APPEAL by the plaintiff, the Humboldt Exploration Company, from a judgment of the Supreme Court in favor of the defendant, entered in the office of the clerk of the county of New York on the 17th day of November, 1911, pursuant to an order made at the New York Special Term and entered in said clerk's office on the 13th day of November, 1911, granting the defendant's motion for judgment on the pleadings, and also from the said order upon which the judgment was entered.
Isaac N. Miller, for the appellant.
Raphael Link, for the respondent.
INGRAHAM, P. J.:
The action was in replevin to recover from the defendant a certain promissory note in the defendant's possession. The answer after a general denial, except as to the incorporation of the plaintiff, sets up two separate defenses. In the first defense the defendant alleges that he was on October 23, 1908, duly and regularly appointed by the Supreme Court of the State of New York receiver of the Greene Gold-Silver Company, a foreign corporation organized under the laws of West Virginia, in proceedings supplementary to execution and that the defendant duly qualified as such receiver; that on October 23, 1908, the defendant as such receiver came into and took possession of the said note mentioned, described and set forth in the plaintiff's complaint, and that since said date the defendant was and still is in possession of such note as receiver. For a second defense, after realleging his appointment and qualification as receiver and that he took possession of this note as the property of the judgment debtor, he alleges that on the 8th of March, 1910, the plaintiff instituted certain proceedings in the Supreme Court entitled 'In the Matter of Supplementary proceedings, Richard Arnold, Judgment-Creditor, against the Greene Gold-Silver Company, Judgment-Debtor,' to compel the defendant herein as such receiver to deliver and turn over
to it, the plaintiff above named, the said note mentioned and described in the complaint, alleging and claiming that it, the plaintiff herein, was the owner and entitled to the possession of the note and that defendant as such receiver unjustly and unlawfully held possession of the same and refused to deliver and turn over the possession of said note to the plaintiff; that thereafter such proceedings were duly had in said court resulting finally in a determination by the said court in said proceedings that the plaintiff was not entitled to the possession of the said note and denying the same, and that annexed to this answer is a true and correct copy of the decision of the said court and the order duly made and entered thereon; that on the 5th of August, 1910, the plaintiff appealed to the Appellate Division from said order, but failed to prosecute the same, and the said appeal was dismissed; that by reason of the aforesaid, the rights and interests of the plaintiff above named and the defendant above named, as such receiver, in and to the possession thereof was duly submitted to a court of competent jurisdiction and the rights and interests duly passed upon and determined and the interests of the plaintiff in the said note were finally adjudicated and settled. There is annexed to this answer an opinion of the Special Term deciding the application made in the supplementary proceedings and the order made upon such application which merely denies the application and vacates an injunction that had been granted. After this answer had been interposed the defendant made a motion to compel the plaintiff to reply to these separate defenses, which motion was granted, and upon appeal to this court that order was affirmed. (See 146 A.D. 934.) The plaintiff, however, failed to serve a reply within the time limited in the order whereupon this motion was made at Special Term for judgment on the pleadings. The learned Special Term granted this motion on the ground that the affirmance of the order requiring the plaintiff to reply was an adjudication that the defenses alleged were sufficient and that the plaintiff having failed to reply to those defenses, they having been adjudged legally sufficient, the defendant was entitled to judgment. In this, we think, the learned Special Term was in error.
The answer sets up two defenses. One simply alleged the appointment of the defendant as receiver and that he took possession of this note as such receiver, and the second that the question was res adjudicata, because the court had denied a motion in the supplementary proceedings in which the receiver was appointed to compel the receiver to turn over this note to the plaintiff. These two defenses appearing in the answer, not demurred to and not questioned, a reply to them would settle the question as to whether the plaintiff intended to deny the facts alleged or plead facts in avoidance. The Special Term considered that the plaintiff should be compelled to take a position in regard to the existence of the facts alleged as defenses. This application was to compel the plaintiff to reply, made under section 516 of the Code of Civil Procedure, which provides that where an answer contains new matter constituting a defense by way of avoidance the court may in its discretion, on defendant's application, direct the plaintiff to reply to that matter, and in that case the reply and the proceedings upon failure to reply are subject to the same rules as in the case of a counterclaim. In this case the answer contained new matter constituting a defense by way of avoidance. Whether it was sufficient as a defense against the plaintiff's cause of action was not necessary to be determined. The object of requiring a reply was to avoid the necessity of proving the facts alleged in the answer by way of avoidance, if the plaintiff admitted them, or by compelling the plaintiff to allege new facts, if any there were, upon which he depended to avoid the facts alleged as a defense. After a reply had been served the question would still be open at the trial as to whether the facts alleged were a sufficient defense to the cause of action alleged, and this court did not in any way intend to pass upon the question as to the sufficiency of the defense in the event that the plaintiff admitted the facts pleaded. If this answer had contained a counterclaim instead of a defense by way of avoidance the fact that a reply had been interposed by the plaintiff would not have prevented the court upon the trial from determining the validity of the defense. The question as to the plaintiff's right to recover and the sufficiency of the facts pleaded as a defense were to be determined at the trial.
The effect of a failure by the plaintiff to comply with the order requiring the service of a reply to these defenses was to admit the facts alleged. In that case (where a reply is required) section 516 of the Code of Civil Procedure provides that the reply and the proceedings upon a failure to reply are subject to the same rules as in the case of counterclaims. The matter alleged, therefore, by way of avoidance, stands admitted, but, by omitting to reply, the plaintiff did not waive his objections that the answer alleged did not constitute a defense. ( Lipman v. Jackson Architectural Iron Works, 128 N.Y. 58; Jordan v. National Shoe & Leather Bank, 74 id. 467, where the court said: 'Granted that, by reason of no reply, those allegations are admitted to be true, the claim of the defendant that it is entitled to set off that sum is but an averment of what the defendant contends is the legal result from their existence. The lack of a reply does no more than admit that averment, that is, that the defendant so claims. Whether its claim is well founded still remains to be determined by the court. In other words, though the matter set up in the answer be admitted to be true by not replying thereto, or be proven to be true, as it was on the trial, there is still to be determined whether the courts will accede to the claim of the defendant that that matter constitutes a right of set-off in the defendant. It is the matter of law arising from those facts which is not yet finally disposed of in this case. A party is not estopped by not taking issue upon a matter of law averred in his adversary's pleadings.')
We come, therefore, to the question as to whether the facts alleged in the answer as admitted to be true constituted a defense to the plaintiff's cause of action. In neither defense is there any denial as to the allegations of the complaint. The essential facts pleaded in these two defenses are that the defendant as receiver in supplementary proceedings of a foreign corporation 'came into and took possession of the said note mentioned, described and set forth in the plaintiff's complaint herein, and that since said date the said defendant was and still is in possession of the said ...