Story Case

Joseph Chitty owed Simon Greenacre $400, which the latter had been trying to collect for two years.

Finally, Chitty offered to pay, provided Greenacre gave him a discount of $50. Greenacre replied that he was willing to make the deduction of $50, but at that particular time was in great need of the entire $400. He proposed, therefore, that Chitty pay the whole sum and take in return Greenacre's note for $50, due in thirty days. To this proposition Chitty agreed; he paid $400 and received the note for $50. At the end of thirty days, Greenacre refused to pay the note, alleging that Chitty had not given any valuable consideration for its delivery. Is this correct?

Ruling Court Case. Knowles Vs. Parker, Volume 8 Metcalf's Massachu-Settes Reports, Page 30

Greenville Parker had been admitted to the practice of law in the state of New Hampshire. After some years he moved into the state of Massachusetts. He associated himself with one Smith, an attorney, in whose library and under whose directions he was to study, in order to be admitted to practice in Massachusetts. Smith, after the term of study, gave a certificate of the time during which Parker studied in his office, in the manner then required by the rules of the court, in order to entitle a person to admission to the bar. Upon the strength of the certificate, he was then admitted to the bar. He gave a promissory note to Smith in the sum of $75 as compensation for Smith's services. After maturity, Smith indorsed the note to James Knowles, who brought this suit upon it. Parker contended that the note was without consideration and could not be enforced against him, since Smith gave no adequate return for the money.

Decision: Since the note was indorsed after maturity, Knowles cannot claim the rights of a bona fide purchaser and any defense which could be raised against Smith can be raised against Knowles. However, there was a valuable consideration given for this note by Smith. The services performed by Smith, whether or not beneficial to Parker, were what the latter contracted for and are sufficient to render this note valid so far as consideration is concerned. The criterion is whether or not the consideration is sufficient to support a simple contract.

Mr. Chief Justice Shaw said: "Does the case furnish proof of an entire want of consideration? The question is not, on this point, whether the consideration was adequate; that was to be judged by Parker when he gave the note. The court is of opinion that, as Mr. Smith was in fact a counsellor, and took the defendant as a student, the use of his library, the actual instruction received, and the use of his certificate, to enable Parker to be admitted, constituted a valuable consideration for the note." Judgment was given for Knowles.

Ruling Law. Story Case Answer

We have just made apparent that a consideration is necessary to a legally binding negotiable instrument as between the immediate parties to the instrument. This assumes that the consideration shall be valuable. The Negotiable Instruments Law, which is declaratory of the Common Law, states that value is any consideration sufficient to support a simple contract. In the study of contract it was seen that the giving up of any right, the doing of any act which a person was not bound to do, however inadequate it might be, constitutes sufficient consideration to support a simple contract. It was also stated that the promise or payment of part of an obligation was no consideration for the promise to release the balance. In the Story Case, therefore, valuable consideration was not given for the note, and Chitty cannot recover.