Story Case

Floyd Story was indebted to Hebird Washburn for $500, on an account several years old. Finally, "Washburn proposed to Story that he give a promissory note, due in one year as evidence of the debt. Story consented to this arrangement, provided Washburn gave, in consideration, a reduction of $50. Washburn refused to do this and insisted upon a note for the full amount. This Story finally prepared and delivered to him. One year later, Washburn started suit upon the note. Story maintained, in defense, that Washburn gave no new consideration for the note and, therefore, he could not collect it. Is this correct?

Ruling Court Case. Joseph Perley Vs. William Perley, Volume 144 Massachusetts Reports, Page 104

The parties in this action were brothers. William Perley, the defendant, was administrator of the estate of their deceased father. As such administrator, he had in his possession $5,000 in trust to divide, one-third of which was to be paid to Joseph Perley. He misappropriated a part of the money, and did not have enough remaining to pay Joseph. He then gave Joseph a promissory note for $1,000, which was to be considered discharged as soon as "William had fully paid up the share which belonged to Joseph. "William ultimately paid the amount due to Joseph, but the note was not returned. Later, suit was instituted on the instrument. William contended that he was not liable upon the note, because there was no consideration for it, since he had paid the amount due Joseph.

Decision: As between the immediate parties to a negotiable instrument, consideration is presumed. Thus, unless the party apparently liable introduces some evidence to the contrary, the holder of the paper may recover. But as soon as the person sought to be charged introduces evidence to the contrary, the presumption of consideration is gone, and the holder must show by preponderance of evidence that there was a consideration. When William introduced such evidence, tending to show lack of consideration, Joseph should have shown contrary to entitle him to recover. Failing in this, William is not liable.

Mr. Justice Devens: "While the burden of proof in an action upon a promissory note as between the original parties, is upon the promisee to establish the fact that it was given for a valuable consideration, the production of the note and proof of the defendant's signature establish a prima facie case which entitles the plaintiff to verdict. But the burden of proving a consideration still remains upon the plaintiff. Notwithstanding this presumption, and, if there is any, evidence in the case on this point on behalf of the defendant, the plaintiff must show, by a preponderance of the whole evidence, that the note was given him for a valuable consideration." Judgment was given for William Perley.

Ruling Law. Story Case Answer

According to the strict customs of the merchants, probably no consideration was ever necessary for negotiable instruments, whether between immediate or remote parties thereto. But when the Law Merchant was taken over by the Common Law courts, it was required that a consideration should exist as between the immediate parties. It is said that the existence of a consideration is always presumed until the contrary is claimed. But, if it is alleged and evidence is given that the instrument was issued without consideration, the party suing thereon must establish that it is supported by a valuable consideration. The Negotiable Instruments Law provides that every negotiable instrument is deemed, prima facie, to have been issued for a valuable consideration. It also provides: "Value is any consideration sufficient to support a simple contract. An antecedent or pre-existing debt constitutes value, and is deemed such, whether the instrument is payable on demand or at a future time." Story's defense in the Story Case is not effective.