Frank Lampard made his first appearance for New York City FC, but was unable to stop Montreal Impact winning at Yankee Stadium.
The Blues, who had Andrea Pirlo making his first start, were behind inside five minutes when Laurent Ciman teed up Ghanaian forward Dominic Oduro, who netted for the Canadian outfit.
On 32 minutes, Montreal doubled their advantage as Ignacio Piatti scored his seventh of the season.
City pulled a goal back from the penalty spot midway through the second half when Ambroise Oyongo brought down Thomas McNamara before David Villa scored from the penalty spot.
Lampard came on with 21 minutes left, but saw his side fall further behind when Josh Saunders was adjudged to have fouled Piatti in the area.
Piatti tucked away the spot kick only for City to pull another goal back within a minute as McNamara scored after good build-up play from Angelino and Villa.
However, Montreal held on to move above the Blues in the Eastern Conference.
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