Executory consideration
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[1].
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 executed 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[2].
Forms of consideration
Consideration can be classified into one of three forms namely[3]:
- 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[4]:
- 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
Examples of Executory consideration
- A common example of executory consideration is a buyer’s promise to pay a seller for goods. Under this type of contract, the buyer agrees to pay for the goods at a later date, and the seller agrees to provide them. This is an example of executory consideration because the buyer has given a promise to pay, and the seller has not yet provided the goods.
- Another example of executory consideration is an employer’s promise to pay an employee for their work. In this case, the employee agrees to work for the employer and the employer agrees to pay the employee after they have completed the work. This is an example of executory consideration because the employee has provided a service and the employer has not yet compensated them.
- A final example of executory consideration is a tenant’s agreement to pay rent to a landlord. In this case, the tenant agrees to pay a certain amount of rent each month and the landlord agrees to provide the tenant with a place to live. This is an example of executory consideration because the tenant has given a promise to pay and the landlord has not yet provided the tenant with a place to live.
Advantages of Executory consideration
Executory consideration has several advantages:
- It provides legal protection to both parties in a contract. By having consideration, both parties have a contractual commitment to fulfill the terms of the agreement. This helps to ensure that both parties are held accountable for the promises made in the agreement, providing legal recourse for either party if the other does not uphold their end of the bargain.
- It gives both parties more certainty and clarity. Executory consideration ensures that both parties understand their obligations and the consequences of their actions. This can help to prevent misunderstandings, avoid disputes, and create a more harmonious working relationship.
- It can help to protect the interests of both parties. By having consideration, both parties can be confident that their interests will be taken into account. This can help to prevent one party from taking advantage of the other.
Limitations of Executory consideration
Executory consideration is limited in several ways. These include:
- The consideration must be legally sufficient - the consideration must have some legal value, such as money, goods, or services being exchanged.
- The consideration must be mutual - both parties must get something of value in exchange.
- The consideration must be adequate - the value of the consideration must be equal to the value of the subject matter of the contract.
- The consideration must be simultaneous - the consideration must be exchanged at the same time as the subject matter of the contract.
- The consideration must be certain - the consideration must be clearly defined and understood by both parties.
- The consideration must be legal - the consideration must not involve any illegal activities.
Introduction: Aside from the buyer's promise to pay, there are several other approaches related to Executory consideration.
- Promissory Estoppel: This approach states that if the buyer has taken action in reliance of the seller's promise, the buyer can still enforce the contract despite not having provided consideration. As such, the promisee's reliance on the promisor's promise is sufficient to establish consideration.
- Past Consideration: If a party has done something in the past, that action can be considered sufficient consideration for a current contract.
- Unconscionability: Under this approach, courts may find consideration to be valid when one of the parties is at a significantly greater bargaining power than the other.
- Sufficiency of Consideration: This approach holds that consideration is valid so long as it is a benefit to the promisor or a detriment to the promisee.
Summary: In conclusion, there are several approaches to Executory Consideration other than the buyer's promise to pay, such as Promissory Estoppel, Past Consideration, Unconscionability, and Sufficiency of Consideration. Each of these approaches provide a different basis for establishing consideration in a contract.
Footnotes
| Executory consideration — recommended articles |
| Executed consideration — Contractual relationship — Binding contract — Statute barred debt — Affirmative Covenant — Periodic tenancy — Objective theory of contract — Mutual assent — Hold over tenant |
References
- 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
