Kneeland v. Pennell

Scott, J. The plaintiffs sue upon a promissory note, claiming to recover the amount of its face and interest, less a small sum said to have been realized upon the sale of collateral. The defendant by way of answer sets up three counterclaims; one, apparently for damages for plaintiffs’ misconduct in executing or refusing to execute orders to buy and sell wheat, and two for damages for the conversion of certain collateral deposited with plaintiffs to cover defendant’s speculation in grain. It appears from the allegations of the counterclaims that, for some time prior to the making of the note in suit, plaintiffs, as brokers, had been engaged in buying and selling wheat for defendant, upon margin, and that, in addition to a certain cash margin, he had deposited with plaintiffs a certificate for 100 shares of a certain stock; that, on or about April 6, 1905, plaintiffs [96] Pad. rendered an account to defendant purporting to show that he owed them $1,220.50, over and above his cash margin; that plaintiffs threatened to sell his stock margin or security and, in order to protect that and prevent its sale, he gave them the promissory note in suit dated April 19, 1905, and left the 100 shares of stock in their hands as collateral. It is further alleged in the second and third ■counterclaims that, on August 2, 1905, the plaintiffs, without notice to defendant, sold the stock deposited with them, first, as margin for the wheat transaction and, afterward, ¡as collateral security for the note. To each of these counterclaims the plaintiffs demur; first, because they are not of the character specified in section 501 of the Oode of Oivil Procedure, and, second, because neither of them states facts •sufficient to constitute a cause of action. The court below was of opinion that the first ground of demurrer was not .•sufficiently stated, in that it did not point out the particular .ground for demurrer, but was couched generally in the words of the Oode. This method of stating this particular ground ■of demurrer has prevailed in this department for a number of years and must, we think, be deemed sufficiently specific. Eckert v. Gallien, 40 App. Div. 525. Although ¡sufficiently stated, the demurrer, on this ground cannot be ■sustained in this case. Section 501 of the Oode, in its first ¡subdivision, permits a counterclaim to be interposed, if it be “A cause of action arising out of the contract or transaction, set forth in the complaint as the foundation of the plaintiff’s claim, or connected with the subject of the action.” It is not essential, under this subdivision, that the eounter•claim, in an action upon contract, should also be a cause of action upon contract, provided it arises out of the contract •or transaction set forth in the complaint, or is connected with the subject of the action. In that case, it may be a -cause of action sounding in tort. Our courts, in the inter•ests of justice, have uniformly shown a tendency to give a liberal construction to this section. The theory of the Oode .generally adopted is that it was intended to authorize all connected causes of action, whether arising out of contracts ■or torts, to be litigated in the same action; and, to this end, [97] it has been held that the word “ transaction,” as used in the section, is broader than the word “ contract,” so that, if the defendant’s cause of action arises out of the same transaction out of which the plaintiffs’ arises, it may be pleaded as a counterclaim. Ter Kuile v. Marsland, 81 Hun, 420. Thus, it has been held by the Court of Appeals (and the decision is especially in point as to the second and third counterclaims) that, in an action upon a promissory note, the defendant may counterclaim for his damages resulting from the conversion by the holder of the note of property pledged with him as collateral security for the payment of the note. Cass v. Higenbotam, 100 N. Y. 248. That the first counterclaim also falls within the class of those permitted by section 501 seems equally clear. The transaction out of which the plaintiffs’ cause of action arose was the dealing in wheat for defendant’s account, and the ■defendant’s first counterclaim arises out of plaintiffs’ alleged misconduct in the course of those transactions. The demurrer, therefore, cannot prevail, although sufficiently stated. It remains to consider the second ground, that no cause of -action is stated. The first counterclaim is involved and inartificial and would, possibly, be open to the objection of ■duplicity if properly raised. That objection is not raised, however, and the demurrer cannot prevail if one good cause •of action can be spelled out of the counterclaim as pleaded. We thinlr that there is sufficiently pleaded negligence and failure to fulfill orders on the part of plaintiffs in carrying ■out the orders of the defendant. The net result of the transactions embraced in the third and fourth paragraphs of the complaint, and how the plaintiffs’ negligence therein alleged caused any damage are somewhat obscure; but the fifth clause seems to set forth a cause of action under Harris v. Tumbridge, 8 Abb. N. C. 291, 83 N. Y. 92, which appears also to be authority for the measure of damage sought to be ■applied. See also Campbell v. Wright, 118 N. Y. 594; Roger v. Wiley, 131 id. 527; Lazare v. Allen, 20 App. Div. 616. We cannot follow the plaintiffs in their contention that the first counterclaim, as pleaded, defeats itself because, in alleging that a note was given for the amount apparently [98] due from defendant to plaintiffs, it virtually asserts that an account was stated between the parties upon which the amount represented by the note was found to be due. The rule undoubtedly' is that the giving of a note for the amount shown due by an account is prima facie evidence of an account stated; but it is only that and it remains open to the maker of the note to show that it was not given in acknowledgment of the correctness of the account and in settlement thereof. Wright v. Wright, 74 Hun, 138. Our conclusion is that the first counterclaim states a cause of action. As to the second and third counterclaims, their sufficiency is even more apparent. The second sets forth a cause of action for conversion of the collateral, and is quite sufficient without considering the paragraph numbered XI which may be disregarded. The third counterclaim also sets out a cause of action in conversion. It differs from the second because, while it alleges notice to defendant of the time and place of sale, it further alleges that plaintiffs promised defendant that they would not sell at the time so fixed unless and until they had given him previous notice to that effect, and that they did sell at that time without giving him such notice. This is precisely equivalent to selling without any notice at all. The object of notice is to give the owner, of the collateral an opportunity to protect himself against a sacrifice of his collateral; and to mislead him, as defendant alleges he was misled by the plaintiffs, necessarily operates to deprive him of the opportunity for self protection. It follows that, the demurrers were properly overruled, and that the judgment must be affirmed, with costs, with leave to plaintiffs to withdraw the demurrers and reply within six days, upon payment of costs in this court and the court below. Bischofe and MacLean, JJ., concur. Demurrers overruled and judgment affirmed, with costs, with leave to plaintiffs to withdraw demurrers and reply within six days upon payment of costs in this court and the court below.