The general rules as to consideration applicable to bills and notes are, therefore, the same where the instrument is accommodation paper. Whatever would be necessary to make a case against one who had signed originally for value is equally necessary to make a case against an accommodation party; and whatever would be effective against a party who signed for value will also be effective against an accommodation party, after a consideration has been given for the instrument." A bill accepted for the accommodation of the drawer is an accommodation bill, and the acceptor is an accommodation acceptor. A bill that is signed by one or more accommodation parties is frequently spoken of as an accommodation bill; but this is incorrect. An accommodation bill is a bill whereof the acceptor (that is, the principal debtor according to the terms of the instrument) is in substance a mere surety for some other person who may or may not be a party thereto. The distinction is material when questions arise as to what is a discharge of the bill. An accommodation bill is discharged when it is discharged by the person who is in substance, though not in form, the principal. debtor, or if time be given to such person. As a general rule, the drawer or indorser for whose accommodation a bill is accepted, cannot avail himself of want of due presentment for payment, or notice of dishonor, or protest, because it is his own duty to provide the funds to meet the bill at maturity." Where one person lends his name to another for value, it is not an accommodation, though often called so; it is a case of ordinary business paper. Where two persons, for each other's aid, exchange promissory notes of equal amount, made by them, respectively, payable to the order of the other, each constitutes a good consideration for the other; each note is an instrument for value, and is not accommodation paper." 44 Big. Law B. N. & C. (2d Ed.), c. XIII, Sec. 1. 453 Camp. (Eng.) 281 (1812). 46 Chal. Dig. Eng. B. of E. Act. pp. 87, 88. 47 Big. Law B. N. & C., c. XIII, Sec. 1; 155 N. Y. 185 (1898). The liability of the accommodation party to a holder for value with notice of the accommodation character of the paper, that is, that his acceptance or other accommodation was without consideration, differs from other contracts upon negotiable instruments where consideration is lacking. If a man make a promissory note, accept a bill of exchange, or indorse paper, under the supposition that there is a valuable consideration for his undertaking when there is not, or if there be a failure of the consideration, a person taking the paper with notice, though for value, cannot, in general, hold him; but an accommodation party is liable even though the holder do take with notice, provided he take for value before maturity. In the former case, the consideration failing, the contract is invalid; in the latter, there is a valid consideration on the part of the accommodation partyhis loan of credit to the party accommodated.** FAILURE OF CONSIDERATION 36. Total failure of consideration is a defense against an immediate party, but is not a defense against a remote party, who is a holder in due course." For example, if B make a note payable to C, the only consideration of which is that C is to act as B's executor, and C die first, his personal representatives cannot enforce payment of the note against B, because the consideration of the note has failed." Failure of consideration is a defense against a remote holder for value with notice, because it is in the nature of fraud on the part of a holder to negotiate the bill when he knows that the consideration on which he received it has failed." When the consideration for a bill fails, its negotiation may be restrained by injunction. Partial failure of consideration, generally, is a defense pro tanto against an immediate party, whether the failure be an ascertained and liquidated amount or otherwise." It is not a 48 Big. Law B. N. & C. (2d Ed.), c. XIII, Sec. 2. 49 Chal. Dig. Eng. B. of E. Act (5th Ed.), p. 97. 502 Cr. & M. (Eng.) 516 (1834). 51 Chal. Dig. Eng. B. of E. Act (5th Ed.), p. 98. 52 N. Y. N. I. L., Sec. 54; 33 N. J. Law 107 (1868). defense against a remote party who is a holder for value,” even though he have notice of the failure. Thus, B accepts A's bill for one hundred dollars, the agreed price of two bales of cotton to be supplied by A to B. A delivers only one bale; he can collect only fifty dollars on the bill.** The holder with notice of a partial failure of consideration may be restrained by an injunction from negotiating the bill.55 56 Partial failure may consist in the bad quality of the goods for the purchase of which the note is given; or, in the fact that part of a debt for which the note was made was the debt of a firm contracted before the maker of the note became a member of it, the balance of the note being for his own debt;" or that an agreement for which a note was given has been only partially performed." In some states, it is held that a partial failure of consideration constitutes no defense to a bill or note." FRAUD 37. An instrument is affected by fraud when the issue, or any subsequent negotiation of it, is had through fraud or coercion, or when it is negotiated in breach of faith, or in fraud of third parties. This is a proposition particularly applicable to current bills, but it applies to overdue bills as well; as, where acceptance of a bill obtained from a drawer for a special purpose, in fraud of that purpose, is indorsed when overdue by the party who obtained it to another person; this last person cannot recover from the acceptor. The holder of paper subsequent to a fraud, who is not a holder in due course, cannot enforce payment against any party thereto, neither can he retain it against the true owner. The holder of a renewed bill who could not have maintained an action on the original bill, because he was privy to some fraud connected therewith, cannot sue on the renewed 533 Stark. (Eng.) 175 (1822). 54 L. R. 2 Ex. (Eng.) 64 (1866). 55 12 Jur. N. S. (Eng.) 917 (1866). 56 25 Tex. (Sup.) 221 (1860). 57 119 Mass. 257 (1876). 5897 Mass. 166 (1867). 59 Rand. Com. Paper, Sec. 540. bill. The following are instances of fraud, which are commonly set up as defenses to commercial paper: A false statement as to the value of something, as to the amount the payee had expended to improve a property, amounts to a fraud which would render an instrument void to the extent of the misrepresentation; where a blank sheet of paper with a signature on it as a memorandum of an address, over which is written a note or check with fraudulent intent, is negotiated, there is a legal defense to an action to recover on it even by a bona-fide holder. Generally, defense of fraud does not avail against a bonafide holder of paper. A defendant is not permitted to show against such holder that the instrument was obtained by fraudulent representations on the part of the payee, or by duress; and, even though the paper were purchased by the holder at a usurious discount, the payee cannot set up fraud as a defense against the holder. The fraud of one maker on his comakers, or of a partner on his firm, or of an officer on his corporation, does not affect a bona-fide holder of an instrument. The acceptor of a bill of exchange cannot maintain, as a defense, against a bona-fide holder for value that it was procured by the drawer's fraud. When, however, the delivery of an instrument is affected by fraud, so that it was never legally delivered by the defendant, fraud may be set up against a bona-fide holder; as, where it was stolen from the maker before delivery; or was torn from the maker's book or an attached stub. Accommodation paper, fraudulently diverted from the purpose for which it was drawn and given, would not afford ground for defense against a bona-fide holder for value. before maturity; but, where accommodation paper is negotiated by the party accommodated, in violation of his agreement, it will be a defense for the accommodation party, except against a bona-fide purchaser before maturity. The purchaser, in case of paper so diverted, is protected only to the extent of the amount paid. In the sale and transfer of collateral and the application of the proceeds, if there be fraud, it is admissible as a defense; if a payee have misappropriated an instrument taken as a renewal for another note, which the maker is obliged to pay, he may set up the defense of fraud against the payee. And so, also, where paper is fraudulently disposed of by one with whom it was deposited for safe keeping, it will do to set up fraud against a party with notice. The maker of an instrument is not discharged by the fact that the note was fraudulently transferred by the payee, and the maker who gives an instrument to another, as his agent, to sell and raise money on it, cannot set up against a bonafide holder a misappropriation of the proceeds by the agent. When the consideration for a bill is fraudulent, and it is in the hands of a party with notice, the court will order it to be given up." But where there is fraud on both sides, the instrument is a binding contract between the parties. It is not the province of the law to help a rogue out of his toils. The rule is to leave the parties where it finds them, giving no relief and no countenance to contracts made in violation of statutes.61 DURESS 38. Duress means securing a bill or note without consideration by some sort of coercion, constraint, or pressure, or through restraint of liberty, as imprisonment. An instrument obtained through duress lacks consideration; it is of no effect between the original parties and cannot be enforced. Any contract produced by actual intimidation is voidable, not only where the circumstances were sufficient to intimidate a man of ordinary firmness, but where they intimidated the particular person, because of his or her infirmity, though insufficient to intimidate one of ordinary firmness."* ILLEGAL CONSIDERATION 39. Illegality of consideration, total or partial, like failure of consideration, is a defense against an immediate party, but not against a holder in due course.' The 60 Chal. Dig. Eng. B. of E. Act (5th Ed.), 624 Penny. (Pa.) 467 (1884). 63 |