
    Leo Schlesinger, as Receiver of the Federal Bank of New York, Respondent, v. Benjamin S. Wise, Appellant, Impleaded with Leonora Wise, Defendant.
    
      Denial of a material allegation of a complaint—it will not be stricken out as sham 7— on payment of a promissory note the maker is entitled to the return of collateral.
    
    In an action, either at law or in equity, where the answer raises an issue as to any of the material allegations in the complaint, that issue can only be disposed of by a trial, and a denial in the answer which raises such issue cannot . be Stricken out as sham, even though such denial be inconsistent with a separate defense pleaded in the answer.
    Where a party delivers to the holder of a promissory note personal property as collateral security for its payment, he is entitled, upon payment of the note, . to the collateral, and a refusal to return it is a justification for the nonpayment of the note.
    Appeal by the defendant, Benjamin S. Wise, from an order of the Supreme Court, made at the New York Special Term and entered in the office of the clerk of the county of New York on the 20th day of April, 1905, granting the plaintiffs motion to strike out the separate amended answer of the said defendant.
    
      A. H. Parkhurst, for the appellant.
    
      George W. Glaze, for the respondent.
   McLaughlin, J.:

The defendant appeals from an order striking out as sham his amended answer. The action is upon a promissory note for $2,500. Paragraph 2 of the complaint sets out the appointment of the plaintiff as receiver of the Federal Bank of Hew York; paragraph 3, a copy of the note and alleges that same was executed by the defendant Benjamin S. Wise; paragraph 4, that at the time of the making of the note and prior to delivery to the bank the defendant Leonora Wise indorsed the same in blank; paragraph 5, that she did so for the purpose of giving credit to' said note and charging herself as first indorser thereon ; paragraph 6, that prior to the maturity of the note it was indorsed by the maker in blank — the same being payable to his order—-and delivered to the bank, which, upon the credit of the indorsements thereon, duly discounted the same in due course and for value; paragraph 7, that at maturity said .note was presented for payment, and payment thereof then and there demanded but that the same was not paid, whereupon- the note was duly protested for non-payment at a cost to the bank of $1.25 — due notice of Which was given to the defendants.

The answer denied that plaintiff became and still is the owner and holder of the note as alleged in paragraph 2 of the complaint, and further denied all the allegations contained in paragraphs 5 and 6; and denied any knowledge or information sufficient to. form a belief as to the allegations contained in paragraph 7. It also set up a separate and distinct defense and what is termed an equitable counterclaim to the effect that at the time of the making and delivery of the note, another, note for $5,350 was executed by Benjamin S. Wise and delivered to the bank as collateral security for the payment of the note sued on; that the defendant, prior to the commencement of the action, had offered to pay the note in suit, provided -the collateral was returned to him, and that he then demanded its return, which, was refused. He asks fór a judgment that the plaintiff, "upon being paid the amount of the note in suit, with accrued interest, be adjudged and required to deliver the collateral to such defendant.

The order appealed from must be reversed. The answer, which was verified, put in issue material allegations of the complaint. It' is proper in form. and raises an issue which cannot be determined on motion to strike out. It has long been the settled law of this State that- in an action either at law or in equity, where the answer raises an issue as to any of the material allegations in the complaint, that issue can only be disposed of by a trial and that a denial in an answer which raises such an issue cannot be stricken out as sham,. This was settled in Wayland v. Tysen (45 N. Y. 281); Thompson v. Erie JR. Co. (Id. 468). In the latter case the court said: “We have held in Wayland v. Tysen, * * * that a veri fled answer which interposes a general denial to the complaint is tantamount to a plea of the general issue under the former system of practice at law; that such answer gives to the defendant the right require the plaintiff to establish by proof all the material facts necessary to show his right to a recovery, and that it cannot be stricken out as sham, although shown by affidavits to be false. This was not upon the ground that a false plea was not sham, but upon the ground that a party making a demand against another through legal proceedings was required to show his right by common-law evidence and • that ex parte affidavits were not such evidence.’ ”

Whenever the question has since been presented the decisions cited have been followed, so far as I have discovered. It has uniformly been held by the Appellate Division that where a material' allegation of the complaint is denied by the answer, such denial cannot be stricken out as sham. (Howe v. Elwell, 57 App. Div, 357; Mutual Life Ins. Co. v. Toplitz, 58 id. 188; Reese v. Walworth, 61 id. 65; Alexander v. Aronson, 65 id. 174; Ginnel v. Stayner, 71 id. 540; Hopkins v. Meyer, 76 id. 365.)

Criticism is .made that the denials in the answer are inconsistent with the separate defense pleaded, but there is nothing in the Code of Civil Procedure which prevents a party introducing inconsistent defenses. (Sheldon v. Heaton, 78 Hun, 50; Goodwin v. Wertheimer, 99 N. Y. 149; Societa Italiana v. Sulzer, 138 id. 468.) A denial of material allegations in the complaint puts the plaintiff to his proof, even though there be allegations in an affirmative defense which conflict with the denial. (Central Bank v. Thein, 76 Hun, 571.) A counterclaim cannot be. stricken out as sham. (Baum's Castorine Co. v. Thomas, 92 Hun, 1.)

Indeed, there was nothing before the court which authorized it to determine whether the allegations in the answer setting up the .alleged* counterclaim were true or false. Hot a single fact is alleged from which it could be determined. As already said, the answer denied material allegations of the complaint and set up an affirmative defense. The denials put plaintiff to his proof and- the affirmative defense could no more be stricken out as sham on affidavits than could the complaint. (Webb v. Foster, 45 N. Y. Super. Ct. 311.)

If the separate and distinct defense pleaded did not, in the opinion of plaintiff’s counsel, constitute a defense, then he could have it disposed of by demurrer, but the law seems to be well settled that where a party delivers to the holder of a note personal property as collateral security for its payment, when the note is paid the- cob lateral security must be returned and the refusal to return it is a justification for non-payment of- the note. (Ocean National Bank of N. Y. v. Fant, 50 N. Y. 474; Robertson v. Sully, 2 App. Div. 160.)

The order appealed from, therefore, must be reversed, with ten dollars costs and disbursements, and the motion denied, with ten dollars costs.

O’Brien, P. J., Patterson, Ingraham and Hatch, JJ., concurred.

Order reversed, with ten dollars costs and disbursements, and motion denied, with ten dollars costs.  