Rice v. Grange — 42 N.Y. St. Rep. 747

Majority

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Henry A. Rice, Assignee, Resp’t, v. James Grange, App’lt.^[1]

(Court of Appeals,

Filed February 9, 1892.)

Headnote

1. Bills and notes—Consideration.

Defendant made his note to Chace & Co., plaintiff’s assignor, and received in return a note of the same amount and date made by a third party and endorsed by Chace & Co. Held, that upon the exchange of the notes the particular transaction was fully consummated, and was in no sense executory, and each party became the holder for a good consideration of the note delivered.

2. Same—Pleading counterclaim.

A party having an affirmative defense to an action by way of counterclaim is bound to plea l it in explicit terms and not leave it to inference. Pleading failure of consideration and offer to re-exchange notes does not amount to a counterclaim.

3. Pleading—Amendment discretionary.

The granting of a motion to amend the answer is discretionary with the court, and an exception to a ruling denying the same is not available here.

Appeal from judgment of the supreme court, general term, first department, affirming judgment entered on verdict directed by the court.

Samuel JET. Dreiu, for app’lt; Alfred B. Oruikshank, for resp’t.

This action was upon the promissory note of the defendant, made to the order of Earl B. Chace & Co., and the plaintiff is the assignee of the payees, under an assignment for the benefit of their creditors, executed at a time subsequent to the maturity of the note. The defense set up in the answer was a failure of consideration. The facts as developed upon the trial of the action were precisely these: that in December, 1889, Chace placed in the hands of a broker a promissory note made by Hawkins & Co., to the order of Chace’s firm and not yet due.

This broker called upon the defendant and offered to give Chace’s note in exchange for one of defendant’s and this proposition was accepted. Subsequently the broker took the Hawkins note, with Chace & Co.’s endorsement upon it, to the defendant and received from him the note in suit, which was for the same amount as the Hawkins note. When the Hawkins note fell due, it was not paid and was protested. Upon the maturity thereafter of the defendant’s note payment thereof was refused by him. Some three months later Chace & Co., made their general assignment to plaintiff. The defendant, in support of his appeal from the judgment recovered against him, insists that the defense of failure of consideration was established and that it was, therefore, error for the trial judge to direct a verdict for the plaintiff. His counsel argues that the defendant’s agreement to pay Chace was executory merely and was dependent upon the payment of the Hawkins note. In other words, he considers that there was to be implied in this transaction a promise by Chace that the Hawkins note would be paid at maturity and that this promise formed the consideration for his promise to pay the same sum to Chace in his

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note. But the defendant has misapprehended the legal effect of the transaction. Upon the exchange of these notes the particular transaction between the parties was fully consummated, and was in no sense executory. Bach party became the holder for a good consideration of the note delivered.

The consideration for the defendant’s note was the transfer and delivery to him of the Hawkins note, and was as good and absolute as it would be in any case of an exchange of property. This was a business transaction, and whether the consideration was in an exchange of notes, or was paid in money, is quite the same thing. In an exchange of notes each note is a valid consideration for the other and is fully available in the hands of its holder. Cobb v. Titus, 10 N. Y., 198 . The undertaking by Chace & Co. upou their endorsement and transfer of the Hawkins note, was a legal consideration for the defendant’s promise, and no agreement is to be implied which is not expressed upon the papers.

Nor is the defendant entitled in this action to off-set a claim upon the Hawkins note. If the defendant had set up an equitable counterclaim to the plaintiff's cause of action, he might then have been in a position to show that no equities or rights of others had intervened, and that the transaction between him and Chace was such as to justify off-setting one note against the other. But such a defense is wholly unavailable to him, for the want of any allegations in his answer making such a counterclaim. His sole defense was a failure of consideration, and there was nothing in the answer which amounted to a plea of an equitable set-off. Under our practice a party having an affirmative defense to the action by way of a counterclaim is bound to plead it in explicit terms and not leave it to inference. Here the defendant pleads a “ defense to the cause of action alleged in the complaint,” and, after setting it out, avers that it establishes an entire failure of consideration and makes offer to re-exchange the notes. This did not amount to a counterclaim, and he seems to have recognized the fact, when, at the close of the trial, he moved “ to amend the answer by setting up a counterclaim.” The denial of the motion was not excepted to, and an exception would have been unavailing here ; as it was discretionary with the court to grant or deny such a motion.

The judgment appealed from should be affirmed, with costs.

All concur, except Maynard, J., taking no pari