
    Julia Kelly and Elizabeth Neach, Appellants, v. Michael Struth, Respondent.
    First Department,
    December 4, 1914.
    Ejectment — action to recover possession of premises held by defendants under deeds of foreclosure —counterclaim for taxes, assessments and disbursements.
    In an action in ejectment to recover the possession of certain premises claimed by the defendant under a deed executed in a foreclosure action to which the plaintiffs were made parties, a counterclaim for moneys paid by the defendant for taxes, assessments and improvements, constitutes a cause or causes of action in favor of the defendant, and is connected with the subject of the action within the meaning of section 501 of the Code of Civil Procedure, and tends to diminish or defeat the plaintiff’s right to recover possession of the premises.
    Appeal by the plaintiffs, Julia Kelly and another, from an order of the Supreme Court, made at the Bronx Special Term and entered in the office of the clerk of the county of Bronx on the 8th day of July, 1914, overruling their demurrer to the counterclaim contained in the amended answer.
    The motion was brought to a hearing, pursuant to section 976 of the Code of Civil Procedure.
    
      James E. Farrell, for the appellants.
    
      Harold Swain [Hamilton C. Rickaby with him on the brief], for the respondent.
   Laughlin, J.:

This is an action in ejectment to recover the possession of premises described in the complaint and $6,000 damages for the wrongful detention thereof. The plaintiffs allege that they were at the time of the commencement of the action and are the owners in fee and entitled to the possession of an undivided one-half interest in the premises described in the complaint, known as No. 638 Jackson avenue, in the borough and county of Bronx; and that the defendant was and is in possession and has ousted plaintiffs and denies that they have any title or interest therein.

The answer of the defendant admits that he has been and is in possession of the premises, and denies that the plaintiffs have any title or interest therein, and puts in issue the other material allegations of the complaint. As a first defense defendant pleads that he brought an action for the foreclosure of a mortgage upon the premises, and procured judgment therein May 11, 1898, forever barring and foreclosing plaintiffs from any right, title or interest in the premises, and that pursuant thereto the premises were duly sold and conveyed to the defendant; and he alleges that the plaintiffs were defendants in that action, and pleads the judgment therein in bar. As a second separate defense he alleges that on the 10th day of May, 1895, one Sarah Nolan, who then owned the premises, executed a mortgage thereon, with the exception of that part thereof ■ taken for the opening of Bobbins avenue, to him as collateral security for the payment of $1,500 with interest, evidenced by the bond of said Nolan, bearing even date therewith; that Nolan died on the 12th day of August, 1897, and by her death plaintiffs acquired some interest in the premises as devisees or heirs at law, which, however, was subordinate to the lien of the mortgage; that on a breach of the conditions of the bond with respect to the payment of interest, defendant brought an action to foreclose the mortgage and that the plaintiffs were parties defendant therein, and that pursuant to a judgment of foreclosure and sale in said action, the premises 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.

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 to 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 to 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 six per centum per annum from the 10th day of May, 1896, and the sum of $2,200 paid for taxes and assessments with interest at the rate of six 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 character specified in section 501 of the Code of Civil Procedure, in that it in no way tends to diminish or defeat the plaintiffs’ recovery.”

In Vought v. Levin (142 App. Div. 623) 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 served upon them in an action to foreclose the mortgage, the purchaser at the foreclosure sale will Tie 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 offset to the claim of the plaintiffs for damages or for use and occupation or rental value. (See Jones v. Duerk, 25 App. Div. 551; 2 Reeves Real Prop. § 686; Campbell v. Mesier, 4 Johns. Ch. 334; Dickinsons. Williams, 65 Mass. 258; Clark v. Platt, 39 App. Div. 670. See, also, Putnam v. Ritchie, 6 Paige, 390; Cosgriff v. Foss, 152 N. Y. 104, 108; Satterlee v. Kobbe, 173 id. 91, 97; Adams v. Bristol, 126 App. Div. 660; affd., 196 N. Y. 510; Conklin v. Conklin, 3 Sandf. Ch. 64; Prentice v. Janssen, 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 decision 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. Duerk, 25 App. Div. 551; Adams v. Bristol, 126 id. 660; affd., 196 N. Y. 510); 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. 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.

Counsel for the appellants claim 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; Barber v. Ellingwood, No. 2, Id. 704, 710.) 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 defendant 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; Barson v. Mulligan, 191 N. Y. 306.)

It follows that the order should be affirmed, with ten dollars costs and disbursements.

Ingraham, P. J., McLaughlin, Clarke and Scott, JJ., concurred.

Order affirmed, with ten dollars costs and disbursements.  