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Past Consideration in Contract Law: Definition & Cases

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  • 0:01 Understanding Past…
  • 3:38 Cases Involving Past…
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Lesson Transcript
Instructor: Jessica Schubert

Jessica is a practicing attorney and has taught law and has a J.D. and LL.M.

This lesson will teach you about past consideration. You will review the definition of consideration and review how this is critical in contract formation. You will then review past consideration and examine some cases. When you are finished, you will have a thorough understanding of past consideration in contract law.

Understanding Past Consideration

When you enter into an agreement to buy a car, you need to promise to pay for the car. The car dealer will give you the car once you pay for it. If you tried to tell the car salesmen that you would use your payment from five years ago on your old car, that clearly would not constitute the appropriate payment for the transaction. That older payment would be considered past consideration which is not permitted in contracts. Rather, contracts require present consideration.

Consideration is something of value that is promised in order to enter into a contract. Consideration in the previous example involving the car was money, but goods, services, and agreed-upon actions can also serve as consideration. In every contract, there must be consideration in order for the agreement to be legally binding; it is a critical part of contract formation. Therefore, past consideration is the benefit that you get as a result of making the contract. In other words, each person who signed the contract promised to do something. In contrast, the person may have promised not to do something. If there was no proper consideration in an agreement, the agreement can be rendered invalid and unenforceable.

Contracts can be either bilateral contracts or unilateral contracts. Bilateral contracts involve agreements where two parties make mutual promises to one another for consideration purposes. For instance, person A promises to pick up person B's child from school on Mondays and Tuesdays and in exchange, person B promises to pick up person A's child on Wednesdays and Thursdays.

On the other hand, contracts may constitute unilateral contracts. This contract is one where one party makes a promise in exchange for the other party's performance. For example, person A agrees to pay person B $25.00 and in exchange, person B will paint person A's house.

Usually, parties to a bilateral contract will be bound by their promises at the time the promises are made. On the other hand, unilateral contracts usually bind just the person who makes the initial promise. Therefore, the other party is not treated as providing consideration until he has taken action as promised under the agreement.

For the most part, the courts do not get involved in the amount of consideration exchanged in a contract. In fact, there are times when nominal, or minimal, amounts of money constitute the consideration. One example is when a charitable purpose is made. For instance, a person may seek to transfer property to another person in order to get a favorable tax benefit. As a result, the property will be transferred for just $1.00 consideration. A court will typically recognize nominal consideration.

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