#### Thomas G. Gaylord, Appellant, *v.*Albert O. Brown and Others, Copartners Doing Business under the Firm Name of A. O. Brown and Company, Respondents, Impleaded with San Domingo Gold and Copper Company and Others, Defendants.

(No. 2.)

First Department,

October 23, 1908.

Pleading — fraud inducing sale of stock — facts not constituting separate defense.

It is no answer to a complaint seeking a recovery for fraud and misrepresentation in inducing the plaintiff to subscribe for stock tc allege as a separate defense that the plaintiff being indebted to the defendant for certain advances pledged the stock as collateral security, which indebtedness is now due and owing, or to allege that the defendant is willing to credit the plaintiff with the amount of his debt if he will execute a proper assignment of the stock to the defendant, or that the plaintiff has assigned his interest therein to a third person who has brought suit against the defendant. While such facts might be alleged as a partial defense, or in mitigation of damages under section 508 of the Code of Civil Procedure, they do not constitute a separate defense.

Appeal by the plaintiff, Thomas G. Gaylord, from an interlocutory judgment of the Supreme Court in favor of the defendants Albert O. Brown and others, copartners, etc., entered in the office of the clerk of the county of New York on the 18th day of May, 1908, upon the decision of the court, rendered after a trial at the New York Special Term, overruling the plaintiff’s' demurrer to the separate defense contained in the amended answer of the said defendants.

*344*John Thomas Smith,*for the appellant. •

*Garrard Glenn,*for the respondents.

Ingraham, J.:

•This is a demurrer to the answer of Brown *&*Co. The nature of the action is stated in the opinion deciding the appeal from a judgment overruling the demurrer of the San Domingo Gold and Copper Company *(Gaylord*v. *Brown, No. 1,*128 App. Div. 340), decided herewith. Brown & Co. interposed an answer admitting several allegations of the complaint and denying other allegations of the coniplaint,. and then setup as a further and separate defense that the plaintiff subscribed to 300 shares of the stock of the San Domingo Gold and Copper Company, paying therefor at the rate of $20 per *share;*that subsequently, on the 11th of October, 1906, the plaintiff sold and transferred to one Smith 50 shares, receiving $1,000 therefor; that subsequently the plaintiff repurchased the said shares of stock from Smith and the defendants Brown *& Go.*paid to Smith the sum of $1,050 for such repurchase; that at the time of the purchase of the 300 shares of stock by the plaintiff, the plaintiff was indebted to the defendants for certain advances in connection with a brokerage account in the sum of $1,083.30, and that, on or about the lltli of October, 1906, the plaintiff deposited with the defendants his certificate, for 250 shares of the stock as collateral security for such indebtedness, and that the certificate for 50 shares of said stock, purchased for the plaintiff from the said Smith, was likewise deposited by the plaintiff with the defendants to secure the advances made thereon, and that the said indebtedness of the plaintiff to the defendants has not been paid, and there is-now due and owing, to the defendants from the plaintiff the sum of $10,945.01; that the defendants have been at all times and are now ready and willing to credit upon the account of the plaintiff with them, in accordance with the terms of the complaint, the amount subscribed for said stock by the plaintiff, to wit, $6,000, together with interest at four per cent upon the execution of a proper assignment and transfer to the defendants of said *stock;*that prior to the commencement of this action, the plaintiff being then indebted to the defendants, assigned or purports to have assigned all his right, title and interest in said shares of stock to *345one Alice B. Gaylord, and a suit has been instituted in the name of said Alice B. Gaylord against the defendants Brown & Co. to recover of them the said certificate and shares of. stock, or $10,000, their alleged value, and for damages for their detention, which suit is now pending.

We think that the complaint alleges a cause of action for the damages sustained by the plaintiff in consequence of the stock not being what it was represented to be, not for a rescission of the purchase and a recovery back of the amount paid, although there are many allegations in this complaint that are quite unnecessary upon such a cause of action. The question is then whether this separate defense is sufficient. If the action is to recover damages for deceit, it is quite plain that the fact that plaintiff deposited the shares of stock purchased with the defendants Brown & Oo. as security would not be a defense. Assuming that the defendants would be allowed to offset the amount of the plaintiff’s indebtedness as against any recovery that the plaintiff' would obtain, these facyts are not pleaded as a counterclaim or offset or as a partial defense. The fact that the defendants are willing to credit the plaintiff with $6,000 with interest at four pier cent does not seem to be a defense. Nor woirld the allegation that the plaintiff had assigned the stock to one Alice B. Gaylord be a defense to an action for damages for a fraud. Assuming that these facts might he alleged as a partial defense or in mitigation of damages under section 508 of the Code of Civil Procedure, it is. quite clear that it is not a defense to the cause of action to recover the damages sustained by the plaintiff in consequence of the fraudulent representations.

I think this demurrer must.be sustained, as these facts are not a defense to the only cause of action which is alleged in the complaint, namely, an action to recover damages for fraud.

The judgment appealed from must be reversed, with costs, and the demurrer sustained, with costs, with leave to the defendants to amend the answer within twenty days on payment of costs.

Patterson, P. J., Laughlin, Clarke and Scott, JJ., concurred.

Judgment reversed, with costs, and demurrer sustained, with costs, with leave to defendants to amend on payment of costs.