Elterman v. Friedman

Proskauer, J. The payee of a promissory note here sues an irregular indorser. The defendant has given notice to examine the plaintiff before trial, which plaintiff moves to vacate. As to the defense of payment, the motion will be denied. As to failure of presentment and notice, the motion will be granted. The real controversy turns on the right of the defendant to examine as to the defense of usury. Since the decision of Sabine v. Paine (223 N. Y. 401) it is at least open to argument that any [35] indorser may defend on the ground of usury against any holder. But the determination of the present controversy does not require so broad a holding. The allegation of the answer here is that this plaintiff herself exacted usury from the payee. While it has been held that the indorser cannot plead usury against a holder in due course, the warranty of the indorser under section 116 of the Negotiable Instruments Law runs only to subsequent holders in due course. Where, as here, the plaintiff is the immediate payee and is charged with participation in the illegal transaction, she cannot avail herself of the warranties set forth in section 116. This has been specifically held by the Appellate Term in Kass v. Blumberg (142 N. Y. Supp. 544) and in a well-reasoned opinion of the City Court in Bruck v. Lambeck (63 Misc. 117). The defendant is certainly entitled to examine on the issue of usury, where the charge is that the plaintiff herself was the usurer. Settle order on notice in accordance with this opinion.