TUT 4 - Illusory consideration, bargained for, executory and executed consideration PDF

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Illusory consideration, bargained for, executory and executed consideration...

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13230237

Zara Spencer-brown

Tutorial 4- CONSIDERATION

Consideration represents the legal value exchanged in a contract, usually in the form of money, services, the forbearance of an action or anything of value to the parties.1 Consideration is a vital part of any contract and involves one party conferring a benefit or incurring a determinant in return for the other party’s promised obligation.2 Consideration allows the legal protection of the parties’ under contract,3 and must amount to a sufficient value in exchange for the goods.4

In the 18th century consideration was seen as merely a moral obligation upheld by the courts; Lord Mansfield stated ‘the ties of conscience upon an upright mind are a sufficient consideration.’5 This approach was objected and changed in the 19th century when it was mentioned that the court would need additional facts and evidence to ensure substantial consideration.6

There are certain rules that govern consideration in a contract. The first rule is that consideration must be bargained for in a sense that there must be an exchange of something of value between both parties.7 The next rule is that consideration must not be illusory. Illusory consideration is a situation where one party to a contract promises the other party something that appears to be a valid promise but is only an illusion of one. The deceptive party is not bound to any promise but the other party is; this contract is unenforceable.8 Consideration must also be sufficient and hold some value, however the courts will not investigate the adequacy of its value in exchange for the other parties promise.9

There are two types of consideration; these include executory and executed consideration. When consideration is executory then it is in a stage where promises 1 Currie v Misa (1875) LR 10 Ex 153. 2 Balfour v Balfour [1919] 2 KB 571. 3 Beaton v McDivitt 13 NSWLR 162. 4 Thomas v Thomas (1842) 2 QB 851. 5 Hawkes v Saunders (1782) 98 ER 1091, 289. 6 Eastwood v Kenyon (1840) 113 ER 482, 159 (Lord Denman). 7 Australian Woolen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 424. 8 Placer Development Ltd v The Commonwealth (1969) 121 CLR 353. 9 Attorney-General for England and Wales v R [2003] UKPC 22. 1

13230237

Zara Spencer-brown

between that parties have been made and accepted but no act or promise has yet been completed.10 This contract usually has terms that are to be fulfilled later and typically arises in bilateral contracts.11 When consideration is executed one party has acted on a promise, and once completed, the other party then fulfills their promise in exchange. This usually occurs with unilateral contracts where one party performs an act or obligation and once that has been fulfilled, the other party then upholds their legal promise.12 There is a third type of consideration called past consideration, although it is not in its technical meaning, actual consideration. Past consideration refers to the promise that one party relies on to constitute a valid contract, and states that the promise or act must not be fulfilled before any promise by the other party is made or agreed on.13 Therefore it is said that ‘past consideration is not good consideration’. However there are exceptions to this rule, Pao On v Lau Yiu Long14 it was held that a promise to pay could constitute consideration in a situation where the performer is paid after the performance. Similarly Forbes Engineering (Asia) Pty Limited v Forbes (No 4)15 established that when making a promise and giving consideration constitute one action, the process does not have to be ordered and can instead be seen as executed consideration.

Stephen Graw stated that ‘there can be a problem distinguishing between “executed” and “past” consideration and it is compounded because the former is good consideration, while the latter is not.’16 The difference between executed and past consideration is, during executed consideration a promise is made in exchange for an act, which is later performed. When Past consideration occurs one party has voluntarily acted before the other party has made a promise, it is said that this is not good consideration as the act was already performed and not made in exchange for the promise. 10 Bolton v Madden (1873) LR 9 QB 55. 11 Foot v Acceler8 Technologies Pty Ltd [2012] NSWSC 635. 12 Carlill v Carbolic Smoke Ball Co [1892] 2 QB 484. 13 Roscorla v Thomas (1842) 114 ER 496. 14 [1980] AC 614. 15 [2009] FCA 675. 16 Stephen Graw, An Introduction to the Law of Contract (Lawbook, 8th ed, 2015) 138. 2

13230237

Zara Spencer-brown

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