Consideration in contract

Consideration in contract: Definition of Consideration & Much More

CONSIDERATION IN CONTRACT

For a party to be entitled to bring an action on an agreement, he must demonstrate that he contributed to the agreement. It is this contribution that is called consideration.
A more comprehensive definition of consideration was given by Lush J in (Currie v Misa). – Consideration in contract

“valuable consideration in the eye of the law may consist either in some rights, interests, profits, benefits accruing to one party, or some forbearance, responsibility or loss suffered or undertaken by the other. Thus, consideration does not only consist of profit by one party but also exists where the other party abandons some legal rights in the present or limits has legal freedom of action in the future as an inducement for the promise of the fort…”

In a simple language, consideration is the price for the contract. It is the advantage one party conforms on the other or the disadvantage he would suffer in exchange for what he would get from that other party.

While emphasizing the importance of consideration the court hold In (Best (Nigeria) Ltd V Blackwood Hodge (Nigeria) Ltd & Ors).

“It is basic that to constitute a binding contract there must be an agreement in which the parties are ad idem on essential terms and conditions thereof. The promise of each parties must be supported by consideration”

In a like manner the court held on (Pada Chabasaya v Joe Anwasi) thus “A contract in which consideration has not been met is one that can be said has been breached and is unenforceable, as consideration is one of the terms of a contract”

A promise which is not supported by consideration cannot be enforced. The party cannot rely on moral obligation to bring an action in court. This was laid down in 1840 in the case of (Eastwood V Kenyan) Eastwood was a guardian to Mrs. Kenyan whilst she was an infant. He had spent a considerable amount of his money in improving her estate and in bringing her up. When she reached maternity she promised to reimburses for his expenses. Her husband also promised to do so independently. When they failed to carry out their promises, he sued them.

The plaintiff relied on the defendant moral obligation to him to fulfill their promises.

The suit was dismissed and moral obligation was rejected as the basis of an action, Natural love and affection also cannot equate consideration. In (Faloughi v Faloughi) the court held thus “Love and affection is not valuable consideration in the eye of the law, as it cannot be quantified in terms of money value”

Rules Governing Consideration

A. CONSIDERATION MUST MOVE FROM THE PROMISEE

Only a person who has furnished consideration in a contract is the one that can bring an action to enforce a promise given by the defendant.
Conversely, a party that has furnished no consideration in a contract cannot bring an action to enforce that contract, else his action will fail for lack of consideration. In other words, the plaintiff must show what he gave in exchange for the promise given to him by the defendant.

Thus, in Tweddle v Atkinson. A couple was getting married. The father of the bride entered an agreement with the father of the groom that they would each pay the couple a sum of money. The father of the bride died without having paid. The father of the son also died and so was unable to sue on the agreement.
The groom made a claim against the executors of the will but the court held that the groom was not a party to the agreement and the consideration did not move from him. Therefore, he was not entitled to enforce the contract.

INSTANCES OF LACK OF CONSIDERATION

i Gratuitous Promise by defendant

A promisor can withdraw his promise at anytime without liability if the promisee has furnished no consideration to the promise that has been made to him, and any attempt to enforce the promise against the promisor will fail for lack of consideration.
The implication of this is that where a party cannot show what he promised or did in exchange for the promise of the other party, it would mean that the other party’s promise was gratuitous and not binding on the promise.

Thus, in (L.A Cardoso v The Execution of the Late J. A Doherty).
The plaintiff obtained various loans from the late Deherty using his properties as collateral for the loan. On his failure to repay the loans, the ownership of the properties passed to Doherty who proceeded to sell them leaving only the one which the plaintiff was living, with a promise that the plaintiff would be permitted to live in it for the rest of his life. Upon the Doherty’s death, the executors of his estate also reaffirmed the promise, but later changed their discussion and made sell the house.

The plaintiff sought a declaration that he was entitled to live on the property for the rest of his life, and an injunction restraining the defendants from selling it.

The West Africa court of Appeal held that the declaration and injunction would be refused on the ground that the plaintiff finished no consideration for the promise.

ii. Non-performance by the Plaintiff
In (BFI Group Corporation v Bureau of Public Enterprise), the court held
“A person seeking to enforce his right under a contractual agreement must show that he has fulfilled all the conditions precedent and that he has performed all those terms which ought to have been performed by him”.
Going by the foregoing, it is the position of the law that he must have furnished consideration to the contract before attempting to enforce it under the law, otherwise, his action will fail.

In the case of (Banks of West Africa v Fagboyegun)
The defendant signed a contract of guarantees which he agreed to guarantee a debt owed by a third party to the bank. The third party could not pay the debt and the defendant repaid part of the debt to the bank. The bank then brought an action to recover the balance of the debt.

The court held that the plaintiff could not recover the balance because it did not furnish consideration for the guarantee. Apparently, the guarantee was made with an exchange of consideration that a further loan would be advanced to the third party but the bank has failed to perform.

iii. Where consideration is furnished by a third party and not the plaintiff
Where the plaintiff is relying on a consideration furnished by a third party, the action will fail and the consideration will be regarded as invalid to the contract.
This principle is a blend of the doctrine of privity of contract and the principle that consideration must move from the promisee to the promisor. By operation of the doctrine of privity of contract, only a party to a contract can of course bring an action to enforce it and the third party is regarded as a stranger to the contract between the plaintiff and the defendant.

Thus, in (Gbadamosi v Mbadiwe), the Action Group gave a loan to the defendant and his party (Democratic Party) in 1959 to fund the party’s contest in the federal elections of that year. The plaintiff who was then the federal treasurer of his party (Action group) sued in his personal capacity rather than in a representative capacity to recover the loan.
The court held that the plaintiff did not furnish any consideration in respect of the loan and so the action failed.

iv. Claim in excess of benefit provided for in an agreement
Where one of the parties to a contract confers an extra reward on the other party after the main contract itself has been concluded, it is assumed that a new contract has emerged which the beneficiary has to furnish consideration to in order to be able to enforce the extra reward.

The promisee cannot rely on the consideration furnished in the initial contract to lay claim to the extra benefit.
The principle was applied (Egware v shell BP petrol Development Co. of Nigeria) The defendant acquired land from the plaintiffs, paying in full for the acquisition of the land. In ancillary to this contract the plaintiff claimed they will allow the defendants to use the land for drilling purposes on the promise that all minor contract jobs would be awarded solely to the plaintiffs.

The court held that the promise could not be enforced against the defendants who had full rights over the land (upon full payment for the land) because the promise was not supported by any consideration from the plaintiff.

B. CONSIDERATION MAY BE EXECUTORY OR EXECUTED

Consideration is executory when the offer  and acceptance consist of promises, i.e. promise against promise. The offeree is making a promise in return for the offeror’s promise. Both parties become bound in the contract prior to actual performance. A contract is constituted by the exchange of promises.

On the other hand, a consideration which initially was executor becomes executed at the pointt where what was promised by a party to the contract has been carried out or fulfilled.
However, in a unilateral contract, a consideration becomes executed when it consists of actual performance in return for an offer.
It is taken that performance of the offeree consists both of acceptance and consideration.

C. CONSIDERATION MUST NOT BE PART

The consideration which the plaintiff is relying on while instituting an action must not be in the past, unless his action will fail subject to certain conditions.
A consideration is considered to be in the part when the act of consideration antedates the promise made by the other party i.e, he has performed the act prior to when the promise was made and was in fact not expecting the promise at all at the time he was performing the purported consideration. Such consideration will be deemed to be invalid.

Thus, in (Akenzua II Oba of Benin V Benin Divisional Council)
The defendant approached the plaintiff to help use his influence to persuade a company to release some forest areas over which the company had exclusive right. The company conceded as a gesture of goodwill. Later on, the plaintiff requested the defendants to release one of the four forest areas secured to him for exclusive, exploitation, and they agreed. They later withdraw their consent and the Oba instituted these proceedings for breach of contract.

The court held that the plaintiff’s consideration was past. His services in securing the release of the forest areas had been done before the defendant resolved to grant him exclusive use of one of the forest areas.

Similarly, in (Re McArdle) a deceased left a house jointly to his children. The wife of one of the children, who was living in the house with her husband spent a lot of money making improvements and carrying out alterations to the house. Later on, the other children jointly signed a document agreeing to pay a sum of money for her expense.

The court held that the promise to make payment was not binding as it was made after the consideration had been performed.
However, there are exceptions to the above principle subject to certain conditions, a past consideration can stand as a valid consideration in the cause of an action.

The exceptions or conditions include the following

  • 1 The act was done at the request of the promisor
  • 2 The parties understood that the act was to be remunerated whether by payment or the conferment of some other benefit.
  • 3 Payment, or the conferment of a benefit must have been legally enforceable had it been promised in advance.

Thus, in (Lamplaigh v Brathwat), the defendant who had killed someone requested the plaintiff to endeavor to obtain a pardon from the king for his offence. The plaintiff managed to get the pardon, in the course of which he spent many days riding and journeying at his own cost across the country to where the king was and back again.
The defendant then promised to pay him 100 pounds for his efforts but failed to pay.

The court grave judgment for the plaintiff holding that there was good consideration as the plaintiff acted upon the defendant’s request. The defendant original request which contained an implied promise to reward the plaintiff for his efforts and the subsequent promise to pay were to be treated as the same transaction.

See also: Termination of offer in contract

However, considering the above case, it would be observed that the exception principle more pronounced is that a mere prior request by the defendant constituted an exception to the principle of past consideration. If this is to be followed, it means the decision of the court on (Akenzua II Oba of Benin v Benin Divisional Council) is questionable as there was the occurrence of prior request too.

This led to the second exception of previous request that the parties must have understood that the act was to be renumerated, whether by payment or the conferment of some other benefits.

Thus in (Stewant v Casey), the defendant managed some patents owned by the plaintiffs. After Casey had worked on the patents for two years and completed most of the work, the plaintiff signed a document promising to award him one third share of the patents. Subsequently, the plaintiff claimed that the defendant was not entitled to the one third share because he furnished no consideration for the promise and if any, it was past.

The court held that the consideration was not past because at the time the defendant rendered the services to the owners of the patent, it was understood that the service would be paid for the work due not in a matter of goodwill but something a manager would have expected to be paid for. The subsequent promise was, therefore the affirmation of an already existing obligation.

4 Manufacturer’s Guarantee

In Commercial Transaction, guarantees are given most times to customers after the customer has bought the goods.
Scientifically following the rule of past consideration, the consideration given by the customer to the promise of guarantee of the manufacturer apparently falls to the part and should be considered invalid.

Nevertheless, it is still considered as valid and enforceable.
v. Application of the Limitation Act Sec 27(1) of the Bill of Exchange Act 1882 provider that valuable consideration for a bill may be constituted by
a. Any consideration sufficient to support a simple contract
b. An antecedent debt or inability

The implication of this is that a party can rely on a previous debt as a consideration to enforce a contract.

d. Consideration need not be adequate, but must be sufficient in law.

Adequacy of Consideration

It is not the business of the court to determine whether what a party is giving as a consideration for a promise is enough or adequate i.e. they do not compare the valves of consideration furnished by the plaintiff with the defendant’s promise because parties have the freedom to contract as they wish. This is what is meant by the ascertion that consideration need not be adequate.

In (BFI Group Corporation v Bureau of Public Enterprise), it was held thus
“Once consideration is of some value in the eye of the law, the courts have no jurisdiction to determine whether it is adequate or not”.
Thus , in (African Petroleum Ltd v Owodunni), the appellant provided accommodation for the respondent which was worth N65,000 per annum at market value but for which the parties agreed that he should be paying N400 per annum.

The court held that there was a consideration regardless of the adequacy or otherwise.
See also (Thomas v Thomas) Indeed, in the observe of any vitiating, such as fraud, duress, undue influence, mistake or misrepresentation, the court will be ready to enforce the contract.

In the presence of any vitiating element if provide the contract will be declared as invalid.

Sufficiency of Consideration

While consideration need not be adequate, it must however have some value in the eye of the law. It must comprise some element which can be regarded as the price of the defendant promise. It must be ascertainable and not vague, useless, unascertainable or meaningless.

Something of Value in the eye of the law it has been unsettled as to what is meant by the expression “something of value in the eye of the law”. No judicial discussion has disclosed any principle that the court use to analyse the term on any certain way.

However, whatever act or promise that is offered as price for the promisor’s promise, it must not be illusory, it must carry some relatives meaning in itself.

Thus, in (Chappell & Co. Limited V Nestle Co. Ltd), the plaintiff owned the copyright of a popular tune which had been made into records. In order to promote the sales of their chocolates, the defendant company bought a large number of the records which they then retailed to the public at I shillings 6 pence plus 3 empty wrappings of their chocolate as against the normal retail price which was 6 shillings 8 pence.

The implication of this is that the royalty of 6.25% which the plaintiff were entitled to on the retail price will now be on the 1 shillings 6 pence and the 3 wrapping. The question therefore was whether the 3 wrappings which had no apparent economic value, formed part of the consideration for the

It was held that the chocolate wrapping form part of the consideration. They formed part of the price for each record as stipulated by the defendant. See also, (Youms v Chidiak).

However, in (White v Bluet) a son’s promise to his father to stop complaining that how the father had distributed his property among his children was held not to be a valid consideration for the father’s promise to discharge him from his debt he owed the father.

From the foregoing cases, it can be deduced that for something to be of value in the eye of the law the promise must show that at the request of the promisor he had parted with something he could have kept or refrained from exercising a right he could have assented.

 

Contributed by: Adedokun Samuel

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