Opinion
December, 1915.
Philip J. Termini (John T. Walker, of counsel), for appellant.
Frank M. Patterson (Frank M. Patterson and Franklin H. Mills, of counsel), for respondent.
Plaintiff sues as endorsee of a check drawn by the defendant to the order of plaintiff's endorser. The complaint alleges in its third paragraph that defendant made the check "for value received" and in fourth paragraph that the payee "duly endorsed and delivered the same to plaintiff for value." The answer admits the making of the check, but alleges "that said check was not given for value received, but was obtained from the defendant by fraud, deceit and by misrepresentation, as hereinafter more particularly set forth" (referring to a separate defense). The answer, further, in another paragraph, denies the allegation of the fourth paragraph of the complaint. It also sets out a separate defense of fraud exercised by the payee in procuring the defendant to make the check, but this separate defense was stricken out on the ground of insufficiency because, although defendant alleged that he gave the check, on the false representation of the payee that he was solvent, in exchange for two drafts, the answer does not state on whom the drafts were drawn or whether they were accepted and paid or not.
I cannot find that the defendant asked leave to amend the separate defense by pleading that the drafts were worthless. Defendant's counsel merely insisted: "It is sufficiently apparent from the answer itself that the defendant issued this check for drafts drawn by the payee which have proved to be worthless. That is the defense." The only request for leave to amend was "to allege that the plaintiff did not part with any consideration for the check," and "for a further separate defense that the check to the payee was without consideration," of which I shall speak in a moment. Defendant's motion for leave to amend was denied, and the motion to strike out the separate defense granted, the defendant excepting in both instances.
When defendant offered proof of absence of consideration given either to himself for the making of the check or to the payee by plaintiff for its endorsement, such proof was excluded, and defendant excepted. The result was the direction of a verdict in plaintiff's favor. The exclusion of the evidence offered by defendant is sought to be sustained on the ground that want of consideration is an affirmative defense which must be pleaded as such.
In the first place, it would seem that defendant affirmatively "alleges that said check was not given for value received." Respondent answers this contention, as I understand it, by two arguments: (1) by citing section 54 of the Negotiable Instruments Law, which, so far as material, reads: "Absence or failure of consideration is matter of defense as against any person not a holder in due course." Respondent claims that this requires absence of consideration to be pleaded as an affirmative defense. As I read the section, however, it expresses not a rule of pleading, but a principle of substantive law. Moreover, respondent's notion that there is no "defense" except new matter affirmatively pleaded after confession and avoidance is erroneous. It is well settled that a denial is a defense. Staten Island M.R.R. Co. v. Hinchliffe, 170 N.Y. 473, 481, 482. (2) Respondent urges that the allegation of absence of value received, in the third paragraph of the answer, which I have quoted, must be read in connection with the statement that the check was obtained by fraud, "as hereinafter more particularly set forth," that the two phrases combined are thereby made part of the separate defense which was stricken out and that the first phrase can not be read separately as an affirmative allegation of absence of consideration. I do not agree with this construction, but find in this pleading a distinct and separable allegation that defendant received no consideration for the making of the check.
It appears further that on plaintiff's objection evidence offered by defendant to show that plaintiff had given no value for the indorsement to it of the check was also excluded on the ground that it was incompetent, irrelevant and immaterial. Of course, if defendant was not entitled under the pleadings to litigate the question of the absence of consideration for the making of the check, the fact whether or not plaintiff gave value for the endorsement thereof to itself was immaterial. But as we hold that defendant was entitled to prove absence of original consideration, the question will arise whether on the new trial to be ordered defendant may, under its denial of plaintiff's allegation that it gave value for the endorsement, try out that issue.
Respondent's counsel does not on this appeal seem to differentiate in his argument between his objection to proof of want of consideration for the original making of the check and want of consideration for the endorsement to plaintiff, and I take it that on the new trial he will raise the same objection to appellant's proof of want of consideration for the endorsement on the ground that it has not been affirmatively pleaded in the answer. The error in his contention appears to me to lie in a confusion between the rules of substantive law of pleading and of evidence respectively. He is quite correct in his assumption that merely putting in evidence the note with proof of its genuineness, is, because of established presumptions, sufficient prima facie evidence that the check was issued for value and that the plaintiff is a holder in due course with all that that implies, as defined in sections 91 and 98 of the Negotiable Instruments Law. It is also true that proof merely of want of original consideration for the making of the check will not affect the prima facie presumption in favor of plaintiff's bona fide holding under sections 94 and 98 of that law. See (as to failure of consideration) Broderick Bascom R. Co. v. McGrath, 81 Misc. 199. But these rules are not rules of pleading. Respondent's error — excusable though it may be — lies in insisting that "the rule is well settled that, in a suit on a negotiable instrument, want of consideration can be proved only where the same is pleaded as an affirmative defense in the answer." The cases cited by respondent in support of this contention do not, on analysis, sustain it.
In Ryan v. Sullivan, 143 A.D. 471, the notes themselves are said to have recited that they were given "for value received," but the pleading contained neither the language of the notes nor did it plead the fact of value received therein recited. The answer, however, sets up that the notes were given for the accommodation of the plaintiff. What was actually decided in that case was that the allegation was substantially equivalent to one of absence of consideration. The opinion discusses the peculiar condition which arose from the structure of the complaint, pointing out that defendant could not deny the making of the note, but that the mere admission thereof, expressly or by failure to deny, was not equivalent to an admission of consideration. Similarly, a denial of the bare allegation of execution and delivery of the paper might not be regarded as an assertion of absence of consideration. See Heilbronn v. Herzog, 165 N.Y. 98. Therefore there was practically no way in the Ryan case whereby defendant could indicate that he relied on absence of consideration except by asserting that claim expressly in its answer, as it did. The statement in the opinion that "proof of want of consideration may not be given under a general denial, but must be specially pleaded," is obiter, and is based upon the authority of three cases. The first is Carnwright v. Gray, 127 N.Y. 92. In that case the syllabus does indeed contain the statement that "the instrument (a promissory note) imports a consideration, and the burden of showing a want thereof is upon the defendants"; but the opinion (at pp. 96 and 99) shows only that while the court below so charged as to the "burden of proof," the point that such charge was erroneous was not raised at the trial and therefore could not be considered on the appeal. The plain intimation, however, as I read the opinion, is that the charge was incorrect.
It is well settled that the burden of proof as to the existence of consideration in the case of negotiable paper is upon the plaintiff ( Irving v. Irving, 90 Hun, 422; Lombard v. Bryne, 194 Mass. 236) and of course the burden of proof never shifts. Heineman v. Heard, 62 N.Y. 448; Farmers' Loan Trust Co. v. Siefke, 144 id. 354.
Of the two other cases cited in support of the obiter proposition which I have quoted from the Ryan case, Dubois v. Hermance, 56 N.Y. 673, relates solely to failure as distinguished from absence of consideration, and Eldridge v. Mather, 2 N.Y. 157, is distinctly limited to a partial failure or want of consideration (the italics appear in the syllabus itself).
The principal other case to which respondent appeals is Sprague v. Sprague, 80 Hun, 285. That case is so meagerly reported that it does not appear what questions particularly were raised on the trial. The statement (be it incidental or otherwise) that the burden of proving want of consideration in a suit upon a promissory note rests upon the defendant is made upon the authority of the Carnwright case, which, as I have shown above, holds nothing of the kind.
This is not a case either where defendant, by denying an immaterial averment of the complaint, fails to raise any issue, as held in Linton v. Unexcelled Fire Works Co., 124 N.Y. 533, the averment there being described as "immaterial so far as the complaint was concerned because a recovery could be had without proving it" (p. 537). It is also said (at p. 536) that "it was not necessary that he should, specifically or in express terms, aver or prove" it. As shown above, that description does not fit an allegation in the complaint that negotiable paper was either issued or transferred for a consideration — superfluous though it may be to aver it expressly.
I am of opinion, therefore, that defendant was entitled under the pleadings as they stand to offer proof both of want of consideration for the making of the check for its endorsement to plaintiff.
LEHMAN, J., concurs; FINCH, J., concurring in result.
Judgment reversed and new trial granted with costs to appellant to abide event.