Sufficiency of Consideration

Sufficiency of Consideration. Whilst consideration need not be adequate, it must, however, have some value in the eye of the law. It must comprise some element which can be regarded as the price of the defendant’s promise. If consideration is too tenuous, vague, unascertainable, useless or meaningless, then it is insufficient and is, therefore, no consideration.

For the purpose of clarity and convenience, the issue of sufficiency will be discussed under three broad categories. In the first place, in view of the frequent refrain that consideration must be something of value in the eye of the law, it is essential to determine the meaning of this statement.

Secondly, we shall consider the effect of the performance of an existing duty. Can a promise to perform or can the actual performance of an existing duty constitute consideration? Thirdly, what is the effect of the variation of contractual rights? Can an agreement by one party to accept less than he is entitled to under a contract be enforced against him?

Something of value in the eye of the law

How can the courts determine what is of value in the eye of the law? What guild lines can be formulated for identifying the components of this elusive concept? There has been no judicial analysis of this term aimed at revealing its meaning and scope. Indeed, as one learned writer has stated:

“… the judges has been content to deny the name of consideration to certain acts or promises without attempting to generalize the grounds of their prohibition; and it may well be that the process of judicial thought is empirical and may not lend itself to ex-post facts rationalization…

Nevertheless, legal scholars have given that matter much thought , Ames, in his lecture on legal history, argued that with obvious reservations in the interests of morality and public policy, any act or promise accepted by one party to a contract as the price for his own act or promise constitute valid consideration. More recently, J.C. Smith in support of this view stated that the idea that consideration must be an economic benefit was erroneous:

“…all that is necessary is that the defendant should, expressly or impliedly, ask for something in return for his promise, an act or promise by the offeree. If he gets what he has asked for, then the promise is given as consideration unless there is some vitiating factor… if I make a promise to you in return for supplying me with 3, quite useless, chocolate wrappers, which I will instantly throw away, there is a perfectly good contract provided the promise was seriously intended. I have got what I asked for and that is sufficient ‘benefit’. You have parted with something you might have kept and that is sufficient ‘detriment’. But the wrapper are of no value to me, and you might be glad to be rid of them. As for economic value, the judges have recognized for over a century, the validity of the contract to pay £100 if the promisee will walk to New York, and no one has ever demonstrated what economic value there is in walking to York.

Similarly, with promises of reward for not smoking; Humer V. Sidway 27 N.E. 256; 124 N.Y. 538, (1891) or by the father of an illegitimate child to pay the mother an allowance if she proves to him that the child is well looked after and happy.
From this comprehensive presentation, the following points can be made:

a. Consideration does not have to be of economic value.
b. Once it is clear that it is what the defendant requested, it is valuable consideration;
c. It may be quite useless to either of the two parties;
d. It however, must be something owned by the party giving it out, or at least something to which he is entitled.
In contrast to Smith’s views, G.H. Treitel states that an act, omission or promise will only amount to consideration if the law recognizes that it has some economic value.

It will be recalled that in Faloughi V. Faloughi, Treitel’s view received the full support of the Court of Appeal which declared that love and affection could not be quantified in terms of money value, and they could, therefore, not constitute consideration because they had no value in the eye of the law.
Let’s examine case to see whether any guide as to what could be regarded as value in the eye of the law could be found in them.

In Bainbridge V. Firmstone (1838) 8 A.&E. 743.
Bainbridge owned two boilers, and at the request of Firmstone allowed him to weigh them on condition that they were restored in as good a condition as they were lent. Firmstone took the boilers to pieces in order to weigh them and returned them in this state. Bainbridge furnished no consideration for his promise to return the boilers intact.

The court rejected this contention. According to Patterson, J.;
“…the consideration is that the plaintiff, at the defendant’s request, had consented to allow the defendant to weigh the boilers. I suppose the defendant thought he had some benefit; at any rate, there is a detriment to the plaintiff from his parting with the possession for even so short a time.
Bainbridge has parted with something he might have kept. That was a sufficient consideration.

In Chappel & co. Ltd. V. Nestle,
Facts of the case:
The plaintiffs owned the copyright of a popular tune which had been made into records. In order to promote the sales of their chocolates, the defendant company bought a large number of the records which they retailed to the public at 1 shilling 6 pence plus three empty wrappings of their chocolate. The plaintiffs brought a claim that the royalty they were entitled to, which by law was 61/4 percent of the ordinary retail price of the goods, was in this case 61/4 % of 1 shilling 6pence and the three wrappings, which had no apparent economic value, formed part of the consideration for the record.

It was held that the chocolate wrappings formed part of the consideration. They formed part of the price for each record as stipulated by the defendants, and their acquisition by the record buyers was of direct benefit to the defendants.

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Performance of Existing Duty – Sufficiency of Consideration

Does a person who does, or promises to do, what in law he is already bound to do thereby furnish consideration? Our view is that as the person is already bound to carry out the act in question, his carrying it out or promising to do so involves no extra detriment to him, and it, therefore, has no value in the eye of the law.

On ther other hand, it is said that the actual performance of the legal duty may be of considerable value to the promisee who may find his legal remedy for breach less beneficial than actual performance. The cases disclose that a lot depends on the nature of duty the promisee is already under obligation to perform. There are three basic types:
a. Duty imposed by law;
b. Duty imposed by contract with the promisor; and
c. Duty imposed by contract with a third party.

Duty imposed by law (public duty)

Generally, a party cannot enforce a promise made to him in return for his performance of, or promise to perform, a public dutry. Since the promise is already under the public duty to perform the act, his actual performance or promise to do so does not constitute consideration. More so, to enforce such a promise would be contrary to public policy since it might encourage extortion by public officers or persons under a public duty.
In Collins V. Godfroy, the plaintiff was subpoenaed to give evidence in a case on behalf of the defendant. The defendant promised to pay the plaintiff for the work days lost in the process.

It was held that the promise had been made without consideration from the plaintiff, for by law, the plaintiff was already bound to attend the court and give evidence.
If however, the plaintiffs acts or promises to act in excess of his duty under the law, then this would constitute consideration.

Thus, in Glassbrook Brothers Ltd. V Glamorgan County Council, (1925) A.C. 270.,
Facts of the case were as follows:
The owners of a coal mine of which there was a strike applied to the local police authority to station a force of policemen at the mine in order to protect the mine and its machinery from damage by the strikers.

The police felt that they could control the situation by a mobile force which would be rushed to the mine at the first hint of trouble. The proprietors were, however, dissatisfied with this proposal and they agreed to bear the expenses of stationing policemen at the mine premises for the duration of the strike. When subsequently the proprietors refused to bear the expenses on the ground that the police authority had merely been performing its duty at law, it was held that they were entitled to the money claimed.

As experts, they had thought that a mobile patrol team was sufficient to carry out their duty, but at the request of the proprietors they had gone beyond what duty demanded by stationing men at the mine site. This was sufficient consideration for the promise to pay for the service.

Duty Imposed by Contract with Promisor: where plaintiff is already under contractual duty to defendant.

If a party to a contract simply promises to carry out or carries out an already existing contractual duty to the defendant, he has offered no consideration for any fresh promise that might have been made by the defendant. The rule here is that there is no consideration, for all that the plaintiff has done is to perform an obligation already imposed on him by a previous contract between him and the defendant.

In the London case of Stilk V. Myrick (1809) 2 Camp.317.,
Facts of the case were as follows
Two seamen deserted a ship in the course of a voyage between London and the Baltic. The ship’s captain, who could not find substitutes, promised the rest of the crew extra wages if they would work the ship back home. This action was brought to enforce the promise. Under the Seamen’s Contract, they were obliged to sail the ship under these circumstances.

The suit was dismissed on the ground that they had furnished no consideration for the Captain’s promise.
However, as is the case with duties imposed by law, if the plaintiff acts or promises to act in excess of his contractual obligation to the defendant, such act or promise would
constitute consideration.

Thus, in Hartley V. Ponsonby (1857) 7 E. & B. 872., the circumstances were similar to Stilk V. Myrick, but the ship was so short-handed that it would have been extremely dangerous to sail her without additional crew. Under these circumstances, the crew were automatically entitled to be discharged. Nevertheless, they agreed to risk sailing the ship for extra remuneration.
It was held in this case that they could enforce the promise. Their agreement to sail the ship under those circumstances amounted to their entering into a new contract with the captain.

Duty Imposed by Contract with third party

This is the situation in which X, who is already bound by a contract to do something for Y, relies on the performance of that act as consideration for a fresh promise made to him by Z. unlike the two earlier situations in which the law regards the performance of the already existing duty as no consideration, in this third situation the courts have consistently held that in relation to the new promise by Z, X’s performance of his already existing obligation to Y is good consideration.

In Scotson V. Pegg, (1861) 6H.&N.295; 2 L.T. 753
Facts of the case were as follows:
Scotson promised to deliver to a third party X or to his order, a cargo of coal then on board a ship belonging to himself. X made an offer in favour of Pegg. Pegg then made agreement with Scotson, that if Scotson would deliver the coal to him, he would in turn unload and discharge the coal at a fixed rate each day from the day when the ship was ready for discharge. He failed to do this, and when he was sued by scotson he pleaded that Scotson was already under contract to deliver the coal to him and had, therefore, furnished no consideration for his (pegg’s) own promise.

Judgment was entered for the plaintiff. The plaintiff might have, for good reason, refused to carry out his understanding to X, but the delivery to Pegg had derived him of this alternative. The delivery was a benefit to Peggy and a detriment to Scotson. Wilde B., did not find anything wrong if “a person chooses to promise to pay a sum of money in order to induce another to perform that which he has already contributed with a third person to do”

In Shadwell V. Shadwell, (1860) 9 C.B (N.S.)159; 30 L.J. C.P. 145 the plaintiff, who was already engaged to a certain Ellen Nichol, received a letter from his uncle informing the plaintiff of his pleasure at the intended marriage of the former and that he would pay to the plaintiff £150 per annum as long as the plaintiffs earnings were below 600 pounds a year. Although he commenced paying this sum, he omitted to pay some of the annual sums before he died.

The plaintiffs now brought this action against his uncle’s estate for the recovery of the unpaid sums. The executors countered that there was no consideration for the uncle’s promise to pay £150 per annum since the plaintiff was already contractually bound to marry Ellen Nichol before the Uncle’s promise and since the marriage was not at the request of the uncle.

It was held by (Erle, C.J; and Keating, J.) that the uncle’s promise was binding on him. The plaintiff, relying on the promise, had gone ahead with the marriage, thereby incurring financial obligations. He held, thus suffered a detriment.
Conversely, the uncle had derived pleasure at the plaintiff’s marriage, and this constituted a benefit. Byles, J,. in a dissenting judgment, pointed out that the plaintiff was already contractually bound to marry Ellen Nichol, and it was not done at the request of the uncle. “…the doing (of) what a man is already bound to do is no consideration…

It is difficult to understand why the court’s attitude to this category of existing duty is difficult from the other two. It has been suggested that the plaintiff, in this third category, should be entitled to enforce the second contract because he also lays himself open to two possible actions by entering into the second contract.

If he fails to carry out the promise, each of the other two parties with whom he has contracted can sue him independently. Moreover, the defendant acquires the independent right to enforce the contract, and does not have to rely on the third party with whom the plaintiff had first contracted.

For good reasons or bad, the law in this regard appears to have come to stay. In the relatively recent case of New Zealand Shipping Co. V. A. M. Satter Ihwaite & Co. (1975) A.C. 154; (1974) 1 All E. R. 1015., which came before the House of Lords in its capacity as the judicial committee of the Privy Council;
Facts of the case were as follows:
A contract for the carriage of goods by sea between the carrier (the shipping company and the shipper {owner of the goods}, contained a clause limiting the liability of the carrier in case of any damage to the goods {expensive drilling machinery) before delivery to the consignee.

The clause also contained provisions which purported to extend this protection to the servants, agents and even independent contractors of the carriers. The defendants were stevedores engaged by the carriers, as independent contractors to unload the goods at the port destination in New Zealand. They were paid a fee by the carriers for their services.

The defendants negligently handled the goods and damaged them in the process of unloading. The question arose whether they could take advantage of the exemption clause provision which made reference to independent contractors. In order to be able to do so, they would have to show they were a party to a contract with the plaintiff (owner of the goods) and that they furnished considerations. The judicial committee, by resorting to a very strained, and some may say strange interpretation of the exemption clause and an unwarranted extension of the scope of unilateral contracts, came to the conclusion that the defendants were parties to a contract with the plaintiffs.

On the issue of consideration furnished by the defendants in this contract, their Lords held that the act of unloading the goods constituted consideration notwithstanding the fact that the defendants were already bound to unload the goods in their contract with the carriers.
In their Lordships opinion, an agreement to do an act which the promisor is under an existing obligation to a third party to do, may quite well amount to valid consideration (and it was so in the present case): the promise obtains the benefit of a direct obligation which he can enforce.

Variation of Contractual rights – Sufficiency of Consideration

Where the defendants is under a contractual duty to the plaintiff and with the consent of the plaintiff performs or promise to perform less than he is bound to do in discharge of his full obligation, can the plaintiff subsequently legally enforce the performance by the defendant of the balance of his obligation? The plaintiff’s legal basis for going back on his promise would be that the defendant did not furnish consideration for it.

Any consideration of the principles involved in this type of situation must of necessity start with Pinnel’s case (1602), heard by the whole Court of Common Pleas, Lord Coke presiding.

The facts were:
Pinnel sued cole in debt for £8, 10shillings due on a bond on November 11, 1600. Cole pleaded that at Pinnel’s request he had paid him £5, 2shillings and 2pence on October 1, 1600 and that Pinnel had accepted this payment in full satisfaction of the original debt of £8, 10shillings.
Judgment was given to the plaintiff on a point of pleading.
The court held that the payment of a lesser sum could not discharge a debtor from the obligation to pay the full amount of debt, the consent of the plaintiff notwithstanding:

However, recourse should be had that the court in this case listed exceptions to the rule it was laying down. This was that the introduction of some new element at the creditor’s request, e.g., a robe, hawk or horse, or part payment at a different place or at an earlier date, was good satisfaction for the whole debt. Thus, Pinnel would have failed in his action against Cole who had paid at an earlier date, but for the technical flaw in the latter’s pleading.

Subsequently, litigants attempted to use the exception (the presence of a new element) to escape the full rigour of the rule in Pinnel’s case as it became known. Thus, in Cumber V. Wane (1846) 15 M. & W. 23; the plaintiff who had earlier accepted a promissory note for part of a debt owed him by the defendant subsequently sued for the balance.

The defendant claimed that payment by a promissory note introduced a new element into the contract, and this could be regarded as consideration for the plaintiff’s promise to accept a smaller sum in discharge of the debt. The court rejected this argument and applied the rule in Pinnel’s case.

However, in Sibree V. Tripp and Godard V. O’brien, (1882) Q.B.D.37., the defendants who paid lesser sums in discharge of a greater sum by way of negotiable instruments, successfully relied on the concept of “new elements” inherent in the exceptions to this rule in Pinnel’s case.
It was held that payment by use of paper, instead of cash, constituted a new element, and, therefore, consideration for the promise to accept a smaller sum.

This rather ridiculous type of reasoning was demolished by Lord Denning in D. & C. Builders V. Rees (1966) 2 Q.B.617; (1965) 2 All E.R. 837.

The facts of this case were as follow:
The plaintiffs did some renovation and reconstruction work for the defendants. The agreed fee was £482. After completion of the work, and fully aware that the plaintiffs were desperate for funds, the defendants offered to pay £300 in full discharge of the debt, or nothing.

In desperation, the plaintiffs accepted. The defendants paid by cheque, and as soon as they cashed it, the plaintiffs brought an action to recover the balance of £182. The defendants relied on earlier decisions that payment of a smaller sum by a negotiable instrument in discharge of a larger sum was a valid exception to the rule in Pinnel’s case.
The court dismissed this argument and held the defendants liable to pay the balance of the debt.

According to Lord Denning:
“…no sensible distinction can be taken between payment of a lesser sum by cash and payment of it by cheque. The cheque, when given, is conditional payment. When honoured, it is actual payment. It is the just the same as cash. If a creditor is not bound when he receives payment by cash, he should not be bound when he receives payment by cheque.”
The rule itself was fully reconsidered in 1884 and affirmed in the House of Lords in Foakes V. Beer.

Executory and Executed Consideration – Sufficiency of Consideration

Executed consideration is a performed, or executed act in return for a promise. Therefore, in reward cases, for example, a promise to pay a reward when an act is done becomes enforceable only when that act is performed.

Consideration is termed executory when the offer and acceptance consist of promises – the offeree making a promise in return for the offeror’s promise. This happens very often in commercial transactions, e.g., in a contract for the sale of goods, where the delivery and payment are to be made in the future.
This also happens when a contractor’s tender for the building of a house is accepted by the person who wishes to have a house built.

Both parties become bound in the contract prior to actual performance. It is the exchange of promises that constitutes the contract.
“The whole transaction remains in the future”. Actual performance will take place at a later date.
When, however, an act is performed in return for a promise, then the consideration is referred to as executed consideration. 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 offer of €100 pounds by the Carbolic Smoke Ball Company to anyone using their smoke ball and still succumbed to influenza, was an excellent example of this phenomenon. 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 where the consideration is executory, both parties are liable under the contract.

Adequacy of Consideration – Sufficiency of Consideration

As is commonly stated, 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 comparative values of the considerations furnished by the plaintiff and the defendants respectively nor will they declare a contract to be invalid simply because one party has got a much better bargain than the other.

As Lord Somervell stated in Chapel V. Nestle (1959) 2 All E.R. 701, H.L.,
“…a contracting party can stipulate for what consideration he chooses.
A peppercorn does not cease to be good consideration if it is established that the promise does not like the pepper and will throw away the corn.

Similarly, in Faloughi V. Faloughi, (1995) 3 NWLR (pt.384) 434 T p.451., Kalgo, J.C.A., emphasized that …it was within the exclusive domain of the parties to a contract to determine the consideration for the contract. “And once the consideration is of some value in the eye of the law, even the courts have no jurisdiction to determine whether it is adequate or inadequate”. In principle, therefore, no consideration is too small or too much or unfair. The reason for this principle lies in the doctrine of freedom of contract. When two parties of full capacity enter into an agreement of their own free will, the courts will interfere only for very compelling reasons…
Value is in any case subjective, and the benefit derivative from a bargain may differ from person to person. If a man agrees to sell his Mercedes Benz car for $1 the contract is valid and therefore, enforceable against him, in the absence of fraud or duress.

Thus, in African Petroleum Ltd. V. Owodunni (1991) 8 NWLR (pt.210) 351. The facts of the case revealed that the accommodation which the appellant provided for the respondent, it’s employee, at Ikoyi was worth ₦65,000 per annum in the market, but by agreement between the parties he was only paying ₦400 per annum.
Commenting on the respondents consideration in this tenancy contract, which he referred to as “chicken change”, Nnaemeka-Agu, J.S.C., nevertheless declared that “it is fundamental that the courts will neither make a contract for the parties nor inquire into the adequacy of consideration”.

Again in Opara V. D.S. Nig. Ltd., Onalaja, J.C.A., put it as follows at the Court of Appeal:
“… inadequacy of consideration does not ordinarily vitiate the essentials of a contract once there is valuable or sufficient consideration. It is for this reason that the court from time immemorial does not inquire into the adequacy of consideration.
See also the Queen’s Bench judgment in the celebrated case of Thomas V. Thomas, (1842) 2 Q.B. 851 decided in England.

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