The more our readers understand the finer points of contract formation, the better they will be able to navigate the commercial world successfully. Having knowledge of contract formation will allow you to negotiate better, and ultimately create superior agreements. In the past, we’ve discussed the requirement of “consideration” in contract formation with the goal of adding nuance to this concept. As we have discussed, this concept roughly equates to value. In this post, we will discuss the issue of past consideration in contract formation.
General Rule
Firstly, when we refer to past consideration, we are referring to any value which was conferred to a party prior to the creation of a formal agreement. Suppose one party provided a service to another party as a favor – suppose the favor was moving the other party’s lawn – this service cannot be used as consideration for a promise at a future date. As a general rule, past consideration can never be valid legal consideration. There are several reasons as to why this is the case. For one, contract formation necessarily involves a bargaining process in the present moment; it involves a “meeting of the minds” which hinges on a particular moment or collection of moments. If there is a referring back to an earlier period, outside of the bargaining process, this calls into question many of the fundamental aspects of contract formation altogether.
Referring back to past consideration could quickly lead to an undesirable slippery slope as well. Contract disputes could quickly involve squabbles over the degree to which past services or past value should be correctly included in the agreement. Excluding past consideration provides some level of predictability and simplicity.
Past Behavior is Still Important
Although past consideration is almost always invalid consideration, this doesn’t mean that past behavior is altogether irrelevant. In many cases, courts use past behavior as a means of clarification contract terms, especially when the parties involved have a history of conducting business together.
Exceptions to the General Rule
As with so many rules, there are some exceptions to this general rule of past consideration. For instance, courts generally hold that a debt prohibited by a statute of limitations can be enforceable, as long there was a promise to pay the debt initially. In other words, if a party promises to pay back a debt, the debtor can still have a claim for the debt even after the SOL clock has expired. Another exception exists for promises involving voidable obligations. For instance, if a contract is executed between an adult party and a minor party, the contract may be enforceable when minor party reaches adult age. Of course, the other details of the contract will impact its enforceability; but, this may be a situation in which past consideration can be used.
In point of fact, courts in many jurisdictions have gradually become more and more accepting of additional exceptions to the general rule of past consideration. More and more exceptions have been recognized. The common thread among new exceptions is that there is a material benefit conferred by one party. In these situations, some courts have deemed it prudent to rule that this past material benefit should be enforced.
Contact TLF for Additional Info
Past consideration is a continually evolving issue in the law. As a general rule, you should be aware that it will not suffice, but a complete answer always requires an independent analysis. If you’d like to learn more, reach out to the Trembly Law Firm today at (305) 431-5678. Speak to a top South Florida lawyer today and figure out the best legal strategy for your case.
