Consideration in contract is the profit or benefit, etc. which accrues to one party, that amounts to a detriment or responsibility etc. suffered by the other party in return for a promise given or received. Therefore, to sustain an action on a promise made by the defendant, the plaintiff must show either that the promise is contained in a document under seal, or that it is supported by the presence of consideration. In other words, without furnishing consideration, anybody who sues in contract will not succeed.
As we know, unless an agreement is under seal it cannot be enforced by a party that has not furnished some consideration in support of it. Hence the dictum, “consideration must move from the promise”. There must be an exchange, either of promises or of a promise for an act. The basic feature of the doctrine is reciprocity.
Something of value in the eye of the law must be given for a promise in order to make it enforceable as a contract. Thus, for a party to be entitled to bring an action on an agreement he must demonstrate that he contributed to the agreement. It is this contribution that is called consideration. A gratuitous promise not made under seal cannot constitute a contract. The plaintiff must show that the defendant’s promise was part of a bargain to which he himself contributed.
The problem, however, has always been how to determine what type of contribution is of sufficient value “in the eye of the law” to qualify as consideration. This issue will be considered later.
Definition of Consideration
The most comprehensive and most applied definition of consideration, is that of Lush, J., in Currie V. Misa (1875) L.R.10 Exch.153 at p.162.
“…a valuable consideration in the eye of the law may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loose or responsibility given, suffered or undertaken by the other. Thus, consideration does not only consist of profit by one party but also 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.
Thus, in order to be able to sustain an action in court, the plaintiff must prove either a beneficial conferred by him on the defendant or someone else at the instance of the defendant, or a detriment suffered by him (the plaintiff) in the implementation or fulfillment of the terms of the bargain.
However, a moral obligation does not constitute consideration. Thus, the fact A owes B a moral obligation does not constitute consideration moving from B in order to entitle B to enforce a promise made by A towards discharging the moral obligation.
The attempt to equate moral obligation with consideration was first made by Lord Mansfield after he became Chief Justice in 1756. However, after his death, this notion came under increasing attack and was finally demolished in 1840 in the case of Eastwood V. Kenyon.
Facts of the case were as follow:
Eastwood was guardian to Mrs. Kenyon whilst she was an infant, had spent a considerable amount of 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, he sued the. The plaintiff relied on the defendant’s moral obligation to him to fulfill their promises.
The suit was dismissed, and moral obligation was rejected as the basis of an action. Such a notion, if accepted, would destroy the requirements of consideration. The factor was consideration, not mere moral obligation, which was already inherent in every promise. The pure and original common law doctrine of consideration was thus restored.
Echoes of Lord Mansfield’s discarded doctrine arose in Barclays Bank D.C.O. V. Sulaiman, an isolated decision by Aguda, J. (as he then was), at the Western State High Court in 1970, in which the learned judge held that natural love and affection between an uncle and his nephew was sufficient consideration to give the nephew a good title to property transferred by the uncle to the nephew without any other consideration on the part of the nephew. The nephew’s interest was, therefore, held strong enough to defeat the claims of the plaintiff, a judgment creditor of the uncle, who having recovered judgment against the uncle, who having recovered judgment against the uncle, put the properties of the letter up for sale in execution of the judgment.
The court’s view that natural love and affection could be equated to consideration is of course invalid in the light of developments in the law of contract since 1840, when Eastwood V. Kenyon was decided in the famous English case held in United Kingdom. This issue arose in the more recent case of Faloughi V. Faloughi, in which a dying father executed an instrument transferring his shares in Excelsior Hotel Ltd to his second son. After the father’s death, this transfer was challenged by some of his other surviving children. They successfully convinced the court that if it was a gift, then it was an imperfect gift because the father, a foreigner, had not obtained the consent and approval of the Securities and Exchange Commission to the transaction, as required by law.
The court then considered whether the father’s estate was bound to execute the transfer on the basis of the love and affection which the late father had for his son. The court (per Kalgo, JCA) held that, natural love and affection was not a true or real consideration. It was not capable of estimation in terms of value. The learned Justice of Appeal continued, thus:
“…in both Exhibits A1 & A2, there was no other consideration expressed therein or proved in evidence except love and affection which the late Faloughi, the promisor, bore for his son, the 1st respondent. It is not enough…to show that the late Micheal Faloughi was the father of the 1st respondent. There must be some valuable consideration for the transfer. Love and affection cannot be qualified in terms of money value, and since it has no value in the eyes of the law, there is no consideration. If there is no consideration, then there is no valid contract to transfer shares intended by the late faloughi.
Consideration must move from the promisee – Consideration in Contract
The statement that consideration must move from the promisee is an alternative way of stating 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. Conversely, a party that has furnished no consideration in a contract cannot bring an action to enforce that contract. Absence of consideration on the part of the promisee (plaintiff) can take one of various forms.
a. Total Failure of Consideration – gratuitous promise by defendant
Quite frequently, a person makes a gratuitous promise to another person, and he (the promisor) may go further to carry out his promise – all these with no corresponding promise or act from the benefited party. Where the promisor’s act does not constitute a simple act, like an out and out gift, but involves a continuing commitment, like a promise to pay for the promisee’s university education or guarantee his loan in X bank for two years, the promisor can withdraw his promise at anytime without liability. For the promisee has furnished no consideration for the promisor’s promise or commitment to him. See the case of Cardoso V. The Executors of the Late J. A. Doherty, (1938) 4 W.A.C.A. 78
It was held inter alia by the W.A.C.A. (reversing the judgment of the lower court) that the declaration and injunction would be refused on the ground that the plaintiff furnished no consideration for the promise that he could reside in the property for life.
b. Total Failure of Consideration – Non Performance by Plaintiff:
There may be an apparent contract between two parties which on closer examination is no contract at all because one of the parties has either undertaken no obligations or has not performed his own part of the agreement, in a situation in which the second party’ (defendant) liability can only arise after such performance by the first party.
In such a situation, any action brought by the first party to enforce the promise of the second party will fail for want of consideration.
In Miles V. New Zealand Alford Estate Co.,
The facts of the case were as follows:
A company had bought land and was dissatisfied with the purchase. The vendor later promised to make certain payments to the company, and it was alleged that the consideration for this promise was the company’s forbearance to take proceedings to rescind the contract.
A majority of the Court of Appeal held that there was no consideration for the vendor’s promise as no proceedings to rescind were ever intended.
According to Cotton, L. J;
“…in my opinion a simple expectation even though realized would not be a good 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.
In my opinion, to make a good consideration for this contract it must be shown that there was something which would bind the company not to institute proceedings, and shown also that in fact proceedings were intended on behalf of the company.
This principle was applied in Bank of West Africa V. Fagboyegun (1961) W.N.L.R. 227.
Facts of the case:
The defendant had signed a contract of guarantee under which he agreed to guarantee a debt of €3,354 pounds 13 shillings owed by one Jalade to the bank.
After the defendant had repaid part of the debt to the bank, the latter now brought this action to recover the balance from him.
Evidence disclosed that apart from the original debt owed by Jalade, the bank did not at any time after the guarantee was executed, advance any further money to Jalade, nor did it give him any further overdraft.
It was held (relying on Westhead V. Sproson & Piper) that the defendant was not liable to pay the balance of the overdraft, since the plaintiff furnished no consideration for the guarantee.
Where Consideration was Furnished by Third Party and not the Plaintiff:
Only a party to a contract can, of course, 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 another party will necessarily fail. If the plaintiff belongs to an organisation that furnished the consideration, then he must sue in a representative capacity and not in his own name on his own behalf.
In Gbadamosi V. Mbadiwe,
The facts of the case were as follows:
The plaintiff sued the defendant in his (plaintiff’s) own name for the recovery of a debt of £46,065 pounds. It emerged from the evidence that this was a loan given to the defendant and his party by the Action Group Party, in 1959, to fight the Nigeria Federal elections of that year. The defendant’s party, the Democratic Party, was then the Eastern Region ally of the Action Group. The plaintiff had taken part in the transaction in his capacity as the federal treasurer of the Action Group.
It was held that in the circumstances, the claim must fail since the plaintiff did not furnish any consideration towards the loan agreement.
Claim in Excess of Benefit Provided for in an agreement.
A contract always specifies the benefit or consideration each party is to furnish. What 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 Develoment Company of Nigeria,
Facts of the case were as follows:
The plaintiffs claimed to have allowed the defendants to use their lands 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 defendant had full legal right to drill on the land, the plaintiffs furnished no consideration for the defendants promise.
Also in U.T.C. V. Hauri (1940) 6 W.A.C.A. 148,
Facts of the case were as follows:
The plaintiffs brought an action to enforce an understanding by the defendant not to set up a motor workshop in competition with the workshop of the plaintiffs, his formal employers.
It emerged from the evidence that this undertaking was obtained from him under duress after the termination of his employment with the plaintiffs.
The latter simply withheld the defendant’s salary and other benefits until he signed the undertaking. Apart from being voidable for duress, the agreement was held unenforceable at the instance of the plaintiffs because they did not furnish any consideration in return for the promise.