ContractsConsiderationconsiderationfailure of considerationwidow's noteinsolvent estateworthless claimpromissory note
Facts
Defendant was the widow of Lee C. Hunter, who died intestate, leaving an estate insufficient even to pay funeral expenses and the widow's allowance. At his death, plaintiff bank held his $3,700 note secured by 50 shares of Hunter Company stock; the company was insolvent, later went into receivership, and its assets were insufficient to pay its debts. On March 1, 1926, defendant gave plaintiff her own note, and plaintiff surrendered her husband's note to her; defendant also paid the earned interest due on the deceased's note. The bank retained the stock as collateral to defendant's note, and the record showed the stock was worthless.
Issue
Whether the surrender of a deceased husband's note, where his estate was insolvent and the note was therefore worthless, furnished sufficient consideration for the widow's new promissory note. Also, whether the Hunter Company stock supplied consideration for defendant's note.
Rule
Surrender of a deceased insolvent debtor's worthless note does not constitute consideration for a widow's promissory note when the estate has no assets from which the debt could be paid. Likewise, purported transfer or retention of collateral does not supply consideration if the collateral is itself worthless.
🔒
See the holding & full analysis
Create a free KwikCourt account to unlock the rest of this brief — and practice the case.
The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case
One of 10 multiple-choice questions for this case. Pick an answer to see why.
In Grand Rapids, Larkspur Community Bank held a $12,000 note signed by Daniel Mercer. Daniel died intestate, and the agreed probate figures show his estate cannot cover funeral expenses or the statutory family allowance. Two weeks later, his widow, Elena Mercer, signed her own note to the bank in exchange for the bank's surrender of Daniel's note.
If the bank sues Elena on her note, which is the strongest argument regarding consideration under the majority rule?
Explanation. The majority rule is that surrender of a deceased debtor's note is not consideration when the estate is insolvent and the claim is worthless. In that situation, the creditor parts with nothing of value, suffers no substantial legal detriment, and the widow receives no actual benefit beyond a worthless instrument. Moral obligation alone is not enough, and the opinion rejected claims of value based on rights against an estate where the agreed facts showed no assets. (Derived from Newman & Snell's State Bank v. Hunter (n.d.).)