ELEMENTS OF A VALID CONTRACT- CONSIDERATION

ELEMENTS OF A VALID CONTRACT- CONSIDERATION

CONSIDERATION

For an agreement to constitute a contract it must be supported by consideration.

Exception

A "specialty contract" need not be supported by consideration.  Such a contract is written, signed by one party, sealed and then delivered to the other party. 

Definition     

There are many definitions of consideration that have been given by various judges in various cases.  The following are some of the definitions:

(i)                 "... 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 

(ii)               "Consideration means something which is of some value in the eye of the law, moving from the plaintiff:  It may be some benefit to the defendant, or some detriment to the plaintiff, but at all events it must be moving from the plaintiff.

TYPES OF/OR CLASSIFICATION OF CONSIDERATION 

Consideration may be executory or executed or past in certain circumstances.

(a)     Executory Consideration

Executory consideration consists of a promise made by one party and a promise made by the other party to the contract.  The party exchange mutual promises.  Performance of the obligations remains in future.  It is good considerations to support a claim.

Examples

i                      an unmarried man and a lady agree to be married in the near future.  Although nothing has been done yet, there is a contract to marry between them from the moment they exchange their promises. 

The lady's promise is the price, which she pays for the man's  promise, and the man's promise is the price he pays for the lady's promise.

ii                    Onyango goes to Munene's shop on the tenth day of the month and asks Munene, a tailor, to make a suit for him.  He promises to pay for the suit at the end of the month.  Munene takes Onyango's measurements and promises to have the suit ready on the last day of the month.

Here, Onyango's promise is the consideration or price for Munene's promise, and Munene's promise is the consideration or price for Onyango's promise.

(b)     Executed Consideration

Executed consideration is constituted by something done by the plaintiff because of a promise made by the defendant.  It is good consideration to support a contractual claim.

Examples

1.                  If in example (2) above Onyango had paid for the suit in advance, the payment would be the executed consideration for Munene's promise.

2.                  Mutiso puts an advertisement in the newspapers that he has lost his goat of a certain description and promises to pay Shs200 to anybody who returns it.  Onyango reads the advertisement, goes to look for the goat, finds it in the bushes near the Bomas of Kenya and returns it to Mutiso.

Here, what Onyango has done is what constitutes the executed consideration required to make Mutiso's promise binding on him.

Rules relating to consideration

The following are the rules which the English courts have developed in relation to consideration:

i        Consideration must be sufficient (real) but it need not be adequate.

EXCEPTIONS TO THE RULE IN PINNELS CASE

The decision in Pinnels Case that payment of a smaller amount of money cannot constitute consideration for a promise to accept it in settlement of a debt of a larger amount does not apply in the following situations:

(a)           Payment of a smaller sum at an earlier date

(b)          Payment of a smaller sum in kind

(c)           Payment of a smaller sum at a different place or venue.

(d)          Payment of a smaller sum by a third party

(e)           Payment of a smaller sum in addition to an object

(f)           Payment of a smaller sum in a different currency

(g)          Payment of a lesser sum by a debtor when he has entered into an arrangement with his creditors to compound his debtor.

                         

In Pinnel's Case (1602), Pinnel sued Cole for a debt of £8 which was due for repayment on 11th November 1600.  Cole's defence was that, at Pinnel's request, he had paid him £5 on a 1 October and that Pinnel had accepted this payment in full settlement of the debt.  Pinnel won the case on a technical point of pleading but the court explained that, except for the technical point, he would have lost the case.

Brian C. J. stated that "payment of a lesser sum on the day in satisfaction of a greater cannot be any satisfaction (i.e. consideration) for the whole", but that it could be consideration if paid:

          1.      Adequacy of consideration

Provided that consideration is sufficient, or real, it need not be adequate.  The court will not compare the value of the defendant's promise with the value of the plaintiff's act or promise in order to determine the fairness of the transaction

          2.      Consideration must move from the promisee

The rule that "consideration must move from the promisee" means that only a person who has personally given consideration for a promise can sue for breach of the promise.  A person who has not given consideration for a promise cannot sue the promisor for the simple reason that he cannot expect to get something for nothing. The common law regards a contract as a bargain between the parties to a commercial transaction, each of whom has bought the promise of the other with his own promise or act.  

Privity of contract

This rule that consideration must move from the promisee is also known as the "privity of contract" rule and the effect of it is that an agreement between A and B for the benefit of C, if broken, cannot, generally speaking, be enforced by C.

Exceptions to the doctrine of Privity of contract

There are a number of exceptions to the privity of contract rule of which the following may be stated:

             (a)     Agency        

                         A principal may sue on a contract made by an agent.                                         

This exception is perhaps more apparent than real because the principal rather than the agent is regarded as the contracting party.

          (b)     Negotiable instruments

A holder in due course of a bill of exchange can sue prior parties thereto although there is no privity of contract between him and any of them.

          (c)     Third party insurance

A person injured in a car accident can sue the insurance company which insured the car against such risks although he is not a party to the contract between the owner of the car and the insurance company.

                                                 

          (d)     Legal assignment 

The assignee of a debt may sue the debtor in his own name under the Indian Transfer of Property Act, 1882.

          (e)    Covenants running with land

The plaintiff, in order to succeed in the case, must prove to the court that he was induced to do what he did by the promise which the defendant made and that he would not have done what he did if the defendant had not made the promise.  In such a case the plaintiff's act and the defendant's promise constitute a single transaction or bargain.  If the plaintiff performed the act before the defendant made the promise, the performance of the act would not constitute consideration for the defendant's promise.  

Exceptions

A plaintiff may rely on past consideration in the following instances:

 (a) Where services are rendered at the express or implied request of the defendant in circumstances which raise an implication of a promise to pay.  

          (b)     Negotiable Instruments

 Past services may constitute valuable consideration for a bill of exchange under s.27 of the Bills of Exchange Act which provides that valuable consideration for a bill may be constituted by "an  antecedent debt or liability".

          (c)     Acknowledgement of statute barred debt

 An acknowledgement of a statute-barred debt is binding under Limitation of Actions Act 1968 even though it is made in respect of a past debt.

(c)     Consideration must be legal

The act or promise offered by the offeree as consideration for the other parties.  Promise must be one permitted by law.  Illegal consideration invalidates the contract.

(d)     Consideration must be something in excess of a public duty

Performance by the plaintiff or a public duty imposed upon him by law is not sufficient consideration for the defendants promise.  This is because the plaintiff is already legally bound to do.

(f) Considerations must be something in excess of an existing contractual obligation Performance by the plaintiff of an existing contractual obligation is not sufficient consideration for the defendants promise.  This is because the plaintiff is already legally bound to .