Introduction
This essay explores the fundamental concept of consideration in English contract law, a core element required for the formation of a legally binding agreement. Consideration, often described as the ‘price’ one party pays for the promise of another, underpins the enforceability of contracts by ensuring a mutual exchange of value. The purpose of this essay is to provide a comprehensive definition of consideration, elaborate on its significance, and distinguish between the three key types: executory, executed, and past consideration. Through a detailed examination supported by legal principles and case law, this discussion aims to clarify the practical and theoretical dimensions of consideration, highlighting its role in maintaining fairness in contractual relationships.
The Concept of Consideration
Consideration is a central doctrine in contract law, typically defined as something of value given by one party to another in exchange for a promise or performance. According to Currie v Misa (1875), consideration may consist of “some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other” (Lush J). This definition, rooted in the idea of reciprocity, ensures that contracts are not based on gratuitous promises but involve a mutual bargain. Importantly, consideration need not be monetary; it can include services, goods, or even a promise to refrain from certain actions, as long as it holds legal value (Chappell & Co Ltd v Nestle Co Ltd, 1960).
The significance of consideration lies in its role as evidence of intention to create legal relations. It distinguishes a binding contract from a mere agreement by ensuring that both parties have ‘skin in the game.’ However, consideration must be sufficient but need not be adequate; courts do not assess whether the exchange is fair in commercial terms, only that it exists (Thomas v Thomas, 1842). This principle reflects the law’s reluctance to interfere with freedom of contract, though it occasionally raises questions about exploitative bargains.
Types of Consideration: Executory, Executed, and Past
Consideration can be classified into three distinct categories, each with unique characteristics and legal implications. Firstly, executory consideration refers to a promise to perform an act in the future. For instance, in a contract for the sale of goods, the buyer’s promise to pay and the seller’s promise to deliver constitute executory consideration, as both obligations are yet to be fulfilled. This type is common in bilateral contracts where mutual promises form the basis of the agreement (Adams, 2016).
Secondly, executed consideration occurs when the act or performance is completed at the time the contract is made. A classic example is a unilateral contract, such as a reward offer: the promisee completes the required act (e.g., returning a lost item), thereby providing executed consideration, while the promisor’s obligation to pay remains executory (Carlill v Carbolic Smoke Ball Co, 1893). This demonstrates how consideration can be asymmetrical yet legally binding.
Lastly, past consideration refers to an act or service performed before the promise is made, which generally does not constitute valid consideration. The law views past acts as lacking the element of bargain, as they were not done in exchange for the promise. For example, in Roscorla v Thomas (1842), a promise to pay for a horse after its sale was deemed unenforceable because the act of selling was past consideration. However, exceptions exist under statute, such as the Bills of Exchange Act 1882, or where past acts are part of an ongoing relationship implying future reliance (Pao On v Lau Yiu Long, 1980).
Conclusion
In summary, consideration remains a cornerstone of English contract law, ensuring that contracts embody a mutual exchange of value, whether through promises or acts. This essay has defined consideration broadly, drawing on established case law to illustrate its legal and practical dimensions. The distinction between executory, executed, and past consideration reveals the nuanced application of this doctrine in various contractual scenarios, with past consideration often deemed invalid unless specific exceptions apply. Understanding these categories is vital for assessing the enforceability of agreements and highlights the law’s emphasis on reciprocity over mere goodwill. Indeed, the concept’s flexibility—allowing for non-monetary value—demonstrates its adaptability, though its limitations in addressing fairness raise ongoing debates. This analysis underscores the importance of consideration in maintaining the integrity of contractual obligations.
References
- Adams, A. (2016) Law for Business Students. 9th edn. Pearson Education.
- Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87.
- Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256.
- Currie v Misa (1875) LR 10 Ex 153.
- Pao On v Lau Yiu Long [1980] AC 614.
- Roscorla v Thomas (1842) 3 QB 234.
- Thomas v Thomas (1842) 2 QB 851.
