In contract law, a legally binding contract is formed when both parties provide something of value to one another. This exchange, known as valuable consideration, is essential for the formation of the contract. For instance, agreeing to pay money for services or goods in exchange for their delivery demonstrates good consideration.
However, if one party makes a promise after the other party has already performed their obligation, this is called past consideration. According to the general rule, past consideration does not constitute past consideration that can form the basis of enforceable contractual obligations.
The Landmark Case of Roscorla v Thomas (1842)
The landmark case of Roscorla v Thomas (1842) illustrates why past consideration is typically invalid. In this case, a buyer purchased a horse. After the sale, the seller made a promise that the horse was sound and free from vice. However, the horse was later found to be unhealthy and poorly behaved.
When the buyer attempted to sue for a breach of contract, the court held that the seller’s promise was not legally binding. The promise was made after the contract had been completed, meaning no new adequate consideration was provided. This decision reinforced the principle that promises made after the formation of the contract cannot be enforced without fresh valuable consideration.
Breach of Contract and Past Consideration
A breach of contract occurs when one party fails to fulfil their obligations under the agreement. However, if the obligation in question is based on past consideration, it is unlikely to hold up in court.
For instance, imagine someone performs a service, such as fixing a car, without a prior agreement. Later, the other party makes a promise to pay for the work already completed. If they fail to pay, the promise may not be enforceable, as it was not promised in advance and lacks good consideration.
Exceptions: Pao On v Lau (1980) AC 614
Although the general rule is that past consideration is not valid, there are exceptions. A notable example is the case of Pao On v Lau (1980) AC 614, which established that past consideration may be enforceable under certain circumstances.
For past consideration to be valid:
The act must have been performed at the request of the promisor.
Both parties must have understood that payment or some benefit would follow the act.
The promise must have been enforceable if made in advance.
This case demonstrates that while past consideration usually does not create a legal obligation, it may do so if specific conditions are met.
Why This Matters for a Law Firm and Clients
Understanding the principles of consideration is critical when drafting or disputing contracts. Individuals and businesses often rely on a law firm to ensure their agreements are enforceable. Failing to include proper valuable consideration can result in disputes or a lack of enforceable rights.
For example, if a business delivers goods without a prior agreement and later receives a promise to pay, this promise may not create a valid obligation. Ensuring that all terms and obligations are clearly established during the formation of the contract is essential to avoid disputes and ensure enforceability.
Past Consideration vs Legally Binding Contracts
In summary, the concept of past consideration plays a crucial role in determining whether a contract is enforceable. The landmark case of Roscorla v Thomas (1842) demonstrates that promises made after the fact, such as a promise that the horse was sound, do not constitute adequate consideration. However, cases like Pao On v Lau (1980) AC 614 highlight narrow exceptions where past consideration can create enforceable contractual obligations.
When forming agreements, parties should ensure that all promises and obligations are made upfront and supported by good consideration. Consulting a law firm can help clarify these principles, reduce the risk of disputes, and safeguard your rights under contract law.
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