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.pdfContracts: Bills and Notes: Precedent Debt as Consideration in the Law of Contracts and Negotiable Instruments
Author(s): Shubrick T. Kothe
Source: Michigan Law Review, Vol. 46, No. 2 (Dec., 1947), pp. 211-224 Published by: The Michigan Law Review Association
Stable URL: http://www.jstor.org/stable/1283804
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I947 ] |
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COMMENTS
CONTRACTS-BILLS AND NOTES-PRECEDENT DEBT AS CONSIDER-
ATION IN THE LAW OF CONTRACTS AND NEGOTIABLE INSTRUMENTS
I
Today, it is establishedas a general rule in the law of contracts thata precedentdebtcannotbe considerationfor a subsequentpromise.1
However, in 1588 it could be said with good reasonthat a precedent |
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debt was one of the "three mannerof considerations |
which an |
upon |
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rev. |
ed. |
?? 108, 143 (I936). |
1WILLISTON, CONTRACTS, |
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212 |
MICHIGAN LAW REVIEW |
[ Vol. 46 |
assumpsit... |
[might] be grounded...." 2 At this time, the courts were |
gradually expanding the action of assumpsit to reach obligations which formerly could be enforced only in an action of debt. 3 By the end of the sixteenth century, it was definitely established that an action of indebtitatus assumpsit would lie where a debt was acknowledged by a subsequent promise to pay.4 This action was later extended in Slade's
Case5 to include promises made contemporaneously with the receipt of the consideration in case of a debt. It is apparent, then, that originally a precedent debt was held to be consideration in order that an action of indebitatus assumpsit could be maintained in situations formerly sufficientto ground an action of debt only. With the decision in Slade's
Case,7 after which a subsequent promise need no longer be proved in assumpsit, the purpose for calling a precedent debt a valid consideration disappeared. The natural objection to it is that the precedent debt is a past consideration.8 To say that the debt was "continuing" and therefore not past at the time the promise was made was a convenient method used by the courts to overcome this objection.9 This, of course, is scarcely satisfactory. A standard definition of consideration in contract law is that it is some detriment to the promisee or benefiit to the
promisor, given in exchange for the promise. ? |
Clearly, a precedent |
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debt cannot be fitted into this mold. |
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2 Manwood v. Burston, 2 Leon. 203, |
74 Eng. Rep. 479 (1588); Ames, "The |
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History |
of Assumpsit," 2 HARV. L. REV. I |
at 2, i6 (I888). |
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3 3 |
HISTORYOF ENGLISH LAW |
442 |
et |
seq. (I923). |
"If it be |
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HOLDSWORTH, |
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asked why the Courts came to admit the validity of a consideration which is obviously past, the answer is that it is due partly to that rivalry between the Courts of King's Bench and Common Pleas which led the King's Bench to favour actions of assumpsit over which they had jurisdiction, at the expense of actions of debt over which they
had no jurisdiction, and partly to the procedural advantageswhich assumpsitpossessed
over debt." |
39 L. |
Q. REV. |
146 |
at 147 (1923). |
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4 Arcs, |
"The |
History |
of |
Assumpsit," 2 |
HARV. L. REV. I at 16 (I888); 3 |
HOLDSWORTH,HISTORYOF ENGLISHLAW 443 |
(I923). |
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4 Co. Rep. 92b, 76 |
Eng. Rep. 1074 |
(I603). This decision was forecast by |
earlier cases in the Queen's Bench. Ames, "The History of Assumpsit," 2 HARV.L. But prior to Slade's Case, it was generally necessary that the
express promise be made after incurring the debt. Plaintiff "ought to have said quod postea assumpsitfor if he assumed at the time of the contract then debt lies, and not
assumpsit;" Anon. (B.R. 1572),
6 |
2 |
STREET, FOUNDATIONS OF LEGAL LIABILITY |
65 (1906). |
As Street puts it: |
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"It is true that the action of debt |
was swallowed up |
in the action of assumpsit, and |
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Slade's Case marksthe point at which this event occurred. But-and |
here here is the |
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whole |
import |
of that decision-the |
point involved was one of remedy purely. |
It |
was |
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necessary |
that |
simple contract law |
should |
be |
entirely |
freed from the meshes |
of |
the |
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action |
of |
debt." |
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74 |
Co. Rep. 92b, 76 Eng. Rep. 479 |
(1603). |
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8 |
8 |
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HISTORYOF ENGLISH LAW |
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(1926). |
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9 |
HOLDSWORTH, |
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Hodge |
v. Vavisour, 3 Bulstr. |
222, |
81 Eng. Rep. 188 (1617). |
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10 I |
WILLISTON,CONTRACTS,? I02 |
(1936). |
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I947 1 COMMENTS 213
But the notion that a precedentdebt is considerationdid not disappearfrom the law following Slade'sCase.11Subsequentpromisesto
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a debt contracted |
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2 |
a debt barred the Statuteof |
pay |
duringinfancy, |
by |
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Limitations,'3and a debt |
in |
were still held to |
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discharged |
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bankruptcyl4 |
be binding. In these situationstoday, in the absenceof a statute,the law is the same.' However, the rationaleis no longer the same,1" although it might well be said that the present day doctrine "is a legitimate extensionof the rule that a precedentdebt would support an actionof indebitatusassumpsit."'7The theory that moral obliga- tion couldbe considerationis anotherconceptdescendedfrom the early
caseswhichallowed a precedentdebt to supporta subsequentpromise
in an actionof |
This doctrineis the result |
largely |
of |
the |
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assumpsit."8 |
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efforts of Lord Mansfield in the eighteenth century.9 It has been repudiatedin England,20 and most moderncourtsin this countryhave deniedit as well. 21 However, therearestill Americancourtswhichsay moral obligationis considerationfor a promise.22 The doctrinecer- tainly does not conformto the normalconceptionof consideration.
Today, there is little left of the sixteenthcenturyrule that a pre- cedentdebt is considerationsufficientto groundan actionof assumpsit.
"4 |
Co. Rep. 92b, 76 Eng. Rep. 479 |
(I603). |
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12 |
Ball v. Hesketh, Comb. 38I, 90 Eng. Rep. |
541 (1697). |
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13Hyleing v. Hastings, I Ld. Raym. 389, 91 |
Eng. Rep. II57 (I699). |
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14 Trueman v. Fenton, 2 Cowp. 544, 98 Eng. Rep. 1232 |
(I777). |
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15 |
WILLISTON, CONTRACTS, ?? 15I, |
158, I62. (I936). |
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16In most American jurisdictions, the |
theory is one of |
waiver. I WILLISTON, |
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(1936). |
Pollock was of |
the same |
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CONTRACTS, |
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CONTRACTS, 203 |
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opinion. POLLOCK, |
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12th ed., 141 (1946). |
The American Law Institute has said simply that this is a |
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sort of contract which |
is valid without consideration. I CONTRACTS |
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RESTATEMENT, |
?? 85, |
86 (1932). |
See Wood & Selick, Inc. v. Compagnie Generale Transatlantique, |
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(C.C.A. 2d, 1930) |
43 F. (2d) 94I at 943 where Judge Learned Hand said: "More- |
over, even in cases of contract the new promise, which is said to revive the debt, does not really do so. Rather it creates a new obligation for which the old liability is re- garded as sufficient consideration."
178 HOLDSWORTH,HISTORYOF ENGLISH LAW 39 (I926).
18Id. 26 et seq.
'1 In Trueman v. Fenton, 2 Cowp. 544, 98 Eng. Rep. I232 (I777), he said at page 548: "The debts of a bankruptare due in conscience, notwithstanding he has obtained his certificate; and there is no honest man who does not discharge them, if he afterwards has it in his power to do so. Though all legal remedy may be gone, the debts are clearly not extinguished in conscience."
2 Eastwood v. Kenyon, I |
Ad. & E. 438, II3 Eng. Rep. 482 (1840). |
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21 |
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CONTRACTS, ? 148 |
(1936). |
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WILLISTON, |
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22 See, for example, Simpson v. Williams Rural High School Dist., (Tex. Civ. |
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App. 194I) |
153 |
S.W. |
(2d) 852; |
Williston |
Sav. and Loan Assn. v. Keller, (N.D. I946) |
22 N.W. |
(2d) |
30. |
It should be observed that these statements are made generally |
in cases where some arbitraryrule of law, for instance, the Statute of Limitations, has cut off a previously valid debt, so the doctrine is not, as a rule, used to enforce contracts which in other jurisdictions would be unenforceable.
2I4 MICHIGAN LAW REVIEW [ Vol. 46
Modern cases,such as those where a debt is barredby the Statuteof
Limitationsor |
in |
whereit is |
historicallyappli- |
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discharged |
bankruptcy, |
cable,generallydo not rest upon that theory. As a practicalmatter,it makeslittle difference.These casesachievea just result,andhave been
confined to standardfact situations. The doctrineseems clearly at
variancewith the rule that considerationcannotbe |
and serves |
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past,23 |
no useful purposetoday.24Caseswherethis problemarisesin the gen- eral law of contractsare rareindeed,and causethe courtsno trouble.25
II
In the field of negotiableinstruments,however,we find a different situation. Section25 of the Negotiable InstrumentsLaw says, under the general heading,Consideration:"Valueis any considerationsufficient to supporta simple contract.An antecedentor pre-existingdebt constitutesvalue; and is deemed suchwhetherthe instrumentis pay-
able on demandor at a future time." It is probablethat the framers of the N.I.L. intendedto formulatethe samerule as wasestablishedin
the Bills of |
Act in |
butthe |
is not so clear. |
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Exchange |
England,26 |
language |
The N.I.L. says specificallythat a precedentdebt shall be value. To
a certain |
extent, |
value and considerationare used |
in |
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interchangeably |
the act.27 But they are differentconcepts,certainly.28Section 25 of the N.I.L. can definitely be said to have settled the celebratedcontroversybetweenJusticeStory and ChancellorKent over the position of a personwho has takena negotiableinstrumentindorsedto him as securityfor a debt.29 There canbe little doubtnow that one who has
28 8 HOLDSWORTH,HISTORYOF ENGLISHLAW 13 et seq. (I926).
24 |
WILLISTON, |
CONTRACTS, ? |
I43 (1936). |
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25 |
Mortenson |
v. |
Knudson, I89 |
Iowa 379, |
176 |
N.W. |
892 |
26 "Sec. 27. |
(I) |
Valuable consideration |
for a |
bill |
may |
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Any consideration |
sufficient to support a simple contract. |
(b) |
(I920).
be constituted by-(a)
An antecedent debt or
liability. |
Such a debt or liability is deemed valuable consideration whether the bill is |
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payable on demand or at a future time. .. |
" |
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Wickhem, |
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27 AIGLER, CASES ON NEGOTIABLE PAPER AND BANKING 442 |
(I937); |
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"Consideration and Value in Negotiable Instruments," 3 Wis. L. REV. 321 |
at 335-6 |
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(I926). |
Sec. I9I of |
the N.I.L. says: "In |
this act, unless the |
context otherwise re- |
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quires-. |
.. 'Value' |
means valuable consideration. ... |
" |
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28Wickhem, id. at 330 et seq.
29Id. at 336-7. Chancellor Kent's decision in Bay v. Coddington, 5 Johns. Ch.
(N.Y.) 54 (I82I),
gotiable instrument as collateral security for an antecedent debt, he shall not be a holder for value. As a matter of fact, there were other factors in the particular case, and the Chancellor placed strong emphasis on the fact that this transaction was not in the normal course of business. In Swift v. Tyson, 16 Pet. (41 U.S.)
Justice Story, relying in a large measureon commercial practice, decided such a person was a holder for value.
I947 ] COMMENTS 215
takensuch an instrumentin paymentof or as collateralsecurityfor a precedentdebt is a holder for value, within the meaning of section 52.80 A remainingquestionis whether a precedentdebt can be con-
and if |
so, |
is it |
or |
under |
special |
sideration, |
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always consideration, only |
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circumstances. |
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A. In the simplestsituation,wherea negotiableinstrumentis given in payment of the precedentdebt of the maker, it is held that the instrumentis foundedon good consideration.For example,A gives B his checkin paymentof a debt. An actionwill lie on the check,8lal-
though |
in contract |
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it is |
simply |
a |
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to |
a debtthen |
owing. |
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law, |
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promise |
pay |
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A moment's reflection is sufficientto |
convince one that no other |
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conclusion is |
possible. In |
the normal case, no controversy will |
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arise on this point. |
It |
is a foregone conclusionthat the check is |
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supportedby |
considerationVarious. |
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havebeenmadewhere |
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explanations |
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the questionhas arisen. The reasongenerally assigned,where one is
is thatthereis a forbearance |
the life of the instrument. |
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necessary, |
during |
This is satisfactorywhere a time instrumentis involved, for it may
well be said that there is an implied promiseto postponeenforcement |
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82 |
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of the originaldebt until the new instrumentmatures. |
Where the |
instrumentgiven is payableon demand,this rationaletends to become a rationalization.With this sort of paper,courtshave said that there
is a sortof |
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in that the instrumentwill live at least |
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impliedforbearance, |
debt is |
for |
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a reasonable |
and the actionon the |
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time, |
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original |
suspended |
that time.88 A simple answerto this, of course,is that one does not have to waita reasonabletime. Ames took the positionthat in the Law
Merchant,no considerationwas necessaryto supportany negotiable instrumentand there would never have been any troublein this con-
nectionif courtshad not sincedeviated from this rule." He derived this view, accordingto Williston,85from a statementfound in Black-
80 "A holder in due course is a holder who has taken the instrument under the
following conditions: ... |
3. |
That |
he took it in good faith and |
81 Stevens v. Park, 73 Ill. |
387 |
(i874); Gleason v. Brown, 129 |
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P. 930 (I924); BRITTON, |
BILLS AND NOTES 371 (I943). |
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82Baker v. Walker, 14 Mees. & W. 465, I53 Eng. Rep. 558 |
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88 Currie v. Misa, L.R. o |
Ex. |
53 (I875). |
for value ..." Wash. 196, 224
(I845).
876 (I894). "It is frequently stated in the books that as between the immediate parties to a bill or note a consideration is
necessary to the validity of the obligation. This notion, it is submitted, is erroneous
upon principle, and also upon the authorities; for although it must be conceded that the courts have sanctioned the defense of absence of consideration in certain cases,
these decisions should be regarded as anomalous exceptions to the rule that a bill, being in the nature of a specialty, is obligatory without a consideration, rather than as
illustrations of the opposite doctrine, that a bill, being a simple contract, requires a consideration to support it."
85 1 WILLISTON, CONTRACTS 372 (1936).
2x6 |
MICHIGAN LAW REVIEW |
[Vol. 46 |
stone." Lord Mansfieldwasof the sameopinion.3 However, it seems likely historicallythat considerationwas necessaryfor negotiablein- strumentsas well as other contracts.38The true answerprobablyis that the point was not presentedto the courtsoften enough prior to the nineteenthcenturyto evolve a definiterule.39However this may be, at the time the N.I.L. was drafted,some considerationwas necessary to supporta negotiableinstrumentbetween the original parties thereto.40This rule was codifiedin the N.I.L.41
The two lines of authorityin this countryrelativeto what is nec- essary to constitute one a holder for value have been mentioned earlier.42Certainlya majorityof casesheld that one who took a negotiableinstrumentii paymentof or as collateralsecurityfor a prece-
dent debt was a holder for value.3 |
Strictlyspeaking,the New York |
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view, |
that an antecedentdebt is not |
value, |
is |
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the prob- |
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unassailable, |
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lem is considered |
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as one in the law of contracts.In a |
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well |
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simply |
decided after |
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v. |
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and |
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reasonedNew York |
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Bay |
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case,"4 |
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Coddington"4 |
Swift v. Tyson,"4the English precedentsupon whichJutice Story re- lied in the latter casewere reviewedand the courtconcludedthat the
New Yorkrule wascorrecthistorically.But in Curriev. Misa,47Swift v. Tyson 8 was citedwith approval,and the English courtrejectedthe New York decisions.These cases,it must be remembered,were cases
86 2 BL. COMM. 446. "For if a man . . . gives a promissorynote, he shall not be allowed to aver the want of consideration in order to evade the payment . . . and every note from the subscriptionof the drawer carries with it an internal evidence of a good consideration." This statement is called inaccurate in a note appended by a reporter. Wendell's ed. (I854).
87 Pillans v. Van Mierop, 3 Burr. 1663, 97 Eng. Rep. I035 (1765). "A nudum pactum does not exist in the usage and law of merchants." He reconciled this view with the common law, which he took to be the same as the law merchant, on the theory that consideration was of evidentiary value only. This doctrine was speedily overruled, at least so far as contract law was concerned. Rann v. Hughes, 7 T.R. 350
n. (a) |
(1778). |
See 8 HOLDSWORTH, HISTORYOF ENGLISH LAW 29-30 |
(1926). |
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38 8 |
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167 (I926); |
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STREET, |
FOUNDA- |
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TIONSOF LEGALHISTORY387 et seq. |
(I906). |
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89 |
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WILLISTON,CONTRACTS,? |
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(1936). |
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40 |
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HISTORY OF |
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BRITTON, |
BILLS AND NOTES, |
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90 (I943); |
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HOLDSWORTH, |
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ENGLISH LAW I67 (I926), |
Wickhem |
"Consideration |
and |
Value |
in Negotiable |
Instru- |
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ments," |
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3 Wis. |
L. REV. |
322 et seq. |
(1926). |
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41 Sec. 28. |
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42 |
Supra, note 29. |
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48Wickhem, "Consideration and Value in Negotiable Instruments," 3 |
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Wis. L. |
REV. 32I |
at 331 et |
seq. (I926); |
cases cited, |
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note I, 650, note i |
(I894). |
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"Stalker v. M'Donald, 6 Hill (N.Y.) |
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45 5 Johns. Ch. (N.Y.) |
54 |
(i821). |
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46 I6 |
Pet. (41 |
U.S.) I |
(1842). |
47L.R. iO Ex. 153 (1875).
4816 Pet. (41 U.S.) I (1842).
I AMES, CASES ON BILLS AND NOTES 634
93 (I843).
I947 ] COMMENTS 217
in which the questionwas whetherone could be a holder for value if the only value were a precedentdebt. If value were coterminouswith
it could |
fairly |
be said that a |
precedent |
debt was |
good |
consideration, |
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considerationfor a negotiableinstrumentprior to the N.I.L., in the majorityof jurisdictions.But this is certainlynot true. 9 Consideration andvalue areseparateanddistinctproblems,0 even as in otherfields.5 Ames, in illustratinghis thesisthat no considerationwas necessaryfor a negotiableinstrument,assertedthat a bill given in paymentof a debt was valid: "A personwho executesor indorsesto his creditorsa bill or note payableat a future day, in paymentof his own debt or the debt of a third party may be sued upon the new security . . . the rule is the same when the new securityis payableon demand."52 The case where a time bill or note is given may well be resolved on a theory
of 53 the firstcasecited Ames54does not reveal forbearance, although by
whetheror not it wasa timenote. The threecasesdealingwith demand
notesdo not |
the stated |
In Childsv. |
55 |
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fully support |
proposition. |
Monins, |
the decisionrelied stronglyon the fact that the executor'snotes called
for interest |
which |
implied |
a forbearance |
the |
payee |
to |
go |
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payments |
by |
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againstthe estate. Curriev. Misa56is a caseof a holderfor value. Sison
v. Kidman57holds than an accomodation |
canbe held liable in an |
party |
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actionof debt. Poplewell v. Wilson58seems more in point. This was
a suit on a |
note issued A to B in |
of a debt owed |
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promissory |
by |
payment |
by C to B. The report reveals little more. The court held that the plaintiff could recoverover the objectionof the defendant that the
debt of anotheris no considerationto raise a promise. The authority of this casewith referenceto the problemat handis doubtful,however. Previously,Lord Holt had said in a suit on a note madeby defendant
to pay so muchon the accountof another:"The consideration implied
in the Statute59is, that when the partypromisesuponhis own account, it must be presumedhe is indebted,or else he would not promiseto
49 4 WILLISTON,CONTRACTS, ? |
1146 |
(1936); |
12 IOWAL. REV. 69 |
(I926). |
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5oWickhem,"Considerationand Value in NegotiableInstruments,"3 Wis. L. |
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REV. 321 at 330 et seq. (I926). |
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513 |
POMEROY, EQUITY |
JURISPRUDENCE, 5th ed., 19 et seq. (1941). |
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2 2 AMES, CASESON BILLS AND NOTES 876 |
(I894). |
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53Balfour v. Sea Fire |
Life |
Assurance Co., |
3 C.B. (n.s.) |
300, I40 |
Eng. Rep. |
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756 (I857). |
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I Stra. 264, 93 Eng. Rep. 512 |
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4 Poplewell v. Wilson, |
(1719). |
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552 |
Br. & B. 460, |
129 |
Eng. Rep. 1044 (1821). |
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56L.R. IO Ex. |
153 |
(1875). |
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57 3 Man. & G. 81o, |
133 Eng. |
Rep. |
1365 |
(I842). |
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58 I |
Stra. 264, |
93 Eng. |
Rep. |
512 |
(I719). |
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5 |
3 |
& 4 Anne, |
c. 9 (1704). |
In Clerke v. Martin, |
2 Ld. Raym. 757, 92 Eng. Rep. |
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6 (1702), Lord Holt had held that promissorynotes were not within the Law Merchant. This statute was passed to overrule that decision.
218 MICHIGAN LAW REVIEW r Vol. 46
pay it; aliter wherethe promiseis to pay upon accountof a third person."6 The actualdecisionin the Poplewell caseappearsto be that a note given in paymentof the debt of anotheris within the statute,61 andthereforeto be treatedas a negotiableinstrument.This, of course, overruledHolt's earlierdecisionon this point.
Whatever may have been the old law, it seems clear that by the time the N.I.L. was drafted, a negotiableinstrumentpayableon de- mand, signed by the debtorand given to the creditorin paymentof the debt was deemed to be founded on good consideration.62A ne-
gotiableinstrumentgiven in absolutepaymentof a debt owing to the payee by one not the principaldebtorwas also regardedas supported by good consideration.68But the precedentdebt of a third personwas
not |
good |
considerationunlessthe debt wascancelled.64 |
in line |
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Directly |
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with the rule last stated,a notegiven as collateralsecurityfor a debt of a thirdpersonwasheld not to be foundedon good consideration.65The law probablywas the same where a negotiableinstrumentwas given as collateralsecurityfor the debt of the maker.66The effect of the Bills of ExchangeAct in England seemsclear.67It is expresslystated that a precedentdebt is consideration.In the United States,however, the codificationis not so explicit.Again,it wouldnot beunreasonableto assumefromthe similarityof languageemployedthatthe N.I.L. meant to establishthe samerule as thatset up in the English Statute.68
B. Since the enactmentof the N.I.L., there have been a great numberof casesstatingin one way or anotherthat a precedentdebt is good considerationfor a negotiableinstrument69.A good exampleof
60 Garnet v. Clarke, I |
Mod. 226, 88 Eng. Rep. |
oo005(1709). |
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6l 3 & 4 Anne, c. 9. |
Supra, note 59. |
Nelson v. |
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Ala. |
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2 Stevens v. Park, |
73 |
111. |
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Lovejoy, |
I4 |
568 (1848). |
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387 (1874); |
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68Holm v. Sandberg, 32 Minn. 427, |
2I |
N.W. |
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416 |
(1884); |
Seymour v. Pres- |
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cott, 69 Me. 376 (1879); |
Henry v. Ritenour, 31 |
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Ind. |
136 |
(I869); |
Brainard v. |
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Capelle, 31 Mo. 428 (I862). |
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Wren v. Hoffman, 41 Miss. |
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64 Ward v. Barrows,86 Me. 147, 29 A. 922 (1893); |
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616 (1868). |
Carroltown v. Latting, 37 |
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Savage v. |
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65Bank of |
Okla. 8, |
130 |
P. |
144 |
(1913); |
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First Nat. Bank of Rome, II2 |
Ala. 508, 20 S. 398 |
(I896); |
Security Bank of Minn. |
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v. Bell, 32 Minn. 409, 21 N.W. 470 |
(I884). |
See 44 L.R.A. (n.s.) |
481. |
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66 Wickhem, "Consideration and Value in Negotiable Instruments," 3 Wis. L. |
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REV. 321 at 331 |
(1926). |
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67No casesin point have been found since the act went into effect. |
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88AIGLER, |
CASES ON NEGOTIABLE PAPER AND BANKING 442, |
note I |
(I937). |
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69 In the following cases, ? 25 of the N.I.L. was cited: Hester v. Kemper Mili- |
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tary School, (Tex. Civ. App. |
1940) |
138 |
S.W. (2d) |
833; |
Cinema Schools, Inc. v. |
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Westchester Fire Ins. Co., |
(D.C. Cal. I932) |
I F. Supp. 37; |
Drewen v. Union Dis- |
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count Co., (C.C.A. 2d, 1929) |
32 F. (2d) |
691; Bridge v. Ruggles, 202 Cal. 326, 260 |
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P. 553 |
(1927); |
Bank of Moberly v. Meals, 316 Mo. II58, |
295 |
S.W. |
73 |
(1927); |
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Milburn |
v. Miners & Citizens |
Bank, |
o10 |
Okla. 281, |
226 |
P. |
42 (1924); |
Schauer v. |
Morgan, 67 Mont. 455, 216 P. 347 (I923). In the following cases, that section of
1947] COMMENTS 219
whatcourtswill sayis foundin Myers v. Shinn.70Althoughthe N.I.L. was in effect in Arkansas,it was not cited. The casewas a simple one in which defendantexecuteda note to pay a debt he owed plaintiff's testator. The Courtsaid: "The moral obligationto pay this note was good consideration."7 The languagemay becomedefinitelymislead- ing whenthe courtsconfusevalue andconsiderationin applyingsection 25. In the case of Flynn v. Currie," for instance,the court said: "Antecedentindebtednessconstitutesvalue, and is sufficientconsidera-
tion to supporta simple contract."7 This was a casewhere a promissory note was executed by defendant and indorsed by the payee to plaintiffto pay a precedentdebt. Plaintiff sued defendanton the instrumentand recovered. In the opinion, the court cited section 25, and apparentlywhat it wastrying to do in the languagequotedabove
wasto |
that sectionof the N.I.L. An |
situationis |
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paraphrase |
interesting |
presentedand a ratherremarkableconclusionis reachedin Hanson v.
Johnson.7 Here, A gave a demandnote to plaintiffwith a mortgage to secureit in 912. Plaintiffrecordedimmediately.Priorto thattime,
A had mortgagedthe same propertyto defendant,but this mortgage was not recordeduntil 19I4. Both transactionswere effectedto secure
debts. The courtheld that |
wasa |
for value |
precedent |
plaintiff |
purchaser |
of the propertyby referenceto section 25 of the N.I.L. becausehe took an instrumentpayable on demand, which brought him within the termsof the statute. The courtindicatedthat defendant,even had
he |
would not have been a |
for value sincehe did |
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recorded, |
purchaser |
not receivean instrumentpayableon demand.
Although the caseswhere the questionis whetherone is a holder for value of negotiablepaperandthe caseswherethe debtof the maker is paid with a negotiableinstrumentare relatively simple insofar as they concernprecedentdebt, the problembecomesrathermore complicatedwherea bill or note is executedin paymentof or as collateral
securityfor the debt of a thirdparty. A casemay arisein severalways. The easiestis where one executesa note expresslyto pay the debt of
another,and the creditorexpresslyreleasesthe third party from his
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7 |
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debt. This note is supportedby good consideration. In Schaeferv. |
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the N.I.L. was not cited: Wheeler v. Wardell, 173 Va. i68, 3 S.E. (2d) |
377 (1939); |
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Smeltzer v. McCrory, (Tex. Civ. App. 1937) |
IOI S.W. (2d) 850; Lucas E. Moore |
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& Co. v. Hursey Transp. Co., I8 La. App. 56, |
137 S. 630 (I93I); |
Wade v. Johnson, |
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III |
Ore. 468, 227 P. 466 |
(I924); |
Popp v. Exchange Bank, I89 |
Cal. 296, |
208 |
P. |
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I13 |
(I922). |
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70 20I |
Ark. 857, |
147 |
S.W. (2d) |
355 (I94I). |
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71Id. |
at 859. |
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72 I30 |
Me. 461, |
157 |
A. 3IO (I931). |
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78 Id. at 463. |
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7442 |
N.D. 431, |
I77 |
N.W. 452 |
(I918). |
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75 Merrell v. Timmons, (Tex. |
Civ. App. I940) 140 S.W. |
(2d) |
480; |
In |
re |