A CRITICAL LOOK ON THE DOCTRINE OF CONSIDERATION

The requirements for the formation of a contract include offer, acceptance, consideration, intention to create legal relations and capacity to contract.  However, the purpose of this work is to discuss on consideration. In order to achieve this, the following outline will be applied:

• What is Consideration?
• Consideration must move from the promisee
• Executory and executed consideration
• The rule against past consideration
• Exceptions to the rule against past consideration
• Sufficiency of consideration
• Equitable estoppel

WHAT IS CONSIDERATION

Consideration is a very key element to the formation of a contract. In order to fully understand it, it would be best to give definitions of the term.  Consideration has been defined in numerous places. The most popular is the definition given in Currie vs Misa by Lush J. He said: ” A valuable consideration, in the sense of the law, may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility, given, suffered, or undertaken by the other …”

The business dictionary defines consideration as: “Something with monetary value, voluntarily  exchanged for an act, benefit, forbearance, interest, promise, right or goods or services.”

According to Black’s law dictionary 8th edition, consideration is: ” Something (such as an act, a forbearance, or a return promise) bargained for and received by a promisor from a promisee; that which motivates a person to do something, esp. to engage in a legal act. “

The Supreme court, per Fabiyi JSC, in the case of Chabasaya vs Awasi (2010) NWLR Pt 1201, defined consideration as “the inducement to a contract, a basic, necessary element for the existence of a valid contract that is legally binding on the parties”.

CONSIDERATION MUST MOVE FROM THE PROMISEE

Consideration is one of three main building blocks of a contract. it could be something of value such as an item or service which each party to a legally binding contract must agree to exchange before the contract can be said to be valid. Note that consideration should be of value an has to be adequate.

A promisor enters into a contract with the promisee to get something done to his advantage. The promisee is the party that receives the promise from the promisor. Consideration therefore needs to move from the promisee to the promisor.  For example, if promisor A asks promisee B to pay C a sum o money as consideration for A’s promise to B, that will be good consideration. However, if promisor A asks C to provide a payment as consideration for A’s promise to B, that will not be a good consideration.

The statement that consideration must move from the promisee is alternative way of saying that only a person who has furnished consideration in a contract can bring an action to enforce a promise made by the defendant in that contract. Absence of consideration could be in one of the following forms:

• Gratuitous promise by the defendant
• Non performance by the plaintiff
• Where consideration is furnished by a third party
• Claim in excess of benefits provided for in an agreement.

Gratuitous Promise by the defendant: A person makes a gratuitous promise to another person and he may go further to fulfill his promise, all with no corresponding act or consideration from the benefited party. Where the promissor’s act does not constitute a single act, like an out and out gift, but involves a continuing commitment, like paying for the promisee’s university education. The promisor can withdraw his promise at any time without liability. This is due to the fact that the promisee has furnished no consideration for the promise of the promisor.

In the case of L.A Cardoso vs the executors of the late J.A Doherty, the plaintiff was promised by J.A Doherty that he would be allowed to live in a house for as long as possible. However, upon his death, the executors of his estate rescinded this promise. He filed for an injunction restraining them from evicting him. It was held that he furnished no consideration for the promise.

Non performance by the Plaintiff: There may be an apparent contract between two parties which on close examination is no contract at all because one of the parties has not performed his obligation or fulfilled his part of the agreement in a situation in which the second party’s liability can only be raised after such performance by the first party. In such a situation, any action brought by the plaintiff to enforce the contract will fail because of lack of consideration.

In Miles vs New Zealand Alford estate co, a company had bought land and was dissatisfied with the purchase. The vendor promised to compensate the company for this. It was alleged that the company’s consideration was its forbearance to institute proceedings to rescind the contract. A judgement by the majority of judges at the court of appeal held that there was no consideration because there was no proof of the intention to institute a suit.

According to Cotton LJ “… in my opinion, a simple expectation even though realized would not be a consideration for the promise which he gave. In order to make good consideration for the promise, there must be something moving from the other party towards the person giving the promise.”

Where consideration is furnished by a third party: Only a party to a contract can bring an action to enforce it. This underlies the whole doctrine of privity of contract. 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 a third party will necessarily fail. If the plaintiff belongs to an organisation, then he must sue in his representative capacity and not in his own personal capacity.

 In Gbadamosi vs Mbadiwe, the plaintiff sued the defendant in his own (plaintiff’s) name on a debt that the defendant owed the party of the former. It was decided by the court that the plaintiff had furnished no consideration for the transaction. It was his party that had furnished the consideration, not him.

Claims in excess of benefit provided for in an agreement: A contract always states the extent of the benefit or consideration attributable to each party. What is the effect of a party who promises to accord extra benefit on the other party after the conclusion of the contract. At best, the promise is not actionable because there is no extra consideration. In the case of Egware vs Shell BP petrol development company of Nigeria, the plaintiff after selling his land to the defendant, struck a deal that all minor contracts that has to do with that land will be awarded to him. The defendant did not keep to this promise. He sued for breach of contract. It was decided that since he had already sold the land to the defendant, his second request was a new one and he furnished no consideration.

EXECUTORY AND EXECUTED CONSIDERATION

There are two types of consideration known to the  law. They are executed consideration and executed consideration. The subsequent lines shall go further to make us understand these two concepts.

Executed Consideration

Executed consideration connotes that an act is exchanged for a promise. Consideration is executed when the plaintiff is able to show that he has performed his own part of the contract. A classical example is an offer of reward for finding a lost article or an offer of reward for volunteering some information of some sort.

Thus, the case of Carlill vs Carbolic smokeball co is very relevant in this regard. In this case, an offer of reward was made to anyone who used a drug made by the company and still contracts the influenza. The offer of the company was held to be binding on them as a unilateral contract. The company was asked to pay the reward to the plaintiff because it was proved that she had performed her part of the transaction. The above case is an example of a executed consideration. This is because there is a promise and which is exchanged for an act.

Thus,  if the agreement is for a party to do an act, once he does that act, he shall be entitled to the promise of reward of the other party. he consideration of the first party is what is referred to as executed consideration.

Executory Consideration

Executory consideration occurs when the contract is an exchange of a promise for a promise. In other words, it depicts the dictum “exchange of promises”. Consideration is termed executory when the offer and acceptance is made of promises – the offeree making a promise in return for the offeror’s promise. This kind of consideration is common in contract for the sale of goods, where the whole transaction is in the future. In sales of goods, there is executory consideration is termed ‘agreement to sell’. For example Morakinyo promises to sell a television set to Afolabi who promises to buy it at a later date. In this case, both [parties become bound by the contract prior to performance. if there is breach by any party, remedy is guaranteed.  In this situation, Afolabi cannot claim that he can withdraw from the agreement because he has not taken custody of television set. The exchange of promises makes it a valid contract but the whole transaction remain in the future.

In conclusion, it should be noted that in executed consideration, liability lies only on the side of the offeror, while in an executory consideration, both parties are liable

THE RULE AGAINST PAST CONSIDERATION

The giving of a promise or the performance of the act stipulated for in the contract exhausts the promise given in return. Thus, any further promise made subsequently by any of the two parties without fresh consideration from the other party is not actionable , which is because such promise is given upon past consideration.

In Re McArdle, a testator left a house jointly to his children. The mother of one of the children subsequently went ahead to refurbish the house. However, she incurred a lot of expenses in carrying out this. The children made a written agreement with her to reward her with a certain amount of money. Eventually, they couldn’t come through on their promise. In court it was decided that the children owed her no obligations. This is because her consideration (refurbishing the house) was past.

Also, in Akenzua II, Oba of Benin vs Benin Provisional Council, the defendant asked the plaintiff to use his influence to prevail on the African Timber and Plywood company to give them some Forest areas. The plaintiiff successfully did this. He then asked the defendant to give some part of the Forest area for his exclusive exploitation. The defendant readily agreed to this. Later, they went back on their promise. The court decided in favour of the defendant because it held that the consideration of the plaintiff was past.

From the foregoing, it can be safe to assume that justice has been done to the subject of past consideration. Next we shall consider exceptions to the rule of past consideration.

Exceptions to The Rule Of Past Consideration

As is trite, to every general rule, there is an exception. the doctrine of past consideration is not left out of this maxim. Therefore, this means that there are exceptions to the doctrine of past consideration. These exceptions will be brought to light in the following paragraphs.

The first exception is when something is done in a business context and it is clearly understood by both parties that it  would be paid for. A good example is the case of Stewart vs Casey, here the owners of a certain patent rights on transit by steamer and land contacted the defendant, who had been the practical manager for working out the patents, and promised to give him one third share in the patent in order to reward his services in working out the patent. Subsequently, the successors in title to the original owners sued that the defendant did not furnish any consideration and that if he did, it was past. The court ruled otherwise. it maintained that this was a business transaction in which both parties knew that there was to be a reward for services rendered.

Another situation is where there is a prior request by the promisor and and a subsequent promise advanced by him. The source of this exception is the case of Lampleigh vs Brathwaith. In this case, the defendant asked the plaintiff to help him obtain a royal pardon. After getting the pardon, the defendant promised to pay the plaintiff 100 pounds for his trouble. Subsequently, he refused to pay and an action was brought to enforce the promise. The court held that the prior request and subsequent promise should be treated as one transaction. This is due to the fact that the subsequent promise was made on the instance of the promisee.

SUFFICIENCY OF CONSIDERATION

While consideration must not be adequate, it must be sufficient. It must have some value in the eyes of the law. It must contain an element which can be regarded as the price paid by the of the defendant’s promise. If consideration is too vague, useless or meaningless, then it has no value in the eyes of the law. For the purpose of clarity, consideration will be discussed within the idea of value in the eyes of the law.

Legal scholars have given this issue much thought. On one side of the divide, it has been argued that any act or promise accepted by a party to a contract as the price for his own act or promise constitutes valid consideration. This means consideration doesn’t necessarily have to be of economic benefit. Also, J.C Smith in support of this argument said that the belief that consideration has to be of economic benefit was erroneous. He argued that once it is what the  defendant wanted at the time, it is valuable consideration.  It may be quite useless to both parties, however, it must be something owned by the person giving it out or he must be entitled to it.

G.H Treitel, in contrast to JC Smith’s idea said that an act will only amount to consideration if the law sees it as having some economic value. This view was upheld in Faloughi vs Faloughi where the court held that love and affection cannot consist consideration because it is not of economic value. However, in the recent case of Johnson wax Nigeria ltd vs Sanni (2010) NWLR Pt 1181, the court said “Once consideration is of some value in the eyes of the law (however infinitesimal it may be) and flows from the promisee to the promisor to their mutual equilibrium, it is enforceable in law”

What this means is that anything of value in the eyes of the law, it doesn’t necessarily have to be monetary value, will constitute valid consideration.

From the foregoing, it can be concluded that the view expressed in the recent case overrides that of the old one.

 EQUITABLE ESTOPPEL

A very important question is whether a person who has already made a promise to reduce the amount of reward he receives can go back on such promise. The area that deals specifically with this scenario is equitable estoppel. In order to fully understand equitable estoppel, it would be best to trace its evolution over the years.

One of the earliest cases considering equitable estoppel is Pinnel’s Case. In this case, the court of common pleas held that one cannot use a lesser sum to satisfy the debt of a larger sum. The court however added that if a new item of payment is added, it could serve as consideration for the foregoing of the initial debt. The extra material could range from materials like a horse, a gift, a robe, a change of venue, a change of time and so on.

This rule was further reiterated in the case of Foakes vs Beer. In this case, Dr Foakes was the judgement debtor of Mrs Beer. They agreed to the payment of the debt by installments over a long period of time. When the debt had been completely paid, Mrs Beer also requested for the interest on the judgement debt.

It was held in court that Dr Foakes had to pay the interest on the judgement debt regardless of the fact that Mrs Beer initially agreed to collect just the debt. This was based on the fact that there was no further consideration paid for the foregoing of the interest of the judgement debt.

In the case of Jorden vs Money, the Mr Money was promised by Mrs Jorden that the debt she owed him would be forfeited. This subsequently prompted Mr Money to sue in the court of chancery that he was free from the debt based on the promise by Mrs Jorden. He hinged his case on the doctrine of estoppel.

The court held that estoppel could not apply to this case since the case had to do with statement of intention. The court held that estoppel applied only to representations relating to fact. However, Lord St Leonards dissented and was of the opinion that estoppel also applies to a representation of intention.

This dissenting judgement was used by the court in the case of Hughes vs Metropolitan Railway Co. In this case, the tenant was given a six months period to repair the premises. There was a condition in the lease that provided that if upon the completion of six months from the date of the notice, the premises had not been renovated, the lease would be forfeited.

Subsequently, there were negotiations between the parties for the purchase of the resat of the lease. The negotiations however failed after two months. 6 months after the notice of ejection, the landlord brought an action for forfeiture against the tenant.

The house of Lords held that the tenant had a relief in equity. The court was of the opinion that failure to to carry out the repairs in time was due to the negotiations that failed. Due to the fact that this principle was a creation of equity, it came to be known as equitable estoppel.

This decision was ignored by the courts for a while until it was revisited by Lord Denning in the landmark High Tree Case in this case, the plaintiff leased a block of flats to the defendants in 1937. However, due to the outbreak of the second world war, the plaintiff agreed to collect half of the lease price. After the war was over, the plaintiff not only reverted to the old price but also requested for the arrears that remained from the half payments during the war.

Lord Denning ruled that in this situation, the plaintiff was estopped from enforcing its strict legal rights as it would be inequitable to enforce such. He defined equitable esopppel as a situation in which a promissor would be estopped from enforcing his full legal rights if he had made a previous promise limiting this right. This is moreso if the promissor knew that the promise is likely to be acted upon and it is acted upon by the promissee.

It should however be noted that estoppel can only be used a defense. It is a only to be used as a shield not a sword.

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