For a contract to be legally binding under English law, one of the essential ingredients is consideration. Consideration is the price for which the promise of the other is bought. A common definition was provided in the case of Currie v Misa (1875), which described it as "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". In simple terms, it is what each party gives or gives up in the bargain. The timing of this exchange determines the type of consideration, which can be categorised as executory, executed, or past. This assignment will explain these types, using case law to illustrate their application.
Executory and Executed Consideration
The first two types, executory and executed consideration, are both recognised by the law as valid or 'good' consideration.
Executory consideration is found in bilateral contracts, where the parties exchange promises to perform acts in the future. For example, if A promises to deliver goods to B in one week, and B promises to pay for them upon delivery, the consideration is executory. At the time the agreement is made, neither party has yet performed their side of the bargain, but the exchange of promises is sufficient to form a binding contract. The promises themselves are the consideration.
Executed consideration, by contrast, arises in the context of a unilateral contract. This is where one party makes a promise in exchange for an act by the other party. The consideration is 'executed' once the other party performs the required act. The leading case of Carlill v Carbolic Smoke Ball Co (1893) provides a clear illustration. The company advertised a £100 reward to anyone who used their smoke ball as directed and still caught influenza. Mrs Carlill purchased and used the product but still fell ill. The court held that the company's promise to pay was binding. Mrs Carlill's consideration was executed; she had completed the act required by the advertisement, and this performance was her acceptance of the company's offer and the consideration for their promise.
Past Consideration
The third type, past consideration, is fundamentally different because, as a general rule, it is not considered valid consideration. Past consideration refers to an act or promise that was made or performed before the other party made their promise. Because the act was not done in return for the promise, it cannot be the 'price' for it.
The principle is demonstrated in Roscorla v Thomas (1842). The claimant bought a horse from the defendant. After the sale was complete, the defendant promised that the horse was "sound and free from vice". The horse was, in fact, not sound. The claimant’s attempt to sue for breach of this promise failed. The court found that the promise was made after the sale, and the claimant had given no new consideration for it. The payment for the horse was past consideration for the new promise about its condition.
Similarly, in Re McArdle (1951), a woman carried out repairs and improvements on a house that was part of her deceased husband's father's estate. After the work was finished, the beneficiaries of the estate signed a document promising to pay her £488 for her efforts. When they later refused to pay, the court held that the promise was unenforceable. The work had been completed before the promise to pay was made, so the consideration was past.
The Exception to the Past Consideration Rule
The courts have recognised that the strict rule against past consideration can lead to unfairness, particularly in a commercial context. An exception, sometimes known as 'implied assumpsit', was developed and later clarified by the Privy Council in Pao On v Lau Yiu Long (1980). This case established a three-part test to determine if a past act can qualify as good consideration:
- The act must have been done at the promisor's request.
- The parties must have understood that the act was to be rewarded or paid for in some way.
- The promise of payment, had it been made in advance, must have been legally enforceable.
If these three conditions are met, the later promise is treated as fixing the amount of the reward that was implicitly understood from the beginning. This exception prevents a promisor from relying on a technicality to avoid a payment that was clearly expected by both parties when the original act was requested.
In conclusion, the classification of consideration is crucial in determining the enforceability of a promise. Executory and executed consideration are valid forms that support a binding contract. In contrast, past consideration is generally invalid, as the law requires a bargain, not a one-sided promise made out of gratitude or moral obligation. However, the exception in Pao On demonstrates a degree of flexibility, allowing the courts to enforce promises in circumstances where payment was clearly implied all along, thus reflecting commercial realities.
References
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
Re McArdle [1951] Ch 669
Roscorla v Thomas (1842) 3 QB 234
