Story Case

On January 1, 1915, James Drew leased a small building belonging to Herman Baum and located near an entrance to the Panama Canal Exposition grounds in San Francisco. It was intended that Drew should use the building for gambling purposes and, for this reason, he agreed to pay ten times the ordinary worth of the lease. Drew gave his note for the first payment of rent, amounting to $4,000. Early during the exposition, Drew realized that his business would not be a financial success. He, therefore, discontinued it and refused to pay Baum anything. The latter brought suit on the note and Drew stated the facts to the court. What will the court do with the case?

Ruling Court Case. Sayles Vs. Sayles, Volume 21 New Hampshire Reports, Page 312. Volume 53 American Decisions, Page 208

Mr. Sayles, who is the defendant in this action, heretofore instituted proceedings against Mrs. Sayles, plaintiff herein, for a divorce. He assigned, as a cause of the divorce, the fact that his wife had deserted him for two years. It appears that Mrs. Sayles was "one of the most amiable women in Grafton, and that her husband abused her without measure." For this reason she deserted him. This was a good defense and if maintained, would prevent Mr. Sayles from getting a divorce. In consideration that she would not appear and defend, Mr. Sayles promised to pay her $400, evidenced by a promissory note by him executed in her favor. After the divorce was procured, he refused to pay the note, and she sues upon it. His defense consisted in the fact that the consideration for this note was illegal and against public policy, and the note was, for that reason, void.

Decision: As against every one but a purchaser for value, the consideration supporting a negotiable instrument must be legal. The agreement or promise of Mrs. Sayles not to appear and set up a good defense to the proceedings for divorce, which she could and should have done, is against public policy and illegal; consequently, the note is void and cannot be enforced.

Mr. Justice "Woods said: "No such agreement, even if executed, can form a valid consideration for either a verbal or a written promise. The great and principal object of the agreement made between the parties was to bring about a dissolution of the marriage contract, and to put an end to the various duties and relations resulting from it. Any contract, having any such purpose, object and tendency, cannot be, in law, sustained, but must be regarded as being against public policy, and consequently illegal and void." Judgment was given for Mr. Sayles, the defendant.

Ruling Law. Story Case Answer

As in simple contracts, so in negotiable instruments, it is necessary that the consideration shall be legal. As between the immediate parties, any illegality of consideration, which would avoid a simple contract, will be a good defense to an action upon a negotiable instrument. In the Story Case, Baum, the original payee, still owned the instrument and brought suit thereon. Therefore, the judge will throw his case out of court, since it was given in an illegal transaction.