LEGAL PRINCIPLE: COMMERCIAL LAW — Bank Drafts — Consideration — Failure of Consideration — Effect on Validity
PRINCIPLE STATEMENT
In the absence or subsequent failure of consideration, the instrument is invalid as between immediate parties, but not necessarily as between remote parties when the holder is a holder for value.
RATIO DECIDENDI (SOURCE)
Per Iguh, JSC, in First African Trust Bank Ltd v. Partnership Investment Company Ltd (2003) NLC-2932001(SC) at pp. 32–33; Paras E–B.
"In the absence or subsequent failure of consideration, the instrument is invalid, at least, as between the parties in immediate relationship, that is to say, the appellant and Alhaji Ladan, but not necessarily, as between remote parties when the holder is a holder for value."
EXPLANATION / SCOPE
Failure of consideration invalidates a draft between immediate parties. The principle applies to bills of exchange. A remote holder for value may still enforce the instrument. The rule protects bona fide holders. The defence of failure of consideration is not available against holders in due course. The principle is well-established.
