Key Takeaways

  • Executed consideration refers to actions performed in exchange for a promise and is a valid basis for binding contracts.
  • Courts distinguish between past consideration (not valid) and executed consideration (valid if bargained).
  • Case law such as Re McArdle and Lampleigh v Brathwait highlight when past actions can or cannot count as consideration.
  • Consideration must be present and bargained for; moral obligations and pre-existing duties generally do not qualify.
  • Understanding these distinctions can help prevent unenforceable contracts due to lack of valid consideration.

Understanding contract law past consideration is a topic that anyone entering into any form of contract needs to understand. Whether you are a business owner or an individual dealing with a relative, knowing when a contract can be enforced and at what point is very important to prevent either of the parties from getting burned in the process.

What is Consideration?

Consideration in a contract is essentially providing an answer as to why the parties would enter into a specific contract or what is being received within the terms of the contract.

For a contract to be enforceable, it has to include consideration from every individual or business who is party to the contract.

The consideration is a benefit that all parties will received or expect to receive from the deal. For instance, you get a soda at the convenience store and they get your money.

Consideration is typically the result of either:

· A promise that you will do something you are not obligated to do legally, or

· A promise that you will not do something when you have the right to do so, such as file a lawsuit

If, for example, you backed into your neighbor’s car and caused damage, your neighbor is allowed by law to sue you for the cost of the damage. Consideration comes into play if he chooses not to sue you if you pay him $3000.

This form of agreement provides consideration for your contract since both parties are giving something up in exchange. You give money and your neighbor is giving up his right to sue you for the damage.

Types of Consideration

Executory Consideration- this form of consideration occurs when there are promises exchanged to perform tasks at a later time. An example is a contract in which you promise to deliver items to another person at a later date and he promises to pay you when they are delivered.

If you do not deliver them, it is considered a breached contract and the other person can sue you. If you deliver the items, your consideration is executed.

Executed Consideration- if one party to a contract makes a promise for an act by another party, it is an executed consideration when the act is done. If you offer a reward for a lost wallet and another person finds it and gives it to you, that person’s consideration is executed.

Executed Consideration Case Law

Executed consideration occurs when a party performs an act in response to a promise, making the contract binding once the act is complete. Unlike executory consideration (a future promise), executed consideration is based on performance, and courts have often ruled on its enforceability depending on the timing and nature of the act.

Several notable cases illustrate how courts interpret executed consideration:

  • Lampleigh v Brathwait (1615): A key example of valid executed consideration. Here, Brathwait asked Lampleigh to secure a royal pardon and later promised to pay £100 for the effort. The court held that because the request preceded the promise, and the act was done at the promisor’s request, it was valid consideration.
  • Re Casey’s Patents (1892): An agreement to transfer patent rights after work had already been done was upheld. The court deemed that prior acts can be valid consideration if they were performed in the expectation of payment or reward, making them part of a continuing obligation.
  • Pao On v Lau Yiu Long (1980): This Privy Council case clarified that past consideration can be valid if:
    1. The act was done at the promisor’s request,
    2. The parties understood the act would be compensated,
    3. The promise would have been enforceable had it been made in advance.

However, not all past acts qualify:

  • In Re McArdle (1951), family members made improvements to a home and then sought reimbursement after the fact. The court ruled the promise unenforceable due to lack of fresh consideration.

These cases emphasize that for executed consideration to be enforceable, it must involve either contemporaneous exchange or a prior act requested with the understanding of compensation. Simply performing an act and receiving a promise afterward generally does not meet the legal threshold unless one of the exceptions applies.

When a Contract Lacks Consideration

There are some instances when a court will enter a contract and determine that it is not enforceable due to no consideration.

One party may have been legally required to perform a task. For instance, a policeman is not allowed to claim a reward for capturing a suspect since he was already required to capture lawbreakers.

The promise is a gift rather than a contract. If a wealthy relative promise to give you money to go to college with no further obligations, that is a promise to give a gift. Should the relative change his mind, you cannot force that relative to give you the money anyway since you have not promised anything in return.

If you have made a deposit on your college tuition when you were relying on the gift from the relative and the relative knew you were doing so, a court may require him to pay you the money to make good on his original promise.

While this is not considered a true contract, the law says that promises have to be kept if another person on the other end of the promise has taken some kind of action assuming the promise would move forward. Otherwise, the person who received the promise could be contractually obligated to still attend college or stand to risk losing the money spent out of his or her own pocket based on a bad promise.

An exchange for past consideration is also not going to be ideal. If someone promises to give you $100 because you lost 50 pounds over the course of the year, the court will not require the person to follow through with that promise if he or she changes their mind since the act of losing weight was not bargained ahead of time.

Exceptions and Limitations to Consideration

While consideration is essential for contract enforceability, some exceptions allow courts to enforce promises lacking traditional consideration:

  • Promissory Estoppel: Courts may enforce a promise if one party reasonably relied on it to their detriment. This doctrine prevents injustice when the promisee has changed position based on the promisor's assurance, even without consideration.
  • Pre-existing Duty Rule: A promise to do something one is already legally obligated to do is not valid consideration. For example, if a contractor demands extra payment to complete work they were already bound to perform, courts may find no new consideration was given.
  • Moral Obligation: Courts generally do not enforce promises based solely on moral obligation unless the promisor has received a material benefit directly related to the promise. For instance, in some jurisdictions, saving someone’s life may not support a later promise of payment unless the service was explicitly requested.

These exceptions ensure fairness in scenarios where strict adherence to the consideration requirement would produce inequitable outcomes.

Frequently Asked Questions

  1. What is the difference between past and executed consideration?
    Past consideration refers to actions taken before a promise is made and typically does not create a binding contract. Executed consideration, on the other hand, involves performance given in return for a contemporaneous promise and can make a contract enforceable.
  2. Can past services be valid consideration for a later promise?
    Generally, no—unless the service was provided at the promisor’s request and with an implied expectation of payment, as seen in Lampleigh v Brathwait and Pao On v Lau Yiu Long.
  3. What happens if a contract lacks valid consideration?
    If a contract lacks valid consideration, it is typically unenforceable unless an exception like promissory estoppel applies. Courts may refuse to enforce one-sided promises made without mutual exchange.
  4. Is a gift a valid form of consideration?
    No, a gift is not considered valid consideration because it lacks a reciprocal obligation. Promises to give gifts are generally not enforceable contracts unless reliance or another legal theory applies.
  5. When is moral obligation sufficient to enforce a contract?
    Moral obligation alone is not typically sufficient. However, if the promisor receives a material benefit from the promisee, courts in some cases may find that benefit sufficient to support the promise.

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