Newman & Snell's State Bank v. Hunter
59 A.L.R. 311, 243 Mich. 331, 220 N.W. 665 (1928)
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Rule of Law:
The surrender of a promissory note that is demonstrably worthless, because it is a claim against a deceased person's insolvent estate, does not constitute sufficient consideration to support a new promissory note from a third party.
Facts:
- Lee C. Hunter died intestate (without a will) on January 25, 1926.
- At his death, Hunter owed Newman & Snell's State Bank $3,700 on a promissory note, secured by 50 shares of Hunter Company stock.
- Hunter's estate was insolvent, lacking sufficient assets to pay his debts, funeral expenses, or the statutory widow's allowance.
- The Hunter Company was also insolvent, rendering its stock, held by the bank as collateral, worthless.
- On March 1, 1926, Hunter's widow (the defendant) gave her own promissory note to the bank.
- In exchange for her note, the bank surrendered Lee C. Hunter's original, worthless note to her.
- The bank retained the worthless Hunter Company stock as collateral for the widow's new note.
Procedural Posture:
- Newman & Snell's State Bank sued Mrs. Hunter in a trial court to enforce the promissory note she had signed.
- Mrs. Hunter defended against the lawsuit by arguing her note was unenforceable for 'want of consideration.'
- The trial court entered a judgment in favor of the plaintiff bank.
- The defendant, Mrs. Hunter, appealed the judgment to the Supreme Court of Michigan.
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Issue:
Does the surrender of a worthless promissory note from an insolvent estate constitute sufficient consideration to support a new promissory note given by the deceased's widow?
Opinions:
Majority - Fellows, J.
No. The surrender of a worthless promissory note from an insolvent estate does not constitute sufficient consideration to support a new promissory note. For a promise to be enforceable, it must be supported by consideration, which requires a benefit to the promisor or a detriment to the promisee. In this case, when the plaintiff bank surrendered the deceased husband's note, it parted with a 'worthless piece of paper' and suffered no legal detriment or inconvenience. Correspondingly, the defendant widow received nothing of value. The transaction lacked the bargained-for exchange necessary for consideration, as the bank gave up nothing and the widow gained nothing. The argument that the bank waived a valuable right to administer the estate fails because the estate had no assets, making the right valueless. Therefore, the widow's note is unenforceable for want of consideration.
Analysis:
This case provides a clear application of the fundamental doctrine of consideration, emphasizing that a purported detriment or benefit must have some actual or potential legal value. The court rejects the idea that the mere surrender of a piece of paper, representing a claim known to be uncollectible, can form the basis of a contract. This decision reinforces the bargain theory of consideration and stands for the principle that courts will look past the form of a transaction to its substance. It serves as a precedent against enforcing promises that are essentially gratuitous, even if they are framed as a settlement of a pre-existing, but worthless, debt.
