godfrey to purchase, and by means thereof, had effected the sale to her, and obtained from her the covenant in the deed which makes her personally liable for the debt secured by the mortgage. The amount of her damages by means of the fraud, would also be found. We think in such case, under the authorities, the damages could be applied in this action toward the sum recoverable on the bond and mortgage, or at all events, upon the personal covenant of Mrs. Godfrey on which a judgment has been taken against her for any deficiency. If William G. Lathrop, Jr., conspired, as is alleged, to induce her to purchase the premises by false and fraudulent representations, and to induce her to assume, and agree to pay his bond and mortgage, he and his co-conspirators are all liable for the damages she has sustained; and

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the frauds which entitle her to such damages grew out of the transaction which connects her with the bond and mortgage, and entitles him to bring suit against her thereon. If he had sued her on the personal covenant at law, there seems to be no doubt of her right in such action to recoup for her damages.^[2] The right of a defendant in a foreclosure suit, who is personally liable for the debt, or whose land is bound by the lien, to introduce a set-off to reduce or extinguish the claims, was recognized by Comstock, J., in The National Fire Insurance Co. v. McKay;^[3] (and see Hunt v. Chapman^[4] ). The plaintiff did not, in his complaint, demand a personal judgment against Mrs. Godfrey, but having taken one on sufficient proof in his judgment, he is not at liberty to assert that he was pursuing no personal remedy against her. We think the learned justice erred in his ruling rejecting all evidence under the answer on the ground assigned by him.

Judgment reversed and new trial ordered, costs to abide event.

Daniels, J., concurred.

* Vassear v. Livingston, 3 Kern., 248; Isham v. Davidson, 52 N. Y., 237 ; Whitney v. Allaire, 4 Den., 554 ; S. C., 1 N. Y., 305 .

† † 21 N. Y., 191 .

‡ ‡ 51 N. Y., 555 .

Footnotes

* 30 N. Y., 655 , 676.