to the plaintiff the plaintiff had notice and knowledge that the consideration of the notes was the said contract of the irrigation company to furnish water and of the insolvency of said company, and of its inability to furnish water thereunder, and of the failure of consideration of said notes, and of the fact that the irrigation company had not, could not, and would not carry out its said contract with defendant, or any part thereof, "and that it did not intend to deliver any of said water to this defendant."

It is also alleged that defendant did not discover the true condition of the irrigation company nor its inability to furnish water and comply with its contract, and that its said representations were false and made with intent to defraud defendant, "until after said promissory notes had been assigned to plaintiff; and defendant made such discovery on or about the month of November, 1893, and not before said month."

525 It is also alleged that at and before the time of said transfer of said notes said certificates had become, and ever since have been, worthless and of no value, and that "defendant received and retains nothing of value given to defendant in consideration of the execution of said promissory notes."

It is further alleged that said notes were assigned to plaintiff as collateral security for a pre-existing debt, and not upon any new or other consideration, and that at the time of the transfer plaintiff already held other security for said debt in amount and value far exceeding said debt; that on the day of November, 1893, a receiver was duly appointed of all the property of said irrigation company, and its said property has ever since been in the hands of receivers, and that said company is insolvent.

Defendant further alleges "that it has heretofore demanded" of the irrigation company the delivery of water under said contract, and has also about the middle of April, 1894, and again about the middle of April, 1895, made a like demand upon the receivers of said company, and has offered to pay the interest due on said notes, and the semi-annual payments required by said contract to be paid when the water should be delivered, and has made the like offer to the plaintiff.

The demurrer is general and special, the latter that the answer is ambiguous, and that it is uncertain in particulars therein stated.

The principal questions discussed by counsel for the respective parties may be grouped and considered under two propositions which may be interrogatively stated thus: 1. Would the matters pleaded in the answer constitute a defense if this action had been

brought by the Bear Valley Irrigation Company, the payee of the notes in suit; 2. If so, were the notes in suit transferred to the plaintiff under such circumstances, and for such circumstances, as makes that defense available to the defendant in this action which is prosecuted by the transferee?

1. The first of these interrogations should be answered in the affirmative. The failure of the irrigation company to furnish water upon demand put it in default, and that default occurred before suit brought.

526 It is true, as stated by respondent, that the agreement of the irrigation company to furnish water upon demand, and the agreement of the defendant to pay the notes and the interest thereon at specified dates, were not concurrent or dependent, and hence an action might lie for accrued interest before the water company was required to do any act.

But if before suit brought to recover such installment of interest the plaintiff made default in the performance of an act required to be performed by the conditions of its contract, as here, the delivery of water upon demand, the plaintiff must treat all the preceding agreements of the defendant, which remain unperformed, as concurrent, since he cannot enforce the performance of defendant's part of a contract while he is in default in the performance of his part of it: McCroskey v. Ladd, 96 Cal. 455. The answer alleges that at dates prior to the commencement of this action the defendant demanded the delivery of water under said contract of the receiver of the property of the irrigation company, and that the receiver did not deliver the water, but admitted his inability to deliver the quantity required or any part of it. It is alleged, also, that defendant "has heretofore demanded" of the irrigation company the delivery of water under said contract, and received the like reply, but the date of that demand is not given. These demands, it is alleged, were accompanied with an offer to pay all accrued interest, and to make the semi-annual payments required by the certificate.

The receiver, it is true, was not bound to perform any of the contracts of the irrigation company unless it appeared to be to the interest of the creditors, or unless required to do so by the order of the court; but nevertheless the demand was proper, since he might perform it if there was sufficient water for the purpose, and was the only person who could perform it, since the possession and control of the property had passed out of the hands of the irrigation company. The business of the irrigation company is alleged to be that of selling and supplying

water to parties owning land requiring irrigation, and it therefore appears that it was to the interest of creditors that the receiver should deliver the water if he had it.

627 This inability, or refusal, to furnish water when required by the terms of the contract is a failure of the consideration upon which the notes were executed.

But it is contended by respondent that to avail itself of this defense the defendant should have rescinded the contract; that defendant alleges a discovery of the fraudulent representations which induced the contract as early as November, 1893, but continued to make demands for water for two or three years thereafter with no attempt at rescission; that in order to rescind, the defendant must restore everything of value it has received; that though it has received no water (which was the real subject of the contract) it has not abandoned or surrendered the contract or given notice that it makes no claim under it.

If the plaintiff, the Russ Lumber and Mill Company, received the notes in the usual course of business, in good faith, without notice and for value, a notice of rescission to the irrigation company, the payee of the notes, given after the transfer, could not affect the indorsee; nor could the indorsee in such case be affected by a subsequent breach of the contract by the indorser; but if the indorsee did not so acquire the notes it must then stand in the shoes of the payee and be subject to any defenses available against the payee.

But it does not follow, as contended by respondent, that because a technical rescission has not been made, and cannot be made in this action, to which the irrigation company is not a party, that the defendant cannot avail itself of the defense of failure or want of consideration.

Practically, there is no difference in the effect upon the contract between the successful defense of a plea of want or total failure of consideration, and the successful termination of an action to rescind it. In either case, the contract is rendered incapable of enforcement, the judgment being a bar to any future action, so far at least as parties to the action, or those concluded by it, are concerned. Where the failure of consideration is total, as where nothing of value has been received by the defendant under it and the plaintiff cannot perform it, no notice of rescission is required, but the defendant may plead want or failure of consideration.

52 Respondent cites Clyne v. Benicia Water Co., 100 Cal. 310; but the facts of that case clearly distinguish it from this.

In this case, the water agreed to be delivered was the subject of the contract. The defendant had bought it and paid for it by the execution of its promissory notes. The contract, called a water right certificate, was the evidence of the sale of the water, the water so purchased to be delivered in future years, the beginning of such delivery to be upon defendant's demand. Such demand was made and not complied with. The defendant therefore received nothing under the contract. But it is said that the certificate has not been surrendered or canceled or the irrigation company released therefrom, or any offer made to release. it. This certificate gives the defendant no interest in the property of the irrigation company. It is not stock in a corporation. Whilst the water called for by it is for the use and benefit of certain lands of the defendant, it expressly provides that it is not appurtenant to any land. It further provides that it can be transferred only by its surrender, properly indorsed, and the issuance of a new certificate. Not only so, but the answer alleges that it was held by the irrigation company as collateral security for the payment of the notes, that it was pinned thereto and passed to the plaintiff with the notes. The object in requiring a party rescinding a contract to restore to the other party everything of value he has received under it is that the party to whom the restoration should be made shall not be put to an action to recover it. In this case the plea of a total failure of the consideration of the notes, if it succeeds, leaves the certificate in the hands of the irrigation company or of the plaintiff, discharged of all duty or liability to furnish water under it, and nothing more could be accomplished by its surrender if it were now in defendant's possession, or by a judgment of rescission if the defendant had brought an action for that purpose.

It is, of course, conceded that if the plaintiff acquired the notes for a valuable consideration and without notice or knowledge of any fact that would impeach them in the hands of the payee, the plaintiff would be entitled to recover, and that the defendant in such case might have a remedy against the irrigation 529 company upon its guaranty or for breach of the contract, and therefore the authorities cited by respondent upon these points need not be noticed.

It is contended by respondent that it does not appear that the irrigation company has at any time been without assets so that its promise was without value, or that its obligations may not be ultimately fulfilled and that it may have assets out of which its

debts may be paid or payment enforced, and therefore concludes that the failure to fulfill the contract was only partial, and that a partial failure without rescission would not be a defense.

It may be true that the irrigation company, though insolvent, has assets out of which damages for a failure to perform its contract might be collected in whole or in part, but its contract was to deliver water, not to pay money; and if it delivered no water, and had none to deliver, and were sued for damages, it would in all probability be sued for a total failure to perform its contract.

But a failure of consideration, either total or partial, may be pleaded as a defense to an action upon a promissory note, either wholly or pro tanto: See Drew v. Towle, 27 N. H. 424; 59 Am. Dec. 380, and numerous authorities there cited: 2 Am. & Eng. Ency. of Law, 369, and notes; Tillotson v. Grapes, 4 N. H. 444.

It is further contended by respondent that "the representations were respecting future acts only," and that such representations "do not, in contemplation of law, amount to a fraud," and could be neither false nor true when made.

But counsel in this contention confuse and fail to distinguish between "promises" and "representations." A mere promise to perform an act in the future is not, in a legal sense, a representation, nor does a failure to perform such promise convert it into a false representation; but if the promise is accompanied with statements of existing facts which show the ability of the promisor to perform his promise, and without which the promise would not be accepted or acted upon, such statements are denominated representations, and if falsely made are grounds of avoiding the 530 contract, though the thing promised to be done lies wholly in the future.

Here the defendant alleges that the irrigation company represented that it had the water which it agreed to furnish, and that it was prosperous financially. A sufficient water supply to enable it to fulfill its contracts was a representation of a material existing fact, and its prosperous financial condition not less so, since its ability to retain possession and control of its water plant gave assurance of its permanent ability to fulfill its contracts; the materiality and importance of which is shown by the further allegation that it had become insolvent, and its property had passed out of its control and into the hands of a receiver. But while a mere promise is not a "representation," a promise made with the intention of not performing it constitutes a fraud for which a contract may be rescinded or avoided.

AM. ST. REP., VOL LXV.-13