accept, where recovery can be had against the indorser, especially where it does not appear that the plaintiffs are bona fide holders. The court said: "What was the consideration for the notes on which this action is brought? The two bills of exchange! Were they of any value at the time they were given as the consideration for the notes? That they were of no value will hardly be affirmed without deciding the question whether the defendants could have resorted to" the payee, when the bills were not accepted "they had a perfect right to enforce the payment of them against the indorser. In the case under consideration the bills were not void: the responsibility of the indorser, if there was none in the drawer, constituted a good consideration."93

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$ 346. Failure of consideration-Indorser and indorsee as immediate parties.-The indorsement of a note requires an independent consideration to support it, if it is an act subsequent to the execution of the note, and not by way of negotiation." And in an action by the holder of negotiable paper against his immediate indorser, the title of no innocent third party intervening, the entire failure of consideration between such immediate parties may be shown.95

§ 347. Failure of consideration-Consideration acknowledged. Where a certificate of deposit acknowledges the receipt of money upon its face the maker is not estopped from showing as against assignees occupying the status of payees that there was a failure of consideration. 96 So the statement in a promissory note that it is given in consideratior of "money loaned" does not preclude the defense that the consideration was different from that expressed in the note and that it had failed.97

§ 348. Failure of consideration-nonnegotiable paper made at request of another.-In a suit upon a nonnegotiable promissory note made payable to plaintiff at the request of a party from

93 Jones v. Swan, 6 Wend. (N. Y.) 589.

94 State Sav. Bank v. Osborn, 188 Iowa 168, 175 N. W. 964.

95 Hamburger v. Miller, 48 Md. 317;

State Sav. Bank v. Osborn, 188 Iowa 168, 175 N. W. 964.

96 Blood v. Northrup, 1 Kans. 28. Quaere in this case whether such certificate was a promissory note.

97 Pollen v. James, 45 Miss. 129.

whom the consideration moved, and therefore presumed to be held in trust for the benefit of such party, the failure of consideration, total or partial, may, it is decided, be set up in defense whether the payee at the time of receiving the note did, or did not, know what the character of the consideration was; especially so where it does not appear that the plaintiff paid anything for the note or that he was in any manner a holder for a valuable consideration; and the note being regarded as the property of the party from whom the actual consideration moved, the defense was still available in the same manner as if the action had been in the name of the last mentioned party." 98 But there is a valid consideration for a nonnegotiable note where it was taken in satisfaction of an open account, if it is in the nature of an account stated.99

$ 349. Partial failure of consideration-Defense between original parties.-The Uniform Negotiable Instruments Law provides that "Partial failure of consideration is a defense pro tanto, whether the failure is an ascertained and liquidated amount or otherwise." No doubt to this quoted part of the section should be added the words "as against any person not a holder in due course," as found in the preceding part of the section. The defense

to a note is that of partial failure of consideration, where there was a dispute as to the amount of the debt for which the note was given, and the maker was induced to execute the note for the full amount claimed, upon the promise of the payee to adjust the

98 Herbert v. Ford, 33 Maine 90. 99 Smith v. Johnson, 224 Mass. 50, 112 N. E. 644.

1 Negot. Inst. Act, art. "Consideration of Negotiable Instruments," § 28. That partial failure of consideration is a defense pro tanto, see Indiana Flooring Co. v. Rudnick, 236 Mass. 90, 127 N. E. 428; Coulson v. Stevens, 122 Miss. 797, 85 So. 83; O'Day v. Annex Realty Co. (Mo.), 236 S. W. 22. An answer showing partial failure of consideration, pleaded in bar of the entire complaint, is bad on demurrer. Loman v. Mason, 176 Ind. 571, 96 N. E. 578.

2 Bowen v. Rury, 117 Wash. 30, 200

Pac. 789; Rockaway Rolling Mill v. Ross, 76 Misc. 515, 135 N. Y. S. 563, where it is held that "partial failure of consideration is a defense between the original parties in an action upon a note." City Sav. & Trust Co. v. Peck (Vt.), 103 Atl. 1020, where it is held that as against a transferee in due course of a note, the defense of partial failure of consideration is not available. Partial failure of consideration may be set up as a defense to a note in the hands of the payee or holder with notice, or one who is not a holder for value. City Deposit Bank v. Green, 138 Iowa 156, 115 N. W. 893.

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amount, upon determination of the facts as to the amount due. So the defense of partial failure of consideration is available in an action by the payee of notes for the purchase of all the pine timber on certain land, but the maker desisted from cutting certain of the timber on objection of the payee. And a note given to include also an amount for services, where there were no services rendered, failed to the extent of the amount included to cover services. The burden of proving a partial failure of consideration is on the defendant alleging it."

Prior to the adoption of the Negotiable Instruments Act, there was much discussion upon the question whether or not a partial failure of consideration would be availed of as a defense to an action on a bill of exchange, promissory note, or negotiable paper generally, and although in certain jurisdictions such partial failure was no defense, and in others, where land was the subject of contract or purchase, and there was a defect of title, such partial failure was precluded as a defense, especially where the contract remained unrescinded and there was no fraud, this rule being extended also to cases where the quality or quantity was deficient, still the great weight of modern authority, either by force of some statute or to avoid circuity of action, permitted such defense, between the original parties to the paper, either wholly or pro tanto as a rule, at least so when properly pleaded. But the manner in which such defense may be availed of as well as the nature thereof varied in different jurisdictions, it being held in some courts that such partial failure of consideration can only be taken advantage of by way of abatement or in reduction or mitigation of damages, or as a set-off, recoupment, counterclaim, or discount, and in certain cases it is allowed as a bar. In some states, however, the defense or allowance in reduction of damages, etc., was limited to those cases where the consideration or amount of the paper was divisible, or ascertainable and capable of liquidation, and in still other jurisdictions the right to make the defense of partial failure as such was absolute or it may be given for evidence. Such technical distinctions as to

3 Title Guarante & Trust Co. v. Pam,

232 N. Y. 441, 134 N. E. 525.

4 Smith v. Heath, 207 Ala. 4, 91 So.

799.

5 Farrington v. Steel Co. of America. 200 App. Div. 803, 194 N. Y. S 537.

6 Indiana Flooring Co. v. Rudnick, 236 Mass. 90, 127 N. E. 428.

its not being a defense but being merely available under a proper plea to reduce the amount of recovery will fully appear in the following review of the decisions.

§ 350. Partial failure of consideration-Review of decisions. -The following review of decisions is subject to such qualifications and exceptions as may exist by reason of any statute more recent than the decision given. In Alabama evidence is admissible which tends to prove a partial failure of consideration. And wherever a defendant can maintain a cross-action for damages on account of a defect in personal property purchased by him, or for a noncompliance by the plaintiff with his part of the contract, the former may, in defense to an action upon his note made in consequence of such purchase or contract, claim a deduction corresponding with the injury he has sustained, as it is the policy in that state to avoid circuity of action. The rule, however, is different where real estate is the subject of the contract of purchase, and a partial defect in title, while the contract remains unrescinded, can not be alleged as a defense to an action for the recovery of the purchase-money." A distinction has, however, been made in regard to fraud.10

7 Agnew v. Walden, 84 Ala. 502, 4 So. 672.

8 Smith v. Heath, 207 Ala. 4, 91 So. 799.

9 Peden v. Moore, 1 Stew. & P. (Ala.) 71, 21 Am. Dec. 649. In Lee v. White, 4 Stew. & P. (Ala.) 178, the court charged the jury that in the sale of real estate, to render a failure of title a defense against a promissory note, the failure of title should be total and the judgment for plaintiff was affirmed. In Evans v. Murphy, 1 Stew. & P. (Ala.) 226, however, a note was given for the rent of eighty acres of land including a ferry, and it was held that the failure of consideration from being deprived of the ferry could be shown in mitigation of the demand; "that by this course much delay and vexation, and the circuity of action will be avoided which should be re

garded as a desideratum in the administration of justice."

10 Wilson v. Jordan, 2 Stew. & P. (Ala.) 92. In this case it was held no defense that the consideration of the note was the sale of land, the title to which was alleged to be defective and incumbered, but a distinction was made as to fraud. The court said: "Nor do we feel the least dissatisfaction with our former decisions so far as they tend to place partial and total failure of consideration on the same footing instead of driving parties to circuity of action." It was also said, however, that "The principles of relief should in this respect be the same in reference to the same of either kind of property 'real or personal' provided the circumstances constituting the failure of consideration be equally conclusive and susceptible of proof at law."

In Arkansas, in all that class of cases commonly called partial failure of consideration, whether involving bad faith or not, or where fraud has intervened, whether in the obtaining or the performance of contracts, or there has been a breach of warranty, fraudulent or not, or of any other stipulation of the contract sued upon entitling the defendant to a cross-action against the plaintiff to recover damages for such failure, fraud or breach, he may, if he elect to do so, instead of resorting to such cross-action, recoup the damages sustained by him in diminution of what the plaintiff would otherwise be authorized to recover.11 And in such state the defense of partial failure of consideration pro tanto prevailed prior to the adoption of the Negotiable Instruments Act, 12 and the defense could take the form of recoupment or abatement of so much of the consideration as has failed.13 But the defense of partial failure of consideration could not be made in an action on a renewal note, where it was executed with knowledge of such partial failure of consideration, as the doctrine of estoppel applies.14

In California, prior to the adoption of the Negotiable Instruments Act, a failure of consideration either total or partial could be pleaded as a defense to an action upon a promissory note, either wholly or pro tanto.15 But in a case in that state where the note was given for the purchase-price of land it was held that the failure of consideration must be total. It was declared, however, that "In cases of fraud or warranty, where the consideration is divisible or

11 Desha v. Robinson, 17 Ark. 228; Petillo v. Hopson, 23 Ark. 196, holding that on a plea of failure of consideration defendant is entitled to abatement for only so much as the consideration has failed; "most assuredly defendant had no right to keep back the full amount of the note when there was but a partial failure of consideration."

12 Cornish v. Friedman, 94 Ark. 282, 126 S. W. 1079.

13 Hamburg Bank v. Ahrens, 118 Ark. 548, 177 S. W. 14.

14 Dodd v. Axle-Nut Sign Co., 126 Ark. 14, 189 S. W. 663.

15 Russ Lumber & Mill Co. v. Muscupiabe L. & W. Co., 120 Cal. 521, 529,

52 Pac. 995, 65 Am. St. 186. See McGue v. Rommell, 48 Cal. 539, 83 Pac. 1000. Where a note was executed to a building and loan association for money to be thereafter furnished to the maker, but only a part of the money agreed to be furnished was paid to the maker, there was a partial failure of consideration. Smiley v. Watson, 23 Cal. App. 409, 138 Pac. 367. Where one executed notes in consideration of a deed to certain land, and in further consideration of the license to take gravel from certain other lands, a cancelation of one of such licenses after removal of gravel thereunder, held not to avoid the notes. Knobloch v. Bader, 18 Cal. App. 421, 123 Pac. 341.