In 1869, William E. Story promised his nephew, William E. Story, 2d, that he would pay him $5,000 if the nephew abstained from drinking liquor, using tobacco, swearing, and playing cards or billiards for money until he turned twenty-one. The nephew accepted and fully performed the promised abstention.
After the nephew reached twenty-one, he asked for the money. His uncle acknowledged that the nephew had complied, said the money had been in the bank for him when he turned twenty-one, and promised that he would receive it. But the uncle stated that he would retain the money, with interest, until he believed the nephew could manage it responsibly. The nephew agreed. He later assigned his interest to his wife, who assigned it to the plaintiff.
The Special Term entered judgment for the plaintiff. The General Term reversed. The New York Court of Appeals reversed the General Term and reinstated the judgment for the plaintiff.
Issue #1
Whether the nephew's agreement to give up drinking, tobacco, swearing, and gambling until age twenty-one supplied consideration for his uncle's promise to pay $5,000.
Holding
Yes. The nephew's voluntary surrender of lawful rights at his uncle's request was valid consideration, even if abstinence may have benefited the nephew or did not economically benefit the uncle.
Reasoning
Consideration does not depend on whether the promisor receives a measurable benefit or whether the promisee's performance ultimately improves his own welfare. It is enough that, in exchange for the promise, the promisee does something, suffers a detriment, or forbears from exercising a legal right.
The nephew had legal rights to drink liquor, use tobacco, and engage in the other conduct covered by the agreement. By restricting his lawful freedom of action for years in reliance on his uncle's promise, he provided the legal detriment necessary to support a contract.
The court refused to weigh whether giving up those activities was actually good for the nephew. A rule requiring courts to decide whether the promised conduct truly benefited the promisee would make consideration depend on speculative judgments about personal welfare rather than on the bargained-for exchange.
Issue #2
Whether the Statute of Frauds defeated enforcement of the uncle's original oral promise because it could not be performed within one year.
Holding
No. The defense was unavailable because it was not pleaded, and the uncle's later written and oral acknowledgments after the nephew's performance amounted to a waiver.
Reasoning
The agreement contemplated performance lasting until the nephew reached age twenty-one and therefore fell within the Statute of Frauds provision governing agreements not to be performed within one year. Ordinarily, such an agreement must be in writing to be enforceable.
But the Statute of Frauds is a defense that a promisor may waive. The uncle's post-performance letter acknowledged both the nephew's full compliance and the $5,000 obligation, and thus could be treated as a waiver of the statute's protection.
Moreover, the complaint did not show on its face that the Statute of Frauds barred the agreement. The defendant therefore had to raise the defense in the answer, but did not do so.
Issue #3
Whether the uncle's letter and the nephew's assent created a trust, rather than leaving only an ordinary debtor-creditor relationship barred by limitations.
Holding
Yes. The uncle's acknowledgment that the money had been set aside for the nephew, coupled with his promise not to interfere with it and the nephew's assent, created a valid trust.
Reasoning
If the parties had remained merely debtor and creditor, an action on the original $5,000 debt would have been barred by the Statute of Limitations. The decisive question was therefore whether the uncle had assumed a separate fiduciary obligation to hold the nephew's money for him.
No technical words are required to create a trust. A trust arises when the language and surrounding circumstances clearly show an intent that identified property be held for an identified beneficiary on stated terms.
The uncle's letter did more than defer payment of an ordinary debt. He said that the money had been in the bank for the nephew when he turned twenty-one, that it was money the nephew had earned, that he would not interfere with it, and that it would remain on interest until the nephew could take care of it. Those statements showed that the uncle had set the fund apart for the nephew and would hold it on his behalf.
The nephew accepted that arrangement. Because the uncle's declaration was founded on the already valid and valuable consideration supplied by the nephew's performance, the uncle became trustee of the fund. The plaintiff, as assignee of the beneficiary's interest, could therefore recover.