Consideration can consist of both benefit gained by the promisor and or detriment suffered by the promisee
As such, the discharge of a debt owed by the party A to party B can constitute valid consideration from party B to party A
Facts
Mr Misa, the defendant (D), purchased bills of exchange (debt instruments similar to bonds) from a merchant Mr Lizardi
Lizardi directed D to make payment for the bills of exchange to the claimant bank, Glyn, Mills, Currie, & Co. (C), to which Lizardi was indebted, instead of Lizardi himself
D made payment by cheque to C as directed by Lizardi
However, shortly after, D learnt of Lizardi’s large outstanding debts to C and failure to make payment on those debts, which suggested that Lizardi would not be able to make future payment on the bills of exchange
D instructed his bankers not to honour the cheque to C
C claimed against D for the sum of the cheque on the basis that there was a valid contract between Lizardi and D
For context, if there were a valid contract between Lizardi and D, then C would have good title to the cheque, since Lizardi would have good title to the cheque pursuant to the contract and he will be entitled to direct payment to C instead of himself
D argued that there was no valid contract between himself and Lizardi as there was no consideration advanced by Lizardi for the payment of the cheque
Issue
Whether the discharge of the debt for the payment owed by D to Lizardi for the bills of exchange constituted sufficient consideration for the cheque
Held (Court of Exchequer Chamber)
C’s claim succeeded, there was a valid contract between Lizardi and D as the discharge of an existing debt was valid consideration
Lush J
“A valuable consideration is a sense of law which may consist either in some right, interest, profit or benefit occurring to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other”
“It cannot, we think, be said that a creditor who takes a cheque on account of a debt due to him, and pays it into his banker that it might be presented in the usual course instead of getting it cashed immediately, does not alter his position, and may not be greatly prejudiced if his title could then be questioned, or that the debtor does not, or may not, gain a benefit by the holding over.”
