But to this rule com 11 contract was made on good consideration. mercial paper is an exception.10 It would seem then that as between a promisor and a promisee of a promissory note, or the drawer and drawee of a bill of exchange, a lack of a legal consideration would be a good defense in an action on such note or bill.11 b. Want or failure of consideration as a defense. As between the original parties to a bill or note want of consideration is a good defense, and this is so although the words for value received are contained in the instrument.12 This defense is available in any 10. Byles on Bills (16th ed.), 140, where it is said: "In the case of other simple contracts, the law presumes that there was no consideration until a consideration appear; in the case of contracts on bills and notes, a consideration is presumed till the contrary appear, or at least appear probable." -- (Mass.) 217, 25 Am. Dec. 390; Dyer v. Homer, 22 Pick. (Mass.) 257; Corlies v. Howe, 11 Gray (Mass.), 127. In New York the rule has been laid down that if, in an action on a promissory note, evidence is introduced, tending to prove that a valid consideration did not exist, the burden of establishing the consideration upon 11. Lack of consideration, when the whole case rests upon the plaintiff, may be shown.- In the case of Par- and the question should be determined ish v. Stone, 14 Pick. (Mass.) 378, 25 upon the actual facts, instead of upon Am. Dec. 378, the court said: "It is the presumption which the note afnow well settled that to support a fords. Carnwright v. Gray, 57 Hun promise or other contract, not under (N. Y.), 98, 11 N. Y. Supp. 278, affd. seal, as a contract binding in law, in 127 N. Y. 92, 27 N. E. 835. See there must be a legal considera- also Bruyn v. Russell, 60 Hun (N. tion; and, in the application of this Y.), 280, 14 N. Y. Supp. 591; rule, it is quite immaterial whether the contract be by parol or in writing. The law, however, attributes so much force and effect to the formal written contract, and to the words 'value received,' as to presume, in the absence of proof, that there was a valuable consideration for the promise; and, if the promisor would avail himself of the defense that it was without consideration, it lays the burden of proof upon him satisfactorily to show that. But when the facts are disclosed, the burden of proof comes to be of little 12. Want of consideration.— It has importance. It has therefore been the been said in a New York case that a established rule of law, that in a suit defense to a written promise to pay, upon a promissory note, against the which rests upon the single ground of promisor, by the promisee, or by an the absence of a valuable consideraindorsee, without value given, or tak- tion, does not deserve much favor in ing the note under such circumstances a court of justice. The rule of law as to enable him to stand only upon the rights of the promisee, it is competent for the promisor to show, by way of defense, that the promise was gratuitous, and made without any legal consideration." See also Bliss v. Negus, 8 Mass. 46; Hill v. Buckminster, 5 Pick. (Mass.) 393; Dickinson v. Hall, 14 Pick. Addison v. Enoch, 48 App. Div. (N. Y.) 111, 62 N. Y. Supp. 613; Rice v. Rice, 43 App. Div. (N. Y.) 458, 60 N. Y. Supp. 97; in the latter case it was held that where a note recites "for value received" this may be taken as an admission available against the signer sued upon it, although it does not have the effect of changing the burden of proof as to the existence of a consideration, which must be established by the plaintiff by a fair preponderance of proof. which permits such a defense is almost peculiar to our own jurisprudence, and is condemned by the general sense of legislators and jurists, as well as of merchants. Fitch v. Redding, 6 N. Y. Super. Ct. (4 Sandf.) 130. The consideration of a promissory note is always inquirable into between This want of consideration court, whether of law or equity.13 may be total or partial; in the former case it affects the entire validity of the instrument, and in the latter case it only affects such validity pro tanto.14 So also a failure of consideration is, in most jurisdictions, deemed a valid defense in an action on a note or bill.15 But there is more difficulty as to a partial failure the original parties. Slade v. Hal- be enforced at law." And see generally the following In New York the rule has existed from an early period that, if the object for which a note is given fail, no recovery can be had on the note. Denniston v. Bacon, 10 Johns. (N. Y.) 198; Jones v. Swan, 6 Wend. (N. Y.) 589. See also Britton v. Hall, 1 Hilt. (N. Y.) 528; Sawyer v. Chambers, 44 Barb. (N. Y.) 42; Bookstaver v. Jayne, 60 N. Y. 146. The following cases are to the effect that failure of consideration is a good defense in an action on a bill or note: United States.- Martin v. Bartow Iron Works, Fed. Cas. No. 9,157; Scudder v. Andrews, Fed. Cas. No. 12,564. Connecticut.- Howe v. Raymond, 74 Conn. 68, 49 Atl. 854. Delaware.-Mills v. Gilpin, 2 Harr. 32. Illinois.- Capps v. Smith, 4 Ill. 177; Sturgis v. Miller, 80 Ill. 241. Indiana.- In the case of Cornwell v. Pumphrey, 9 Ind. 135, 68 Am. Dec. 611, it was held, in an action upon a note given for bank notes, that a failure of consideration could not be based on the depreciation of the bank notes unless it be shown that the de of consideration; in such case the rule in England and in many of the American States is that unless the facts are such that the amount to be deducted because of the partial failure can be definitely computed, or unless the amount is liquidated or in the nature of a certain debt, such partial failure of consideration will constitute no defense.16 There are many States where a partial failure of consideration is permitted as a valid defense, although fendants were unapprised of such depreciation when they made the note. Iowa.- Swan v. Ewing, 1 Morris, 344. Kansas.- Dodge v. Oatis, 27 Kan. 762. Maine.- Folsom v. Mussey, 8 Me. 400, 23 Am. Dec. 522. Massachusetts.- Hawks V. Truesdale, 12 Allen, 564. Michigan.- Perkins v. Brown, 115 Mich. 41, 72 N. W. 1095. Mississippi.- Campbell v. Brown, 7 Miss. 106; Pollen v. James, 45 Miss. 129; Stigler v. Anderson, 12 South. 831. New Hampshire.- Pike v. Taylor, 49 N. H. 124. North Carolina.- Washburn v. Picott, 14 N. C. 390. Vermont.- Plumb v. Niles, 34 Vt. 230. Where the article for which a note was given has proved of no value, it is no defense as a failure of consideration. Reed v. Prentiss, 1 N. H. 174, 8 Am. Dec. 50. 16. England.- Tricky v. Larne, 6 M. & W. 278; Sully v. Frean, 10 Exch. 535; Warwick v. Nairne, 10 Exch. 762. See also Chitty on Bills (8th ed.), pp. 85-88. United States.- Greenleaf v. Cock, 2 Wheat. 13; Packard v. Clark, Fed. Cas. No. 10,656, 2 Sawy. 546; El minger v. Drew, Fed. Cas. No. 4,416, 4 McLean, 388. Alabama.- Lee v. White, 4 Stew. & P. 178. Arkansas.- Desha v. Robinson, 17 New Hampshire.-Fletcher v. Chase, 16 N. H. 38. North Carolina.- Washburn v. Picott, 14 N. C. 390; Evans v. Williamson, 79 N. C. 86. Vermont. Cragin v. Fowler, 34 Vt. 326, 80 Am. Dec. 680. Partial failure is pro tanto a defense where the sum to be deducted can be ascertained by a computation. Pulsifer v. Hotchkiss, 12 Conn. 234; Drew v. Towle, 27 N. H. 412, 59 Am. Dec. 380; Riddle v. Gage, 37 N. H. 519, 75 Am. Dec. 151; Wardsworth v. Smith, 23 Me. 562; Stevens v. Johnson, 28 Minn. 172, 9 N. W. 677. Where the defendant relies on a partial failure of consideration as a defense, he must show to what extent the consideration has failed; and if he does not do so, the plaintiff will be entitled to the full amount of the note. Bisbee v. Torinus, 26 Minn. 165, 2 N. W. 168. Rule as to real estate. A partial failure of title constitutes no defense to a suit on a note given for real property. Wentworth v. Goodwin, 21 Me. 150; Morrison v. Jewell, 34 Me. 146; Thompson v. Mansfield, 43 Me. 490. To constitute a valid defense to Parker, 24 Me. 289; Hodgdon v. Gol den, 75 Me. 293, 295. See also Red dick v. Mickler, 23 Fla. 335, 2 South. 698; Peden v. Moore, 1 Stew. & P. (Ala.) 71. 21 Am. Dec. 649. The rule is otherwise under a statute permitting the defense of a partial failure of consideration; Schuchman v. Knoebel, 27 Ill. 175. And also where there was a failure to comply with Indiana.- Case v. Grim, 77 Ind. the terms of a contract for the sale Ark. 228. California.- Reese v. Gordon, Cal. 147. 565. 19 Maine.- Lloyd v. Jewell, 1 Me. 352, 10 Am. Dec. 73; Thompson v. Mansfield, 43 Me. 490. of lands in accordance with which the note was given. Ewing v. Wrightman, 52 App. Div. (N. Y.) 416, 65 N. Y. Supp. 187. the amount be unliquidated," and in some States such partial failure is declared a defense by statute.18 66 c. Statutory rule as to absence or failure of consideration. The Negotiable Instruments Law provides that: "Absence or fail66 ure of consideration is matter of defense as against any person not a holder in due course; and partial failure of consideration is "a defense pro tanto whether the failure is an ascertained and liquidated amount or otherwise." 20 As we have already said, the better rule at common law seems to have been that a partial failure of consideration was available as a defense pro tanto, only when it was a matter capable of definite computation, and not mere unliquidated damages. The statute has changed this rule in all. those jurisdictions where it has been adopted. d. Requirement of consideration in case of acceptance or indorsement. An acceptance creates a contractual relationship between the acceptor and payee or holder of a bill of exchange which binds the acceptor to pay a certain sum of money to such payee or holder, whether the acceptor has or has not funds in his hands belonging to the drawer.21 This contract must be based upon a valuable consideration;22 but this consideration is not insuf Among the decisions of other States may be cited Herbert v. Ford, 29 Me. 546; Rasberry v. Moye, 23 Miss. 320; Wyckoff v. Runyon, 33 N. J. L. 107. 17. Partial failure of consideration v. Dennison, 10 Wend. (N. Y.) 512; is allowed as a defense in Massachu- Payne v. Cutler, 13 Wend. (N. Y.) setts, even though the damages be un- 605. liquidated. Harrington v. Stratton, 22 Pick. (Mass.) 510; Parish v. Stone, 14 Pick. (Mass.) 198; Perley v. Balch, 23 Pick. (Mass.) 283; Howard v. Ames, 3 Metc. (Mass.) 308; Goodwin v. Morse, 9 Metc. (Mass.) 278; Stacy v. Kemp, 97 Mass. 166; Wentworth v. Dows, 117 Mass. 14. A similar rule exists in New York (Sill v. Rood, 15 Johns. (N. Y.), where it was held that where a note 18. Among these States are Illinois (see Schuchman v. Knoebel, 27 Ill. 175); Indiana (see Webster v. Parker, 7 Ind. 185); Georgia (see Martin v. Barton Iron Works, Fed. Cas. No. 9,157); Missouri (see Barr shire (see Nichols v. Hunton, 45 N. H. v. Baker, 9 Mo. 850); New Hamp 470). 20. Neg. Inst. Law (N. Y.), § 54. See Appendix for same section of stat utes of other States. is given for the price of a chattel, the defendant may, where the defense goes to the whole cause of action, show deceit in the sale, and thus avoid the note. In Spalding v. Vander Cook, 2 Wend. (N. Y.) 431, it was held that the partial failure of the consideration of a promissory note might be given in evidence to reduce the dam- Donnell, ages, where a part of the articles for Dec. which the note was given were manu- S. C. 239, factured in an unskilful manner, and v. Peyton, 2 Wheat. (U. S.) 385, 4 not in compliance with the terms of L. Ed. 268. the contract. See also Barton v. Stew- 22. Cameron v. Chappell, 24 Wend. art, 3 Wend. (N. Y.) 236; McAllister (N. Y.) 94; Hollister v. Hopkins, 13 v. Reab, 4 Wend. (N. Y.) 483; Judd Hun (N. Y.), 210. 21. Flournoy v. First Nat. Bank, 79 Ga. 810, 2 S. E. 547; Heaverin v. 15 Miss. 245, 45 Am. 302; Greene V. Duncan, 37 15 S. E. 956; Raborg 25 24 26 ficient because it moves from the drawer and not from the payee,2 nor is it any defense that there was no consideration as between the drawer and payee. The only requirement is that the acceptor shall have received some valuable consideration for his acceptance, except in the case of an accommodation acceptance, where the fact that there was no consideration for an acceptance of a bill of exchange does not affect the liability of the acceptor. The acceptance of the bill implies a sufficiency of consideration. A bill of exchange itself implies a representation by the drawer that the drawee is in funds to meet it, and the contract of the former is that the latter will accept and pay according to the terms of the bill; the subsequent acceptance constitutes an admission of the truth of the representation, which the drawee and acceptor is not allowed thereafter to retract." 27 There must be a valuable consideration to support an indorsement of a negotiable instrument ;28 but where an indorsement is made for the accommodation of one of the parties, or to give credit to the instrument, the law imputes a consideration.29 This subject will be further discussed in another section.30 23. Hunt v. Johnson, 96 Ala. 130, 21 How. Pr. (N. Y.) 475; as to in11 South. 387. V. 24. Vanstrum Liljengren, 37 Minn. 191, 33 N. W. 555. 25. Hollister v. Hopkins, 13 Hun (N. Y.), 210. The forbearance necessarily granted the drawer resulting from an accept ance is a sufficient consideration for such acceptance. Mechanics' Bank v. Livingston, 33 Barb. (N. Y.) 458. 26. Townsley v. Sumrall, 2 Pet. (U. S.) 170, 7 L. Ed. 386; Law v. Brinker, 6 Colo. 555; Nowak v. Excelsior Stone Co., 78 Ill. 307; Grant v. Ellicot, 7 Wend. (N. Y.) 227; Arnold v. Spague, 34 Vt. 402. 27. Heuertematte V. Morris, 101 N. Y. 63, 4 N. E. 1, 54 Am. Rep. 657. 28. National Bank of Rising Sun v. Brush, 6 Fed. 132; Newton Wagon Co. v. Diers, 10 Neb. 284, 4 N. W. 995; Fitzhugh v. Love, 6 Call (Va.), 5, 3 Am. Dec. 568. 29. As to accommodation indorsements see Bank of United States v. Weisiger, 2 Pet. (U. S.) 331, 481, 7 L. Ed. 441, 492; Brenner v. Gundersheimer, 14 Iowa, 82; Bailey v. Lane, dorsement for credit see Vowell v. Lyles, Fed. Cas. No. 17,021, 1 Cranch C. C. 428. The original consideration passing from the payee to the maker of a note is sufficient to sustain an action against an indorser before delivery. Carroll v. Weid, 13 Ill. 682, 56 Am. Dec. 481; Kracht v. Obst, 14 Bush (Ky.), 34; Rule v. Williams, 7 Ky. L. Rep. 662; Marr v. Johnson, 9 Yerg. (Tenn.) 1. A promise to deliver coal in the future is a sufficient consideration to support an acceptance of a draft for the purchase price. Knowledge on the part of the bank, when discounting drafts, that they were given in consideration of a promise to deliver coal in the future will not affect its right to enforce payment of them, although the promise is not complied with, if it took the drafts for value before maturity and before the time for the delivery of the coal had arrived. Tradesmen's Nat. Bank V. Curtis, 167 N. Y. 194, 60 N. E. 429, 52 L. R. A. 430. |