Leo J. Lehman, Respondent, v. Cores-Martinez Company, Appellant

Leo J. Lehman, Respondent, v. Cores-Martinez Company, Appellant. First Department, March 3, 1916. Pleading—counterclaim alleged as set-off—set-off founded upon promissory note — failure of reply to take defense that note was made for accommodation—when facts constituting counterclaim need not be designated as such. A defendant, sued as a maker of a promissory note, which sets up facts which would be a good counterclaim on another promissory note made by the plaintiff’s assignor to the order of the defendant, but designates the facts as a set-off rather than a counterclaim and asks a dismissal of the complaint, may on trial establish the set-off and is not barred because the facts were not designated as a counterclaim. Where the reply of the plaintiff to the new facts set up by the defendant did not allege that the note which is the subject-matter of the set-off was made for accommodation it cannot prove such defense on trial. The rule that a defendant in the absence of a reply cannot preclude the plaintiff from contesting ^counterclaim unless it is distinctly named as such in the answer does not apply where the plaintiff by serving a reply treats the answer as setting up a counterclaim. It seems, that the cases in which a plaintiff may contest a counterclaim where no reply has been served are those in which the facts constituting the counterclaim are not expressly designated as such. Appeal by the defendant, Cores-Martinez Company, from a determination of the Appellate Term of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New Tork on the 25th day of October, 1915, reversing a judgment of the City Court of the City of New Tork in favor of the defendant, entered upon a verdict directed by the court, and also reversing an order denying plaintiff’s motion for a new trial. E. Walter Beebe, for the appellant. Sydney W. Stern, for the respondent. [MAJORITY — Davis, J.:] Davis, J.: This action was brought in the City Court to recover a balance of $64í. 22 due on a promissory note made by the defendant to the order of S. Levy & Co., and by the latter transferred to the plaintiff after maturity. In its answer the defendant set up facts which constituted a good counterclaim on a promissory note of $1,000 made by S. Levy & Co., plaintiff’s assignor, to the order of the defendant, but the defendant designated its facts as a.set-off, and asked for the dismissal of the complaint. The plaintiff served a reply to this answer, which, while containing denials, set up no affirmative defense. Upon the trial the $1,000 note set up in the answer and referred to therein as a set-off was admitted in evidence over the objection of the plaintiff, who contended that facts constituting a counterclaim must he designated as such in order to be available as a counterclaim. Plaintiff then sought to show that the note set up as a counterclaim was made for the accommodation of the defendant. On this point the trial court ruled against the plaintiff on the ground that no such defense was pleaded in the reply. Bach party then moved for a direction of a verdict, and a verdict was directed for the defendant. Judgment on the merits was entered in favor of the defendant for $76.48, costs. On appeal to the Appellate Term this judgment was reversed and a new trial granted. The Appellate Term took the view that the facts relied upon as a counterclaim were not available as such because they were designated as a set-off and not as a counterclaim; that, therefore, the reply was unnecessary and the plaintiff should have been permitted to show the accommodation character of the note set up in the answer, as if no reply had been served. We think the Appellate Term erred. The facts pleaded in the answer, if established, constituted a good counterclaim. (Knickerbocker Trust Co. v. Condon, 147 App. Div. 871; affd., without opinion, 212 N. Y. 613; Cable Flax Mills v. Early, 72 App. Div. 213, 215; Nelson Co. v. Silver, 160 id. 445, 448.) They were treated as such by. the plaintiff and he replied to them. Although those facts were referred to as an offset, the plaintiff was left in no doubt as to what the pleader intended. For this reason, the reasoning in American Guild v. Damon (186 N. Y. 360, 364), cited in the opinion of the Appellate Term, does not apply here. In that case it was held that defendant, in the .absence of a reply, could not preclude plaintiff from contesting a counterclaim unless it was distinctly named as a counterclaim in the answer. In the case at bar there was a reply, and, therefore, no such strict rule applies; the plaintiff understood and treated the answer as setting up a counterclaim. The cases in which a plaintiff may contest a counterclaim where no reply has been served are those in which the facts constituting the counterclaim are not expressly designated as such. As was said in Acer v. Hotchkiss (97 N. Y. 408): u Such a rule is essential to protect a plaintiff from being misled by an answer, and to prevent the snare of a counterclaim lurking under the cover of a supposed defense, and unconsciously admitted by a failure to reply.” In the case at bar the plaintiff was not misled. He did reply, but failed to set up his defense to the counterclaim. The determination of the Appellate Term is reversed, with costs in this court and in the Appellate Term, and the judgment of the City Court affirmed. Clarke, P. J., Scott, Dowling and Smith, JJ., concurred. Determination reversed, with costs in this court and in the Appellate Term, and judgment of City Court affirmed.