By the Court,
Dixoít, 0. J.This was an action of assump-sit upon a promissory note, commenced before tbe passage of tbe Code. Tbe plea was tbe general issue, to which was attached a notice of special matter, which set up in substance that tbe note was given for a discount made at its date; that no other money or consideration was paid for it by tbe plaintiff than bills of tbe Farmers’ & Merchants’ Bank of Memphis, Tennessee; that tbe bills were worthless, and tbe bank that issued them bankrupt f that at tbe time they were received by tbe defendant, and at tbe time of discounting tbe note, tbe plaintiff agreed that it would, at any time within ninety days thereafter, whenever requested, redeem tbe bills at its counter in gold, at a discount of one and a half per cent.; that the defendants took them in pursuance of such agreement, and paid them out to their employees; that tbe employees presented- them for redemption as above, and tbe plaintiff refused to redeem them, and in consequence tbe defendants were compelled to do so ; that they afterwards, and within ninety days, presented them at tbe plaintiff’s counter and demanded tbe note; and that tbe plaintiff refused to receive them, and tbe defendants still held them ready to be delivered, &o.
Tbe defense tbus set forth was substantially proved at tbe trial by oral testimony. It was likewise proved that tbe bank at tbe same time agreed that tbe note might be paid with tbe same kind of bills with which it was discounted. To tbe introduction of this testimony, and each and every part of it, tbe plaintiff objected, on tbe ground that it tended to vary and control tbe legal effect of tbe note. On tbe other side, it was insisted that such was not its effect, but that its tendency was to show a failure of consideration, and *213therefore it was admissible. It was admitted under objection and exception by the plaintiff. The same positions are taken here. It appears to us that neither is entirely correct. That of the plaintiff is partially so. So far as the proof shows an agreement on the part of the bank to receive payment of the note in the bills of the Farmers’ & Merchants’ Bank, it is clearly a contradiction of the terms of the note, and incompetent as a defense. The rule of evidence is well settled, that all contemporaneous verbal agreements are merged in the written contract, and that oral evidence of them cannot be received to vary or contradict it. The note, upon its face, calls for payment in specie, and to show that it was agreed that it might be paid in any other manner, plainly contravenes it. But the other branch of the agreement or defense set up in the notice, is clearly not liable to this objection. It is that the plaintiff promised that it would, within ninety days thereafter, whenever requested, redeem the bills at its counter in gold at a discount of one and one half per cent. Evidence of this part of the agreement certainly has no tendency to modify or alter the terms or effect of the note itself. It is evidence of a distinct, independent, collateral undertaking on the part of the bank, founded upon a sufficient consideration. The bills of the Farmers’ & Merchants’ Bank were uncurrent — at least, their currency and value were doubtful. The defendants were desirous of procuring a loan, and applied to the plaintiff for that purpose. They were informed that they could be accommodated, provided they would receive those bills. To this they replied that the bills were uncurrent and suspicious, the bank itself in bad repute, and that if they received them they would be useless. They were told in answer, that if they would do so, and pay them out to their employees, the bank would redeem them in the manner and within the time stated; and upon this understanding, they took them and delivered their note. Gan there be any doubt that this constitutes a good consideration for the promise to redeem, and that it may be enforced, so far as the defendants complied with its conditions? We think not. The promise to redeem, and the promise to receive in payment of the note, are so far distinct *214and separate, that we can see no difficulty in enforcing the former and leaving the latter out of the case altogether. So far, therefore, as the evidence tended to show an agreement to redeem, and a compliance by the defendants with its conditions, it was competent and proper. We do not, however, think that its admissibility is properly put upon the ground of a failure of consideration. It appears to us to be more in the nature of a “counter-claim,” as defined by the statute. It is “ a cause of action arising out of the contract or transaction set forth in the complaint as the foundation of the plaintiff’s claim, or connected with the subject of the action.” The consideration of the note did not fail. The defendants received just what they bargained for. They took the bills relying on the promise of the plaintiff to make them good in gold at the rate specified; and it is this promise which they now seek to enforce by way of set-off against the amount due upon the note.
The only question, therefore, is as to the contract itself, and .the amount of the bills which were tendered to the bank for redemption in pursuance of it. One of the defendants testifies that before the expiration of the ninety days, he went to the bank with $1,318 of the bills of the Farmers’ & Merchants’ Bank, to which he added enough of other currency to pay the note, and offered it in payment, and demanded the note. He further testifies that the cashier refused to receive it, on the ground that there was no arrangement by which the bank was to take back the bills with which the note was discounted. We have had some doubt whether this can be deemed a sufficient presentation of that amount of bills for redemption; but upon consideration of the whole transaction, we have concluded that it can. It was a part of the arrangement that the note might be paid by these bills, and though, by the rules of evidence, the defendants are precluded from showing it as a legal defense to the note, yet we think that it may be considered in explanation of their conduct, and by way of excusing a direct and formal presentation for redemption and demand of the gold. Under the circumstances, we think reason and justice require that such offer should be considered equivalent to it. The re|oly of *215the cashier, too, furnishes an additional excuse. He denied that there was any agreement to take back the money. ter this a demand of the gold would have been useless. By this denial the tender was effectually waived.
If therefore, upon a future trial, it shall be found that there was such an agreement to redeem, and such an‘offer of the bills, the defendants will be entitled to have the amount so offered, less the one and one half per cent, discount, deducted from the amount due upon the note. To the amount thus to be deducted there should also be added interest from the date of the presentation and refusal. But this allowance can only be made upon the production by the defendants of the bills offered, and a delivery or offer of them to the plaintiff, unless they shall undertake to show, and shall establish to the satisfaction of the court and jury, that the bills are worthless. If the latter fact be established, their non-production can be'no injury to the plaintiff, but otherwise'it is entitled to them. The contract itself implies that the plaintiff was to have them. It was to redeem, and if the bills are of any value, their return may be insisted upon. The defendants, by taking them away after refusal, voluntarily charged themselves with their safe keeping until such time as the agreement should be performed, whether by means of legal proceedings or otherwise.
It follows from what we have already said concerning the nature of the transaction, that the judgment must be reversed, and a new trial awarded. The circuit judge instructed the jury that if they found that the bills were worthless at the time of the discount, it was immaterial whether or not they were presented for redemption, according to the terms of the agreement. This, we think, was erroneous. According to their own showing, the defendants took the bills relying upon the agreement to redeem. In order to avail themselves of that agreement, they must show that they observed it on their part. So far as they presented the bills for redemption, according to its terms, they are entitled to their set-off; but beyond that they are not, and must pay the note. But.failing to comply with the conditions upon which the redemption was to be made, they waived the perform-*216anee by tbe bank, and accepted tbe bills as good for tbe amount wbicb tbey purported to represent.
Judgment reversed, with costs, and a new trial awarded.