Facts
- A bank held Lee C. Hunter’s promissory note for about $3,700, secured by 50 shares of Hunter Company stock.
- Lee Hunter died intestate, and his estate was insolvent and unable to pay funeral expenses or the widow’s allowance.
- The Hunter Company was also insolvent; the pledged shares had no real value.
- After Lee Hunter’s death, the bank had his widow, Zennetta Hunter, execute a new promissory note in favor of the bank, described as given in exchange for her deceased husband’s note.
- The bank asserted consideration existed because it surrendered the husband’s note and transferred its interest in the pledged stock to the widow.
- The bank in fact retained possession of the stock certificates and continued to hold them as collateral for the widow’s note.
- The widow contended her note lacked consideration because the surrendered note was uncollectible and the collateral was worthless.
Issues
- Whether surrender of a deceased husband’s uncollectible note from an insolvent estate constitutes legally sufficient consideration for the widow’s new promissory note.
- Whether an asserted transfer of collateral stock that is worthless (and remained in the bank’s possession) can supply consideration for the widow’s promise.
Decision
- The Michigan Supreme Court reversed the judgment for the bank and ordered no new trial.
- The court held the widow’s note was without consideration.
- Surrender of the husband’s note provided no consideration because the estate was insolvent and the claim was effectively worthless.
- The stock collateral did not supply consideration because it had no value and, in any event, was not meaningfully transferred since the bank retained it as collateral.
- Speculation that the stock might later become valuable did not create consideration at the time of contracting.
Legal Principles
- A promissory note is unenforceable for lack of consideration when the supposed exchange is the surrender of a claim or instrument that is wholly worthless and known to be so at the time of the bargain.
- Consideration requires a real bargained-for exchange; a promise supported only by an illusory or valueless return is not binding.
- Transfer (or claimed transfer) of an asset with no present value does not constitute consideration merely because it is nominally part of the exchange.
- Possible future or hypothetical value does not supply consideration when the subject matter is valueless at the time the promise is made.
Conclusion
Because the bank gave up only a worthless note from an insolvent estate and worthless collateral stock (while retaining the stock as security), the widow received nothing of value for her promise, so her promissory note lacked consideration and could not be enforced.