Currie v Misa (1875) LR 10 Ex 153 (Exch Ch)

Facts

• Mr. Lizardi, a merchant, sold bills of exchange to the defendant, Mr. Misa, with payment due the next day.
• Lizardi was indebted to Glyn, Mills, Currie & Co. (C), the claimant bank.
• Lizardi directed Misa to pay the debt owed for the bills directly to C instead of to himself.
• Misa issued a cheque to C per Lizardi’s instructions.
• Upon learning of Lizardi’s severe debts and financial instability, Misa instructed his bank not to honor the cheque.
• C sought to claim the sum of the cheque from Misa, asserting a valid contract existed.
• Misa contested this, arguing the absence of consideration from Lizardi for the payment.
• The dispute focused on whether sufficient consideration existed to support C’s claim against Misa.

Issues

1. Whether the discharge of an existing debt from Misa to Lizardi constituted sufficient consideration for Misa’s payment of the cheque to C.
2. Whether instructing the payment of a pre-existing debt to a third party can satisfy the requirement of consideration for a valid contract.
3. Whether the arrangement to pay C provided a benefit or detriment necessary to form a binding obligation.

Decision

• The Court held in favor of the claimant bank, C, finding that sufficient consideration was present.
• It was determined that a valuable consideration may consist of a right, interest, profit, benefit accruing to one party, or a forbearance, detriment, loss, or responsibility undertaken by the other.
• The instruction for Misa to pay C resulted in the discharge of Lizardi’s debt to the bank, which constituted sufficient consideration.
• By taking the cheque, the bank’s legal position altered, entitling it to the sum.
• The discharge of Lizardi’s debt was deemed a benefit and a sufficient change of position, fulfilling the requirements for consideration.

Legal Principles

• Consideration in contract law requires either a benefit to the promisor or a detriment to the promisee, and must be sufficient, though not necessarily adequate.
• The discharge of an existing debt can be valid consideration if it alters the parties’ legal relations.
• The payment of a pre-existing debt to a third party on the creditor’s direction constitutes valid consideration.
• Consideration distinguishes enforceable contracts from non-binding agreements.
• The sufficiency of consideration depends on an alteration in legal position or benefit/detriment flowing from the transaction.

Conclusion

Currie v Misa established a definitive test for consideration, confirming that the discharge of a pre-existing debt can constitute valid consideration if it results in a legal benefit or detriment, thereby supporting the enforceability of contracts where the parties’ legal positions are altered.