Case Name: Worcester-Brooklyn Realty Company, Respondent, v. Edward Bailey, Appellant; Worcester-Brooklyn Realty Company, Respondent, v. Millbourne Realty Company, Appellant
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1914-02
Citations: 161 A.D. 935
Docket Number: 
Parties: Worcester-Brooklyn Realty Company, Respondent, v. Edward Bailey, Appellant. Worcester-Brooklyn Realty Company, Respondent, v. Millbourne Realty Company, Appellant.
Judges: 
Reporter: Appellate Division Reports
Volume: 161
Pages: 935–937

Head Matter:
Worcester-Brooklyn Realty Company, Respondent, v. Edward Bailey, Appellant. Worcester-Brooklyn Realty Company, Respondent, v. Millbourne Realty Company, Appellant.
Mortgage —foreclosure — counterclaim — action for deceit —false representations.
Appeal by the defendants in the above actions, Edward Bailey and Millbourne Realty Company, from interlocutory judgments of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Kings on the 7th day of August, 1913, overruling demurrers to the amended complaints herein.

Opinion:
Thomas, J.:
It appears by the opinion of Mr. Justice Blaekmar that the action can be maintained only for the purpose of setoff, and that conclusion is approved. For that purpose the second mortgage is regarded as valid. The plaintiff as grantee seems to have assumed but one of the second mortgages. This does not preclude the maintenance of the action. The counterclaim is based upon a cause of action for deceit, which is connected with a cause of action for the foreclosure of the mortgage. In such action for foreclosure the holder of one of the mortgages could not have judgment for deficiency against the present plaintiff, but such judgment could deprive it of the naked title to the land, which carried with it the equity of redemption. As the complaint shows, the grantee bought the right of redemption upon a representation that the second mortgage entered into the cost of the land, and in this same transaction the grantor delivered the title of the land, which carried the right to redeem from the mortgage. So, while the grantor would foreclose upon a mortgage that involved no personal claim against the grantee, yet the judgment would oust the grantee from the possession of the land covered by the mortgage, and destroy his title and right to redeem, which rights are '1 connected with the subject of the action and grew out of the same transaction as the cause of action to foreclose the mortgage so far as the grantee is related to it. " In Seligman v. Dudley (14 Hun, 186) it is said 11 that a party to an action to foreclose a mortgage, against whom either a personal judgment or one which may operate to transfer his estate in the land is sought, has a right tó set up a counterclaim as a defense to the action, and that the case of Agate v. King (17 Abb. Pr. 159), so far as it asserts a contrary principle, ought not to be approved. (Lathrop v. Godfrey, 3 Hun, 739.)" In Lathrop v. Godfrey (supra) it was presumed that the defendant was liable for the deficiency, and it was considered that the damages for deceit could be set off against the mortgage under foreclosure, or, as is stated, "at all events, upon the personal covenant of Mrs. Godfrey." It is also stated that " 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 [21 N. Y. 191], [ and see Hunt v. Chapman, 51 N. Y. 555]." The cogent reasoning of Blaekmar, J., is applicable even in the absence of personal liability on the part of the plaintiff, resting alone upon the subjection of the land to the mortgage. Although the defendant has not suggested that there is a defect of parties, the trial court may find that there is such defect as to make it inequitable to adjudge the setoff without bringing in other parties. If, for illustration, the Bailey action should be first tried, and the plaintiff should establish its damages and set them off against the amount due on the mortgage owed by Bailey, the damages so recovered should be credited on the plaintiff's demand in the Millbourne case. Perchance such damages may extinguish the Bailey bond and mortgage, and let the Millbourne mortgage go free; or perchance there may be no recovery, or such a recovery in the Bailey case as would not extinguish the mortgage. May the Millbourne action then proceed ? The defendant in one action will not be privy or bound by a judgment in it. But the trial court will deal with difficulties as they arise. The interlocutory judgment in each case should be affirmed, with costs, with leave to the defendant to plead over upon payment of costs. Jenks, P. J., Carr, Stapleton and Putnam, JJ., concurred. Interlocutory judgments affirmed, with costs, with leave to the ^defendants to plead over upon payment of costs.