Case Name: Arthur E. Grannis, Appellant, v. John Stevens and Bayard Stevens, Respondents
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1913-07-10
Citations: 157 A.D. 561
Docket Number: 
Parties: Arthur E. Grannis, Appellant, v. John Stevens and Bayard Stevens, Respondents.
Judges: 
Reporter: Appellate Division Reports
Volume: 157
Pages: 561–566

Head Matter:
Arthur E. Grannis, Appellant, v. John Stevens and Bayard Stevens, Respondents.
First Department,
July 10, 1913.
Bills and notes — action by payee against maker — defenses — lack of consideration—usury.
It is a good defense to an action upon a promissory note brought by the payee against the maker to show that there was no consideration for the instrument and that it was understood that the maker was not to be liable.
Action upon promissory note, the defense being that it was given solely for the accommodation of the plaintiff, was without consideration, and was usurious. It appeared from the evidence that, although the note was made payable to the plaintiff, the makers had had no negotiations with him, but made the note at the request of a third person, with an understanding that they were not to be liable thereon. On all the evidence, held, that the payee gave no consideration moving to the makers, and that the instrument was tainted with usury.
McLaug-hlix, J., dissented, with opinion.
Appeal by plaintiff, Arthur E. Grannis, from a judgment of the Supreme Court in favor of the defendants, entered in the office of the clerk of the county of New York on the 28th day of December, 1912, upon the verdict of a jury rendered by direction of the court, and also from an order entered in said clerk’s office on the 23d day of December, 1912, denying the plaintiff’s motion for a new trial made upon the minutes.
Frank L. Crocker, for the appellant.
Henry G. Gray, for the respondents.

Opinion:
Laughlin, J.:
This is an action to recover on a promissory note made by the defendants on the 14th day of April, 1910, whereby they promised to pay to the order of the plaintiff one year from date the sum of $60,000, at the office of Stevens & Co., New York city, with interest at six per centum per annum. The defendants pleaded, among other things, that the note was given solely for the accommodation of the plaintiff and without con sideration; that it was usurious; that it was fraudulently diverted from the purpose for which it was intended, and that it was understood at the time it was signed that it was a mere matter of form and they were not to become liable thereon.
The plaintiff had been a member of the New York Stock Exchange and had been suspended. About the end of May, 1909, before it had been determined whether or not he would obtain reinstatement on the Stock Exchange, he executed and delivered to one W. L. Stevens, a brother of the defendants, a memorandum agreement acknowledging indebtedness to him of $10,000 for money loaned on May 15, 1909, and reciting that if the plaintiff could obtain reinstatement within two months it was their desire to enter into partnership, and if he ' could not obtain such reinstatement he would sell his membership in the Stock Exchange and loan the proceeds to Stevens to be employed "inhis stock exchange business on terms to be later agreed upon which will return Mr. Grannis not less than $10,000 a year." The plaintiff did not succeed in obtaining reinstatement to membership in the Stock Exchange.
According to the testimony of W. L. Stevens, the plaintiff, on selling his seat on the Stock Exchange, returned the $10,000 he had borrowed and said that he would not put the balance into Stevens' firm, which was then composed of one Henry Coolidge and himself, while Ooolidge was a member thereof, and they succeeded in finding one Henning, who was a member of the Stock Exchange, to join the firm in place of Ooolidge. The organization of the new firm was evidently contemplated at the time of the execution of the note, for the evidence shows that it was formed the next day and was composed of W. L. Stevens and Henning. The defendants were in the employ of their brother's firm at salaries of $15 per week and had no interest in the firm.
The uncontroverted evidence is that they had no negotiations with the plaintiff with respect to the making of this note and that the loan was not made to them but to their brother, the check therefor for $60,000 having been drawn the day before and delivered to their brother's attorney who, after the execution of the note, drew his check to their brother for the amount. The preponderance of the evidence also shows that after this loan had been negotiated between the plaintiff and defendants' brother on an understanding precisely the same as that contemplated by said memorandum agreement, namely, that plaintiff was not to become a member of the firm but was to receive $10,000 per annum for the use of his money — the defendants were summoned to the main office of their brother's firm and were requested to sign this note, which had already been prepared, and to take their brother's note for a like amount for the purpose of securing their brother's firm against adverse action by the Stock Exchange which it was anticipated would likely be taken under the rules of the Stock Exchange if it became known that the plaintiff, a suspended member of the Exchange, had loaned the money to the defendants' brother's firm, one member of which was a member of the Exchange, and that in the presence of the plaintiff it was stated to them by their brother or his attorney that their signing the note was a mere matter of form and that they would not incur any liability thereby. The evidence further shows that the note was retained in the possession of the attorney for the defendants' brother for between five and eight months, and was not delivered to the plaintiff until the defendants' brother failed to make payments in accordance with the contract between him and the plaintiff; and that ten days after the money was loaned the plaintiff and the defendants' brother made a formal agreement to the effect that the excess of the $10,000, which plaintiff was to receive per annum for the use of his money according to the agreement between him and W. L. Stevens at the time the note was made, over and above the legal rate of interest, viz., $533 per month, should be deemed salary; but the evidence shows that the plaintiff never performed any services for the defendants' brother's firm and that it was not intended that he should, and although he was permitted to draw on the firm, and received $10,000 per annum or more, his drafts were charged to the defendants' brother's account.
At the close of the evidence both parties moved for a direction of a verdict, and thus the facts were submitted to the court. It is perfectly plain, I think, from the evidence that this loan was not made to the defendants but to their brother and that the transaction took the form it did merely to prevent suspension of the defendants' brother's firm by the New York Stock Exchange. The delivery of the note as a valid obligation of the defendants was neither authorized nor contemplated. The case fairly falls within the rule that it may be shown by the maker of .a promissory note, who has received no consideration therefor, as against the payee, that it was understood that he was not to be liable thereon. (Higgins v. Ridgway, 153 N. Y. 130.) Moreover, if the defendants had authorized the delivery of the note and gave it for the purpose of enabling their brother to obtain the loan, it would be tainted with the usurious contract made between the plaintiff and their brother upon which it was based.
It follows that the judgment and order should be affirmed, with costs.
Ingraham, P. J., Clarke and Scott, JJ., concurred; McLaughlin, J., dissented.