Key Takeaways

  • Past consideration is not valid consideration for a new contract under traditional contract law.
  • Exceptions to the rule include promises to pay debts barred by statute of limitations, voidable obligations, and debts discharged in bankruptcy.
  • Courts sometimes recognize “material benefit” exceptions where the promisor gains a substantial benefit.
  • Past consideration is often confused with moral obligation, but they are distinct concepts.
  • Enforceability of promises based on past consideration may vary by jurisdiction and case-specific facts.

Past consideration generally does not count as consideration in a contract. For a contract to be valid, consideration must be included at the time the contract was made.

What is Past Consideration?

In terms of a contract, past consideration is used to mean a promise or an act that was made or performed prior to a contract. Past consideration typically comes into play when someone is trying to enforce a new promise. When a new contract is written, past consideration will not count as consideration for the purposes of the contract. The reason for this is that past consideration occurred before the new contract was entered, meaning it could not have been provided for the new contract.

Past consideration cannot be included in a contract mostly because it did not benefit the promisor or pose any risk to the promisee. For a contract to be valid, it absolutely must include consideration. In a two-person contract for example, both parties involved must promise something, whether it is a specific act or an agreement to pay a certain amount of money.

Past consideration usually occurs when someone has a moral obligation to perform a duty for someone else. This obligation, however, is almost never legally required. It is for this reason that past consideration can also be called moral consideration.

Imagine, for instance, that you're taking a walk and see another person fall and hurt themselves. You then rush to help the injured person, taking them back to your home and helping them to heal. To show their appreciation, the other person promises to pay you $1,000. The aid that you have given the injured person would be considered past consideration. Although you were not legally required to help them, you felt morally obligated, and your fulfillment of this moral duty resulted in you being paid.

Key Characteristics of Past Consideration

Past consideration arises when an act or benefit occurred before a promise was made. This means the promise was not the motivation for the action. For consideration to be legally valid, it must be bargained for and provided in exchange for the promise. Since past consideration was given prior to the agreement, it fails to meet this requirement.

Key characteristics include:

  • It involves an act already performed or a benefit already conferred.
  • The promise is gratuitous and not supported by a reciprocal exchange.
  • It cannot legally bind the promisor because no new detriment or benefit occurs at the time of the promise.

Courts distinguish past consideration from valid contractual consideration because contracts require an exchange of present or future obligations, not compensation for past acts.

The Traditional Rule of Past Consideration

Traditionally, a promise that has been made as a result of past consideration cannot be enforced in a court of law. Certain exceptions to this rule are:

  • A promise was made for a debt that is prohibited by a statute of limitations. If you owe someone a debt and the statute of limitations is expired, your debt can be enforced if you promised them you would pay it anyway.
  • A promise for past consideration can be enforced if there was a voidable obligation involved. For example, if a sports franchise signs a minor athlete to a contract, the athlete could hold the franchise to the contract after they turn 18.
  • A promise to pay a debt that was eliminated by bankruptcy is also enforceable. Unlike other debts that have been eliminated by a statute of limitations, promises related to bankruptcy do not need to be in written form to be enforced.

In modern times, an opinion is growing that promises made for past consideration can be enforced, even if they don't fit one of the three traditional criteria. The current view is that a promise can be enforced if there is a material benefit involved and that the promise of the benefit occurred after consideration.

Let's say, for instance, that you notice one of your neighbor's homes is on fire. You run into the home and save your neighbor but experience serious burns in the process. To make up for your injuries, your neighbor agrees to pay you a weekly stipend for the rest of your life. Now, let's assume that your neighbor passes away and their estate decides to no longer pay your stipend. You should be able to enforce the promise, as your stipend was based on a material benefit to your neighbor.

If the benefit given to a person is a gift, however, then the promise of compensation for the benefit cannot be enforced. A moral obligation does not exist for the repayment of gifts. For example, imagine that you are gifted a car for your birthday, and you later promise the person who gave you the car to repay them. Your promise cannot be enforced, as the car was given as a gift.  Also, promises for past consideration are only enforceable if the promisor benefited in some way from the consideration. Debt incurred by the promisee is not enough to make the promise enforceable.

Implications for Contract Drafting

Understanding past consideration is crucial when drafting enforceable contracts. To avoid disputes:

  • Ensure promises are made in exchange for current or future acts, not past actions.
  • Express the consideration clearly in writing, specifying what each party is offering.
  • Avoid relying solely on moral or ethical obligations as the basis for promises.

Businesses should be cautious when issuing promises after receiving a benefit; absent fresh consideration or a statutory exception, such promises may be unenforceable in court.

Consulting a contract attorney can help ensure contracts meet legal requirements and mitigate risks tied to past consideration.

Modern Exceptions and Evolving Views

While traditional contract law holds that past consideration is not enforceable, modern courts have carved out exceptions in some cases, particularly under the “material benefit rule.” This rule allows enforcement if:

  • The promisor received a material benefit from the promisee’s earlier action.
  • The promisor subsequently made a promise to compensate for that benefit.

For example, if a person rescues another from harm and the rescued individual later promises compensation, some courts may enforce that promise, recognizing the substantial benefit or moral obligation.

Additionally, courts may consider promissory estoppel where a promise, even without consideration, induces reliance by the promisee, and injustice can only be avoided by enforcement.

Notable jurisdictions have recognized the material benefit exception in limited scenarios, though it remains a minority rule. Parties relying on such promises should seek legal counsel due to variability in enforcement.

Frequently Asked Questions

  1. Is past consideration ever enforceable in a contract?
    Generally no, but exceptions exist, such as promises tied to material benefit or debts barred by a statute of limitations.
  2. How does past consideration differ from moral obligation?
    Past consideration refers to a prior act or benefit; moral obligation is an ethical duty without legal enforceability unless tied to certain exceptions.
  3. Can promissory estoppel make past consideration enforceable?
    In some cases, yes—if the promise induces reliance and enforcement is needed to avoid injustice.
  4. What is the material benefit rule in past consideration?
    It allows enforcement of a promise if the promisor received a substantial benefit from the promisee’s earlier action.
  5. How can I avoid issues with past consideration in contracts?
    Ensure that consideration is bargained for and exchanged at the time of the contract, not for acts already performed.

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