Story Case

Henry Wilkerson owned a promissory note whose face value showed a worth of $100, signed by Herbert Long. When the Belgian Relief Committee, an organization created to aid the European War sufferers, solicited Wilkerson for funds, he indorsed this promissory note to the committee. Wilkerson acted in good faith, but it developed that Long was a minor and the note was not collectable. Thereupon, the committee demanded payment of Wilkerson, the indorser.

Wilkerson refused, and suit was brought against him. He gave in defense that his indorsement was without consideration. Is this a good defense?

Ruling Court Case. Larrabie Vs. Fairbanks, Volume 24 Maine Reports, Page 363

A certain person made a promissory note, payable to Parkman, or bearer. Parkman indorsed this note in blank, by signing his name, and sold it to Fairbanks. The instrument continued payable to bearer. Fairbanks sold it to Larrabie without indorsing it, which was correct, as the note was payable to bearer. Later, when Larrabie found that he might not be able to collect from the maker, he decided that it would be well to have Fairbanks indorse it. When requested, Fairbanks objected. But when he was assured by Larrabie that it was merely a matter of form and that no liability would be imposed upon him by such indorsement, he indorsed it. The note was presented to the maker, who refused to pay it. Notice of dishonor was given to Fairbanks and, thereafter, suit was brought against him upon the note. His defense was that his indorsement (signature) was procured by fraud and without consideration.

Decision: This was an action by an indorsee, Larrabie, against an indorser, Fairbanks. They are considered immediate parties, within the meaning of the rule, that lack of consideration may be shown between immediate parties to an instrument. There was no consideration for Fairbanks' indorsement, and consequently, Larrabie cannot sue him upon this instrument as an indorser.

Mr. Chief Justice Whitman said: "Here Larrabie had accepted the note which was transferable by delivery without Fairbanks' indorsement. The contract between them was then finished and ended. The indorsement subsequently obtained was, therefore, without consideration; and this may always be shown between the immediate parties to a simple contract. The defense, therefore, was good on that ground." Judgment was given for Fairbanks.

Ruling Law. Story Case Answer

We have said that the lack of consideration may be raised between the immediate parties to a negotiable instrument. "Immediate parties" means the party who transfers the instrument and the party to whom he transfers it. An indorser and an indorsee are considered immediate parties. Thus, between these two persons, lack of consideration may be shown. If A indorses a note to B, and B then indorses it to C, A and B are immediate parties and B and C are immediate parties. In the Story Case, "Wilkerson has a good defense, because the Belgian Relief Committee gave him no consideration for his indorsement.