
    Willis T. Honsinger et al., Resp’ts, v. John Mulford, App’lt.
    
      (Supreme Court, General Term, Third Department,
    
    
      Filed December 2, 1895.)
    
    1. Contracts—Consideration.
    The extention by a creditor of a corporation of the time of payment of his claim, at the request of a stockholder, is a sufficient consideration for a promise by such stockholder to pay the debt.
    2. Pleading—Statute of frauds—Waiver.
    A defendant waives the benefit of the statute of frauds by not setting up the invalidity of the contract as a defense.
    Appeal from a judgment in favor of plaintiffs.
    
      Hackett & Williams (T. F. Conway, of counsel), for app’lt; John H. Booth (L. L. Shedden, of counsel), for resp’ts.
   Putnam, J.

On the conflicting evidence in this case, the jury were authorized to find that on September 2, 1890, the Mutual Benefit Ice Company, a domestic corporation, was indebted to plaintiffs in the sum of $6,000 then due, and that plaintiffs were about to commence an action upon said claim; that defendant was the principal stockholder, in said corporation, and its president ; that in an interview with two of the plaintiffs, at the date above mentioned, defendant requested them to extend the time of payment of said indebtedness, and agreed, if such extension was granted, to personally become liable for and pay the said claim when it became due under the arrangement then made; that, relying upon such agreement of defendant, plaintiffs extended the time of payment of such debt, and took two notes of the corporation set out in the complaint, payable at a future date. The agreement of defendant to pay the claim of plaintiffs was not in writing, but in the complaint it was not stated whether it was written or oral. On the trial the defendant objected to evidence tending to show the alleged agreement made between plaintiffs and defendant at the time in question, on the ground that such an agreement, to be valid, must be in writing, and that the oral agreement of defendant to pay the debt of the corporation was void under the statute of frauds, and afterwards-moved to strike out such evidence for the same reason, and upon plaintiffs’ resting, and again at the termination of the trial, moved to dismiss the eomplaint on the ground that the promise of defendant on which the action was based was not in writing, and was therefore within the statute of frauds and void. This motion was denied. The case was submitted to the jury by the trial court, and a verdict rendered in favor of the plaintiffs.

The agreement of defendant to pay plaintiff’s claim against the Mutual Benefit Ice Company on their extendi pg the time of payment was founded upon a sufficient consideration. Meltzer v. Doll, 91 N. Y. 365; Coal Co. v. Blake, 85 id. 226-232; Hamer v. Sidway, 124 id. 538; 36 St. Rep. 888. Hence the plaintiffs were entitled to recover on the defendant’s promise, unless the objection made by defendant, on the trial, to the recovery, on the ground that the promise of defendant, not being in writing, was wiinin the statute of frauds and void, should have been sustained by the trial court. As we have seen, it did not appear by the allegations in the complaint whether defendant’s promise was in writing or oral. Hence we think defendant, not having set up the statute of frauds in his answer, waived the benefit of that statute. In Hamer v. Sidway, supra, Parker, J., says:

“ It does not appear on the face of the complaint that the agreement is one prohibited by the statute of frauds, and therefore such-defense could not be made available unless set up in the answer.”'

And the learned justice cites Porter v. Wormser, 94 N. Y. 431, in which case the same doctrine is stated in the opinion of Andrews J. (page 450). In Wells v. Monihan, 129 N. Y. 166 ; 41 St. Rep. 409, Finch, J., says :

“ As far as the defense in this case, rests upon the statute of frauds, it must fail for two reasons. No such defense has been pleaded, and it is not raised by the averments of the complaint; and, without one or the other of these conditions, the defense, if existing, cannot be made available.”

But if any doubt existed before as to whether it was necessary to plead the statute of frauds as a defense, or otherwise the benefit of the statute was waived, no such - doubt "can be entertained since the late decision of the court of appeals in Crane v. Powell, 139 N. Y. 379 ; 54 St. Rep. 650. That esse in effect holds that, unless the statute is pleaded, objection upon the trial to verbal proof of the contract will not avail the defendant. If it appears from the complaint that the contract on which plaintiff seeks to recover is within the statute, defendant must demur. If the invalidity of the contract does not appear from the complaint, defendant must take the objection by answer, and if the objection is not taken, either by demurrer or answer, it is waived. In the case cited no objection was taken by defendant to verbal proof of the contract, as being within the statute of frauds, although at the close of the evidence he moved to dismiss the complaint on that ground. In his opinion, O’Brien, J., adverted to that fact, and said:

“But the important question in the- case, and upon which we prefer to let the decision rest, is whether, in the light of the adjudged cases, it is not necessary for a defendant who intends to avail himself of the benefit of the statute, as a defense to an action for damages for breach of a verbal agreement, within the statute, to specifically plead it.”

The learned j udge further said:

“ In this state cases may be found where the opinion is expressed that the defendant may avail himself at the trial of the benefit of the statute, under the general issue, by objection to verbal proof of the contract. Some of these "cases, and perhaps the principal ones, have already been cited to show when and how the defendant is deemed to have waived the benefit of the statute by.admitting the allegations of the complaint. It is proper, I think, to observe that they are cases where the complaint was admitted in some way, or the decision was before the Code, ór founded upon authority antecedent to it. The recent cases in this court sustain the view that it is necessary to plead the statute. * * * The statute of frauds is a shield which a party may use, or not, for his protection, just as he may use the statute of limita-' tians, the statute against usury, that against betting and gaming, and others that might be mentioned. I take it to be a general rule, of universal application, that the statutes last mentioned are not available to a party unless specifically pleaded, and there is no reason for making the statute of frauds an exception to the rule.

“ The present system of procedure is founded upon the idea that litigants should, when possible, know in advance the precise questions they must meet on the trial. When a contract is set out in the complaint as thé cause of action, and the defendant intends to assail it on some special or statutory ground, the general spirit of the system is not complied with unless notice is given of this intention to the opposing party by the pleadings. * ‘ * * When the defect in the plaintiff’s cause of action appears on the face of the complaint, the defense must be interposed by demurrer. Code, § 488, When the complaint does not, as in this case, disclose an invalid agreement upon its face, but it is in fact invalid for some reason, the defendant must take the objection by answer (section 498); and, if the objection is not taken in either way, the defendant is deemed to have waived it (section 499). The conclusion is thus reached that the defendant waived the benefit of the statute in this case by omitting to plead it.”

Under the above authorities, we are of opinion that defendant waived the benefit.of the statute of frauds by not- setting up- the invalidity of the contract as a defense, and hence that the trial court did not err in submitting the case to the jury.

We have examined the exceptions taken by the defendant on the trial to the charge of the court, and to its rulings in excluding and receiving evidence, and do not think that either of such exceptions requires a reversal of the judgment

Judgment affirmed, with costs.

Hisrriok, J., concurs.

Mayham, P. J.

(dissenting).—This action was brought upon an alleged personal agreement of the defendant to pay two notes made by the Mutual Benefit Ice Company, payable to the order of W. T. Honsinger & Co;,—one for $1,000, and one for $5,000. The $1,000 note is in the following form :

“$1,000.00. New York, Aug. 27, 1890.

“One hundred and fifty days after date we promise to pay to order of W. T. Honsinger & Co. $1,000.00, at the West Side Bank, New York city, with interest; value received.

“Mutual Benefit Ice Co.,

“John Mulford, President.”

The $5,000 note is in the following form:

“$5,000.00. New York, September 2nd, 1890.

“Thirty-five days after date we promise to pay W. T. Honsinger & Co. $5,000.00, at West Side Bank, New York city, with interest ; value received.

“Mutual Benefit Ice Co.,

“John Mulford, President."

The complaint alleged that prior to the making of these notes, and at the time of the making of the same, the Mutual Benefit Ice Company, which was a corporation organized under the laws of the state of New York, was indebted to the plaintiffs, who were copartners, in the sum of $6,000, and wjiich indebtedness, at the time of the making of the notes, was due; that John Mulford, the defendant, was president of the ice company, and was a large stockholder therein ;. that at the time of or prior to the making of the notes the plaintiffs wei;e pressing the ice company for payment, and the defendant offered to give them the ice company’s notes for the amount o'f such indebtedness ; that the plaintiffs expressed a willingness to accept such notes, provided the defendant would indorse them ; that the defendant declined to indorse as an individual, but then and there promised and agreed to pay said notes if the plaintiffs would receive them ; and that, pursuant to that agreement, the notes were made and delivered by the president of the company to the plaintiffs. The answer denied that the defendant agreed to be personally bound for the payment of the notes, or that the notes were made in consideration of any such agreement by him, or in consideration of the plaintiffs forbearing to sue the ice company on its indebtedness; and contained also a general denial of-the allegations of the complaint. The case shows that before the maturity of the notes the ice company became insolvent, and its assets passed into the hands of a receiver.; that on the maturity they were duly presented to the bank at which they were made payable, and payment demanded and refused, and they were duly protested for nonpayment; that thereafter, and on the 13th of July, 1891, the receiver paid to the plaintiffs $621.34 on said notes, and on the 31st day of May, 1892, the further sum of $627.56 was paid pn account of said notes; that to recover the balance unpaid on said notes this action was brought.

The principal question of law presented on this appeal is as to the defendant’s personal liability arising out of his alleged promise to pay the notes at maturity, or his liability upon the face of the notes as a joint maker. On the trial of the action, at the conclusion of the plaintiffs’ evidence, which, in the main, supported the allegations of the complaint, the defendant moved for a nonsuit on the grounds : (1) That the promise upon which this action is based against the defendant is not in writing, and therefore, within the statute of frauds, void. (2) That there is no evidence or pr.iof that the promise was for the defendant’s special benefit. (3) That it appears from the proof that the debt was due from the Mutual Benefit Ice Company, and there is no proof that defendant intended to or did become personally liable for it; that, upon the testimony of We ver and Honsinger, defendant did not charge himself with the payment of the debt in question. (4) That it appears from the pleadings that the notes were made by the corporation, and no promise of Mulford to pay them, which is not in writing, can bind him; that, if the promise to pay by Mulford was made, as stated by Honsinger and We ver, it was a promise to answer for the debt of another, and void. This motion was denied, and defendant duly excepted. The evidence on the part of the defendant tended to show that Mulford made no individual promise or agreement to pay the notes or the indebtedness, and was in substantial conflict with the testimony offered on the part of the plaintiffs. At the conclusion of the defendant’s testimony, and when the testimony was closed in the case, the defendant renewed his motion for a nonsuit upon the same grounds stated in the original motion, which was also denied by the court, to which the defendant excepted.

If this case turned upon the question of fact as to whether defendant did or did not agree to pay the amounts of these nptes, the jury were authorized to find, from the evidence, either for the plaintiffs or defendant; and their verdict for the plaintiffs was therefore upon a disputed question of fact, and could not be disturbed by this court on appeal. It therefore becomes a question of law, to be determined on this appeal, whether, upon the facts as disclosed by the plaintiffs’ evidence, a legality was established against the defendant personally. It is insisted on the part of the defendant that the paroi promise of the defendant to pay these notes was a paroi collateral promise to answer for the debt, default, or miscarriage of the Mutual Benefit Ice Company, and was, therefore, a promise to answer for the debt or default of another, and, not being in writing, and signed by the defendant, was void, within the statute of frauds. The language of the statute is:

“ Every special promise to- answer for the debt, default or miscarriage of another person shall be void, unless such agreement, or some note or memorandum thereof, be in writing, and subscribed by the party to be charged thereby.”

The above is the language of the statute, although transposed. But it is insisted on the part of the plaintiffs that the defendant cannot avail himself of the defense of the statute of frauds, because the same was not specially pleaded in his answer. On the trial of this action, when paroi evidence was offered by the plaintiffs to prove the negotiations between the parties, or prior thereto, and which seem to have led up to the making of these notes, such evidence was objected to by the defendant by the following specific objection:

“ Defendant objects that, if any promise was, to be proved of the nature alleged in the complaint, it must be in writing; otherwise it was void under the statute of frauds.”

This objection was overruled by the court, and the defendant duly excepted. - It will be observed that the complaint, in setting out what is claimed to be the special contract of the defendant to pay these notes, is silent as to whether the promise was in writing or by paroi. The answer of the defendant denied the making of any such contract, and the question here presented is whether such denial was equivalent to an allegation that any paroi agreement would not amount to a valid contract, and in that form put in issue the question whether the contract alleged by the complaint was ever made in a form such as to amount to a valid agreement. It is well settled upon authority that a defendant cannot avail himself of the defense of the statute of frauds unless he either pleaded the same in his answer, or, where he has denied the plaintiff's allegation of the existence of a contract, objects to the introduction of paroi evidencé to prove an agreement which the statute requires should be in writing. In Barrett v. Johnson, 77 Hun, 528; 60 St. Rep. 271, Herrick, J., in discussing the rights of a defendant to avail himself of the defense of the statute of frauds, uses this language:

“The complaint of the plaintiff and the answer of the defendant were both in writing. The defendant, in his answer, did not plead the statute of frauds as a defense, although it will be seen from the substance of the complaint, as hereinbefore stated, he was fully apprised of the nature of the plaintiff's claim. Neither was there any objection made by the defendant upon the trial to the reception of the evidence establishing the contract by paroi.”

And in Grampp v. De Peyster, 80 Hun, 135; 61 St. Rep. 622, the same learned judge, in discussing a similar question, uses this language:

“If we arrive at the conclusion that it was an agreement to pay the debt of another, then the defense of the statute of frauds, asserted by the defendant, is not available to him now, because he did not raise it by his answer, and the evidence establishing such paroi contract to pay the debt of another was not objected to by him, on the trial.v

In Crane v. Powell, 139 N. Y. 379; 54 St. Rep. 659, it was held, in an action upon an alleged contract, which was to be performed in one year, but where the defendant did not plead the statute of frauds, and permitted the plaintiff to prove, without objection, a verbal agreement to the effect set forth in the complaint, that a motion to dismiss the complaint on the ground that the agreement, not being in writing, was void under the statute, made at the close of the evidence, was properly denied.

These cases seem to give weight to the fact that the evidence, when offered to prove the contract, which, by the statute, was not objected to, and the' learned judge in the case last cited, on page 384, 139 N. Y., in discussing the statute of frauds, uses this language:

The statute of frauds does not prohibit the making of an ■agreement in any way that the parties may see fit, nor render them illegal or immoral, if not made in some particular way. It simply requires that certain agreements must be proved by writing. It introduces a new rule of evidence in certain cases without condemning as illegal any contract that was made legal before. The vital fact that was in issue in this case was whether the agreement set forth in the complaint was made.”

In the case last cited the evidence was offered and received without objection. The judge also, in the case last cited, adds:

- “When the proof is offered to establish it, that is not of the quality or character required by law, and it is not objected to, the other party is deemed to assent to another mode of proof of an inferior and secondary nature; and when such proof is in the ■case, the error, if any, is not reached by motion to dismiss the •complaint. Now, the plaintiff in this case gave proof of an oral agreement that the minds of the parties met, and that there was mutual assent with reference to the subject-matter; and this is ordinarily the very essence of a contract. It tended to sustain the complaint, as the defendant did not elect to insist upon the statutory form of proof, but virtually assented to the mode of proof that has always been sanctioned by the rules of the common law. Under these circumstances it seems to me that we cannot say that the finding of. the jury is without evidence to sustain it, or that the defendant’s exception to the refusal of the trial judge to dismiss the complaint is good.”

It will be observed that this case differs from the onb at bar in this: that the oral common-law proof was received on the trial without objection in this case, while in the case at bar the paroi evidence to establish the contract was objected to when offered, and the objection was overruled by the trial judge. No such objection and ruling were before the court of appeals in Crane v. Powell,

In Flora v. Carbean, 38 N. Y. 111, it was held that:

“ Where testimony tending to establish a material fact, although incompetent in its nature, is received without objection, the party has a right to insist upon the fact shown thereby or based thereon.” Sharpe v. Freeman, 45 N. Y. 808; In re Yates, 99 N. Y. 101.

It will also be seen from the reasoning of the learned judge and the cases cited that he by no means holds that, where the allegations of the complaint are denied by the answer, and objection is taken to paroi evidence at the time it is offered to prove the illegal contract, the defendant may not avail himself of the defense of the statute; and on page 385, 139 N. Y., and the judge uses this language:

“If the defendant neither pleads the statute nor objects to what may be called common-law proof of the agreement, it ought to be held, I think, even upon the authority of the earlier cases, that he has waived the objection. These views are confirmed and illustrated by the application of a-principle which is settled beyond debate. When the complaint alleges the verbal agreement within the statute, and the defendant, by his answer, admits it without pleading the statute as a defense, he is deemed to have waived its benefits.”

Citing several authorities with approbation, among which is Harris v. Knickerbacker, 5 Wend. 638. In that case Marcy, J., in delivering the opinion in the court of errors, where the statute of frauds was under discussion, uses this language:

“I apprehend that it is now settled that, if the defendant admits the agreement, and insists on the statute, he can protect himself from a decree for specific performance, notwithstanding his admission : but if he admits the agreement, but neither pleads the statute nor insists on it in his answer, he is deemed to have renounced the benefits of it. If the bill states generally a contract, which the law requires to be in writing, the court will presume it was made with the requisite formalities to give its validity, until the contrary appear. The defendant, in answering, may either plead that the contract was not in writing, or insist upon that fact in his answer. If he meets the allegation of a contract in the bill with a general denial, and the complainant is put to his proof to establish it,-he must show a written contract; and, if he does not, the evidence to establish the issue will be adjudged incompetent.”

Hone of the cases referred to by the learned counsel for the plaintiff in express terms controvert the law as laid down in the case last cited. On the contrary, .all seems to admit that, if the objectionable matter in the complaint is denied by the answer, and the defendant objects to paroi proof tending to establish the allegations of the complaint, he may, in that-way, defend himself from the illegal contract under the statute of frauds. The reason of that rule seems quite obvious. While it is true that the contracts required-by the statute of frauds to be in writing are held to be neither immoral nor improper in themselves, yet the statute declares them void; and, applying the legal maxim that “void contracts are as no contracts,” the defendant, by a general denial of the existence of such a contract, forces the plaintiff to- prove a contract in writing, or leave himself without the proof of any legal contract. Under such circumstances, as was said in Harris v. Knickerbacher, supra;

“If he failed to prove a written contract, the évidence to establishjhe issue on his part will be adjudged incompetént."

If these views are correct, then the admission of paroi testimony of this contract was error, and the plaintiffs have failed by any competent evidence to establish the liability of the defendant, if it shall be found that the contract under consideration is one in Violation of the provisions of the statute of frauds.

This brings us to the consideration of the quéstion: Was the contract, as proved, a promise bythe defendant by paroi to answer-for the debt, default, or miscarriage of the Mutual Benefit Ice Company, the' maker of the notes? Since the enactment of the statute of frauds, the question as to what cases do or do not come within its provision has been the subject of elaborate discussion in the various courts of this state as well as in England. The side lights thrown upon this question by the numerous décisions along the line of judicial investigation have, from time to time, discussed the meaning, force, and effect of this statute, until its real interpretation must now be gathered from the recent decisions of the highest court in this state, giving construction and effect to this statute. It will be unprofitable here to undertake to enumerate or repeat the numerous decisions made upon this subject; and if we can apply the result of the decisions, as they are focused in the most modern "announcements by the court of appeals, to the facts of this case, we will accomplssh all that is profitable in its examination. This subject received an exhaustive examination in the opinion of the court as pronounced by FINCH, J., in White v. Rintoul, 108 N. Y. 222; 13 St. Rep. 495; and, after examining the cases of Leonard v. Vredenburg, 8 Johns. 29 ; Mallory v. Gillett, 21 N. Y. 412; Brown v. Weber, 38 N. Y. 187; and Ackley v. Parmenter, 98 N. Y. 425,—and comparing the decisions in each of these leading cases, respectively, with the others, and discussing the modifications of the rules applicable to this statement that were made from time to time in each of these cases as compared with the cases preceding it, he sums up his conclusion in the following language:

‘“These four cases advancing by three distinct stages in a common direction have ended in establishing a doctrine in the courts of this state which may be stated with approximate accuracy thus: That whéfe the primary debt subsists, and was antecedently contracted, the promise to pay it is original when it is founded in a new consideration, moving to the promisor, and beneficial to him, and such that the promisor thereby comes under an independent duty of payment, irrespective of the liability of the principal debtor.”

Applying that rule to the case at bar, does the alleged agreement of the defendant take the case out of the operation of the statute? Comparing the case at bar in its leading features with the case under discussion by Judge Finch, and applying the rule laid down by him and the result reached by him in that case to the case at bar, the answer to the above question, it seems to us, must be in the negative. It is undisputed in this case that the indebtedness sought to be recovered was the prior indebtedness of the Mutual Benefit Ice Company, and not of this defendant as an individual. The indebtedness, by the making of the notes in question by the ice company, continued to exist against that company as its indebtedness. There was no such valuable consideration moving to this defendant in the alleged agreement as to place him under an independent duty of payment, irrespective of the liability of the principal debtor. It is true that it was held in Watson v. Randall, 20 Wend. 201:

“ That an agreement to forbear to sue a debtor is a good consideration for a promise of a third person to pay the debt, but, to render the promise obligatory, it must be in writing.”

That rule does not seem to have been abrogated by the rule laid down in White v. Rintoul, supra; and if we are to look for a sufficient consideration to the promisor to take the case out of the statute, and make the debt on which this action is brought his debt, we find that no sufficient consideration of benefit to him exists in this case, when compared with the consideration which seems to exist, moving to the promisor, in the case of White v. Jiinioul. In that case the defendant, who was sought to be charged upon a paroi promise, was the father of one of the members of the firm owing the original debt, and was himself a creditor to a large amount of that firm. ' He was asked by the plaintiff in that action to indorse the note of the firm to secure its indebtedness to the plaintiff. This he declined to do. The firm notes were held by the plaintiff, and just before maturity the defendant stated to plaintiff “that the only and best way would be to give the firm time; that it was late in the season, and that by waiting until next summer they could sell their beer, and that he would pay the plaintiff for the two notes.” The plaintiff claims that pursuant to that request he waited, relying upon that promise, which he insisted was upon a consideration of benefit to the defendant, not only in the way of favor to his son, but to furnish him a better opportunity to collect the $5,000 the firm owed him which he stated in the conversation he might lose.

But the court, in passing upon that question, held that that was not a sufficient consideration, within the rule established, to take the case out of the statute, and that the promise came clearly within the meaning of a collateral promise to answer for the debt of another, and was void In the case at bar it is urged that the fact that „the defendant was a stockholder in the company, and therefore interested in having favors extended to the company, furnished a sufficient consideration to uphold his promise as an original agreement to pay the debt, and therefore made him primarily liable for its paymeut, and took the case out of the operation of the statute.

It has been frequently held that the relation of a stockholder to a company does not constitute him a party in interest, even to such an extent as to disqualify him, under section 829 of the Code, from being a witness against the representative of a deceased person as to a personal transaction between the stockholder and such deceased person. There was, therefore, no such direct interest moving to the defendant as a stockholder of the company as would uphold a promise by him to pay the debts of the company, and we can see no sufficient consideration moving to the defendant in his transaction with the plaintiffs to take the case out of the statute, and charge him with payment of these notes, irrespective of the liability of the debtor.

But it is urged that the note up“on its face charged the defendant with a liability as a maker, and that the word “ President,” suffixed to his name, is simply a description of the person, and not of the character of his liability, and we are referred to cases to support that contention. But this contention does not seem to be justified either from the acts of the parties as proved contemporaneous! v with the malting of the note, or from the allegations of the complaint. His liability under the complaint clearly arises, if at all, out of his contemporaneous paroi agreement, and not from the note itself.

The ninth paragraph of the" complaint charges : “ That on or about the 2d of September, 1890, the defendant, John Mulford, as president of said company, for value, received, made, executed, and delivered to the plaintiffs two certain promissory notes, of which the following is a copy.”

The notes, therefore, were notes of the company, and as between the original parties thereto in this case must be held as the notes of the corporation, and not as of the individual who signed them as president.

For the various reasons above stated, we are of the opinion that the plaintiffs failed in establishing a liability against the defendant personally, and that the court, on the motion of the defendant should have dismissed plaintiffs’ complaint.

Judgment must be reversed, and a-new trial ordered; costs to abide the event.  