The American Guild of Richmond, Virginia, Appellant, v. Phebe D. Damon and Joseph H. Damon, Respondents, Impleaded with Edward J. Bieder and Lee Nassauer

The American Guild of Richmond, Virginia, Appellant, v. Phebe D. Damon and Joseph H. Damon, Respondents, Impleaded with Edward J. Bieder and Lee Nassauer. Certificate issued by a mutual aid society — assignment by the society of a joint and several bond and mortgage given by the holder of the certificate and his. wife — insolvency of the society not a defense, to a foreclosure of the mortgage, on the part of the wife, the owner of the mortgaged premises—the husband entitled to offset any indebtedness due to him from the society— the assignment not open to attach on the ground that it was fraudulent as against creditors — effect of a failure to. serve a reply to an answer ashing that the certificates be allowed as a counterclaim, defense and set-off to the bond and mortgage. Joseph H. Damon and Phebe D. Damon, his wife, executed to a mutual aid society their joint and several bond for $950, which bond was secured by «, mortgage covering premises belonging to Mrs. Damon. Mr. Damon was then the owner of two certificates issued by the mutual aid society, which certificates entitled the holder thereof, at the expiration of seven years, to his portion of what was known as the “ Sustentation Fund ” maintained by the society up to the sums respectively of $600 and $1,000 less the amount paid for sick and accident benefits. After the maturity of the certificates the society assigned the bond and mortgage to a third party by an assignment, which was regular upon its face and purported to convey the unqualified title and ownership and in which the assignee did not agree to assume the payment of the assignor’s obligation. In an action brought by the assignee to foreclose the mortgage, Mr. and Mrs. Damon interposed a joint answer setting up the facts with relation to the cer-. tificates heretofore mentioned, and alleging that the mutual aid society had become insolvent and that by reason-'thereof the answering defendants would have no adequate remedy at law if the plaintiff was allowed to enforce the mortgage. They demanded judgment that the complaint -be dismissed and also “ that said certificates be allowed as a counterclaim, defense and set-off to the said bond and mortgage, and that said bond and mortgage be satisfied and cancelled of record and that the defendants may have such other or further relief or both in the premises as shall be just and equitable.” . The plaintiff served no reply to this answer. The trial court awarded an affirmative money judgment in favor of Mr. Damon upon the certificates and adjudged that the mortgage had been satisfied. Held, that, so far as Mr. Damon was concerned, he was entitled to offset any indebtedness due to him from the plaintiff’s assignor upon the certificates, against any claim which might,be made against him in the mortgage foreclosure action; but that as he was only liable in such action for any deficiency arising upon a sale of the mortgaged premises, of which his wife was the sole" owner, he was not entitled to the affirmative money judgment granted to him, That as Mrs. Damon had no interest in the certificates issued by the plaintiff's assignor, she was not entitled to have the amount due thereon applied to the satisfaction of the mortgage; That, as the assignment of the bond and mortgage to the plaintiff was regular upon its face and would protect the mortgagor, upon payment, from any further claim by the assignor, Mr. and Mrs. Damon were not entitled to attack the honesty of the assignment or to claim that it was fraudulent as against creditors; That the plaintiff, by failing to serve a reply to the answer, did not concede that the defendants Damon were entitled to the judgment awarded them, on the theory that, such answer interposed a counterclaim, for the reason that the language of the answer and the proceedings at the trial indicated that the certificates were being urged as a set off and defense to the bond and mortgage rather than as a basis for an affirmative judgment. Appeal by the plaintiff, The American Guild of Richmond, Virginia, from a judgment of the Supreme Court in favor of the defendants, Phebe D. Damon and another, entered in the office of the clerk of the county of Onondaga on the 1st day of October, 1904, upon the decision of the court, rendered after a trial at the Onondaga Special Term, adjudging a certain bond and mortgage executed by the respondents to be in all respects satisfied, and further awarding damages and costs to the respondent Joseph H. Damon. Wallace Thayer, for the appellant. Louis J. Bedell, William Kennedy and Nelson L. Lansing, for the respondents. [MAJORITY — Hiscock, J.:] Hiscock, J.: The respondents, who are husband and wife, executed their joint and several bond conditioned for the payment of $950 to the Knights of Sobriety, Fidelity and Integrity, a domestic corporation organized for mutual benefit and aid. The payment of said bond was secured by a mortgage executed by said obligors upon premises belonging to the wife. The name of said corporation was subsequently changed to that of “ Safety Fund Insurance Society.” Said society issued two membership and benefit certificates, one to the respondent Joseph H. Damon and the other to one May. who thereafter and before the occurrences in question transferred the same to said Damon. These certificates at the expiration of seven years entitled the holder to his portion of what was called the “ Sustentatibn Fund ” maintained by said society, up to the sums respectively of $600 and $1,000, less the amount paid for sick and accident benefits.' After said certificates had matured the society which had issued them and to which said 'bond and mortgage had been executed as aforesaid, duly assigned the latter to this plaintiff by an assignment and instrument which was regular upon' its face and which purported to transfer the full and unqualified title and ownership. The assignee did not in connection with said assignment agree to assume the payment of its assignor’s obligations. The bond and mortgage having become due, the plaintiff brought this action to foreclose the latter. The respondents by their joint answer set up the facts with reference to the issue, maturity and ownership of the certificates hereinbefore mentioned, alleging that the corporation which issued them had become insolvent and that by reason of the premises defendants had no adequate remedy at law and would suffer great damages and injustice were the plaintiff allowed to enforce its demand, leaving these" defendants as their only remedy an action against an insolvent .corporation, and they demanded judgment that plaintiff’s complaint should be dismissed and “ that said certificates be allowed as a counterclaim^ defense and set off to the said bond and mortgage, and that said bond and mortgage be satisfied and cancelled of record and that the defendants may have such other or further relief or both in the premises as shall be just and equitable.” Upon these controlling facts it was improper to award the respondents, Or either of them, an affirmative judgment against the plaintiff, for the amount in whole or in part of said certificates and to adjudge that said bond and mortgage were satisfied as to both defendants. We shall hold that it was proper for' the respondent Joseph II. Damon to offset any indebtedness due from plaintiff’s assignor upon the certificates held by him against any claim which might be made .against him in this action. (Newell v. Salmons, 22 Barb. 647; Briggs v. Briggs, 20 id. 477; Hunt v. Chapman, 51 N. Y. 555; Bathgate v. Haskin, 59 id. 538; Messenger v. City of Buffalo, 21 id. 196.) The only claim made by plaintiff which could affect him personally was one for a judgment for deficiency in case the mortgaged premises failed to satisfy plaintiff’s claim, for the wife, Phebe Damon, was the sole owner of the premises. After a consideration of the respondents’ argument we are unable to discover any principle which, upon the evidence, warranted an affirmative money judgment against, plaintiff'in favor of the holder of the certificates, or justified in favor of the wife the application of any indebtedness due upon said certificates to the cancellation of the mortgage, she having no ownership or interest in said certificates. Respondents upon the trial vigorously attacked the honesty of the transfer by the original mortgagee and maker of said certificates to the present plaintiff of said bond and mortgage. But it is well settled that for the purposes of this action it was sufficient if plaintiff obtained a title to said bonds and mortgage, valid and legal upon its face, which would protect the mortgagors upon payment from any other claim by the assignor. Nor is it possible for respondents in this action, as it is presented to us, to avail themselves of any fraud as against creditors which may have infected the transfer from the original mortgagor to the present plaintiff. It is, however, urged that this judgment is authorized by the condition of the pleadings; that respondents by their answer set forth a counterclaim and demanded judgment thereon such as has been allowed to them, and that plaintiff, by failing to reply thereto, legally conceded the validity of their claim. This, of course, raises the question whether defendants did fairly and intelligently set forth a counterclaim upon which an affirmative judgment was demanded and thereby impose upon the plaintiff the necessity of interposing a reply. We do not think that they did this. While the prayer for judgment in their answer does use the word “ counterclaim,” it also asks that said certificates be allowed as a “ defense and set off ” to the bond and mortgage; and there is, in terms at least, no. demand for any judgment other than that said instruments be adjudged to be canceled and satisfied. In like manner, while upon the trial the word counterclaim ” was used from time to time by the counsel, a fair interpretation of all that was said indicates an understanding upon the part of counsel that the certificates were being urged' as a set off and defense to the bond and mortgage, rather than as a basis for an affirmative money judgment. As we have already seen, defendants were not legally entitled to utilize said certificates as a basis for any such affirmative judgment as has been secured, and this being so, we think it would be an unreasonable construction of . their answer to hold that it indicated that they were seeking, and that plaintiff’s counsel understood that they were seeking, an affirmative judgment which required a reply. Further than this, the holder of the certificates was not conclusively entitled to payment or allowance of the full face value thereof. By the terms thereof he was entitled to his proportion of what was called the “ Sustentation Fund,” and such evidence as has been produced upon this subject indicated that such proportion upon the certificates held by him would be very much less than the amount allowed. The judgment appealed from should be reversed and a new trial granted. . All concurred; Stover, J., in result only. Judgment reversed and new trial ordered, with costs to the appel-' lant to abide the event, upon questions of law only, the facts having been examined and no error found therein.