FORMATION OF A CONTRACT

(ELEMENT OF A VALID CONTRACT)

LECTURE 4

CONSIDERATION

For a simple contract to be enforceable it must be supported by consideration. A

contract under seal does not require consideration for it to become effective.

Consideration is that value that is exchanged whereby parties benefit something at the
expense of giving-up something in return. It could be an act, forbearance or a return
promise. So, after offer and acceptance the law would locate consideration that backs
up both the offer and the acceptance. Thus, it is the law that something of value in the
eyes of the law must be given for a promise in order to make it enforceable as a
contract. For a party to be entitled to bring an action on an agreement, he must
demonstrate that he contributed to the agreement. It is the contribution that is called
consideration. A gratuitous promise not made under seal cannot constitute a contract.

In Currier v. Misa (1875) L.R. 10 EX. 162 the locus clasicus on the definition of
consideration defined it as

“A valuable consideration in the eye of the law may exist either in some right,
interest, profit or benefit accruing to the one party, or some forbearance, defilement,
loss or responsibility given, suffered or undertaken by the other. Thus consideration
does not only consist of profit by one party but do exists where the other party
abandons some legal right in the present, or limits his legal freedom of action 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 and that the party giving
it does thereby undertake some burden or lose something which in contemplation of
law may be of value”.

From the above we can construe consideration to mean “ Some right, interest, profit
or benefit accruing to one party, or some forbearance, detriment, loss or
responsibility given, suffered or undertaken by the other.”

Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v. Selfridge & Co Ltd. (1915) AC
845, 855 “ An act or forbearance of one party or the promise thereof, is the price for
which the promise of the other is brought and the promise thus given for values is
enforeceable.”

In Doherty Udechukwu v. Jessie Ngene & Anor( 1992) 8 NWLR (pt 261) 565
the court defined consideration as ”the purchase price of the promise”. The court
further held that consideration is an essential element of a valid contract, and it is
manifested in support of oral agreement, without it no contract would have been in
existence:

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 or the transfer of title in the goods to his
possession.

Moral obligation does not constitute consideration . In Eastwood V, Kenyon,

Eastwood who was guardian to Mrs. Kenyon whilst she was an infant, had spent a
considerable amount of his own money improving her estate and in bringing her
up. When she reached maturity, she promised to reimburse her for his expenses.
Her husband also promised to do so independently. When they failed to carry out
their promises, he sued them. The plaintiff relied on the defendant’s moral
obligation to him to fulfill their promise. The suit was dismissed and moral
obligation was rejected as the basis of an action in law.

Forms of Consideration

1. Executed Consideration: where a party promises something in return for the

party performing an act, then until the act is performed there is no
consideration. Consideration in unilateral contracts is usually executed
consideration. An example is where a reward of N5,000 is promised by ‘A’ to
anyone who is able to recover and return a missing wallet to the owner. If “B” is
aware of the offer, finds it and returns it to A. The consideration is the act of
finding and returning the wallet. In Carbolic Smoke Ball Case, the act of
taking the drug in accordance with prescription is the consideration. Where
consideration is executed, liability is outstanding on one sideonly – on that of the
offeror. The offeree is never under any obligationwhatsoever.
 2. Executory Consideration: It refers to a promise to be performed in future. It
occurs where parties exchange promises. Consideration is termed executory,
when the offer and acceptance consist of promises – the offeree making a
promise in return for the offeror’s promise 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.

.
Rules Governing Consideration

1. Consideration must be legal.

2. Consideration must move from the promisee:The general rule 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 promisee must
offer consideration in exchange for the promise of the promisor for the promise
to become binding on the promisor.

In Tweddle v. Atkinson( 1861 )1 B & S 393. “A” is the daughter of “B” and
“C” is the son of “D”. On the wedding day of A & C, B & D exchange promises
that they would each pay a certain amount of money to “C”. “B” died without
paying the money and “C” sued the executors of “B” estate. The court held that
“C” had no right to enforce it because he did not furnish any consideration for
the promise.

The absence of consideration on the part of the promise (plaintiff) can take one
of the various forms.

a) Where consideration is furnished by a third party and not the

plaintiff. The general rule is that only a party to a contract can bring an
action to enforce it. This is the whole essence of the doctrine of privity in
contract. The law is that a party who has not furnished consideration cannot
be strictly referred to as a party to that contract.
 Consider a situation where a person belongs to an organization that furnished
the consideration, then he must acts in a representative capacity and not in
his own name. See the case of Gbadamosi v. Mbadiwe (1964)2 All
N.L.R. 19

b) 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 considerationfor it.

In Egware V Shell BP Petrol Development Company of Nigeria

(Unreported) Midwestern High Court, Suit NO. VHC/36/70 deliveredon April
30, 1971, the plaintiffs claimed to have agreed to allow thedefendants to use
their land as drilling location on condition that allminor contract jobs in the
location would be given to the plaintiffs only. The action was brought against
the Defendants for committing a breachof this agreement.It was established
in evidence that the plaintiffs had already received fullcompensation from the
defendants for the acquisition of their land. Itwas held that since the
defendants had full legal rights to drill on theland, the plaintiffs furnished no
consideration for the defendant’s promise. See also U.T.C. V Hauri (1940)6
W.A.C.A. 148.

3. Where a promise of reward is made to a party to perform an existing

contract with another: Shadwell v Shadwell (1860) 9 CB (N.S )159.

A was engaged to marry B. A’s uncle promised to pay A the sum of E150 per
annum during their joint life if he marries B. A married B. The uncle died owning
6 months annual payments. A sued his uncle’s executors. The court held that the
marriage was consideration. Compare Shadwell’s case and Tweddle.
4. The consideration must be possible, not an impossibility: For example
where “A” promise to give “C” ASO Rock if he promise to marry his daughter.

5. Consideration must be sufficient, but need not be adequate:

Consideration need not be money or a large amount. All that is required in law is
that the consideration must be something recognized in law as having some
economic value. In Bret v. J.S 1600 CRO. ELIZ. 756, the court held that
natural love and affection alone is not recognizable in law as consideration. In
Chapple & Co Ltd. v. Nestle Co. Ltd. 1960 1C 89 in a dispute over
consideration, the court held that though wrappers where of little economic
value and where in fact thrown away, the delivery of the wrapper in the
promotion formed part of the consideration.

In Thomas v. Thomas 1846 8 QB 483.

A husband expressed in his will that his wife should use his house during her life
time. The executors allowed the wife to use the house in return for her
undertaking to pay one pound per annum. The executors later said the promise
to allow the woman to occupy the house was not supported by consideration.
The court held that obeying the husband’s wishes had no economic value but the
rent of one pound per annum was sufficient consideration although it was
inadequate as rent.

6. Performance of existing contractual duty will not amount to

consideration: Where a person is under a contractual duty, a promise to make
him to fulfill that contractual duty will not constitute a consideration in the eye of
the law. That was the decision reached in the case of Stilk v. Myrickwhere
some sailors of a ship on a voyage deserted her. The rest of the crew members
were induced by a promise of extra pay if they get the ship to the shore. They
did as required but not paid. But they were not paid as promised. The court held
that there was no consideration. Note that where they exceed their contractual
duty that promise will be deemed a valid consideration and therefore entitled to
further remuneration.

In Vanbergen v. Edmund’s Properties Ltd. (1933) KB 223,

V was indebted to the company, but he promised to pay the said amount on an
agreed date to a designated account on the promise that the Bank will not
institute a bankruptcy case against him. The bank instituted a bankruptcy suit
 against V and V sues for damages to his reputation and breach of contract. The
court held that the payment of debt by V was not a consideration for the
company’s promise not to serve bankruptcy notice, as V was already bound to
pay the debt. Compare the case of Vanbergen withAlliance Bank v. Broom
(1864) 2 DR & SM 289.

In the latter, the defendant owed E22,000 to his bank. The bank pressed the
defendant to furnish security for the loan. The defendant agreed to furnish the
security on the condition that the bank will not sue him and the bank agreed. It
was held that there was consideration for the defendant’s promise as the bank
had given and the defendant received some degree of forbearance.

7. Where a person is fulfilling public duty: Where a person is under public

duty to do certain things s/he is bound to fulfill that duty. A promise made to him
by another to induce him to fulfill that public duty will not be accepted as
consideration or does not constitute consideration in the eye of the law. See the
case of Collins v. Godfrey where the court held that a person promised some
remuneration for time spent in attending court to give evidence on behalf of a
party cannot enforce it as he was only fulfilling a public duty.

8. Where a person under public or contractual duty promises to do more

than that duty required of him, that promise will constitute
consideration to support a contract: See Glasbrook Brothers v.
Glamorgan County Council (1925 AC) 270 , Mine-owners who feared
violence from Strikers asked and promised to pay E2,000 for greater degree
security and police protection. It was held that the police authority could recover
the money as the extra protection provided was consideration. Compare these
two cases GlasbrookBrothers’s and Collins v. Godfrey.

Exceptions to the Rule Governing Consideration

1. Past Consideration Where an act has been done or service provided before a
promise is made; it is treated as past consideration, which in law is no
consideration. For example where A enters into B’s garden and decided to dress
the garden, clean it up and clear all weeds. B seeing what A has done promise to
pay him N5, 000 for such great work. Where B fail to fulfill his promise to pay A
N5, 000, A cannot sue to recover the said sum because the promise to pay was
based on past consideration, i.e. the work in the garden which is the
consideration was already performed before the promise of a reward was made,
 consequently, the consideration was past consideration. Consideration must
move from the promise, i.e. the performance must come after the promise and
not the other way round. It is the promise that should initiate the performance.
The situation would have been different if A agreed to work on B’s garden on the
promise from B to pay him N5,000.

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 houseand thereafter promises Kole N1million, Kole cannot rely on his
act as consideration because this is past consideration.

In Akenzua II V. Benin Divisional Council. In the case, the Oba of Benin offered to
assist the Defendants obtain some land from another organization based in Benin. It
was meant to be a gratuitous service. He succeeded in getting the Council their desire.
The Council promised the Oba some forest resources in appreciation. The Oba wanted
the court to enforce that promise. He failed because the promise was held among other
things as 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
horsewas sound and free from vice when in fact the horse was vicious.Whereupon, the
plaintiff sued the defendant for breach of warranty ondiscovering that the horse was
vicious. It was held that, since thewarranty that the horse was sound was subsequent
to the transaction,and independent of the sale, the promise amounted to past
considerationwhich was not capable of supporting an action in contract.

Exceptions
1. Where Services Are Performed
a) 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.

b. 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.

2) 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 may sue on the
written acknowledgment. No consideration need be sought. The effect of this is that a
writtenacknowledgment may revive a statute barred debt, so that it will be enforceable,
although the consideration is past.

2. Promissory Estoppels: Under common law, a creditor who entered an

agreement to settlefor lesser amount than the actual credit with a debtor, may
later file an action to recover the difference. The reason is that at common law a
waiver of credit facility for lesser amount is not recognized as consideration. The
aforementioned principle was first propounded in Pinnel’s case (1602)and
later buttressed by Foakes v. Beer (1884).In foakes case, Mrs Beer obtained
judgment against Dr Foakes for the sum of E2, 090 19s. Dr. Floakes asked Mrs.
Beer for more time to pay. They both entered into a written agreement that Mrs.
Bear will not institute any action in court to recover the money on the condition
that Dr. Floakes pay an immediate E500 and the outstanding on installmental
basis.Dr. Floakes paid the entire some of E2, 090 19s, Mrs. Bear claimed
additional E360 being interest on the judgment debt. The House of Lords upheld
her claim.These two cases established the principle that payment of a lesser sum
in satisfaction of a greater amount cannot be satisfaction for the whole. The
principle established in the two aforementioned cases led to unfairness and
absurdity.

The doctrine of promissory estoppels was propounded by Lord Denning in the

landmark decision of Central London Property Trust Limited v. High Trees
House Limited (1947).The doctrine brought about the needed solution to
remedy the absurdity, injustice, unfairness or hardship introduced by the
principle in The Pinnel’s case (1602) and Foakes v. Beer (1884).By the
doctrine of estoppel, a promise by a creditor though not supported by
consideration, to waive any part of debt shall be binding on him if the debtor
relies on the promise. The fact of the case is that the plaintiffs had in 1937 let
out a block of flats to the defendant for 99 years at a rent of E 2, 500 per
annum. In 1940 the plaintiff agreed to reduce the rent to E1, 250 per annum as
many of the flats were not let out because of war conditions. After the war the
plaintiff demanded full payment. The court held that the plaintiff could not claim
the full rent during the war years when the agreement was in operation, but that
the plaintiff could claim after the war.
Limitation to the Rule of Promissory Estoppels
1. The promise of waiver must be voluntary
2. The promisor may withdraw his promise after giving reasonable notice . In
Ajayi v. R.T. Broscoe Nigeria Ltd (1964) 3 AER 556, Ajayi entered
into a hire purchase transaction with R.T. Broscoe Nigeria Ltd, where be
hired two trucks. Ajayi returned the trucks to the company for repairs
because the trucks broke down. It was agreed between the parties that
the installmental payment from Ajayi to Broscoe will be suspended
pending the repairs of the trucks. After the repairs of the truck, Ajayi
refused to take delivery of the trucks and to resume payment. Ajayi raised
the doctrine of promissory estoppels as defense. Ajayi’s defense was
rejected by the court.
3. The doctrine is used as a shield and not a sword. It does not create a new
cause of action where none exist. In Combe v. Combe (1951) 2 KB
215 a wife obtained a divorce decree nisi against her husband. The
husband then promise to pay maintenance allowance. The wife sued the
husband for the maintenance allowance when he failed to fulfill his
promise. It was held that promissory estoppel was not applicable. The
situation would have been different if in awarding the divorce the court
had also asked the husband to pay a certain fee as maintenance
allowance to the wife. The husband in addition promise to increase the
original maintenance fee awarded by the court. In this scenario, there is
already an existing cause of action, consequently, promissory estoppel will
apply.
4. The promisee must have relied on it.
5. It must be clearly inequitable for the promisor to renege on the promise.