FORMATION OF THE CONTRACT OF SALE OF GOODS

 CONTENTS

1.0   Introduction

2.0   Objectives

• Main Content
• Capacity to Buy and Sell
• Offer
• Acceptance
• Consideration
• Creation of Legal Relation
• Conclusion
• Summary
• Tutor Marked Assignment
• Reference/Further

INTRODUCTION

The creation of a contract for the sale of goods is a matter governed by the general principles of contract as they exist either under common law or as modified by statutory provisions. It follows therefore, that a proper grounding on the basic principles of contract is a condition precedent to the appreciation and comprehension of the principles governing the creation of the contract of sale of goods. We shall examine capacity to contract, offer, acceptance, consideration and intention to create legal relation in this unit.

 OBJECTIVES

The basic objective of this unit is to discuss the basic ingredients required for the creation of a valid sale of goods contract. At the end of this unit you should be able to discuss the ingredient required for the formation of a valid contract of sale of goods.

MAIN CONTENTS

CAPACITY TO BUY AND SELL

As required, under the general law governing capacity to enter into a valid contract, both parties to a Sale of Goods contract must have the requisite capacity to enter into the contract. As pointed out in the case of Labinjoh v. Abake (1924) 4 N.L.R. 33, one has, under the general law of this country, to differentiate between the positions under customary law and the “received law”. Generally, the categories of persons whose capacities are usually discussed are infants, married women, insane persons, drunkards, illiterate person and corporations.

Infant: under the Infant Relief Act 1874 and infant Law 1959, an infant is a person under the age of 21 years. The contractual power and liability of an infant is regulated by Common Law and statute. In Labinjoh v. Abake (supra), the plaintiff an adult trader sued a girl of 18years old for the sum of 150 pounds being the balance of the goods sold to the defendant who claim that she is an infant and that the contract is void. The plaintiff contended that the age of majority was the age of puberty. The court held the age of majority in Nigeria is 21years hence the defendant could not be held liable. An infant cannot enter into a valid contractual relationship except for necessaries – Peters v. Fleming (1840) 6 M and W 42, 46 -47. Where a contract is enter into with an infant, the contract is voidable at the instance of the infant. It is however germaine to note the proviso to Section 2 of the Sale of Goods Act 1893, which states that where necessaries are sold and delivered to an infant, or mental incapacitated person or drunkard, such a person must pay a reasonable price for the goods. The proviso to section 2 of the Act defines necessaries as goods suitable to the condition in life of such infant or other person, and to his actual requirements at the time of the sale and delivery.

Unincorporated Association: Unincorporated associations, with the exception of trade union, have no contractual capacity. Thus, cannot enter into contractual relationship or be bound contractually. However, the association can sue or be sued under representative capacity.

Corporations: They are juridical person whose powers are limited to those stated in the memorandum and articles of association. They can sue and be sued. Salomon v. Salomon.

Married Women: Under customary law, married women have contractual disabilities. Under the English law, not until recently, married women had no contractual capacity because husband and wife were seen as one. However, nowadays women are personally liable in any contract they are involved.

Others as identified above include insane persons, drunkards, and illiterate persons.

SELF ASSESSMENT EXERCISE (SAE)ONE

All persons with the power and money to sell and buy goods are eligible to enter into a contract of sale of goods. Discuss.

OFFER

Definition of an Offer

One major requirement of a valid contract is an offer. A valid contract m u s t consist of an offer by one party and  an acceptance by another person to whom the offer is addressed.

What then is offer? An offer may be defined as a definite undertaking or promise, made by one party with the intention that it  shall  become binding on the party making  it as soon as it is accepted by the party to whom it is addressed. The person making the offer is called the offeror, and the person to whom it is  addressed,  the offeree. Thus all commercial transactions being contractual relationships must involve an offer and an acceptance.

Generally, there is no limit to the number of people to  whom  an offer can be made. It is however noteworthy that a contract comes into existence only between the parties, that is, the offeror and the offeree. In the case of CARLILL v. CARBOLIC SMOKE LALL CO. (1893)1 Q.B.253, the court held and established the principle that an offer can be made not only to an individual or to a group of persons, but also to the whole world.

An offer can be made expressly or by conduct (impliedly). For example, a bus stopping at a bus stop implies that the owner of the bus is making an offer to a person waiting of the bus stop. If that person enters the bus, he accepts the offer by his conduct.

However, for a proposition to amount to an offer capable of acceptance, it must satisfy three conditions.

1. It must be definite, certain and unequivocal. In other words, the proposition must be a definite promise with the intention to be bound, provided that certain specified terms are accepted.
2. The proposition must emanate from the person liable to be bound if the terms are accepted by the i.e. from  the  offeror or his authorized agent. A proposition made by a person having no authority to  do  so  purporting  it  to  be  an  offer, cannot create a contract if accepted.
3. The offer must be communicated to the offeree.

FORMS OF OFFER

An offer may be made in many ways and forms.

1. It may be made verbally e  by  word of  mouth in  the presence of each other or by telephone, as well as by telex or telegraphic message or by writing.
2. It may be made by conduct. In this circumstance, the offer and acceptance are deduced from the acts and conduct of the
3. An offer may be either specific or general. It is specific if made to  a definite or particular person, and he alone may accept An offer  is general if addressed to the public or world at large or to a class of persons and it can only be accepted by any person coming within the scope of the offer who had notice of it.

SELF ASSESSMENT EXERCISE 1

1. Define an offer
2. Highlight the various ways by which an offer can be made.
3. State the conditions for a valid offer.

Offer Distinguished from Invitation to Treat

It  is  necessary  to  distinguish  a  true  offer  from   what   is   called an “Invitation to treat”, because very often an invitation to make an offer (i.e an invitation to treat) is confused with an offer. In other words, some problems arise in distinguishing between certain expressions used by the parties which are intended to lead to contractual relationship between them, on the one hand, and  certain other statements made by the parties which are  not intended to lead to any legal consequence.

The importance of the distinction between an offer and  an invitation to treat is that if an offer is made and is then accepted,  the offeror is bound, whereas if what the  offeror  said  or  did  is  not a true offer but  an  invitation  to  treat,  the  other  party  cannot by saying “I accept” bind the offeror to a contract.

The major distinctive feature between an offer and an invitation to treat is that for an offer must be definite, certain and  unequivocal. This means that a proposition to be a true offer, the offeror must have completed his part in the formation of a contract by finally declaring  his  readiness  to undertake  an  obligation upon certain  conditions,  leaving  to  the  offeree the option  of acceptance or refusal.

An invitation to treat, on the other hand, is a preliminary to an offer such expressions or acts of a person to  which  no  legal consequence are intended  to  attach  but  may  only  be  regarded as preliminaries  to  the making of a contract are generally referred to as “offer for an offer”.

The essence of an invitation to treat is that by it the supposed offeror is merely initiating negotiations from which an agreement might or might not in time result. The negotiation crystallizes into a true offer when one of the parties, the offeror, finally resumes a definite position of preparedness to be bound if the other party accepts.

The following situations usually involve invitation to treat.

1. Display of goods in shelves in a shop supermarket with or without price tag, self-service shops, etc. in Fisher v. Bell, the court held the exhibition of a knife in a shop window was merely invitation to treat and not an offer. Also in Pharmaceutical Society  of Great Britain v. Boots Cash Chemist (Southern) Ltd (1952) 2 All E.R.459, the court held that the contract was made, not when the customer put the goods in the basket, but when the casher accepts the offer to buy and received the price.
2. An advertisement of goods in a catalogue.
3. Auction sale
4. Invitations of tender.

SELF ASSESSMENT EXERCISE 2

An offer for offer is the same as offer. Discuss

Communication of an Offer

One major requirement for a true offer is the communication of the offer from the offeror to the offeree. An offer becomes effective only when it has been communicated to the offeree. Consequently, a person cannot accept an offer, the existence of which he has no knowledge. Offer is communicated when the offeree become aware of it. In R v. CLARKE (1927)40 C.L.R. 227, it was held b y Higgins, J. that, this ignorance of the offer is the same thing

‘whether it is due to never hearing of it or to forgetting it after hearing’.

The American case of FITCH v. SNEDAKER (1868)38  N.Y.  248 also approves the principle that a plaintiff cannot accept an offer unless he is aware of it.

SELF ASSESSM ENT EXERCISE 3

How is an offer communicated?

Termination of an Offer

The general  rule in respect  of termination  of an offer is that once  an offer is made, it remains open for acceptance until an event known to law happens to terminate it. Some of these events are:

REVOCATION:- An offer can be revoked  (i.e.  withdrawn)  at any time  before  it  is  accepted.  This  principle  governing revocation remains operative even if the offeror has expressly stipulated that he would keep the offer open for a given period. In such a situation, the offeror can still  exercise  his  right  of revocation even though the time the offer was left open has expired. Thus, in ROUTLEDGE v. GRANT (1824)4 BING. 653,

the defendant, offered to buy the  plaintiff’s  house  for  a certain  sum and allowed the plaintiff six weeks within which to give him a definite answer. However, the defendant withdrew  his offer  before the expiration of six weeks. It was held that the defendant could withdraw the offer at any moment before acceptance, even though the time limited had not expired.

REJECTION:- Rejection of an offer terminates the offer, and makes it incapable of acceptance.

It follows that where an offer has been rejected, it cannot be  accepted subsequently unless a fresh offer is made by the offeror.

Rejection of an offer may occur in two ways namely:

1. By a direct intentional refusal of the offer
2. By a counter offer

Direct intentional refusal of offer occurs for  example  if  Olu  offers to sell a house to Funsho for N5Million and Funsho says,  “No, thank you” Funsho’s rejection puts Olu’s offer to an end. Funsho cannot subsequently accept Olu’s offer, even if Olu had left  his  offer for a fixed period which had not expired.

Counter offer happens when the offeree attempts to accept the offer on new terms, not contained in the offer. However, a counter offer will not occur if what the offeree did was merely  to  make  an  inquiry or request for  information  as  to  certain aspects of the  offer. In other words, a genuine request for further information should not be construed  as a counter offer,  and would therefore not cause the  original offer to lapse.   Secondly,  a  counter-offer replaces the original offer and becomes a new offer capable of acceptance. Thus, the original offeree becomes the offeror and the original offeror becomes the new offeree. If a contract is then to result, the counter-offer must be accepted by the original offeror. See Oni v. Comm. Ass. Nig Ltd

LAPSE OF TIME: - If an offer is stated to be open for a fixed time, it clearly cannot be accepted  after  that  time.  Therefore,  if the time for the acceptance of an  offer  is  limited  or  fixed,  the offer lapses automatically, if not accepted within the prescribed time. Where there is no fixed time within which the offer should be accepted, the offer must be accepted within a reasonable  time. What amounts to “reasonable time” is a question to fact and  depends on the subject matter of the contract and the peculiar circumstances of each case.

OCCURRENCE OR  NON-OCCURRENCE  OF CONDITION: - If an offer is expressly or impliedly made to terminate on the occurrence of a condition, it ceases  to  exist  and  becomes incapable of acceptance after that condition has occurred. Thus, an offer to insure the life of a person should impliedly terminate if the person ceases to exist, and cannot be accepted after the person is dead.

DEATH BEFORE ACCEPTANCE: - The exact effect of the death of both the offeror and the offeree, or of  either  of them, has not  been conclusively determined. However, the weight of academic and

judicial opinions seems to indicate the following positions.

1. Death of both the offeror and the offeree before acceptance terminates the
2. Death of the offeree before acceptance terminates the offer whether death is notified to the offeror or not unless, on its true construction, the offer was made to the offeree and his successes in title.

LOSS  OF  CONTRACTUAL  CAPACITY   BY E I T H E R PARTY: - If either of the parties loses his contractual capacity, for example  through  becoming  insane,   before   the   offer   is accepted, the offer lapses.

SELF ASSESSMENT EXERCISE 4

Discuss the various ways by which an offer may be terminated.

ACCEPTANCE

Meaning of Acceptance

Acceptance is defined as the final expression of assent to the terms  of an offer. By acceptance, the offeree indicates his intention and willingness to be bound by the terms of the offer. When an offer is accepted, it is transformed to a promise and a breach of it will give rise to an action.

An acceptance like an offer may be made by word of mouth, in writing, or by conduct. It must be made while the offer is still in force, and once accepted it is complete and the offer becomes irrevocable.

Conditions of Acceptance

For an acceptance to be valid, it must fulfill the following conditions.

1. The acceptance must be It must correspond with the offer. Therefore, any variation or modification of the offer while accepting or any acceptance which is dubiously expressed will be invalid. In other words, a reply to an offer is only effective as an acceptance if it accepts all the terms of the offer without equivocation, qualification or addition. An attempt to accept an offer with qualification or addition operates as a counter-offer and not an acceptance. Thus in HART v. MILLS (1846)15 L.J. Exch 200, the defendant ordered for four dozen of wine. The plaintiff sent eight dozen. The defendant, however, took only thirteen bottles and returned the rest. The plaintiff sued claiming the price of four dozen  as originally  requested by the defendant. It was held that the  defendant  was  at  liberty to reject the  entire eight dozen  as a counter-offer,  but  if he retained thirteen bottles he was liable to pay for  these only. The retention of thirteen bottles must be seen as the  basis for the entirely fresh contract between the parties.
2. An acceptance must not be conditional. Therefore, a conditional assent to the terms of an offer is not an In ODUFUNDADE v. OSOSAMI (1972) U.I.L.R. 101, it  was held that an acceptance expressed as ‘a tentative agreement without engagement’  could  not  result  in  a  contract.  Whether an acceptance is conditional or not in certain circumstances may be a strictly an issue, particularly when phrases such as ‘subject to advice by our solicitor’ or ‘ subject to a formal contract to be approved by my solicitor’, or ‘ subject to contract’ or ‘provisional agreement’, are employed. This is a matter of construction. The guide from the decided cases is, that, if from the expressions used b y the parties, it is clear  that they have only expressed an intention to enter a contract  in future, then phrase will be taken as a condition and not a firm acceptance.
3. An offer can only be accepted by the person to whom it  is made or by his agent duly But where an offer is made to the public at large, any member of the public may accept it (see Carlill v. Carbolic Smokeball Co. (supra). Where the offeror prescribes a certain mode of acceptance, an acceptance otherwise than in the manner prescribed by the offeror, is ineffective. However, where the offeror merely indicates, without insisting on a particular mode  of  acceptance, any acceptance in some other  but  more expeditious mode will be good.
4. An acceptance must be made not only with full knowledge of the offer but also in reliance on it. Therefore, a contract cannot result from the mere coincidence of two independent acts. Thus, if a person does an act in ignorance of a standing offer, but subsequently discovers that he has unwittingly  done  an  act for which a reward has been offered, he cannot claim the  reward, since his act was not done with the knowledge of or in reliance on the offer. In other words, if, for example, Ngozi advertises an offer of a reward of N800 to anyone who finds and  returns  her lost  passport  and  Chike  in  ignorance   of the offer, finds and returns the passport to her, Chike cannot afterwards, on becoming aware of the offer, claim to be entitled to it.

SELF ASSESSMENT EXERCISE 1

Define an acceptance and discuss the conditions for a valid offer.

Acceptance must be Communicated

The general rule is that acceptance of an offer is not complete until it has been communicated to the offeror  either by the offeree himself  or by his duly authorized agent. Therefore, acceptance becomes operative only when it has been communicated to the offeror.

Communication in this sense means actual notification to  the  offeror or to his agent duly authorized to  receive  an  acceptance. This rule applies not only to the cases  where  parties  are contracting in each other’s presence but also to cases where the negotiations are conducted over the telephone or other electronic means. Thus, if the offeree accepts an offer by word of mouth or by telephone, and the words are inaudible, no contract is  formed  at that moment. For this reason, the offeree must  repeat  his acceptance so that the offeror can hear it.

A mere mental resolve on the part of the offeree to accept an offer,

• an intention to accept but  which  has  not  been  communicated to the offeror  is ineffectual.  In other words, silence  or  a  mental  acceptance  or an unmanifested  assent to an offer  will not constitute a contract.

The law requires that there must be an external manifestation of assent, some word spoken or act done by the offeree or his authorized agent which the law can regard as the communication of the acceptance to the offeror.

Acceptance may be effected in the following circumstances.

• If the offeror prescribes or indicates a particular method of acceptances, and the offeree accepts in that way. There will be  a contract,  even  though  the  offeror   does   not   know   of   the acceptance.
• Acceptance communicated to a duly authorized agent of the offeror is effective in law.
• Where acceptance is governed by the rule in ADAMS v LINDSELL (1818)1 B  and  Ald  681,  i.e,  acceptance made by postal correspondence, e.g, by letter  or  telegram. Here, where the acceptance is by post it is complete as soon as it is posted. Delay in transit or lost of the letter of acceptance does not affect the validity of the contract.
• Where the offeror himself expressly or impliedly states the  need for communication.
• Communication of acceptance is waived impliedly, i.e, is deemed to be waived where it is to take the form of the performance of an act, as in the case of unilateral contracts.

SELF ASSESSMENT EXCERSISE 2

In what way or ways can the acceptance of an offer be effected.

Modes of Communication

The acceptance of an offer can be communicated in any of the following modes.

Where a particular mode is prescribed. The general rule in  respect of this point is that where a special mode of acceptance of an offer has been prescribed by the offeror, the offeree is bound  to comply with it. Therefore, if the  offer  prescribes  a  particular mode of communication, acceptance communicated in a mode other than that prescribed will generally be nugatory.

In different cases, the question may arise as to whether an acceptance will be vitiated if the offeree communicates his acceptance  by  means which  is  equally  or  more  expeditious  than that  prescribed  by the offeror?.  In  principle,  it  appears that a deviation from the prescribed mode may be fatal to the acceptance. However, it is difficult to see why a tradesman should not be free to use an alternative mode to signify his willingness to contract, particularly where that mode is commercially safer, more convenient and expeditious. Therefore, if the mode of communication used by the offeree though different, is equally or more  expeditions   than   that  prescribed,   the  acceptance   will be effective.

But the result will be otherwise where the offeror insists that acceptance should be communicated by a particular  mode prescribed and by that mode only. In M anchester Diocesan council for education v. Commercial and general investment  Ltd (1969)3 ALL E.R. 1593, Buckley, J, approved this  view that  the offeree could employ an equally or more expeditious mode than that prescribed by the offeror, if it cannot be expressly shown that the offeror had only one mode of acceptance in mind.

Where No Particular Mode is Prescribed: - The general rule in this respect is that where the offeror does not state the mode of acceptance of the offer, the form of communication will  depend  upon the nature of the offer and the circumstance in which it is made.

Generally, common sense, commercial efficiency and commercial risk demand that the offeree should, as much as possible, accept the  offer in the same mode it was made. If an offer was made in the presence of each other the acceptance would be expected there and then. The same reasoning follows with regard to offers made  over  the telephone, or by other electronic means. The reason for this is that since it is the mode prescribed by the offeror,  either expressly  or impliedly, he runs all the risks that may arise,  for  example, where the letter of acceptance is lost or stolen. Therefore if  the offeree  communicates  his  acceptance  promptly,  e.g.  by  a courier, telephone or telex the communication is effective, but not, it seems, if he sends an ordinary letter.

Where Acceptance is By Post: - Generally, an acceptance is incomplete until notice of it has reached the offeror. But contracts made through the post, e.g. by mere posting or by telegram, are governed by a different rule  which  was  ably stated by HERSCHELL, L.J. In Henthorn v. Fraser (1892)2  Ch.  27,  at page 33 thus;

“Where the circumstances are such that it must  have been within the contemplation of the parties, that, according to the ordinary usage of mankind, the post might be used as a means of communicating the acceptances of an offer, the acceptance is complete as soon as it is posted”.

TUTOR-MARKED ASSIGNMENT

1. Explain the conditions for a valid acceptance.
2. Discuss the modes of communication.
3. Under what circumstances may an acceptance be revoked

CONSIDERATION

 Definition of Consideration

The most illustrative and applied definition of  consideration  is  that of Lush J., in Curie v. Misa (1875) L.  R. 10 Exch 153 at  162 where he said:

“A   valuable   consideration   in   the   eye   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. Thus consideration does not only consist of profit by one party but also exist where the other party abandoning  some legal  rights in the present, or limits his legal freedom of motion in the future as an inducement for the promise of the  first.  So  it  is irrelevant whether one party benefits but enough that  he accepts the consideration  that  the  party  giving  it  does thereby undertake some burden or lose something which is in contemplation of law may be of valve.”

In order to be able to sustain an action, the plaintiff must prove either a benefit conferred by him on the defendant, or on someone else at the instance of the defendant, or a  detriment  suffered  by him (the plaintiff) in the implementation or the fulfillment of the terms of the bargain.

In a simple agreement for the sale of goods  the  seller’s  consideration is the promise of transfer or the actual transfer of his title to the goods or possession of them to the buyer or someone nominated by the latter. The buyer’s consideration is the money he pays or promises to pay for the goods the transfer of title to the  goods or possession of them to the buyer represents a benefit to  him, moving from the seller, conversely, the promise to pay  money or actual payment represents a benefit  to  the seller, moving from the buyer.

A moral obligation does not constitute consideration. Thus, the fact that Kofi owes Acquah a moral obligation does not constitute consideration moving from Acquah in order to entitle  her  to  enforce a promise made by Kofi towards discharging the moral obligation. In Eastwood v. Kenyon (1840)11 A & E  438, Eastwood who was guardian to Mrs. Kenyon whilst she was an infant, had spent a c o n s i d e r a b l e amount of his own money in improving her estate and in bringing her up. When she reached maturity, she promised to reimburse him for his expenses. Her husband also promised to do so independently.  When they  failed  to carry out their promise, she sued them. The plaintiff relied on the defendant’s moral obligation to her to  fulfill their promises.  The  suit was dismissed and moral obligation  was  rejected  as  the  basis of an action as such a notion would destroy the requirement for consideration.

SELF ASSESSMENT EXERCISE 1

Define consideration.

Consideration must move from the Promisee

The general rule in this regard is that only a person who has furnished consideration in a contract can  bring  an  action  to enforce a promise given by the defendant in that contract. The absence of consideration on the part of the promisee (plaintiff) can take one of various forms.

Where Consideration is furnished by a Third Party an not the Plaintiff

The general rule is that only a party to a contract can  of course  bring an action to enforce it. This is the whole essence of the  doctrine of privity of contract. The law is that a party that has not furnished consideration in a contract cannot be strictly regarded  as a party to that contract. Therefore any action based  on  consideration furnished by another party will necessarily fail.

Where the plaintiff belongs to an organization that furnished the consideration, then he must sue in a representative  capacity and  not in his own name on his own behalf. See Gbadamosi  v.  Mbadiwe (1964)2 All N.L.R. 19.

Claim in Excess of Benefit Provided For in an Agreement

In most cases, a contract always specifies the benefit  or consideration each party is to furnish. What then is the effect of a promise by one of the parties  to confer  an extra reward or benefit  on the other party after the main contract itself  has  been concluded?

At best, the promise is not actionable because there is no consideration for it. In Egware v. Shell BP Petrol Development Company of Nigeria (Unreported)  Midwestern  High  Court,  Suit NO. VHC/36/70 delivered on April 30, 1971,  the plaintiffs  claimed to have agreed to allow the defendants to use their land as drilling location on condition that all minor contract jobs in the location would be given to the plaintiffs only.

The action was brought against the Defendants for committing a breach of this agreement.

It was established in evidence that the plaintiffs had already received full compensation from the defendants for the acquisition of their land. It was held that since the defendants had full legal rights to drill  on  the land, the  plaintiffs  furnished  no  consideration  for  the defendant’s promise. See also U.T.C. v. Hauri (1940)6 W.A.C.A. 148.

SELF ASSESSM ENT EXERCISE 2

Only a person who has furnished consideration in a contract can enforce it. Discuss.

Executory and Executed Consideration

Consideration is termed executory, when the offer and acceptance consist of promises – the offeree making a promise in return for the offeror’s promise, the consideration is regarded as executory. This happens very often in commercial transactions, where the  delivery and payment are to be made in the future. Both parties became  bound in the contract, prior to actual  performance.  It is the  exchange of promise that constitutes the contract. The whole transaction remains in the future.

Executed consideration on the other hand is when an act is performed in return for a promise. The most common examples of this are offers of reward by the owner of a lost  article  to  anyone who finds and returns it to him, or offers of reward by the police or anyone else for information leading to the  arrest  and  conviction  of a criminal. The finder of the article  is taken  to both  accept  the offer and to furnish consideration for the offeror’s promise by the single act of returning it to the offeror.

Where consideration is executed, liability is outstanding  on  one side only – on that of the offeror. The offeree is never under any obligation whatsoever.

On the other hand, where the consideration is executory, both parties are liable under the contract.

SELF ASSESSM ENT EXERICE 3

Distinguish between executory and executed consideration.

Past Consideration

Consideration is said to be past when it consists of a promise or an act prior to, and independent of, the promise which  the plaintiff seeks to enforce. In other words, where a party to a contract makes another promise, which is after and independent of the transaction between him and other party, the subsequent promise is said not to attach  to  the  transaction,   nor   can   it   affect   the   legal position between  the  parties.  The subsequent promise is referred to as “Past

Consideration”.

A past consideration is therefore a promise given after the act and is independent of it, that is, the act is wholly executed and finished before the promise is made. For instance, if Kole builds a house for Akpan at N5million and after the completion of the house akpan  likes the house and thereafter promises Kole N1million, Kole cannot rely on his act as consideration because this is past consideration. Roscoria v. Thomas (1842)3 Q.B 234, the plaintiff bought a horse from the defendant. Sometime after the sale,  the  defendant promised the plaintiff that the horse was sound and free from vice when in fact the horse was vicious. Whereupon, the plaintiff sued  the defendant for breach of warranty  on  discovering  that  the  horse  was  vicious.  It  was  held   that,   since   the warranty that the horse was sound was subsequent to the transaction, and independent of the sale, the promise amounted to past consideration which was not capable of supporting an action in contract.

Exceptions to Past Consideration

Where Service Are Performed:

1. At the express or implied request of the defendant but without the plaintiff and the defendant reaching any agreement  for  payment and the defendant subsequently agreed to pay for the services
2. In circumstances in which it can reasonably be assumed that the parties throughout their negotiation intended that the  services were ultimately to be paid for, the promise is enforceable.

• Under section 37 of the Limitation Act, 1966 if a debtor, after the debt has been statute barred, acknowledges the creditors claim in writing, the creditor ma y sue on the written acknowledgment. No consideration need be sought. The effect of this is that a written acknowledgment may revive a statute barred debt, so that it will be enforceable, although the consideration is past.

SELF ASSESSMENT EXERCISE 4

The rule that consideration is past is absolute.  Do you agree?

Adequacy of Consideration

The general rule is that in the absence of fraud, duress or misrepresentation the courts will not question the adequacy of consideration.

This means that they do not measure the values of the consideration furnished by the plaintiff and the defendant respectively. Thus a contract will not be declared invalid simply because  one part y has got a much better bargain than the other.

By this token, no consideration is too small or too much or unfair. Consideration however, need not be adequate or equivalent to the promise, but it must be real or  have  s o m e  value.  In  other words, the court will not assist a party to a contract  if  he  has made  a  bad  bargain (unless he is an  infant or fraud  is alleged). As long as the consideration  has some  value,  in  the  eyes  of  the law, its inadequacy to the promise is irrelevant.

The courts are not normally concerned with the amount of consideration. If, in a contract, a person gives up much more than he stands to gain, the courts will not interfere since “the adequacy  of consideration is for the parties to consider at the time of making the agreement, not for the court to consider when it is sought to be enforced.

In Thomas v. Thomas (1842)2 Q.B. 851, a testator, before his death, expressed the desire that his wife should continue to live in his house for the rest of  her  life.  After  he  died,  his  executor  wrote to the wife confirming her late husband’s  wish and stated  that the widow could have the use of the house for the rest of her life, on payment of £1 a year.  When  subsequently  the  executor tried to rescind his consent, he was  held  bound  by the undertaking not because of the husband’s wishes, but because  of the widow’s own undertaking to pay £1  a  year, which  was  regarded as good consideration.

SELF ASSESSM ENT EXERCISE 5

With the aid of decided cases, discuss adequacy of consideration.

Sufficiency of Consideration

The meaning of the requirement that consideration must  be sufficient is embedded in the principle that since consideration is a ‘price’ it must b e something real, something of value. Therefore, if the price of which the plaintiff bought the defendant’s promise is worthless or unreal,  that price, whether it be in the form of an act,  or a promise to do an act, will be insufficient consideration and therefore incapable of supporting a contract. But once it  is real and of some value, the act or promise will be sufficient, and it is immaterial  that  it  is  not  adequate   for,   or  commensurate  to, the defendants promise. The most important issue is that consideration must possess some legal value. The courts are not in a position to assess the value or create a contract for the parties.

It  is  however  noteworthy  that  in  the  circumstances  stated  below, consideration will be insufficient and therefore incapable of supporting a contract.

1. Where there is an existing contractual obligation and there is a promise for payment of money if the promise is fulfilled, whether the plaintiff will recover on the promise will depend on whether he can show that he has done something more than he was contractually bound to do
2. Where a person performs no more than his public duty, he cannot rely on the performance of that duty to constitute enough consideration to sue on a promise.
3. Where the sum of money which the defendant pays  to  the plaintiff at the plaintiff’s request is neither more or less than the  sum which the defendant is already liable to pay to the plaintiff,  such payment cannot serve as consideration, because nothing more than an existing obligation is discharged by the defendant.

Rule in Pinnel’s Case

The rule states, that payment of a lesser sum than the amount due does not discharge the larger sum. In other words, in the case of payment o f a lesser sum than the amount due, if the plaintiff had promised to forgo the balance, the plaintiff  may afterwards  break the promise without incurring any contractual  liability.  The apparent reason is that since there is no consideration for the promise, no contractual obligation exists between him and the defendant in respect of it.

THE PINNEL’S CASE (1602)Co Rep. 1129

The facts are as follows; Pinnel sued Cole in debt for £8.105 due to  be paid on November, 11, 1600. Cole  pleaded  that  he  had  the  sum of £5:25:6d on  October  1, at Pinnel’s  request,  in satisfaction of the whole debt, and that Pinnel had accepted this. The court, on point of pleading, gave judgment for the  plaintiff,  i.e  for  the balance due. The court however emphasized that they would have given judgment in favour of the defendant, but for the flaw in the pleadings, as the payment of a lesser sum of money at an earlier  date than the date on which the debt was due, if accepted by the plaintiff, would satisfy the debt owed.

Exceptions to the Rule

• The rule does not apply where in addition to the lesser amount paid at the creditor’s request; a new element is introduced in the payment. The introduction of a new element supplies the consideration which will otherwise  be  absent. The requirement is satisfied if the debtor pays the lesser amount at an earlier date than, or at a different place from that originally agreed provided it was not made at the debtor’s request for his sole benefit.
• The rule does not apply where the lesser amount is paid as part of a comprehensive settlement involving a variety  of claims on both sides. In other words, the principle does not operate with regard to unliquidated sums of money in which a smaller sum of money may well be given in satisfaction of a larger amount owed.
• Where a third party pays  a  lesser  sum  which  is  accepted  in satisfaction of the greater amount due, the plaintiff cannot subsequently claim the balance from the debtor.
• Where a person is unable to pay his debt which is owed to several people, and it is agreed between him and the other creditors that the creditors will accept a lesser sum than the amount owed them in full satisfaction of the debt, the agreement is binding. This is called composition of creditors.

SELF ASSESSM ENT EXERCISE 6

Discuss   the   rule   in   Pinnel’s   case   in   relation   to   sufficiency of consideration.

INTENTION TO CREATE LEGAL RELATION

Some authors are of the view that the intention between the parties does not form the bedrock of the formation of a contract.  Perhaps the most popular view in this regard came from Professor Williston. He said:

“The common law does not require any positive intention to create a legal obligation as an element of contract …… a deliberate promise seriously made is enforced irrespective of the promisor’s views regarding his legal liability.”

This quotation shall be discussed along with the position of the law on this important topic. Indeed, we shall look at domestic and social engagements as well as commercial transactions.

Domestic and Social Engagements

In  order  to  consider  the  presence  or  otherwise  of  the contractual intention in agreements which are domestic and/or  social in nature, there is an assumption in law that the contractual intention is absent and the parties to such an agreement cannot sue each other on it.

Agreements are made every day in domestic and  social life where  the parties do not intend to invoke the assistance of the courts, should the engagements not be honoured? A promise to offer a trim to a friend’s garden should not result in litigation.

It is therefore obvious that in addition to the phenomena of agreement and the presence of consideration, a third contractual element – the intention to create legal relations exists.

In Balfour v. Balfour (1919)2 K.B 571 a Briton was employed by the Government of Ceylon. He returned home on  leave  with  his wife, but the wife was unable to go back to Ceylon with him because of ill-health. He then promised to make her an allowance of £30 a month until she joined him.  When  he  failed  to  make  this payment, she sued him to enforce  the  promise.  The  court  of Appeal held that there was no contract between the parties. As a natural consequence of their relationships, spouses make numerous agreements involving payment of money and its applications to the household themselves and their children.

In contradistinction to Balfour v. Balfour is MCGregor v. Mc Gregor (1888)21 Q.B.D. 424, in that case it was held that when spouses are not living in amity, particularly when their relationship has degenerated to the level of mutual hostility and distrust, an agreement between them would be binding.

However, where the performance of a domestic or social engagement involves  great  sacrifice  on  the  part   of  one  or  both   parties,   the presumption against  the  presence  of  contractual  intention may be rebutted, particularly were the plaintiff has performed his own part of the agreement. In Parker v. Clarke (1960)1 W.L.R. 286, on the invitation of the defendant, who was the  plaintiff’s uncle, the plaintiff and his wife sold their house and moved into the defendants house, it was also agreed that the Parkers would share the living expenses with the Clarkes  and that  Clarke  would leave the house to the Parkers in his will. After quarrels between the couples, the Clarkes attempted to evict the Parkers on the ground that the agreement was not a binding one. It was held to be binding.

SELF ASSESSM ENT EXERCISE 1

The rule that domestic and social engagements are not  enforceable is absolute. Discuss.

Commercial Agreements

Generally, the law presumes the presence of the contractual intention in commercial agreements. It is therefore not surprising that there is hardly a case in which the validity of a commercial agreement has been challenged for absence of the contractual intentions.

In this class of cases, the courts presume that an  intention  to create legal relations exists, unless and until the contrary  is  proved. Thus, in Carlill  v.  Carbolic  Smoke  Ball’s  Case (SUPRA) The defendants advertised their  anti-influenza  capsules by offering to pay £100 to any purchaser who bought and used it and  yet  caught  influenza  within  a given period, and  by  declaring that they had  deposited  £1, 000  with  their bankers  to show  their seriousness. The plaintiff bought the capsule, used it and caught influenza. The defendant, among others, raised the defense that they had no legal relations with the plaintiff. This defense was rejected and they were held to be contractually bound.

However, the defendant may escape liability where the agreement itself contains a clause expressly excluding the intention to  enter into legal relations like agreements on betting.

SELF ASSESSMENT EXERCISE 2

1. Not all commercial agreements are readily enforceable. Do you agree?
2. Examine the   known   intermediate   situations   in   which   the existence of legal relations has been rejected by the courts.

CONCLUSION

The most important message in this unit is that in the creation of the contract of sale of goods, like other forms of contract, parties must have the capacity and intention to enter into a contract; there must be consideration coupled with a price. There is no particular pattern and it is generally governed by the Sale of Goods Act of 1893 which, being a statute of general application is applicable in Nigeria.

TUTOR MARKED ASSIGNMENTS

Discuss generally the principle of contracts required for a valid creation of a contract of sale of goods.

REFERENCES/FURTHER READINGS

1. Sale of Goods Act,
2. Rawlings, Commercial Law, University of London, (2007)
3. Igweike, Commercial Law- Sale of Goods (2001)
4. Okany, Nigerian Commercial Law,
5. A.   M.   Agbonika  and   J.   A.   A.   Agbonika,  Sale  of   Goods (Commercial Law), 2009, Ababa Press Ltd
6. J. Okoro   (2013),   Business   Law   for   Professional   Exams, MaltHouse Press Ltd.