August 6, 2022

ADEQUACY AND SUFFICIENCY OF CONSIDERATION EXPLAINED

In this piece, we will be explaining the principle of adequacy and sufficiency of consideration in the Law of contract. We will draw up a simple scenario to guide our conversation on the discuss. We will also make reference to both English and Nigerian Case law to explain the principle of law under discuss.

SCENARIO

Sometime in January 2022, Mr A agreed to sell his range rover 2020 model for N5000 (Five Thousand Naira) or $12 to another individual – Mr B.

Is this Contract valid and enforceable in law against Mr A in the absence of any fraud and duress on Mr B’s part?

EXPLANATION AND ANSWER TO THE SCENARIO

It is important to state that individuals and corporates enter into contracts or agreements on a daily basis. In essence, contracts are everywhere – even on the internet these days. Also, it is vital to note that whether a contract is valid, enforceable or otherwise often depends on a number of factors one of which is the nature of the contract (or agreement) itself. Thus, a contract between two persons to commit a crime would not be enforceable in a Court of Law. Another factor that determines whether a contract is valid and therefore enforceable is the applicable legal principles governing the specific circumstances of the contract. Legal principles such as the doctrine of frustration or negligent misrepresentation could render unenforceable an otherwise ‘good-looking’ contract.  

Now to the scenario under consideration.

As already stated, Mr A has agreed with Mr B to sell his Range Rover 2020 model to the latter for a meagre price of 5000 Naira (just 12 dollars). The question is – is such contract is valid and can it be enforced against Mr A? This is especially important taking into consideration that a Range Rover model cost much more than the price Mr A has chosen to sell his to Mr B – Just 12 dollars; pretty cheap.

The scenario at hand raises the legal issue of the adequacy of consideration vs the sufficiency of consideration. By means of a short recap we should state that consideration is one of the vital elements of a contract. But what is consideration and when is it said to be adequate and/or sufficient?

What is Consideration in the Law of Contract? #

In the old English case of Currie v Misa [1875], consideration was defined as: “some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other”.

Similarly in Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915], the Court defined it as

“An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.”

Sufficiency of Consideration vs Adequacy of Consideration #

The term “sufficiency” describes something that the courts can see of value that makes the bargain binding, whilst “adequacy” may describe the full value of something. Hence, the law requires consideration to be something of sufficient value, but not necessarily the full or adequate market value.

Put differently, The consideration must be of sufficient value – this means that it must have some legal worth. It does not need to have economic value.

The position of the law is that a court will not question the adequacy of consideration. What this means is that the court does not compare the respective economic value of the considerations furnished by the plaintiff and the defendant.

It further means that the court will not declare a contract to be invalid simply because one party has got a much better bargain than the other. Why? Because courts have historically been more concerned with enforcing people’s bargains, rather than regulating the fairness of their bargains.

Once the consideration is of some value in the eyes of the law (that is it is adjudged or held to be sufficient), the court will not probe further to determine whether it is adequate or inadequate (that is whether it is of any economic or market value). Consequently, no consideration is ever too small or too much or unfair in the absence of fraud, duress or misrepresentation. In other words, no consideration is inadequate or excessive as it all depends on the bargaining prowess of the parties to the contract.

Cases Where the Principle Was Applied #

Nigerian Cases on Sufficiency/Adequacy of Consideration

In the case of Ladgroup Ltd. v. First Bank of Nigeria, it was held that 300 Naira was adequate for the dispatch of shipping documents by the respondents on behalf of the appellant.

African Petroleum Ltd. v. Owodunni

In this case, the accommodation which the appellant provided for the respondent, its employee, at Ikoyi was worth 65000 Naira per annum in the market, but that by agreement between the parties he was only paying 400 naira per annum. While commenting on the respondent’s consideration in this tenancy contract, which he referred to as “chicken change” , Nnaemeka Agu JSC nevertheless declared that “it is fundamental that the courts will neither make a contract for the parties nor inquire into the adequacy of consideration”.

Also in the case of Opara v. D. S Nig Ltd, Onalaja JCA poignantly posited thus : “…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”.

BFI Group Corp. v. Bureau of Pubic Enterprises

here, the respondent’s counsel had urged the court that there was no consideration for the respondent’s promise to transfer an ALSCON factory to the appellant since appellant’s consideration was constituted by the execution of only $1 million, in a contract involving property worth $410 million. In this matter, the parties expressly agreed that the bid bond is US$ 1 million. However the Supreme Court rejected this argument as it held that it was not within the province of the court of appeal to query same as such would amount to dictating the terms  of the contract to the parties.

The dictum of Daniel Kalio JCA in BELLO & ORS v. BELLO (2016) LPELR-45456 (CA) would offer further illumination on our discuss so far;

“I will begin with the submission that once there is consideration, it need not be adequate. This indeed is a correct statement of the law. The Courts generally do not inquire into the adequacy of consideration. See AFRICAN PETROLEUM LTD V OWODUNNI (1991) 8 NWLR (Pt. 210) p. 351. This position of the law is rooted in the idea of freedom of contract. Of course, if there is fraud, duress mistake or misrepresentation, the Courts will pry into the consideration especially if it is unusually high or low but otherwise, the Courts respect the sanctity of contracts including the consideration fully agreed on by the parties without bothering about the adequacy of same. If the owner of a skyscraper worth a billion naira decides to sell it to a buyer for a giveaway price of a couple of millions, the Courts will not bother whether the consideration is adequate except as earlier stated, there is evidence of fraud, duress, mistake or misrepresentation.” Per OBIETONBARA OWUPELE DANIEL-KALIO, JCA (Pp 11 – 12 Paras C – A)

In Sum, the rule remains that consideration must be sufficient but need not be adequate.

Consequent upon the foregoing and having distilled the legal issue at hand, from the principles of law and applications marshalled out during the course of this analytical discourse , it is crystal clear that in a situation where Mr A in an agreement with individual B sells his Range Rover 2020 model to the latter for a price of 5000 naira, it is immaterial that the price of N5000 ($12) is inadequate to by the car. Thus in the absence of fraud or duress, the courts will not investigate the value of the car to see whether $5 is a fair price for it. Hence, the contract can be held valid and enforceable against the other party (Mr A) in the absence of fraud or duress.

Written By Oluboyo Taiwo Olamide

ABOUT THE WRITER

Oluboyo Taiwo Olamide is an undergraduate of law from the University of Benin, Benin city, Edo State. He currently holds the position of the Chief Press Secretary of the Law Students Association of Nigeria (LAWSAN), South South Zone. He is a prolific writer who has written several articles and one with a penchant taste in law and its applications.

To read more click https://cilexlawschool.ac.uk/wp-content/uploads/2018/10/HQ02-Law-of-Contract-Sample-2018.pdf

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