Executory consideration exists in the buyer's promise to pay for the good when required to do so. Provided that the buyer remains ready willing and able to pay for the goods, he is entitled to sue the seller for the latter's non-delivery. In cases of unilateral contracts, where only one party has undertaken obligations, the promisee's consideration can only exist in an act rather than a promise, since he given no promise.
In executory consideration the form of the consideration arises by way of promise by the defendant in return for a promise by the plaintiff. In other words, the whole agreement is one which is to take place in the future. An example of this type of consideration would arise where A promises to purchase B's car on credit, delivery to take place next week. Here both A' and B's consideration is to be performed in the future- it is executory. Executed consideration occurs when one of the parties has done all that they are required to do under the contract, that is, they have exectued their side of the bargain. The other party's consideration which is still unperformed remains executory in that it remains to be completed in the future.
Forms of consideration
Consideration can be classified into one of three forms namely:
- Executed consideration and Executory consideration
Executed consideration is consideration that has already been provided, whereas executory consideration is consideration that is yet to be provided.The following example demonstrates the distinction. Gareth loses his Rolex watch at the gym. He puts up posters at the gym indicating that he will pay £100 to anyone who finds the watch and returns it to him. Melanie sees the posters, finds the watch, and returns it to Gareth, but he has yet to pay her the £100. By finding the watch and returning it to Gareth, Melanie has performed her obligation. Accordingly, Melanie's consideration for Gareth's promise is executed. Gareth's promise to pay the £100 to whoever finds his watch constitutes valid consideration, but because he has not yet paid Melanie the £100, Gareth's consideration is executory. Once he has paid her the £100, his consideration will become executed.
- Past consideration
Normally, the parties will each make a promise and then carry out the promised act. In this case, the promise constitutes consideration and, because it occurs before performance of the act, it will be valid. Conversely, where a party forms an act that is then followed by a promise, that act will normally constitute past consideration which generally does not provide good consideration for a promise. However, a past act can amount to good consideration for a promise by another person if three conditions are satisfied. The act must have been done at the promisors' request: the parties must have understood that the act was to be remunerated either by a payment or the conferment of some other benefit and payment, or the conferment of a benefit, must have been legally enforceable had it been promised in advance.
Additional rules for valid consideration
As well as being either executed or executory, there are additional rules that must be met for consideration to be valid:
- Performance must be legal, the courts will not enforce payment for illegal acts
- Performance must be possible, agreeing to perform the impossible is not a basis for a biding contract
- Consideration must pass from the promisee
- Consideration must be sufficient but necessarily adequate
- M.J. Fisher, D.G. Greenwood 2007, p.79
- P. Richards 2007, p.61
- L. Roach 2016, p.143-144
- Business Essentials: Business Law 2010, p.81
- Business Essentials: Business Law, (2010), BPP Learning Media, London.
- Fisher M.J., Greenwood D.G., (2007), Contract Law in Hong Kong, Hong Kong University Press, Hong Kong.
- Richards P., (2007), Law of Contract, Pearson Education, Edinburgh.
- Roach L., (2016), Card and James' Business Law, Oxford University Press, New York.
Author: Klaudia Piotrowska