Executory and Executed Consideration

Consideration plays a crucial role in the formation of contractual agreements and can be classified into two main categories: executory consideration and executed consideration. Understanding these categories is essential for grasping the nuances of contract law.

Executory Consideration

Executory consideration refers to situations where the parties involved make promises to perform certain acts in the future after a contract has been formed. A prime example of this is a contract for the sale of goods. In such a case, the seller agrees to deliver the goods at a future date, while the buyer commits to payment either upon delivery or through a credit arrangement. At the moment of the contract's formation, neither party has yet fulfilled their promise, yet the contract remains enforceable, allowing either side to pursue legal action in case of non-performance. Typically, bilateral contracts are characterized by executory consideration.

Executed Consideration

Executed consideration, on the other hand, occurs when the consideration has already been performed at the time the contract is formed. A classic illustration of executed consideration is found in unilateral contracts, particularly those that offer rewards. For instance, in the landmark case of Carlill v Carbolic Smoke Ball Co Ltd [1893] 1 QB 256, the act of performing the requested action, such as using a product and fulfilling its usage requirements, constitutes acceptance of the offer, thereby forming the contract while also representing the executed consideration.

As derived from both categories, valuable consideration may manifest as either something promised or something that has already been accomplished.

Rules Governing Consideration

In contract law, several fundamental rules govern the aspect of consideration, including:

Consideration must not be past: Generally, an act or forbearance that has occurred prior to the promise to pay cannot serve as valid consideration. It must be provided in exchange for the promise of the other party to create a binding agreement. For instance, in Eastwood v Kenyon (1840) 11 A & E 438, a guardian's prior act of caring for a child did not constitute sufficient consideration for a later promise to repay a loan, as the consideration was past and thus invalid.
Exception to the Past Consideration Rule: An exception exists when an act is performed at the promisor's request, with an understanding that it would be compensated at a later date. The leading case exemplifying this exception is Pao On v Lau Yiu Long [1980] AC 614, where three conditions were established for the exception to apply: a) The act must have been done at the promisor's request; b) It must have been understood by both parties that the act would be rewarded; c) The promise of compensation must be legally enforceable.
Consideration must move from the promisee: This rule stipulates that only those who have provided consideration can enforce a contract. The concept is distinct from the doctrine of privity of contract. A classic case illustrating this is Tweddle v Atkinson (1861) 1 B & S 393, where the groom could not enforce a promise made to him by his father-in-law since he had not provided any consideration himself.
Consideration need not be adequate: Courts do not assess the adequacy of consideration within the framework of freedom of contract. Thus, even an insignificant value can suffice as consideration. For instance, in Chappell & Co v Nestle Co Ltd [1960] AC 87, chocolate wrappers were deemed part of the consideration for a record, despite their limited value.
Consideration must be sufficient: While the value of the consideration is not evaluated for adequacy, it must possess some value "in the eyes of the law". In Thomas v Thomas (1842) 2 QB 851, the court highlighted that sufficiency was met as the widow's limited contributions to the estate were still considered valid consideration.

Summary of Key Principles Regarding Consideration

Consideration can be considered either 'executory' (future promises) or 'executed' (past performance).
Consideration must not be past; it cannot be valid if it has occurred prior to the associated promise.
Consideration must move from the promisee; those who do not provide consideration cannot enforce a contract.
Consideration need not be adequate; the court does not evaluate the fairness of the consideration.
Consideration must be sufficient; it must hold some value recognized by the law.

In conclusion, understanding these principles and the distinctions between executory and executed consideration is vital for effectively navigating contract law and ensuring enforceability in agreements.

Understanding Executory and Executed Consideration in Contract Law

Understanding Executory and Executed Consideration in Contract Law