law will not look closely into the adequacy of the consideration for a promissory note, nor is the fact that there was no fair consideration for negotiable paper, as between the original parties to it, any defense against it in the hands of bona fide indorsee; for as a general rule the indorsee of a negotiable promissory note, who, for value, purchases it before maturity, without knowledge of facts impeaching its validity, may recover the amount due by the terms of the note, although he paid an amount therefor less than its face, unless the circumstances of its inception were such as to make it absolutely void by statute, or there was no power to issue the note, or it was obtained by the payee of the maker by illegal and fraudulent means. 10 And although the fact of taking a bill at considerable undervalue is not of itself sufficient to affect the title of the holder, yet it is an important element in considering whether such purchaser acted bona fide, in ignorance and error, or was assisting in committing a fraud, and avoided making inquiries because they might be injurious to him.11 But the inadequacy of the price paid by an indorsee must be such as to impeach his good faith;12 the price paid by the purchaser must be so out of proportion, having regard to the solvency of the maker, that the indorsee takes the note at his peril.13 If the purchaser pays a grossly inadequate price and trades with a man in embarrassed circumstances, and proper inquiry would have disclosed the real value of the note, the transaction is suspicious, even though there is no evidence of fraud, and the recovery will be limited to the amount actually paid, with interest.14 Where the statute provides that the holder of a negotiable

Austell v. Rice, 5 Ga. 472. Martin v. Kercheval, 4 McLean (U. S. C. C.), 117 Fed. Cas. No. 9163. As between the indorser and indorsee the face of the note is prima facie evidence of the consideration paid on its negotiation, but it is only prima facie. The defendants (indorser) can show an entire want of consideration or that a small sum only was paid. But where the note in the ordinary course of business has been negotiated for a valuable consideration the maker is bound by the face of the note.

St. 177, 26 N. E. 979, 29 Am. St.
Rep. 540.

11 Jones v. Gordon, L. R. 2 App. Cas. 616, per Lord Blackburn. Smith v. Jansen, 12 Neb. 125, 10 N. E. 537, per Maxwell, Ch. J. (The amount of the consideration may become a material inquiry upon the question of good faith of the purchaser); Tod v. Wick, 36 Ohio St. 370 (the amount paid may affect the question of the indorsee's good faith).

12 Rooker v. Rooker, 29 Ohio St. 1. 13 Hunt v. Sandford, 14 Tenn. (6

⚫ Middletown Bank v. Jerome, 18 Yerg.) 387. Conn. 443.

14 Collger v. Francis, 61 Tenn. (2

10 Kitchen v. Loudenback, 48 Ohio Baxt.) 422.

instrument may enforce payment for its full amount against all parties liable, recovery by the purchaser of such paper is not limited to the amount paid therefor. And bad faith on the part of the purchaser of a note against which the maker had a valid defense is not shown by the fact that it was purchased at a heavy discount without inquiry of the maker whom the purchaser knew was perfectly solvent when inquiry was made of the payee as to the consideration and the latter was in need of money, and the note, though held at the time in the state where the suit was brought, was payable in a foreign jurisdiction, the inaccessibility of which for half the year the court would take judicial notice, and the purchase was made some time before maturity and without notice of any infirmity in the paper.15 But one who purchases a note for one-sixteenth of its face value is not a bona fide holder where he knew defendant was in fair credit and able to respond.16 And where the amount paid was very much less than that of the note and it was purchased of a stranger, the question, whether or not reasonable inquiry would have shown the circumstances, was held to be one for the jury. If one purchases a note from a person in whose possession it is and to whose order it is payable, for a certain sum of money, one-half of which is received in cash, and the other half is not paid and the note is collected, he is in no different position than if he had purchased the note on credit for one-half its value, and he is liable to the actual owner of the one-half interest in the note, even though at the time of purchase he had no notice of the actual owner's interest, although he knew that the note belonged to some other person than his assignor, as in such case he is not a bona fide holder.18

§ 192. Adequacy in value unnecessary. It is not necessary that the consideration of a note shall equal in pecuniary value the face of the obligation given.19 If no part of the consideration is wanting at the time and no part of it subsequently fails, although inadequate in amount, the note is a valid obligation.20 And if notes are somewhat

15 McNamara v. Jose, 28 Wash. 461, 68 Pac. 903; Laws 1899, p. 350, § 57. See N. Y. Neg. Inst. Law, § 96, appendix herein.

10 DeWitt v. Perkins, 22 Wis. 451. "Gould v. Stevens, 43 Vt. 125, 5 Am. Rep. 265.

18 Kersey v. Fuaqua (Tex. Civ. App. 1903), 75 S. W. 56.

19 Yarwood v. Trusts & Guarantee Co., Ltd., 87 N. Y. Supp. 947, 950, 94 App. Div. 47, per Hiscock, J.; Earl v. Peck, 64 N. Y. 596, 598, per Church, Ch. J.; Twentieth Century Co. v. Quilling (Wis. 1907), 110 N. W. 174.

20 Earl v. Peck, 64 N. Y. 596, 598; per Church, Ch. J.

24

larger than the sum exigible, their valid consideration will not be impaired. So if a note is given for a larger sum than the amount of gold borrowed but it is for a sum equal to the worth of the gold in paper currency there is a valid obligation.22 And if a draft is accepted solely for honor, and by means of the acceptance an assignment and possession of a bill of lading is obtained, the fact that the bill of lading which is taken as collateral security is not of as great value as was supposed affects the adequacy of the consideration, but not its sufficiency in point of law, and, it not being necessary that the consideration be adequate in value to support a contract, and there being no pretense of fraud, the receipt of such collateral, though of little value, constitutes a legal consideration.23 So the amount of a note may be for a sum in excess of the value of the property purchased or right granted23* much larger than the value of services agreed to be rendered. While mere gratuitous services are an insufficient consideration for any executory agreement or promise, the performance of services and furnishing of valuable things, not as a gratuity, but in expectation of being compensated therefor, is sufficient to sustain a promissory note for an amount in excess of the real value of the services performed or things furnished. In the absence of fraud an existing legal obligation will sustain a promise to pay an amount for the excess of its real value.25 Again, it is well settled that courts will not overturn such an obligation because too liberal an amount has been paid for services rendered and to compensate which the note is given; and if no part of the consideration was wanting at the time and no part of it subsequently failed, the note is a valid contract, although inadequate in amount.26 And the maker of a note, given to the payee for surveys made by the latter at his instance, cannot resist payment on the ground that the amount was out of proportion

21 Lanati v. Bayhi, 31 La. Ann. 229.

22 Cox v. Smith, 1 Nev. 161, 90 Am. Dec. 476. See Southern Ins. Co. v. Lanier, 5 Fla. 110, 58 Am. Dec. 448. 23 Kelly v. Lynch, 22 Cal. 661. 23 Twentieth Century Co. v. Quilling (Wis. 1907), 110 N. W. 174.

24 Miller v. McKenzie, 95 N. Y. 575, 47 Am. Rep. 85. See Weed v. Bond, 21 Ga. 195, Stat. 1831, Cobbs, Dig., p. 91, as to equities of note given attorney for services, Whett v. Blount (Ga.), 53 S. E. 205.

25 In re Bradbury, 93 N. Y. Supp.. 418, 422. The court per Chase, J., cites Gallagher v. Brewster, 153 N. Y. 364, 47 N. E. 450; Cowee v. Cornell, 75 N. Y. 98, 31 Am. Rep. 428; Earl v. Peck, 64 N. Y. 597; Yarwood v. Trust & Guarantee Co., Ltd., 94 App. Div. 47, 87 N. Y. Supp. 947; Bush v. Whitaker, 45 Misc. 75, 91 N. Y. Supp. 616. See also "Illustrations" of services, § 194, herein.

26 Yarwood v. Trusts & Guarantee Co., Ltd., 87 N. Y. Supp. 947, 950, 94 App. Div. 47, per Hiscock, J.

to the value of the services rendered.27 So in an action upon a note given for the price of trees, it was held that there being neither warranty or fraud the maker could not insist upon inadequacy of consideration as a ground for reducing the damages.28

§ 193. Inadequacy or insufficiency of consideration-Rule as to inquiry into-Fraud.—In an action upon a note mere inadequacy of consideration, there being no warranty, misrepresentation, fraud, or undue influence, cannot be given as a defense,20 where the parties have dealt on equal terms.30 So, as between the original parties, and where the adverse rights of creditors are not in question, the law will not inquire into the adequacy or sufficiency of the consideration.31 And it is also declared that equity will not grant relief unless the inadequacy is so gross as to shock the conscience and lead to the irresistible conclusion of fraud;32 and that the fraud must also extend to the entire

Rightor v. Aleman, 4 Rob. (La.) 45; Civ. Code Arts. 1854-1857.

28 Johnson v. Titus, 2 Hill (N. Y.) 606.

"New York.-Earl v. Peck. 64 N. Y. 596, 598, per Church, Ch. J.; Johnson v. Titus, 2 Hill (N. Y.) 606.

See also Connecticut.-Appeal of Clark, 57 Conn. 565, 19 Atl. 332 (applied where there is a legal consideration); Abbe v. Newton, 19 Conn. 20 (consideration of note was grossly inadequate and fair inference was that parties so understood).

Georgia.-Green v. Lowry, 38 Ga. 5848 (under Code, §§ 2700, 2701, mere inadequacy of consideration alone will not void a contract. If the inadequacy be great, it is a strong circumstance to evidence fraud, and on a suit for damages for breach of the contract the inadequacy of the consideration will always enter as an element in estimating the damages).

Indiana.-Hereth v. Bank, 34 Ind.

380; Wheelock v. Barney, 27 Ind. 462.

Iowa.-Lay v. Isman, 36 Iowa 305. Kentucky.-Roby v. Sharp, 6 T. B. Mon. (Ky.) 375.

Massachusetts.-Dean v. Carruth, 108 Mass. 242, 245.

Diefen

New York.-Vosburg v. dorf, 119 N. Y. 357, 23 N. E. 80; Maas v. Chatfield, 90 N. Y. 303 (purchased at a discount exceeding the legal rate of interest); Root v. Strang, 77 Hun (N. Y.) 14, 28 N. Y. Supp. 273.

Ohio.-Dieringer V. Klekamp (Ohio), 11 Wkly. Law Bul. 123 (fraud was not alleged).

Virginia.-Loftus v. Maloney, 89 Va. 576, 16 S. E. 749.

Federal.-Boggs v. Wann, 58 Fed. 681 (not a good defense in absence of misrepresentations or fraud).

30 Cowee v. Cornell, 75 N. Y. 91, 31 Am. Rep. 428.

31 Parish v. Stone, 31 Mass. (14 Pick.) 198, 207, 25 Am. Dec. 378, per Shaw, C. J.

32 Jones v. Deggs, 84 Va. 685, 5 S. E. 799.

consideration.33 When the inadequacy of the consideration is such as to create a presumption of fraud and overreaching, or of unconscientious advantage, taken under circumstances of distress and improvidence, on the one side, or of mental incompetency on the other, the contract founded thereon cannot be enforced in law or in equity; and a court of equity will, at the instance of the party deceived, interfere and set it aside after it is executed. In cases of gross inadequacy the court will also take advantage of every circumstance which indicates imposition or improper advantage, to found a presumption of fraud, and thereby to rescind the contract. The mere inadequacy of the consideration is not, however, in such cases, the ground upon which a contract is invalidated, but the fraud which is thereby indicated, and however inadequate the consideration may be, yet if the circumstances of the case. indicate no unfair advantage on the one side, or no great incompetency on the other, the contract will be valid.34 Again, inadequacy will not be of avail as a defense in an action by an indorsee against an indorser,35 nor, in general, will inadequacy support a plea of want of consideration;36 but in an action by the indorsee against the maker, upon a note indorsed after maturity, it is a defense that there was want of sufficient consideration, such note being also based upon a consideration which was but the promise to pay the debt of another.37

§ 194. Sufficient consideration-Illustrations.-Negotiable paper has been held to be founded upon a sufficient consideration; where such consideration consists of the value of an interest in land and the balance is for compensation for domestic services, rendered by an adult daughter to her widowed mother, such note being given by the mother to the daughter;38 where the consideration is expressed to be for money and services rendered equivalent to the amount of the note and in full therefor when paid, and the note was executed to the testator's granddaughter who had lived with him for years and rendered household and personal services both before and after the delivery of the note;39 where a check was delivered inter vivos to decedent's housekeeper, upon whom he had been more dependent than upon any other person, and

33 Harlem v. Read, 3 Ham. (Ohio) 285, 17 Am. Dec. 594.

24 Green v. Lowry, 38 Ga. 548, 552, quoting from Story on Contracts, § 432.

Dunn v. Ghost, 5 Colo. 134.

36 Rice v. Rice, 106 Ala. 636, 17 So.

ST Wyman v. Gray, 7 Har. & J. (Md.) 409. See §§ 234, 235, 239-241, 243, herein.

38 Petty v. Young, 43 N. J. Eq. 654, 12 Atl. 374.

39 Velie v. Titus, 60 Hun (N. Y.) 405, 15 N. Y. Supp. 467.