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In defense to an action on a

§ 3538. Fraud, how alleged. promissory note, it is not sufficient to plead, in general terms, want of consideration, and that the note was obtained by fraud; the answer should set out the circumstances under which the note was given, and point out the facts which constitute the fraud.126 Fraud can not be alleged generally.127 To avoid the contract sued on by an answer setting up false representations, it must be alleged that the plaintiff knew the representations were false, and that the defendant was misled thereby, or that his belief in their truth induced him to enter into the contract.1 128

§ 3539. Must be specially pleaded. Fraud can not be proved on the trial, if not alleged in the pleadings.129 To a complaint in the usual form upon a promissory note, an answer was filed, admitting the signing of the note, but averring that it was made, not on account of an indebtedness existing between the parties, but for the purpose of being used as collateral security for a debt due to a third person from the maker and payee jointly; that the joint debt was subsequently paid, and that the note, having thus become functus officio, should have been canceled, but through fraud was taken and held by the payee, and transferred without consideration by him to the plaintiff; it was held that these allegations were not new matter, which, under the system of replication then in force, was admitted by a failure to reply; that their only effect was to deny that any obligation of the character counted upon in the complaint was ever created by the signing of the instrument, and thus to traverse its essential allegations.130 If a defendant would resist the payment of a promissory note given for mining stock,

126 Gushee v. Leavitt, 5 Cal. 160; 63 Am. Dec. 116. The facts which constitute the fraud must be stated. Voorhees v. Fisher, 9 Utah, 303.

127 McMurray v. Gifford, 5 How. Pr. 14; Anderson v. Johnson, 3 Sandf. 1; and see § 2748, ante; Howard v. Railroad Co., 24 Fla. 560. An answer setting up fraud or deceit as a defense to an action on a promissory note should show damage therefrom and the extent thereof. Parker v. Jewett, 52 Minn. 514.

128 Van de Sande v. Hall, 13 How. Pr. 458; Palmer v. Smedley, 18 Cal. 321. For substance of a sufficient answer, setting up that the defendant was induced to make the contract sued on by the fraud of a broker who was the plaintiff's agent, see Cassard v. Hinman, 6 Bosw. 8.

129 Ogden v. Raymond, 5 Bosw. 16. 130 Goddard v. Fulton, 21 Cal. 430.

on the ground that the seller made fraudulent representations as to the value of the mine, the answer should set up the defense, and aver either that the stock was valueless to either party, or that the defendant had offered to return it and rescind the contract.131

§ 3540. That the note was for goods sold on a false warranty. Form No. 822.

[TITLE.]

The defendant answers to the complaint:

I. That the defendant made, executed, and delivered the note mentioned in the complaint for and on account of certain goods describe them theretofore furnished by the plaintiff to him, the defendant, under a representation and warranty by the plaintiff, at the time of so furnishing them made to the defendant, that the said goods were [state facts relative to the warranty].

II. That the defendant then accepted and purchased said goods for the purpose of [state purpose], trusting in the said representation and warranty of the plaintiff, all of which the plaintiff then well knew.

III. That the same were not the kind of goods purchased, nor such as they were so warranted to be by the plaintiff, as aforesaid, in this [state wherein], nor would they answer the purpose designated.

IV. That the defendant upon the discovery that the said goods were not such as they were warranted to be, as aforesaid, returned [or offered to return] the same to the plaintiff, and demanded of the plaintiff that he return said note to the defendant. [If plaintiff received the goods back, so state; if he refused, allege that the goods are still held by the defendant for the plaintiff, of all which the plaintiff had notice.]

§ 3541. Form of plea. The nature of the defect should be stated,132 and the extent of the depreciation caused by it, as nearly as may be.133 In an action against the maker of a note, the defendant answered, setting up a failure of consideration,

131 Gifford v. Carvill, 29 Cal. 589; see 47 id. 351. In an action by an indorsee of a promissory note, a plea setting forth that such note was procured by the fraud of the payee is demurrable, unless it is also alleged that the plaintiff took the note with knowledge of the fraud. Banks v. McCosker, 82 Md. 518.

132 Castles v. Woodhouse, 1 Code R. 71.

133 Deifendorff v. Gage, 7 Barb. 18.

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in that the goods sold by the plaintiff, in payment for which the note was given, were not of the quality warranted, and claimed damages for the breach of warranty. It was held that the defense set up by the answer did not constitute a counterclaim, and required no reply.134 A plea, to an action on a note given for merchandise, which avers that the goods purchased are of no value to the defendant, is not good. It should show that the goods if they had been returned to the plaintiff would have been valueless.135 Where defendants gave their note for a tract of land as a part of the public domain, defendants might plead the fact in an action on the notes.136

3542. Recoupment for breach of warranty.

[TITLE.]

Form No. 823.

The defendant answers to the complaint:

I. That the said note was not, before it became due, transferred and delivered to the plaintiff for value.

II. That the said note was made and delivered by the defendant to one A. B., who was at that time an agent or servant of the plaintiff, and acting as such on behalf of the plaintiff in that transaction, in exchange for a quantity of cigars, which were sold by sample to the defendant at that time by said A. B., as such agent.

III. That when said cigars were delivered to this defendant, they did not correspond with the samples, and were not worth more than

.. dollars.

IV. That as soon as the defendant learned the character of said cigars, he offered to said A. B., as such agent, to return them, which he is still ready and willing to do.

Wherefore the defendant claims to recoup

.. dollars, his damages in this behalf, from the amount of the said note.137

In

$ 3543. Counterclaim recoupment. an action on a promissory note for one hundred and twenty dollars, the answer of the defendant, the maker, stated that the note was given on the purchase of goods; that the goods were not of the quality warranted, and that upon the discovery of their

134 Nichols v. Boerum, 6 Abb. Pr. 290. 135 Christy v. Cummins, 3 McLean, 386. 136 Scudder v. Andrews, 2 McLean, 464.

137 This form, taken from Abbott's Forms, No. 870, is in substance from Allen v. Haskins, 5 Duer, 332.

defects he offered to return them; and he claimed damages in the sum of one hundred dollars, to be recouped from the amount of the note; it was held, on demurrer to the answer, that the answer was not insufficient because it did not present a defense to the whole demand of the plaintiff. If there was a breach of warranty, the plaintiff would have a cause of action against the plaintiff.138 A counterclaim to a set-off may be proved without pleading, where there has been no opportunity to plead it.139

§ 3544. That the note was for accommodation, and was misapplied.

[TITLE.]

Form No. 824.

The defendant answers to the complaint:

I. That the note mentioned and described in the complaint was given by this defendant to [the payee] therein named, without any other consideration than is hereinafter stated. II. That theretofore this defendant had loaned his promissory note for dollars, dated on the day of ..... 18.., to said [payee], without consideration, and solely for the accommodation of said [payee], and upon his promise to take up and pay the same at maturity. III. That the said note fell due on the

......

....

day of

18.., and that, at the request of said [payee], this defendant then gave him the note in suit, for the special purpose of enabling him therewith to take up and renew said first note of ..... dollars, he paying the balance, and upon the agreement with him that it should be so used, and not otherwise.

IV. That the plaintiff having a claim then overdue against the said [payee], he, said [payee], wrongfully diverted said note from the purpose for which it was given, and fraudulently misapplied the same by giving it to plaintiff as collateral to secure the payment of said note.

V. That the plaintiff is not a bona fide holder of the note in suit for a valuable consideration; but received the same with notice of the foregoing facts, and as collateral to secure the payment of an antecedent debt, and without paying any consideration therefor.

138 Allen v. Haskins, 5 Duer, 332; see, also, Beirne v. Dord, 5 N. Y. 95: 55 Am. Dec. 321; Hargous v. Stone, 5 N. Y. 72.

139 Hart v. Cooper, 47 Cal. 77.

VI. This defendant denies each and every allegation of the complaint inconsistent with the foregoing statement.140

§ 3545. Assignment before maturity. If the complaint, in an action by the assignee of a promissory note against the maker, avers that the note was assigned to the plaintiff for a valuable consideration, before maturity, and is sworn to, an answer which denies that the note was for a valuable consideration indorsed and delivered by the payee to the plaintiff before maturity, or at any other time, does not put in issue the fact of the assignment before maturity; but if it puts in issue anything, it is only the allegation that the assignment was made for a valuable consideration.141 In an action on a note, a plea that the note has been assigned should be supported by some proofs that the beneficial interest is still in the assignee. Assignments are often made to banks for the mere purpose of collection.142 Commercial paper transferred before maturity as collateral security for a pre-existing debt is not subject to the defenses of payor against payee.143

§ 3546. Real party in interest. That plaintiff is not the holder and owner of a note, nor the real party in interest, should be specially alleged, showing how and why he is not the real party in interest.144 It is not a good plea to allege that a note sued on is the property of another, and not of the plaintiff, without showing some substantial matter of defense against the one asserted to be the owner, and which could not be set up against the plaintiff.145 In an action upon a promissory note, if it appears that the legal title is wholly in the plaintiff, it is error for the court to permit another to be joined with him as plaintiff, although such other may have an equi

140 This form is from Abbott's Forms, No. 864. It constitutes prima facie a good defense. It is not necessary to allege that defendant has been injured by the diversion. It is incumbent upon the plaintiff to show that he has not been injured. Rochester v. Taylor, 23 Barb. 18.

141 Morrill v. Morrill, 26 Cal. 288.

142 Conant v. Wills, 1 McLean, 427; compare Hartshorn v. Green's Adm'r, 1 Minn. 92.

143 Payne v. Bensley, 8 Cal. 260; 68 Am. Dec. 318; Naglee v. Lyman, 14 Cal. 450.

144 Arthur v. Beales, 1 Exch. 608; Fraser v. Welsh, 8 Mee. & W. 629: De Santes v. Searle, 11 How. Pr. 477.

145 Gushee v. Leavitt, 5 Cal. 160; 63 Am. Dec. 116.

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