Story Case

James Ingram said to his nephew, Robert Moore, of whom he was very fond, "Robert, I will give you one thousand dollars in one year's time if you will come into my bank and learn the business."

Robert accepted his uncle's proposition and, to show his good faith, the latter gave the nephew a negotiable note for $1,000, due in thirty days from the end of the proposed year.

At the end of the year the boy showed such keen and shrewd ability, because of the superior training given by the uncle, that he was offered and accepted an excellent position with a rival bank. In the meantime, also, he had discounted the note with Henry Sanaman, who paid six hundred dollars for the instrument, knowing all the circumstances under which it was given. Ingram refused to pay the note, alleging that the nephew gave no adequate consideration. This defense, the uncle maintained, was good against Sana-man, since he knew all the facts, and since Sanaman gave no adequate consideration in the payment of the six hundred dollars for the instrument. Are these defenses effective?

Ruling Court Case. Lay Vs, Wissmon, Volume 36 Iowa Reports, Page 305

Wissmon made a promissory note in the sum of $150, payable to Cary and Stone. The note was procured by gross fraud from Wissmon. Cary and Stone immediately sold the note for the sum of $80 to Lay, who purchased it in good faith and had no knowledge as to its fraudulent character. He presented the note to Wissmon, who refused to pay it. Suit was thereupon brought against him upon the note. The defense consisted in the fact that Lay, having paid only $80 for the note, could not collect its full amount.

Decision: If a person purchases a note in good faith before maturity, the mere fact that he pays less than the face value for it is not material. But the inadequacy of the consideration may be some evidence of lack of good faith. In this case, the inadequacy is not so great that it alone proves lack of good faith.

Mr. Justice Day said: "It appears from the evidence that the payees of the note procured it fraudulently and without consideration, and that Lay paid $80 therefor, without any knowledge of the circumstances attending its execution. A question is presented as to the amount Lay may recover, whether the amount of the note or the sum paid with interest.,, After stating that the holder might recover the full amount, he continued: " The amount of the consideration paid may become important to determine whether the holder is a bona fide purchaser. Where a note for $300, on a responsible person, and nearly due, was sold for $5 it was held that the indorsee was not a holder in good faith, and that he could not recover thereon, the note being without consideration." Judgment was given for Lay.

Ruling Law. Story Case Answer

It is not material that the consideration for a negotiable instrument is not adequate, in the sense that it is worth as much as the amount stipulated in the note. The question of the relative values of consideration is a matter left entirely to the parties; they determine what constitutes an adequate consideration. We remember that this same rule applied in Contracts. Neither defense of Ingram, in the Story Case, is effective against Sanaman, and the note is good at its face value.