Case ID: ad_117/html/0034-01.html
Source: Caselaw Access Project
Author: {"author": "Ingraham, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Empire Trust Company, Appellant, v. Franklin R. Magee, Respondent.
    First Department,
    January 11, 1907.
    Bills and notes — when action by holder not barred by prior action of third party oh same note —when lack of consideration between maker and other party in collateral transaction not available against holder — pleading—failure to repeat allegations in separate defense.
    In an action upon a promissory note made by the defendant to his own order and indorsed and delivered to -the plaintiff bank for value, it is- no defense to allege that a third party, president of the bank, had brought suit to recover the amount of the consideration-oi *he note, to which action the bank was not a party, even though the bank is alleged to have been the agent of its president ■ . and to have advanced the money paid as consideration for the note at the request of the president.
    Under the same circumstances it is no defense, to allege that there was a failure of consideration for the note between the maker and the president by reason of a failure to complete building plans in relation to which the consideration of the note was paid, of which fact the holder had knowledge.
    When a complaint by a holder of the promissory note alleges that it was made and delivered to the holder for value, it is no defense to allege as a separate defense that there was a failure of consideration for the note between the maker and a third party, if the consideration between the maker and holder is ^ not denied in such separate defense.
    Bach separate defense must be construed as a whole, and the allegations of the complaint not denied in each separate defense are, for the purpose of the sufficiency of such defense, to be treated as admitted. Thus, the defense of the lack of consideration aforesaid is not good, if the holder’s allegation that the note was delivered to it for value is not denied in the separate defense but only in a prior portion of the answer.
    Appeal by tbe plaintiff, the Empire Trust Company, from an interlocutory judgment of the Supreme Court in favor of tlie defendant, entered in the office of the clerk of .the county of New York on the 8th day of May, 1906, upon the decision of the court, rendered after a trial at the New York Special Term, overruling the plaintiff’s demurrer to two separate defenses set up, in the answer.
    
      Robert L. Wensley, for the appellant.
    
      George D. Beattys, for the respondent.
   Ingraham, J.:

The action was upon a promissory note. The 2d clause of the complaint alleges that “ on or about tbe 18th day of September, 1905, defendant made his certain promissory note in writing, dated on that day, whereby for value received, he promised to pay to the order of himself, one month after said date, the sum of seven hundred dollars at Empire Trust Company, New York City, with interest at six per cent per annum; and said defendant on or about said date, duly indorsed the said note and for value delivered the same to the plaintiff, who is now the owner and holder thereof.”

The answer denies that “ the allegations contained in paragraph ‘ Second ’ of said complaint which allege that defendant made his certain promissory note for value received and denies that for value he delivered the same to plaintiff.”

The other allegation of the complaint being admitted, it follows that the defendant does not deny that he made the promissory note and delivered the same to the plaintiff, the denial only being that he made the ' nóte for value and for value delivered '.the same to the plaintiff.

The first defense alleged is that at the' commencement of this action there was pending an action in the Supreme' Court between parties who, though nominally different, are in reality the" same as in this action, and for the same cause as that set forth in the complaint herein, namely, to recover the sum of $700-, alleged to have .been advanced to defendant by Le Roy W. Baldwin, which sum is the alleged consideration for the note set forth in the complaint herein; that in reference to said alleged claim of $700 for which said note was given, the plaintiff herein represents and is the agent of said Le Roy W. Baldwin ; that plaintiff herein had notice and knowledge of all the facts in reference thereto, and if it advanced any money on said note, it did so at the request and for the account of said Le Roy AY. Baldwin, its president. The second defense alleged .that the Brunswick Construction Company and Le Roy AY. Baldwin, president of the plaintiff herein, and certain other interested parties, entered, in to an operation, the avowed purpose of which was to build a hotel and to pay for the same by the issue of certain bonds; that said persons agreed to underwrite a certain portion of said bonds, and in furtherance óf their purpose obtained a loan of certain moneys, out of which was paid to said persons certain sums of money as a bonus or compensation for underwriting "said bonds ; that through the negotiation of: some outside party as broker, said Le Roy W. Baldwin, and said defendant, entered into an agreement dated September. 3, 1903, by the terms of which said defendant agreed to save, indemnify and hold the said Le Roy AY. Baldwin harmless, under and by virtue of and as a party to said underwritten agreement, to the extent of $20,000 of the bonds of the said Brunswick Construction Company; that the said plans aiid purposes of the said "persons failed and said hotel was not constructed, and that the terms and conditions of the alleged agreements entered into in connection with the said undertaking have not been carried out or complied with, and that the said Baldwin was not really and actually compelled to pay out and advance on his own account any cash or moneys, and has not really suffered any damage,, nor has plaintiff on his own behalf; that no bonds have been issued in accordance with the purposes above set forth, and that the whole negotiations and everything connected therewith are entirely within the control of said Le Roy W. Baldwin, and his intimate associates, in such a way that said plaintiff has suffered no damage whatever; that by reason of the facts set forth, the consideration' of said note utterly failed, of all of which facts the plaintiff herein and said Le Roy W. Baldwin were cognizant; that the plaintiff herein had knowledge and notice of all said facts, and if it advanced any money on said note it did so simply at the request and for the account of Le Roy W. Baldwin, its president. To these two separate defenses plaintiff interposed demurrers which were overruled.

I do not think that the first defense is sufficient. The action is on a promissory note made by the defendant to his own order, and indorsed and delivered by him to the plaintiff for value. This separate defense does not deny any of these allegations. It is alleged that Baldwin had brought a suit to recover the sum of $700 alleged to have been advanced to defendant by Baldwin, which sum is the. alleged consideration for the note, but -the defense not having denied that the note was delivered to the plaintiff for value, a recovery in Baldwin’s action, to which the plaintiff is not a partyt could not be a bar to an action on the .note. The fact that thesplaintiff is the> agent of Baldwin, and advanced the money paid as the consideration for the note at the request • of Baldwin, does not affect the liability of the defendant on the note.

hTor do I think that the facts alleged in the second defense are sufficient. This defense fails to deny the allegations of the complaint that the note was made by the defendant for value, and delivered to the plaintiff for value. It- alleges certain facts, and that by reason of such facts the consideration of such note utterly failed. But these facts had nothing to do with the plaintiff and do not either_ expressly or by implication deny that the defendant delivered the note to the plaintiff for value, and that the plaintiff is now the holder and owner of it. Whether Baldwin, president of the plaintiff, or the other persons not named who entered into the arrangement to build the hotel were compelled to advance any moneys or suffered any injury in consequence of the failure of the parties interested to construct the hotel is entirely immaterial and does not tend in any way to controvert the allegations of the eont' plaint, that .the defendant delivered the note to the plaintiff for value.

Mor,is it a defense to an action on the note that- if the plaintiff - advanced any money on said note it did so at the request and for the account of said Baldwin, its.president. The defendant having executed and delivered the note to the plaintiff, the sole question is whether or not there was any consideration as between the plaintiff and the defendant. All the allegations of fact as to the relation Of the defendant and others with a corporation organized to construct the hotel and thé agreement between -these third parties in relation thereto are entirely immaterial. The sole defense attempted to be set up here is the failure of- consideration and none of the facts alleged tend to show that as between the plaintiff and the maker of the note there was no consideration. The rule is now settled that each separate defense must be construed as a whole and that the allegations of the complaint not denied in such separate defense are, for the purpose of the sufficiency of such defense, to be treated as admitted. (Douglass v. Phenix Ins. Co., 138 N. Y. 209.) And as neither of these defenses are sufficient upon their face without reference to other parts of the answer, the demurrer should have been sustained.

It follows that the judgment should be reversed, with costs, and the demurrer sustained, with costs, with leave to the defendant to amend the answer within twenty days on payment of costs in this court and in the court below.

Patterson, Laughlin, Clarke and Scott, JJ., concurred.

Judgment reversed, with costs, and demurrer sustained, with costs, with leave to defendant to amend on payment of costs in this' court and in the court below.