Executory vs Executed Consideration

Executory or Executed Consideration

• Consideration can be either executory or executed. This distinction relates to whether the promises or acts have been fully performed.

Differences Between Executory and Executed Consideration

• Executory Consideration: This involves promises to perform an act or deliver something in the future. Parties are obligated to execute their parts of the contract at some point in the future. No performance has been exchanged yet.
• Executed Consideration: This describes a situation where the promises or acts have been completed. The exchange or performance has already taken place.

Legal Implications of Consideration

• Consideration is a crucial element of a valid contract. Without consideration, a contract may be unenforceable. This means a court may not compel performance or recognize it as a legally binding agreement.
• Consideration must have value in the eyes of the law, but that value does not necessarily have to be monetary. A promise to do something or refrain from doing something can constitute consideration. It must be something of legal value offered by one party in exchange for something from the other.
• The concept of "bargained-for exchange" is central to consideration. Each party's promise or performance must be given in exchange for the other's promise or performance. Mere gifts are not typically considered valid consideration.
• Courts will not scrutinize the adequacy of consideration, unless the consideration is so grossly disproportionate that it suggests a lack of true agreement or fraud.

Executed Consideration

• Executed consideration means that one or both parties have fully performed their obligations under the contract.
• In such a case, the transaction is complete and legally binding.

Examples of Consideration Types

• A promise to pay money in exchange for goods: This would represent executory consideration for both parties; the payment and the delivery of goods are both future acts.
• A payment made for goods already delivered: This is an example of executed consideration. The payment and delivery of goods have both been fulfilled.
• Forbearance to sue: Forbearing (or agreeing not to file) an action one has a right to pursue, if done in exchange for some benefit, is considered valid consideration.
• Providing services: Agreeing to perform specific services in exchange for payment is executory consideration. The service performance and payment are both future obligations.
• A promise to not compete: This can be valid consideration. If one party gives up a potential business opportunity in exchange for an agreement, it constitutes consideration.