This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
Except in the cases in which the payee is himself a bona fide holder,1 the fact of negotiability is for most purposes immaterial as between the immediate parties to a negotiable contract. Any defense may be set up against the adversary party that could have been made in a non-negotiable contract,2 such as mistake,3 fraud,4 duress,5want of consideration;6 the fact that one maker signed as surety under a contract for the application of certain collateral to the obligation before personal liability should be enforced against himself;7 illegality,8 as where the instrument is given to defraud creditors;9 or for illegal sales of intoxicating liquor;10 or for sales, in violation of statute, of articles which are not registered or inspected;11 or for services of an unlicensed broker;12 for the rent of a building for purposes of prostitution;13 to stifle criminal prosecution;14 or to aid rebellion;15 or for breach of an express condition,16 or failure of consideration.17 While the technical bona fide holder is one who takes from one of the original parties to the contract, mediately or immediately, the original payee who advances money in ignorance of defenses, may be given the same protection as a bona fide holder,18 as where he does not know that the signature of a surety is conditioned on obtaining the signature of another who did not in fact sign.19
1 See Sec. 2364.
2 Long v. Mason, 273 Mo. 266, 200 S. W. 1062; State Bank v. Forsyth, 41 Mont. 249, 28 L. R. A.. (N.S.) 501, 108 Pac. 914; Smith v. Dotterweich, 200 N. Y. 299, 33 L. R. A. (N.S.) 892, 93 N. E. 985; Summers v. Alexander, 30 Okla. 198, 38 L. R. A. (N.S.) 787, 120 Pac. 601.
3 Beland v. Brewing Association, 157 Mo. 593, 58 S. W. 1.
4 Fay v. Fay, 121 Mass. 561.
5 Peckham v. Van Bergen, 10 N. D. 43, 84 N. W. 566.
6 Illinois Grove v. Jeager, 60 111. 249; Shaw v. Camp, 160 111. 425, 43 N. E. 608; Lang v. Dietz, 191 111. 161. 60 N. E. 841.
Massachusetts. Parish v. Stone, 31 Mass. (14 Pick.) 198, 25 Am. Dec. 378.
Michigan. Graham v. Alexander, 123 Mich. 168, 81 N. W. 1084; McBryan v. Elevator Co., 130 Mich. 1ll, 89 N. W. 683.
Montana. State Bank v. Forsyth, 41 Mont. 249, 28 L. R. A. (N.S.) 501, 108 Pac. 914 (obiter).
New Jersey. Voorhees v. Combs, 33 N. J. L. 494.
North Dakota. Andrews v. Schmidt, 10 N. D. 1, 84 N. W. 568.
Ohio. Hamor v. Moore, 8 O. S. 239; Starr v. Starr, 9 O. S. 74.