Executed consideration
Executed consideration is a performed, or executed, act in return for a promise. Therefore, in reward cases, for example, a promise to pay a reward when an act is done becomes enforceable only when that act is performed[1].
Executed consideration, that is, where one party has received a benefit for which he must pay, it is plain that implied contracts are wholly aside from the purpose and intent, as well as without the language of the enactment[2].
If, for example, A offers a reward for the return of lost property, his promise becomes biding when B performs the act of returning A's property to him. The claimant's act in Carlill's case in response to the smoke ball company's promise of reward was thus executed consideration[3].
Types of consideration
Consideration can be divided into the following three categories[4][5]:
- Executory consideration this is a promise to perform an action in return of a promise, at some future time.
Example: Omar promises to do some work in return for a promise of payment; shopkeeper's promise to supply the goods and customer's promise to accept the goods and pay. In the above examples, neither party has yet done any act but each party has given a promise in order to obtain the promise of the other person. It would be a breach of contract if either party withdraw from his/her promise without the consent of the other
- Executed consideration this is an act in return for a promise.
Example:Richard loses his wallet and offers Bogdan a reward if he finds and returns the lost wallet. It is only when Bogdan finds the wallet and duly returns it to Richard that the reward becomes enforceable and the consideration becomes valid.
- Past consideration such consideration, actually is not regarded as a valid consideration. Usually, consideration is provided either at the time of the creation of a contract or at a later date.
Example:Robert mows Mike's lawn and a week later Mike gives a cheque for $10. Robert's work is valid consideration in exchange for the cheque.
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[6]:
- 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 Executed consideration
- A company offers a bonus to employees who stay with the company for 3 years. This bonus is only enforceable when the employee has actually stayed with the company for the full 3 years.
- A husband and wife enter into a contract where the husband agrees to pay his wife a sum of money if she agrees to move in with him. This agreement is only enforceable if the wife actually moves in with her husband.
- A landlord agrees to reduce the rent for a tenant if the tenant agrees to paint the apartment. This agreement is only enforceable if the tenant actually paints the apartment.
Advantages of Executed consideration
Executed consideration is an important part of contract law, which allows individuals and businesses to reach binding agreements based on mutual promises. Some of the advantages of executed consideration include:
- It provides certainty and clarity to both parties by allowing them to clearly define the terms of the agreement in writing.
- It strengthens the enforceability of the agreement, since both parties are legally bound to the terms of the agreement once the act has been performed.
- It can help protect both parties from potential legal disputes, since the agreement remains enforceable even if the promise is not fulfilled.
- It can also provide a framework for resolving disagreements in a fair and equitable manner, as both parties have agreed to the terms of the agreement in advance.
Limitations of Executed consideration
Executed consideration involves certain limitations:
- It must be of a certain value - the consideration must be of value in the eyes of the law. This means that it must be something that has some form of monetary value, or that is of some benefit to the promisor.
- It must be legal - the consideration must be legal and within the bounds of the law. If the act desired by the promisor is illegal, then there is no consideration and the promise is void.
- It must be related to the promise - the consideration must be related to the promise in some way. It must be something that is desired by the promisor in exchange for the promise.
- The consideration must be executed - for the consideration to be valid, it must be completed. If the promisee does not execute the act, then the consideration is invalid.
- It cannot be something already done - the consideration cannot be something that has already been done prior to the promise. If the act has already been completed, then it is not valid consideration.
- It must be communicated - the consideration must be communicated to the promisor before the promise is made. If the promisor is unaware of the act, then it cannot be valid consideration.
Executed consideration involves the exchange of an act for a promise and is an important concept in contract law. There are several other approaches related to executed consideration that can be used in addition to this concept. These approaches include:
- Substantial Performance: This involves performance of a contract that is substantially in accordance with the terms of the contract, even if the performance is not entirely complete. This approach is often used when an obligation is partially performed and the party that is owed money has received some benefit from the performance.
- Quantum Meruit: This is a Latin phrase that translates to "as much as is deserved" and is sometimes used as a form of payment when the performance of a contract is incomplete. Under this approach, the party that has performed the services is entitled to receive payment for the value of the services they provided.
- Unjust Enrichment: This involves a party receiving a benefit that they are not entitled to, and is usually used when a party has received a benefit due to another party’s mistake. In such cases, the party that has been unjustly enriched is required to return the benefit.
In summary, executed consideration is a concept in contract law that involves the exchange of an act for a promise. There are several other approaches related to executed consideration that can also be used when an obligation is partially performed or a party has received an unjust benefit.
Footnotes
| Executed consideration — recommended articles |
| Executory consideration — Affirmative Covenant — Objective theory of contract — Vesting order — Certificate of satisfaction — Inchoate instrument — Binding contract — Absolute assignment — Hold over tenant |
References
- ACCA: For Exams, (2007), BPP Learning Media, London.
- ACCA Paper F4 - Corp and Business Law, (2012), BPP Learning Media, London.
- Business Essentials: Business Law, (2010), BPP Learning Media, London.
- Roach L., (2016), Card and James' Business Law, Oxford University Press, New York.
- Street T.A., (2000), The History and Theory of English Contract Law, Beard Books, Washington.
Author: Sylwia Jurkowska
