This section is from the book "A Treatise On The Law Of Contracts", by William W. Story. Also available from Amazon: A Treatise On The Law Of Contracts.
§ 605. We shall now consider the effect of a total or partial failure of consideration. Where the consideration of a contract totally fails, that is, when that which was supposed to be a consideration turns out to be none, the contract, as far as the immediate parties are concerned, may be avoided, and the same rule applies as if there never had been any consideration. Thus, if a lease should be made of a house, and it should turn out to be burned at the time, as the consideration would totally fail, no contract would arise.2 Again, where the title to goods sold totally fails, the contract would not be binding, and may be rescinded, even though the possession of the vendee be wholly undisturbed.3 So, also, where goods are sold under the warranty that they are of a particular kind or quality, or adapted to a particular use, and they turn out to be utterly valueless, and not to answer the description, the contract is at an end, and they need not even be returned.4 But they must be utterly valueless to both parties; if they be of any value to the vendor, or if their loss would be any injury to him, they must be returned.5 So, also, where a note has been given, a total failure of consideration is a sufficient defence to a suit brought between the immediate parties to enforce payment;1 but not as to third persons holding bond fide, for value received, before it became due.2
Smith, Lead. Cas. 67, and the learned note of the editor, p. 69 to 76, 2d ed.; Com. Dig. Pleader (C. 69), (C. 70); Com. Dig. Action on the Case, Assumpsit (B. 12).
1 Com. Dig. Pleader (C. 70) to (C. 75); Chitty on Plead. 322, 323, 324 (3d London ed. 1817).
2 Farrer v. Nightingal, 2 Esp. 639; Graham v. Oliver, 3 Beav. 124; Waddington v. Oliver, 2 Bos. & Pul. N. R. 61; Couturier v. Hastie, 5 H. L. C. 673 (1856).
3 2 Kent, Comm. lect. 39, p. 4&9; 1 Story, Eq. Jur. § 779; Paton v. Rogers, 1 Ves. & B. 351; Graham v. Oliver, 3 Beav. 124; Hill v. Buckley, 17 Ves. 394.
4 Poulton v. Lattimore, 9 B. & C. 259; Story on Sales, § 408, 458. 5 Perley v. Balch, 23 Pick. 283.
§ 606. Where the consideration only partially fails, it will not afford a ground to rescind the contract utterly, unless it be an entire contract, or unless the failure be in so material a point that, had it been known, the bargain would not have been made.3 If the contract were entire, a partial failure would be equivalent to a total failure, unless a partial performance were accepted without objection, in which case an agreement would be implied to render it severable, and the party would only be bound proportionally to the part performed.4 If the failure be in respect to a material point touching the essence of the consideration, it would also afford a good ground in equity to set aside the contract; or if the party to whom the consideration moves should choose to insist on the partial performance, he could reduce the consideration on his part proportionally.5 Thus, if a certain number or quantity of goods be sold, and the seller can only give a valid title to a part, or can only deliver a part, the remainder being burned while at his risk, the buyer is only bound to pay for the part received, and if the purchase-money be paid, he may recover proportionably to the deficiency.6 But where a contract is not entire, and the failure is not in respect to a material point touching the essence of the contract, so that there may be a compensation in damages for this deficiency, the contract cannot be rescinded, but the party is put to his special action thereon for damages.1 If a note be given, and the consideration do not totally fail, but only partially, in some courts the deficiency cannot be pleaded in reduction of the amount, in an action on the note, but a special action for damages should be brought;2 for as the note is in its nature entire, the defence thereto must be entire and go to the whole claim; though many allow such deduction to be made. So, also, where the consideration only partially fails, it is a defence, pro tanto, in suits on contracts respecting personal property, work, and labor.3 Thus, if a contract be made to build a house for a specified sum in a particular manner, and the work actually done be inferior to that contemplated in the agreement, the defendant may, upon proof of such fact, reduce the plaintiff's compensation to an equivalent of the actual benefit received.4
1 Story on Bills, § 184, 187. A contract to pay an annuity to one who should marry the defendant's daughter, is not released merely because such marriage might be annulled by the court for impotence in the husband, if the parties to the marriage take no steps to annul it. Cavell v. Prince, Law R. 1 Exch, 246.
2 Story on Bills, § 184, 187, 188; Robinson ». Reynolds, 2 Q. B. 196.
3 Casamajor v. Strode, Coop. t. Brougham, 510; Roflfey v. Shallcross, 4 Madd. 227; Johnson v. Johnson, 3 Bos. & Pul. 162.
4 Ibid.; ante, § 29, 34.
5 Franklin v. Miller, 4 Ad. & El. 599; Boone v. Eyre, 1 H. Bl. 273, note a; Street v. Blay, 2 B. & Ad. 461; Davis v. Street, 1 C. & P. 18; Darner v. Langton, 1 C. & P. 168; Weston v. Downes, 1 Doug. 23; Mavor v. Pyne, 3 Bing. 285. See White v. Mann, 26 Me. 361.
6 Oxendale v. Wetherell, 9 B. & C. 386.
§ 607. Where the title partially fails as to the whole subject-matter of a contract, as if goods be sold which are under mortgage, or incumbrance of any sort, the contract may be wholly rescinded.5 Where a contract is founded upon two considerations, one of which is merely void, but not illegal, and the other is sufficient, it will be binding,6 and entitle the party to damages to the extent of the good consideration. Thus, a promise in consideration of an assignment of a title by dower, and of forbearing to sue an attachment out of chancery upon a decree, will be enforced; because, although a title to dower cannot be assigned at law, but only released to the terre-tenant, the forbearance is sufficient to support the contract.1 But if a promise be made upon two considerations, one of which is illegal or fraudulent, it is void, even although the other consideration be good.2 Thus, if a bill of exchange be given partly for spirituous liquors sold contrary to law, and partly for money lent, it is not binding.3 So a promissory note for a sum, part of which is fixed and part contingent, is not negotiable.4 So, also, where a party covenants in the alternative to do one of two specified things, if one of them be illegal, the whole agreement will be void.5 But if the agreement be to do an act which may be effected either by lawful or unlawful means, the law will presume in favor of the contract an intention to perform it legally, for illegality will not be presumed, but must be proved.6 So, also, where there is one consideration, and it is partially illegal, the contract is void.7