Currie v Misa 11 Feb 1875 LR 10 Exch 153, Ex Ct

A customer stopped a cheque used to buy bills from a seller who then failed. The seller's bank, to whom he was indebted, sued the customer. The court held the bank could recover, establishing that a pre-existing debt constitutes valid consideration.

Facts

Mr Misa sold four bills of exchange to Lizardi & Co., a firm with a strong credit history. Payment was to be made a few days later on the ‘mail day’. Misa duly drew a cheque on his bankers, Messrs. Currie & Co. (the plaintiffs), in favour of Lizardi. At the time, Lizardi was substantially in debt to his banking firm, Currie & Co. Lizardi paid Misa’s cheque into his account with the bank. Before the cheque was presented for payment, news broke that Lizardi & Co. had stopped payment and were in financial collapse. Upon hearing this, Misa instructed his bankers not to honour the cheque. Currie & Co. sued Misa for the amount of the cheque, claiming they were holders for value.

Issues

The central legal issue was whether the bankers, Currie & Co., had given valuable consideration for the cheque. Specifically, the court had to determine if a pre-existing debt (the debt owed by Lizardi to the bank) could constitute sufficient consideration to make the bank a ‘holder for value’ of the cheque, thereby entitling them to enforce it against the drawer, Misa, despite the failure of the underlying transaction between Misa and Lizardi.

Judgment

The Court of Exchequer Chamber, by a majority, affirmed the judgment of the Court of Exchequer in favour of the plaintiffs, Currie & Co. The judgment of the majority was delivered by Lush J., who provided the now-classic definition of consideration in contract law:

A valuable consideration, in the sense of the law, may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility, given, suffered, or undertaken by the other…

The Court held that the bank were holders for value. The existence of the pre-existing debt owed by Lizardi to Currie & Co. was deemed good consideration for the cheque a negotiable security transferred to the bank to be applied to that debt. The Court reasoned that the title of a creditor to a negotiable security given to him on account of a pre-existing debt, and received by him bona fide, is indefeasible whether that security is payable on demand or at a future time. The bank, by accepting the cheque, had implicitly given forbearance to Lizardi, even if only for a short period until the cheque cleared. This forbearance was a detriment to the bank and a benefit to Lizardi, satisfying the definition of consideration.

Dissenting Judgment

Lord Coleridge C.J. delivered a dissenting judgment. He argued that a pre-existing debt, sometimes referred to as ‘past consideration’, is not, in itself, valuable consideration for a subsequent promise or security. In his view, the bankers had not actually given or promised anything new in return for the cheque; they had not agreed to forbear suing Lizardi, nor had they altered their position in any material way upon receiving the cheque. Therefore, he concluded they were not holders for value and could not sue Misa on the cheque.

Implications

The decision in Currie v Misa is a landmark case in English contract law, primarily for its authoritative definition of consideration. It firmly established that, in the context of negotiable instruments like cheques, a pre-existing debt is valid consideration. This principle is crucial for commercial and banking practice, as it provides security to creditors (like banks) who receive such instruments in payment of existing debts. It ensures the negotiability and reliability of cheques in commerce by protecting bona fide holders for value from disputes related to the instrument’s original transaction, as long as they had no notice of any defects.

Verdict: Judgment for the plaintiffs affirmed.

Source: Currie v Misa 11 Feb 1875 LR 10 Exch 153, Ex Ct