Case Facts
The plaintiffs were a banking firm carrying on business in Lombard Street, London under the name Glyn, Mills, Currie & Co. The defendant, Misa, was a wholesale wine merchant carrying on business in London and at Xerez, near Cadiz, Spain.
On 14 February 1873, Misa drew a cheque for £1,999 3s. on Messrs. Barnetts, Hoares, Hanburys & Lloyd, made payable to F. de Lizardi & Co. or bearer. The cheque was drawn in exchange for four foreign drafts on Cadiz which Lizardi had sold to Misa through a bill broker. Lizardi was at the time heavily indebted to the plaintiffs, with the debt standing at £83,436 13s. 8d. as of 12 February 1873. In an attempt to reduce that debt, Lizardi handed the cheque to the plaintiffs' bank. Shortly before 5 p.m. on 13 February 1873, Lizardi stopped payment, and the plaintiffs ordered their clearing-house clerk not to pay Lizardi's cheques and bills that had been presented for payment that day; all of them were returned unpaid.
The cheque was presented for payment on 14 February 1873 and was dishonoured by the defendant. The plaintiffs, as bearers of the cheque, brought an action to recover £1,999 3s. together with interest.
The case was tried at the London sittings at Guildhall, before Kelly CB. The defendant raised several pleas, including: a denial that the plaintiffs had become bearers of the cheque; an assertion that there had never been any consideration for the making or payment of the cheque; and a further plea that the cheque had been obtained by the fraud of F. de Lizardi & Co. and that the plaintiffs had given no consideration for it.
The Court of Exchequer refused to grant a rule nisi to set aside the verdict entered for the plaintiffs, and to enter a verdict for the defendant or a nonsuit. The defendant appealed to the Exchequer Chamber.
Held
The Exchequer Chamber, by a majority comprising Keating J, Lush J, Quain J, and Archibald J, affirmed the decision of the Court of Exchequer below. Lord Coleridge CJ dissented from the majority judgement.
The majority held that the plaintiffs, as creditors holding a negotiable security given to them on account of a pre-existing debt and received bona fide and without notice of any infirmity of title on the part of Lizardi, had an indefeasible title to the cheque. This principle applied whether the security was payable at a future time or on demand. Accordingly, the plaintiffs were entitled to enforce the cheque against Misa.
The court further held that the pre-existing debt owed by Lizardi to the plaintiffs constituted sufficient consideration to support the plaintiffs' title to the cheque as holders for value. The defendant's plea that no consideration had passed could not succeed in the circumstances.
Ratio Decidendi
The enduring significance of this case lies in the authoritative definition of consideration articulated in the judgement. Lush J set out the classic formulation that has since formed the cornerstone of English 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."
This definition confirms that consideration is not confined to a direct monetary payment or tangible benefit. It encompasses any legally recognised benefit received by one party or any detriment, forbearance, or responsibility undertaken by the other. The definition is bilateral in structure: consideration may flow from either a benefit to the promisor or a detriment to the promisee.
The second limb of the ratio concerns the law of negotiable instruments. The court established that a creditor who receives a negotiable security in respect of a pre-existing debt, acting bona fide and without notice of any defect in the debtor's title, acquires an indefeasible title to that security. The pre-existing debt constitutes sufficient consideration to protect the creditor's position as a holder for value, and the defendant cannot defeat that title by raising a failure of consideration in the underlying transaction.
The definition of consideration from this case continues to be cited as the foundational statement of the doctrine and has been applied and affirmed in numerous subsequent decisions. It is often read alongside Chappell v Nestlé [1960], which confirmed that consideration need not be adequate, and Thomas v Thomas (1842), which distinguished consideration from motive. The principle that a pre-existing debt may constitute good consideration also connects to debates explored in Foakes v Beer [1884] and Pinnel's Case (1602).
Obiter Dicta
Not applicable.