where the claim set off was acquired before notice of transfer of the bill.349

In like manner, damages arising out of the contract, by way of failure of consideration of the note, may be set off or recouped. 350 If, however, a note is given for the purchase of a machine, the breach of a subsequent promise by the agent to repair it cannot be set off.351 So, a note given for a loss on an insurance policy cannot be set off against the premium in the hands of an indorsee.352 A bill for services by the defendant to the plaintiff may, however, be set off; 353 or an open account in favor of a third party, transferred to the defendant.35 So, an agreement, for valid consideration, to pay the debt of a third party to the defendant, may be set off.355 So, a call by the maker of a corporation note, for the payment of an assessment on stock held by the payee.356 But a bank cannot set up dividends accrued on bank stock of an insolvent and deceased stockholder, against his indorsement held by the bank.357

ter in which he acted as agent for the defendant, Brake v. Corning, 19 Mo. 125.

349 Wray v. Furniss, 27 Ala. 471.

350 Stacy v. Kemp, 97 Mass. 166; Hill v. Southwick, 9 R. I. 299; Hubler v. Tamney, 5 Watts (Pa.) 51. So, for negligence in shipment of goods, the note being for advances made on them. Foster v. Bush, 104 Ala. 662, 16 South. 625. So, for breach of agreement to allow the wood, for which the note was given, to be made into charcoal on the vendor's land. Harman v. Bannon, 71 Md. 424, 18 Atl. 862. So, as to good will of a business, for which the note was given. Snow v. Holmes, 71 Cal. 142, 11 Pac. 856. But not to correct a note given in a partnership settlement on account of property misappropriated by one partner, which he promised to pay for. Johnson v. Wilson, 54 Ill. 419.

351 Buntain v. Dutton, 21 Ill. 190.

852 Union Ins. Co. v. Greenleaf, 64 Me. 123.

353 Harrison v. Turner, 10 Q. B. 482; Briggs v. Moore, 14 Ala. 433; Hubbard v. Fisher, 25 Vt. 539.

354 Ashby v. Carr, 40 Miss. 64. But an account held by the defendant may be confined by the plaintiff as a set-off to his account against the defendant in an action brought by him on the note only. Blount v. Rick, 107 Ind. 238, 5 N. E. 898, and 8 N. E. 108.

355 Although the defendant's note was given afterwards, and was prima facie a settlement of previous indebtedness. Graves v. Shulman, 59 Ala. 406. 356 Carralli Claim, 4 Ch. App. 174.

357 Brent v. Bank, 2 Cranch, C. C. 517, Fed. Cas. No. 1,834.

Breach of Warranty-Fraud.

§ 1850. Where a note is given for a purchase of land with a warranty deed, money paid by the maker to clear it of incumbrances may be recouped.358 And damages arising from a breach of warranty may be set off by the maker, even though the note was given with knowledge of such breach, but on the payee's promise to remedy the defect.359 In general, the maker of a note cannot recoup damages for misrepresentation as to the quantity or quality of the land sold.36 But if several notes are given for the purchase of land with a warranty deed, a prior incumbrance paid off by the maker may be set off against the last note; 361 or may be applied pro rata against the several notes, and not to any one for the purpose of exonerating the surety on that one. Where goods are sold with a warranty, a breach of the warranty, with or without fraud, may be set off by the purchaser against the note.363 But an accommodation indorser cannot set up such breach of warranty by the payee to the maker, the election to do so resting with his principal.364

862

If the discount of a note for the maker is obtained by his fraud,

358 Davis v. Bean, 114 Mass. 358; Packwood v. Gridley, 39 Ill. 388; Holley v. Younge, 27 Ala. 203. Provided the damages can be assessed by simple computation. Drew v. Towle, 27 N. H. 412.

359 Aultman v. Hefner, 67 Tex. 54.

360 Gordan v. Parmelee, 2 Allen (Mass.) 212. But see Pierce v. Tiersch, 40 Ohio St. 168.

361 Stilwell v. Chappell, 30 Ind. 72. And will not be allowed as set-off in excess of the particular note in suit, before the others have matured, unless it is shown that the others have been transferred. Aultman v. Jett, 42 Wis. 488; Aultman v. Hetherington, Id. 622!

362 Franklin Bank v. Cooper, 36 Me. 221.

363 Wentworth v. Dows, 117 Mass. 15; Mills v. Rosenbaum, 103 Ind. 152, 2 N. E. 313; Wheelock v. Berkeley, 138 Ill. 153, 27 N. E. 942; Rugland v. Thompson, 48 Minn. 539, 51 N. W. 604; Phoenix Iron-Works Co. v. Rhea (Tenn. Ch. App.) 38 S. W. 1079; Loring v. Morrison, 15 App. Div. 498, 44 N. Y. Supp. 526. But, to the effect that such defense is failure of consideration, and not set-off, see Stockton Savings & Loan Soc. v. Gidings, 96 Cal. 84, 30 Pac. 1016. 364 Hiner v. Newton, 30 Wis. 640. Especially at the suit of a bona fide purchaser before maturity. Mabie v. Johnson, 8 Hun (N. Y.) 309. Though equity might protect a surety against an insolvent principal. Gillespie v. Torrance, 25 N. Y. 306.

366

such fraud may be set off by the discounting bank, on the maker's implied agreement, against subsequent deposits.365 But fraud in the transfer of a sealed bill is not, in general, a matter of set-off; nor any unliquidated damages arising ex delicto.367 But where a note is secured by chattel mortgage, and the property is afterwards sold by the payee, in violation of his agreement, and in fraud of the maker, the maker may set up such fraud as an equitable defense, entitling him to redeem the property on payment of the amount secured.368

Bill or Note as Set-Off.

§ 1851. The plaintiff's own note may be set off in an action against him on another contract; 369 but not if the consideration of the note failed, and this was known to the defendant when he purchased it.37 So, he cannot set up a bill or note, which has been transferred to him conditionally, to be used as a set-off and accounted for, or to be returned to the indorser. 371 So, he cannot set up a note transferred by mere delivery, where an indorsement would be necessary to support a suit on it in his own name.372 And, even at suit of a purchaser after maturity, the maker's administrator can

365 Andrews v. Bank, 26 N. Y. 298.

366 Dilts v. Trimmer, 3 N. J. Law, 951.

367 Pulliam v. Owen, 25 Ala. 492. But see Cato v. Philips, 28 Tex. 101, if the tort is waived.

368 Boyd v. Beaudin, 54 Wis. 193, 11 N. W. 521.

369 Stettinus v. Myer, 4 Cranch, C. C. 349, Fed. Cas. No. 13,385; or the payee's note given in exchange for the note in suit, Rice v. Grange, 131 N. Y. 149, 30 N. E. 46; or even a debt represented by a note which is void for duress, Bunnell v. Butler, 23 Conn. 65. But, under the Massachusetts statute (Gen. St. c. 53, § 10) providing for the set-off of note, the certificate of deposit of a national bank is held not to be a note, and not to be subject to the setoff of a note of the payee in the hands of the bank. Shute v. Bank, 136 Mass. 487.

370 Messmore v. Larson, 86 Ill. 268.

371 Adams v. McGrew, 2 Ala. 675; Atkins v. Knight, 46 Ala. 539; McDade v. Mead, 18 Ala. 214; Proctor v. Cole, 104 Ind. 373, 4 N. E. 303. But see Moise v. Chapman, 24 Ga. 249.

372 Ayres v. McConnel, 15 Ill. 230; Trow v. Braley, 56 Vt. 560. contra, as to a note, Hickerson v. McFaddin, 1 Swan (Tenn.) 258.

But see,

And as to

a sealed bill not payable to order, but assigned to the defendant before suit brought, Sheppard v. Stites, 7 N. J. Law, 90.

not set up a note transferred to the maker in his lifetime, without indorsement.373 A set-off by note is subject, like any right of action, to the bar of the statute of limitations; 37 or it may be barred by such laches (e. g. in presenting it to an administrator for allowance) as would defeat a recovery upon it.375 So, the maker of a note cannot set up, against the holder, a check held by him, drawn upon, but not accepted by, the holder of the note; 376 although, where the drawee of a check is liable to the holder without acceptance, the contrary would no doubt be held.

Liability as Surety-Indorser.

377

§ 1852. An open guaranty held by the defendant against the plaintiff is not a subject of set-off, at common law.3 So, he cannot set off the plaintiff's contingent liability to him as a surety.378 But the liability of an indorser on a note already overdue is fixed, and may be set off; 379 although it is otherwise if the note is not yet due, and the liability is still contingent.380

Where the drawer of a protested bill has paid the statutory damages, he cannot use such payment as a set-off against the acceptor, in an action brought on another account, such damages being still unliquidated, as regards the liability of the acceptor.381 But where

373 Stickney v. Clement, 7 Gray (Mass.) 170. 374 Lyon v. Petty, 65 Cal. 322, 4 Pac. 103; Harwell v. Steel, 17 Ala. 372. And the set-off may be barred, and the note (an attested note) not barred. Nason v. McCulloch, 31 Me. 158.

375 Lyon v. Petty, 65 Cal. 322, 4 Pac. 103.

376 Case v. Henderson, 23 La. Ann. 49; Case v. Marchand, Id. 60.

377 Byles, Bills, 367; Crawford v. Stirling, 4 Esp. 207; Morley v. Inglis, 4 Bing. N. C. 58, 5 Scott, 314. So, where the guarantor became insolvent before the maturity of the notes which were guarantied. Mechanics' Bank v. Stone (Mich.) 74 N. W. 204.

378 Wood v. Steele, 65 Ala. 436; Houghton v. Houghton, 37 Me. 72; Houston v. Fellows, 27 Vt. 634; Lamb v. Pannell, 28 W. Va. 663. But an accommodation indorser before he has paid the note of the insolvent maker may retain as security the maker's funds then in his hands. Citizens' Bank v. Kendrick, 92 Tenn. 437, 21 S. W. 1070.

379 Pease v. Turner, 3 How. (Miss.) 375. But not in suit against an insolvent indorser. Walker v. Wigginton, 50 Ala. 579.

380 Hotchkiss v. Roehm, 181 Pa. St. 65, 37 Atl. 119.

381 Armstrong v. Brown, 1 Wash. C. C. 43, Fed. Cas. No. 542.

RAND.C.P.-163

(2593)

the defendant has been obliged, as acceptor, to pay a former draft of the plaintiff to a bona fide holder, after he had been released by the plaintiff, it will be a good set-off.382

Payment made by a surety, even after the principal's insolvency, may be set up against his assignee.383 So, the right of contribution. among joint makers, for payment by one maker, against the assignee of a co-maker.384

Bank Notes-Set-Off.

§ 1853. Where suit is brought by a bank of issue, it is obliged to receive its own notes in payment, and such notes may be set off against it.385 And if it has agreed, on taking the note of A. for its bank bills, to redeem its bills within a limited time, a tender of the bills within such time is a good defense by way of counterclaim, and not as a failure of consideration.386 And the maker of a bond to the bank may set up, against a purchaser of the bond, the notes of the bank held by the maker before notice to him of the transfer of the bond.387

The bills of a bank may be set up against a note held by it, notwithstanding an assignment of the note for the benefit of creditors.388 But, in Connecticut, the receiver of an insolvent bank suing upon a note has been held not to be subject to a set-off of the notes of the bank, although acquired before suit, and before the insolvency of the bank.389

In Georgia, however, under the statute, the notes of an insolvent bank are available as a set-off in an action brought by the receiver, whether obtained before or after the insolvency, or before or after suit brought, and under whatever agreement, or for whatever con

882 Cannon v. Campbell, 69 Ga. 263.

283 Merwin v. Austin, 58 Conn. 22, 18 Atl. 1029. As to set-off of the principal debtor pleaded by the surety, see § 923, supra.

384 Chenault v. Bush, 84 Ky. 528, 2 S. W. 160.

385 Niagara Bank v. Rosevelt, 9 Cow. (N. Y.) 409. Although not payable at a particular place, and without any previous demand. Bank of Niagara v. McCracken, 18 Johns. (N. Y.) 493; Coxe v. Bank, 8 N. J. Law, 172.

386 Racine Co. Bank v. Keep, 13 Wis. 209.

387 Northampton Bank v. Balliet, 8 Watts & S. (Pa.) 311.

288 Blount v. Windley, 68 N. C. 1.

889 Eastern Bank v. Capron, 22 Conn. 639.