Story Case

Nathan Strobridge, the inventor of a patented appliance, made a contract with Hermann Heuser, a manufacturer, to allow Heuser the exclusive rights under the patent for five years. In part payment of the price, Heuser gave his note for $2,000, payable in six months. Before the maturity of the note, a suit was brought by the owner of another patent, seeking to have the Strobridge patent declared invalid as an infringement. Heuser withheld payment of his note pending that litigation, and after it had been decided in favor of the rival patent, he wholly denied his liability upon his note. Strobridge brought suit, and Heuser set up that there had been a failure of consideration. Since he had given the note in payment of a license under a patent and the patent had since been held to be void, he had not received anything for his obligation. Strobridge contended that the validity of the patent could be material, only in a suit upon the contract, but that the note was an independent obligation, complete in itself. Is he entitled to recover, or is the defense of Heuser valid?

Ruling Court Case. Ingersoll Vs. Martin, Volume 58 Maryland Reports, Page 67

Martin was indebted to Ingersoll in the sum of $840. Since the amount was overdue, and Martin was unable to pay the bill, he proposed to pay a part in cash if Ingersoll would release him as to the balance. To this Ingersoll agreed, and Martin paid him $336. In accordance with their agreement, Ingersoll gave Martin a release under seal as to the balance. At the same time, however, Martin executed a note to Ingersoll in the sum of $255. This suit was brought upon this note by Ingersoll.

Martin contended that there was no consideration given for this note, and that it was, therefore, unen-forcible against him.

Decision: When Ingersoll accepted the $336, and executed a release under seal, the obligation as to the remaining part of the $840 was gone, so that could not constitute a consideration for the new note. Since this was the case, the note is not enforcible against Martin. Mr. Justice Aloey said. "As between the immediate parties to a negotiable promissory note, as in this case, the question of consideration is always open; and it is competent to the defendant to show that there was not sufficient consideration, or that the consideration had failed, or that the paper had been given for accommodation merely." Judgment was given for Martin.

Ruling Law. Story Case Answer

It is presumed that a negotiable instrument was supported by a consideration, but if an immediate party raises the question, and shows that there was no consideration, this becomes a defense to an action upon the instrument. This, too, is a personal defense, because it is available only as between the immediate parties to a negotiable instrument, or as against one who knew that there was no consideration. But if the instrument is purchased by a bona fide purchaser for value, who knows nothing of the lack or failure of consideration, he may enforce the bill or note, notwithstanding this lack or failure of consideration.

In the Story Case, and in the Ruling Court Case, the defense of absence of consideration is raised against the other party to the note, and is, therefore, a proper defense. If there was nothing of value or of legal sufficiency given for the obligation, parties with knowledge of that fact can not enforce the instrument. In the Ruling Court Case, there was no semblance of a consideration. In the Story Case, the consideration which it was thought was being given was later found to be illusory and non-existent. That is, the expected consideration had "failed" or had never been realized. This makes the note invalid in the hands of Stro-bridge, and he can not recover. Judgment should be given for the defendant.