CONTENTS

1.0       Introduction

2.0       Objectives

• Main Content
• Freedom of Contract
• The Concept of Bargain
  • Unequal Bargaining Power
  • Unconsciousable Bargains
• Formation of a Valid Contract

4.0       Conclusion

5.0       Summary

6.0       Tutor-Marked Assignment

7.0       References/Further Readings

INTRODUCTION

An agreement between parties for exchange of promises or performances. A bargain is not necessarily a contract because the consideration may be insufficient or the transaction may be illegal.

OBJECTIVES

At the end of this unit , you should be able to:

• Understand the meaning of bargain
• The importance of bargain 
• MAIN CONTENT

• Freedom of Contract

The philosophy of individualism existed in English since 18^th century and this was adopted in Nigeria. The freedom to enter into contract got an express approval in the Supreme Court case of Merchant Bank Nigeria Ltd. v. Adalma Tanker (1990) 5 NWLR (pt. 153)747 CA, here the court said that the parties are bound by their agreements and the court will not rewrite the contract for the parties. The principle of freedom of contract was reinforced by Cohen who said: 

The view that in an ideally desirable system of law, all obligations would arise only out of the will of the individual contracting freely, rest not only the will theory of contract but also in the political doctrine that all restraint is evil and the government is best which governs least N.J Dion 1932 46 Harvard Law Review 558.

The law of contract is the basis of all economic activities in a modern society. The concept is that the terms should be left to be determined by the parties, less regulated by statutes or courts, except to protect the weak and young from exploitation.

An  eminent  judge,  Sir  George   Jessel  MR.,   expressed   ‘freedom  of contract’ in   this way:

“If there is one thing which more than another, public policy requires, it is that men  of  full  age  and  competent  understanding   shall   have   the utmost   liberty of contracting, and that contracts, when entered into freely and  voluntarily, shall be held sacred and shall be enforced by Courts of Justice”.

One may ask how valid this is today in the hurly barley of Nigeria’s commercial environment. It can now be argued that this lofty and entirely commendable ideal has been gradually eroded over the years in the face of the onslaught of an increasingly commercial, complex world.

Freedom of contract is workable only if the parties to a potential contract have equal bargaining power; failing that, the concept, is indeed a myth.  We have already  mentioned the bargaining power an average individual has – or lacks – when negotiating a line of credit with a bank.   Later, we study some cases in which the inherent power of  a major financial institution is abused to the detriment of the individual. 

At appropriate time in the course, references are made to enactments, which have incorporated into  them  both  common  law  and  statutory provisions which imply certain terms designed to protect the individual:

The Sale of Goods Laws and The Companies and Allied Matters Act (CAMA), 1990 to name a few. Later, we will study in more details this important concept of terms which are frequently ‘implied’ at common law, as well as those which have been expressly incorporated into the statute.

The Concept of Bargain

A bargain is an agreement of two or more persons to exchange promises, or to exchange promise for a performance. Thus defined, ‘bargain’ as narrower than ‘agreement’ in that it is not applicable to all agreement, and broader than ‘contract’, since it includes a promise given in exchange for insufficient consideration. It also covers transactions which the law refuses to recognize as contracts because of illegality.” 

The basis of the common law of contract, is bargain and a person who wishes to enforce a given contract must show that he or she has given consideration. In other words, to enforce a broken promise made by B to A, A must show that he or she has paid some price for that broken promise. This is the essence of consideration. Consideration, has been defined as follows: a valuable consideration in the sense of the Law may consist either in ‘Some right, interest, profit or benefit accruing to one party, or some forbearance,  detriment,  loss   or   responsibility   given,   suffered   or undertaken by   the other’: Currie V. Misa (1875) L.R. 10 Exch. 153. In practical terms, a unilateral or ‘one-way’ promise (‘I promise to pay you N500,000 on your next birthday’) is not binding on the promisor unless that promise has been given  some  form  of consideration. Consideration may be either:

1. Positive: e.g. Promise to give, to pay, to do….., or
2. Negative: to e.g. promise not to do something one is entitled to do; to suffer a forbearance or loss. An act or forbearance of one party or the promise thereof is the price for which the promise of the other is bought and the promise thus given for value is enforceable: Dunlop Pneumatic Tyre Co ltd V. Selfridge & Co Ltd (1915) A.C. 847. For the purposes of illustrating this important concept, we will ignore the fact that certain promises made under a deed – and signed, sealed and delivered – do not require consideration in the strict Currie V Misa (supra). The principle stated above is  relatively  easy  to  understand  but   its practical   application,   based   on   past   cases on the subject, can raise difficulties. Sometimes a court will enforce a promise unsupported by consideration, which the promisee has relied on and has acted on to his/her detriment. (See promissory estoppel, later). That said, the common law principle surrounding the doctrine of consideration can be broadly stated.

Unequal Bargaining Power

It is an equitable concept  and  can  arise  in  cases  involving  economic duress. The  mere fact that unequal bargaining power exists between the parties (an everyday occurrence!) is not, in itself, sufficient grounds for treating a contract made under those conditions as voidable. In this case, it was stated that, Equity will not relieve  a party from a contract on the ground only that there is contractual imbalance not amounting to unconscionable dealing.

You will appreciate how uncertain this area of law is when you consider that Lord Denning in Bundy stated, among other things, that duress of goods, unconscionable contracts, undue influence and undue pressure all have a single thread that rests on inequality of bargaining power.

He felt that they should be united in a single concept. Unfortunately, the House of Lords did not agree with him and, in the National Westminster Bank case v. Morgan (1985) 1 All ER 191, stated that  although  unequal  bargaining  power  could  be  a relevant feature in some cases of undue  influence,  there was no need  in contract  law  to,  'erect  a general principle of relief against inequality of bargaining power.

Unconscionable Bargains

This is a mystery factor and has only been fleetingly referred to by legal writers over the years. However, as you have learned thus far, there are many contractual situations in which there is unequal bargaining power which can potentially give rise to unconscionable (unfair or oppressive) conduct. 

As you have seen, unconscionable conduct was considered, but not found, in the solicitor/client relationship in the  Westmelton  (Vie)  Pty Ltd case. Although  there  is,  at the present time, no general principle of English  law  in  this  area  has  been developed in Australia, Canada and New Zealand and 'the following general  observations can be made. 

Statutory Considerations

The House of Lords in  the  National Westminster  Bank  (supra)  case, indicated  that  the question  of  inequality  of  bargaining  power  was  a legislative  task.  If  a  party  can show a contract is 'unconscionable' — which is not defined — remedies  are available. For example, the court may refuse to enforce it,  eliminate  the  'unconscionable' part and enforce the  remainder,  or  alter  or  limit  any  such  part  which is deemed unconscionable.

Although 'unconscionable' is not defined, certain considerations will be relevant in attempting to establish that the other party's conduct was  such  that  it  is  unquestionable:

• the relative bargaining positions of the parties;
• where conditions    have    been    imposed  which    are    not    in    the legitimate interests of one of the parties;
• whether the consumer understood the content of the documents;
• whether any undue influence, pressure or unfair tactics were used against the consumer;
• whether or  not  under  the  circumstances    the consumer could have acquired identical or equivalent goods or services from another

It has to be  admitted  that  this  is  an uncertain  area  of  law that needs  some increase  of consistence in approach. To show that unconscionable conduct has induced a party to enter the contract, such onus or responsibility lies with that party. This is quite the reverse from a situation involving undue influence in which the 'stronger' party has the task of rebutting the presumption. The inherent problems in proving that the  consumer  has  been the subject of unconscionable conduct may also prove difficult and potentially deprive him of any remedy.

Formation Of A Valid Contract

The main requirement of a valid contract are as follows:

1. There must be an offer
2. There must be an acceptance

c          There must the contract must be consideration

1. Parties must have full contractual capacity
2. There must be an intention to create legal relations

See further the elements of a valid contract in Anwasi v. Chabasaya; Omidiji v. F.M.B. (2001) 6 NWLR (pt 731) 408 C.A. and Nwaigwe v. Transproject (Nig.) Ltd. (2000) 8 NWLR (pt 669) 364 C.A 

• Forms Of Contract

Contracts supported by consideration are essentially expected to be in writing. It is, however, important to note that a contract may also be oral or implied and yet be binding on the parties depending on the peculiar circumstances. The fact remains that a contract may not be taken as being invalid nor enforceable for the mere fact that it is not in a written form. The court would normally not assist any person who was lured into an oral agreement. Writing merely facility fact that interpretation or proving of the term of the contract or else it may fact that necessary. There are some exceptions,

• Contracts that must be in writing
  1. transfer of shares in a public company
  2. marine insurance

• hire purchase agreements

1. bills of exchange
2. promissory

The legal consequence of any non-compliance with the prescription is that such a  contract shall be void and of no effect.

• Contracts which must be evidenced in writing

1. contracts of guarantee (under section 4 of the Statute of Fraud)
2. Contracts for the sale of an interest in land

The legal consequence of non-compliance with this requirement is that such contracts shall not be enforceable at law though they may not be necessarily void as such.

 CONCLUSION

The essence of bargain is to establish the terms of a sale or exchange of goods and services between parties. Through bargain, an agreement between parties fixing obligations that each promise to carry out is reached.

  SUMMARY

We have learnt what is freedom of contract .We have also studied the concept of bargain and what formation of contract entails. However, take a break, tackle these questions and move on.

TUTOR-MARKED ASSIGNMENT

1. Wilberforce operates a computer consultancy firm and installs a 'state of the art' system in the offices of Shady Properties Ltd (SPL), for a contract price of  2  million.  The  quality  of  his system  is  not  disputed  by Managing Director  of SPL,  but when Wilberforce submits his statement of account, he receives a letter from the financial officer enclosing a cheque for N800,000 in 'full satisfaction'.

Poor  Wilberforce  already  had  18  creditors  chasing  him  and   is   in financial   trouble. He explains this to Managing Director SPL who says, 'that's your problem, N800,000 is better than nothing', and, in addition, insists  upon  a  receipt  for  'completion of the account', to which Bill agrees.

He later consults you as to whether or not he can recover his balance of N400,000. Outline the arguments that will be presented  by  SPL  and Wilberforce, and indicate  what you think the courts would decide.

2. Your  friend has  negotiated  a mortgage with Friendly   Bank, to purchase a flat   in the FCT. Six weeks later, he is having  lunch  with  a  lawyer  friend   who   studies  the mortgage document he happens to have  in  his  briefcase. 'You're mad  to have  signed that' the lawyer  exclaims,  'it's  an  unconscionable  transaction  and  should clearly be set aside. Big banks should  not  take  advantage  of  little guys like  you'.  Your  friend  cannot  afford  to  pay  the  lawyer's hourly  rate  for advice, so he arrives   in your office, where he knows the fees will be more reasonable.

How do you advise him?

1. In the Bundy case,  the  court  held,  among  other  things,  that  the guarantees  signed by the old man in favour of his son could be set  aside  on  the  basis  of  the Bank's undue influence. If Bundy's lawyers had argued unequal bargaining power between him and the Bank, would it have been successful?

 REFERENCES/FURTHER READINGS

TREITEL, G.H The law of Contract, 12^th ed, London: Sweet and Maxwell (2007)

M.P. FURMSTON, (10th Ed). Law of Contract. Cheshire and FiFoot. 13

ELIAS, T: Law in a Developing Society ELIAS T.: Nigeria Legal System OBILADE: Nigeria Legal System

OLUSEGUN YEROKUN, Modern Law of Contract, 2^nd ed., Nigerian Revenue Project Publishers (2004)

T.O DADA, General Principles of Law, 3^rd ed., T.O. Dada & Co. (2006)

I.E. SAGAY, Nigerian Law of Contract, 2^nd ed., Spectrum Law Publishing (2001)

EWAN MACINTYRE, Business Law, 1^st ed., Pearson Education Limited (2008)