CONTENTS

1.0        Introduction

2.0       Objectives

• Main Content
• Definition of Consideration
• Types of Consideration
• Rules Governing Consideration
• Further rules of Consideration
• Critique Performance of existing Duties
• New Approaches to Consideration
• Common Law, Equity: Accord and Satisfaction

 

  4.0       Conclusion

5.0       Summary

6.0       Tutor Marked Assignment

7.0       References/Further Readings

 

INTRODUCTION

A Contract  is  a bargain and  except  it  is  under  seal,  it  must  contain element  of   quid quo pro (meaning something  in return for something else)  this  element  of  bargain  is  a  valuable  consideration   and   the principle   factor   that   guides   the  court in deciding whether there  is mutuality  of  exchange,  which  is  legally enforceable. Consideration gives to a bargain the “badge of enforceability .  It  is therefore a concept of utmost importance in the study of law of contract.

OBJECTIVES

When you shall have read this unit, you should be able to:

• Define the term “Consideration”
• Demonstrate a good knowledge of the element of the concept and significance of consideration
• State the types/classes of consideration
• Distinguish past consideration

MAIN CONTENT

• Meaning Of Consideration

Consideration is very essential in the formation of any contract. It is “quid quo pro” meaning “something for something” thus conveying an idea of reciprocal interaction. In any contract there must be mutual promises each of the promises consisting a consideration for the other. A promise cannot be a consideration for another promise unless it is either a detriment to the plaintiff or a benefit to the defendant as was held in Currie v. Misa (1875) L.R. 10 Ex. 153. The contract is, therefore, concluded as soon as the promises have been exchanged.

Consideration is the price at which the defendant’s promise is bought. Therefore the plaintiff who is suing on a promise made by the defendant must show or prove that he himself has paid a price, that is, he gave something in return. As a general rule, once a party has given reliable consideration, he can enforce the contract. There are, however, some exceptions to the rule:

1. Where the plaintiff is under a public duty imposed by law
2. Where the plaintiff is bound by an existing contractual duty to the defendant; and,
3. The rule in Pinnel’s Case (1602) 5 Co. Rep. 117(a) dealing with non-furnishing of consideration in a transaction that makes part payment of a debt a full settlement of the

        Types Of Consideration

Consideration may be executed or exe3cutory. Consideration is executed where one party performs as act in fulfillment of a promise made by the other.

The examples of reward cases are instance, in a unilateral contracts, Ade offers a reward of N100, 000 to anyone who provides certain information or that he will walk from Ibadan to Maiduguri or if he finds a lost dog, or if he produces the killer of Minister assassinated. In order words, one person promises to pay the other a sum of money if the other will do or forebear to do something without making promise.

Consideration is executor where there is an exchange of promises to perform acts in the future. For instance, in a bilateral contract, Ade promises to deliver goods to Bunus at a future date and Bunus promises to pay on delivery. Executory consideration happens quite often in commercial transaction where delivery and payment are to be made in future. Both parties become bound prior to contract performances. In executor contract, the exchange of promises that constitutes the contract as the whole transactions is in future.

However, in executed contract as illustrated by reward cases, the finder of these goods is taken to have accepted the offer as well as furnish considerations by the single act

returning the goods to the offeror. In this case; liability is outstanding on the side of the offeror.

        Rules Governing Consideration

1. Consideration must be sufficient but need not to adequate: This means that there is no need for a counter promise to be equal to or near that of the promise of the other party. Sufficiency means something that is real and of value although an insufficient consideration cannot support a contract. Consideration will not be sufficient if it is vague and incapable of performance, illegal or merely “good” for example, out of natural love and affection. In Stilk v. Myrick (1809) 2 Camp. 319, the captain of a ship promised his crew the wages of two of the deserters. The captain did not fulfill his promise and the crew sued. It was held that there was no consideration bt the crew as they were already contractually bound to do such extra job. Similarly, in Thomas (1842) 2 Q.B. 851 where a woman paid one pound sterling to her husband’s executors as rent in fulfillment of her husband’s wish, it was held that the amount was sufficient a consideration, its inadequacy notwithstanding.

       2.Consideration must not be illegal, immoral, or contrary to public policy:

Illegality

Abayomi promises Babalade N1000 in consideration of Babalade killing Abayomi’s enemy, that is, Christopher. Babalade kills Christopher and then sues Abayomi for the money. Babalade’s action will fail because the consideration he gave was illegal. See the case of Chief A.N. Onyuike v. G.E. Okeke (1976) All NLR 148 where there was a contract in which the price of the goods that was delivered to the defendant was to have been paid in the currency of the Republic of Biafra which the Federal Government of Nigeria had declared as an illegal rebel enclave.

Immorality

Achuka agrees to have illicit sexual intercourse with Bareta who promises to pay her N20 in return. Achuka does her part of the agreement and sues Bareta for the N20. Ahuka’s action will fail because the consideration she gave was sexually immoral.

Public Policy

Shehu promises to pay N5000 to Babayaro if Babayaro will influence Justice Alhaji to dismiss a criminal case pending before Justice Alhaji. Babayaro performs his part and sues Shehu for the money. The action will fail because Babayaro’s consideration for Shehu’s promise is contrary to public policy.

   3.Consideration must move from the promisee to the promisor: The promisee is the person to whom the promise has been made. The general rule is that the plaintiff who is suing for a breach of contract must show that it is he who has offered consideration. For instance, where Ade says to Bayo, “I will put N5000 in your business which is being presently run at loss if Ayo does the same.” Ayo provided N5000 and Ade fails. Bayo cannot successfully sue Ade because the consideration has not moved from Bayo but from Ayo. Also Bayo but to Ayo.

In Tweddle v. Akinson (1861) I B & S 393, T’s father and a would be father-in-law. William Guy agreed between themselves respectively to pay T 1000 pounds sterling and 200 pounds sterling on his marriage. The marriage took place but William Guy did not pay 200 pound sterling and later died. T then sued Guy’s executors for the amount. It was held that his action must fail because he did not give consideration.

4. Consideration must be executory, executed but must not past:

1. Executory Consideration

Consideration is executory when the consists of a promise for another promise to be performed in the future. Examples include an engagement to marry and agreement for sale of goods on credit. It is essentially bilateral in form. For instance, where John promises to deliver goods tomorrow and James promises to pay upon delivery, the consideration of both parties is executor.

       ii. Executed Consideration

This happens when the bargain consists of a promise in return for an act in which case the contract is concluded when the offeree has concluded the act. Here there is only one promise to be enforced and the consideration is said to be executed. This type of contract is said to be unilateral since the liability is outstanding on only one side. Such promises are for future performances. John promised to marry Jane, Jane promised to run the offer of a reward for a lost dog, the return of the dog by the finder is the consideration which is executed leaving the offeror to fulfill his own promise. Finally, John receives N10, 000.00 from James in exchange for which James promised to deliver the goods ordered and paid for by tomorrow. James consideration is executed while John’s consideration is executor.

       iii. Past Consideration

If a party makes a promise to another because that party has in the past performed some service for him, the past act and the new promise are two separated transactions and not a consideration as such; consequently, the past services is called past consideration and it is not an enforceable consideration. The general rule is that past consideration is no consideration at all. See further, the following cases: Re-McArdle (1951) Ch. 669, and U.T.C. Ltd. V. Hauri (1946) 6 WACA 148, dealing with promise of employee not to work for rival or former employer. Moreover, in Roscorla v. Thomas (1842) 3 Q.B. 234, a Horse was bought and paid for. The buyer asked whether it was free from vice or not. The horse was vicious and plaintiff sued. It was a past consideration and thus unenforceable.

In Re-McArdle (supra), children were entitled to inheritance of house after their mother’s death. One of them and his wife lived with their mother in her life time. His wife spent money on some improvements on the building. Later all the children agreed in writing to pay the wife £488 for the improvement, it was held that the consideration was past and not binding.

However, past consideration may be valid under the following circumstances:

1. Where the past act was ordered by the promisor,
2. It must have been understood that payment would be made for the services rendered; and

• Where there is promissory estoppels

1. Statutory exception under section 27 of the Bills of Exchange Act which states that valuable consideration may be constituted by an antecedent debt or

SELF ASSESSMENT EXERCISE 2

1. Past consideration is not consideration. Discuss with references to decided cases
2. Discuss the rules governing to

 

Critique Of Performance Of Existing Duties

There can be no consideration when a person promises to perform what is an existing public duty or  obligation,  although  the  courts  are  notalways  consistent  on  this  point:  Ward  V   Byham (1857) 1 WLR 496.   There, Byham’s promise to pay support for his lover’s illegitimate child was upheld even though he had an obligation at law (under the English National Assistance  Act,  1948)  to do  so;  the  promise  he  made was consideration, and furthermore, the mother had promised that in return for the allowance she would look after the child.

Consideration can also be found in a promise to perform a duty which is already owed under a contract  to  the same promisee.  If B  is already contracted to perform   something for A, and A promises something more if B will perform that promise or repeat the promise, then the price for As further  promise  is  B’s  promise  or performance of an act B was already obliged to do. However, some of the older cases conflict on this point: Hartley V Ponsonby (1857) 7 E & B 872. In this  case,  the  captain of a ship promised its crew members additional wages to sail home as the vessel was undermanned as the result  of deserters who ‘jumped ship’.  This promise was  upheld as the seamen had ‘gone beyond the call of duty’ by manning an unseaworthy ship. In Stilk V Myrick  (1809) 2 Camp. 317 in  not dissimilar circumstances,  the  captain promised to divide the deserters’ wages  among  those who  remained on board  to sail home. Here the promise was not held enforceable  as  there  was  no  consideration:  the remaining  crew members  were  merely  performing  what   they  were obliged to do.

SELF ASSESSMENT EXERCISE

Distinguish between a ‘promise’ and ‘performance’ of  a  promise  by reference to decided  cases. But  if  A  sells  a  car   to  B  and   after   the   transaction   is   complete,  A promises   B to replace the tyres with  new  ones,  then  B  cannot successfully sue A for breaking the  promise.  A’s second promise is not part  of  the  original  bargain.  Note  that  the   rule regarding past consideration is not applicable to holders for value of cheques and bills of exchange, an important aspect of commercial law which is not examined in this course.

2. Distinguish the followings cases
   • Stilk V Myrick (1809) 2 Camp. 317
   • Hartley V Ponsonby (1857) 7 E & B 872

  New Approaches To Consideration

Although  these  underlying  principles  of  consideration   remain   at   the essence of   the law of contract and have been tested over the years by judicial precedent, you will appreciate from Stilk V Myrick (supra) that  the law is not  necessarily as consistent  as an idealist would like. One of these principles is that the parties to a contract must be under some obligation to pay and perform (consideration), and in some cases endorse what appears  to be a  ‘bending of  the  rules’.  To illustrate this, we give one example  the case of Central Property Trust Ltd. V. High Trees House Ltd (1947) KB 130  134. Study this case carefully and you will see that,  it  challenge  the  more conventional approach to consideration. In so doing, it may ultimately have widespread application in the conduct of some business situations.

In Williams V. Roffey Bros and Nicholls (Contractors), Williams, the sub-contracting carpenter on a block of flats being built by Roffey Bros., convinced them that they should pay him an additional sum of money for work he was already obliged to carry out. Williams was in financial difficulty but significantly, Roffey Bros. faced a penalty if they did not complete the project on time. This was crucial to the Court of Appeal’s decision to order the contractor to pay Williams the additional money when they refused to do so. In other words, it was a benefit to Roffey Bros. to have the contract completed on time.

Also significant to this ruling is the fact that the court could find no evidence of  economic duress or fraud in the parties’ business dealings. Therefore consideration was established   by   the   benefit   received   by Roffey   Bros.   in   meeting   their contractual  obligations   and   thereby avoiding a financial penalty.  This was balanced by their promise to pay Williams an additional sum to complete his work on time.We now  turn  to  an  interesting  example  of  how  a   well-established common law principle – in this case, consideration – can be modified by equity and create something known as ‘promissory estoppel’. We have covered this particular topic in some detail as it will provide you with some insight into how our law develops over the years.

 Common Law And Equity: Accord And Satisfaction

Carefully consider the  judges’ ruling  in  the  Williams case  before you examine the High Tree case which we referred to earlier. Consider this well-established common law concept: that the payment of a smaller sum for a larger debt does not amount to a discharge of the difference between what was paid and the amount still owing. Read Pinnel’s case (1602), 5 Co. Rep. 117a which outlines this concept. Pinnel sued a man called Coe for what  amounts to  about  $1,000  at  present  exchange   rates,   due   on November 11, 1600. Coe   fought the case on the grounds that Pinnel had accepted $650 as ‘full payment’ of the debt on October 1.  Although Pinnel succeeded on a technicality, the case established  two principles:

1. Payment of a lesser sum (for a larger amount) on the date it is due does not discharge the debtor’s obligation to pay the full Payment at  the creditor’s request  of a  lesser amount   before   the due   date   is  good  consideration  for  the   creditor’s   promise   to receive early payment (though   less than he/she is due) as this is a benefit to him/her balanced against the corresponding detriment of the debtor to pay earlier than he/she was obliged. Although the  first principle above was criticized (at  least  one  reason being  that  it  was not  entirely  fair to  the debtor),  the House of  Lords approved  it  in   Foakes V Beer,   (1884) 9 App. Cas. 605. Accordingly the common law doctrine via Pinnel’s Case of ‘accord and satisfaction’ established the following: if A owes B N1,  000  and  B  agrees  to  discharge A’s obligation by accepting N650 then A must:

1. obtain the agreement (‘accord’) of B;
2. provide B   with   some   consideration   (‘satisfaction’)   for relinquishing his/her right to full payment of N1,000, unless such a release is under seal. In practical terms, as the years passed, the application of the somewhat inflexible rule of Pinnel’s Case meant that it could be relaxed on certain occasions:

• When debtor and creditor are  disputing  the  sum owed:  if  the creditor accepts a  lesser amount, then the debt is
• When the  manner  or  terms  of  payment  are  changed  from   the  original   obligation  by  way  of  ‘substituted   performance’;   say,payment of a pen for a  monetary debt or payment of a Nigeria Naira loan. The rational here is that it may be difficult to assess the true value of what is being given in substituted performance for the original
• Paying a smaller amount before the larger amount  is  due  (the second ‘arm’ in Pinnel’s Case).
• Where several creditors agree that their collective debt could be paid off on the basis of, say, 60 kobo in the N1.00, this is good discharge. Although clearly, payment of a  smaller sum, the consideration is the joint agreement between creditors and debtor the former will not exercise their full rights to recover the debt.

• Payment of a smaller debt by a third party (not the debtor) is a good discharge: Welby

1. Drake (1825) 1 C. & P. 557 N.P.A final comment on ‘substituted performance’: In Goddard V. O’ Brien (1882) QBD 37 the court had  ruled  that   payment   by cheque (as distinct from cash) for a lesser amount was a good discharge of the debt (possibly because not  everyone had a bank account  in  those  days).  This  was generally   accepted as the law until 1965 when Lord Denning declared in D & C Builders Ltd V. Ress, (1965) All ER 837 There the plaintiffs did some renovation and reconstruction work for the defendants. The agreed fee was 482 pounds. After completion of the work, and fully aware that the plaintiffs were desperate for funds, the defendants offered to pay 300 pounds in full discharge of the debt, or nothing. In desperation, the plaintiffs were desperate for funds, the defendants offered to pay 300 pounds in full discharge of the debt, or nothing. In desperation, the plaintiffs accepted. The defendants paid by cheque, and as soon as they cashed it, the plaintiffs brought an action to recover the balance of 182 pounds. The defendants relied on earlier decisions that payment of a smaller sum by a negotiable instrument in discharge of a larger sum was a valid exception to the rule in Pinnel’s case. The court dismissed this argument and held the defendants laible to pay the balance of the debt.

CONCLUSION

In  this unit  you have considered a fundamental  element  of contract  – consideration. We have demonstrated its essential elements  and significance,  certain  important decided  case  have  been  indicated   to guide you as to what behavior the courts are likely to accept or refuse as valid consideration. The incidence of past consideration has also been alluded to, the importance of which cannot be sufficiently stressed. You will be better of if you read it again before you proceed further.  You are advised  to  attempt   the self Assessment Exercises and Tutor marked Assignment.

SUMMARY

Consideration in its widest sense is the reason, motive, or inducement by which a man is moved to bind himself by an agreement.  It is not for nothing  that  he consents  to  impose an obligation upon himself or to abandon or transfer a right. It is  in  consideration if such and such a fact that he agrees to bear new burdens or to forgo the benefits which the law already allows  him.  The concern of  the  law   is   that   each party  to a contract  obtains  what  he/she  bargained  for.  Consideration  may  be  positive  or  negative,  executory  or  executed.  It must   be   valuable, sufficient. Real and genuine, lawful, and must not be past. 

  TUTOR MARKED ASSIGNMENT

• Distinguish between a “promise” and “performance” of a promise by reference to decided case
• Explain the term promissory estoppel
• Distinguish Executed and Executory consideration
• Is past Consideration a consideration in Law? Explain

REFERENCES/FURTHER READINGS

BELL, MALCOLIN W: The Law of Contract: Elements and Terms in Corporate Law. The Open University of Hong Kong 2001

BLACK’S LAW DICTIONARY 7th Ed.

CURZON. B Dictionary of Law 3rd Ed.

FOGAN. P. Law of Contract malthouse Press Ltd. Lagos 1997.

OYAKCHIROMEN & ANOR: Compendium of Business Law in Nigeria, 2004

MACMILLAN C. & STORE R: Elements of the law of Contract Univ. Glondon Extenal Programme, 2003

T.O.DADA, General Principles of Law, 3^rd Ed., Published by T.O. Dada & Co. Lagos 2006

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

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)