Contracts · Consideration
Clear answer to: What Is The Difference Between Consideration in Contracts? with key cases, examples, and exam tips for law students.
Consideration in contracts refers to the value exchanged between parties, which can be classified into two types: executory (promises to perform in the future) and executed (actual performance). The distinction impacts enforceability and breach assessments.
Consideration is a fundamental concept in contract law, representing what each party stands to gain from a contract. There are primarily two types of consideration: executory and executed consideration. Executory consideration occurs when one party's promise to perform is contingent upon the other's future performance, such as in a bilateral contract. In contrast, executed consideration involves an immediate exchange where one party fulfills their obligation, typically seen in unilateral contracts where a promise is made in exchange for performance.
Understanding the nuances between these types of consideration is crucial, especially when addressing enforceability issues. Courts may enforce a contract based on the promise made even if the promise was not yet exchanged. However, a lack of consideration in either form—executory or executed—can lead to a finding that the contract is void or voidable. Ultimately, properly identifying the type of consideration helps determine whether a contract is binding.
Key cases illustrate these principles: In *Carlill v Carbolic Smoke Ball Co* (1893), executed consideration was emphasized when Mrs. Carlill claimed the reward after performing the conditions of the offer. Conversely, in *Baird v. Queens' Gardens* (1994), the importance of executory consideration was demonstrated as the party had not performed the necessary obligations to trigger the enforceability of the contract.
Moreover, consideration must also not be deemed 'past'—that is, a benefit derived from actions that occurred before the promise was made does not constitute valid consideration, as seen in *Re McArdle* (1951). This principle ensures that contracts remain forward-looking and incentivize future action instead of rewarding prior accomplishments.
A promises to pay $1,000 to B if B paints A's house. Here, A's promise to pay (executory consideration) is dependent on B's future performance of painting, which forms an enforceable contract. If B completes the painting and then A refuses to pay, B has a strong claim based on the exchanged consideration.
Questions on exams may focus on distinguishing between types of consideration, enforcing contracts based on these distinctions, and analyzing landmark cases related to consideration.