Introduction

Consideration can comprise of a promise in return for an act (executed consideration), as in unilateral contracts or involve a promise for a promise (executory consideration), in bilateral contracts. The general rule is that consideration performed before a promise (past consideration) is not sufficient.

Re McArdle [1951] Ch 669

Facts:

The plaintiff worked on improving and repairing a bungalow, which had been left in trust to her husband and his four siblings.

After the work was carried out the siblings signed a document stating that the executors should pay the plaintiff £488 from the proceeds of selling the house. This payment was not made.

Issue:

Could work carried out prior to the promise be valid consideration?

Held:

The promise was not binding as it was made after the consideration had been performed. Past consideration is no consideration.

Jenkins LJ: .. as the work had in fact all been done and nothing remained to be done... the consideration was a wholly past consideration and therefore, the beneficiaries' agreement for the repayment... was a promise with no consideration to support it....

Exceptions

In certain circumstances, a past promise or act may suffice as good consideration.

• Lampleigh v Brathwait (1615) Hob 105

  Facts:

  The defendant, a murderer, asked the plaintiff to seek a royal pardon for him and the plaintiff put a lot of effort into doing so.

  The defendant subsequently promised to pay the plaintiff £100. The defendant did not pay.

  Issue:

  Could the past consideration be good consideration?

  Held:

  There was good consideration as the plaintiff acted upon the defendant's request. The defendant's original request contained an implied promise that he would reward the plaintiff his efforts. The promise to pay £100 was part of the same transaction and was enforceable.

• Re Casey's Patents [1892] 1 Ch 104

  Facts:

  The plaintiff was asked manage promoting some patents.

  After the plaintiff had completed much of the work the patent owners stated: In consideration of your services as practical manager in working our patents, we hereby agree to give you one-third share of the patents....

  Issue:

  Can past consideration form good consideration?

  Held:

  The past consideration was sufficient.

  Bowen LJ: .. Even if it were true, as some scientific students of law believe, that a past service cannot support a future promise, you must look at the document and see if the promise cannot receive a proper effect in some other way. Now, the fact of a past service raises an implication that at the time it was rendered it was to be paid for, and, if it was a service which was to be paid for, when you get in the subsequent document a promise to pay, that promise may be treated either as an admission which evidences or as a positive bargain which fixes the amount of that reasonable remuneration on the faith of which the service was originally rendered. So that here for past services there is ample justification for the promise to give the third share....

• Pao On v Lau Yiu Long [1980] AC 614 PC

  Facts:

  The parties agreed to exchange shares in their companies. The plaintiff agreed not to sell 60% of the shares for a year to avoid depressing their value and it was agreed the defendant would protect the plaintiff from any losses due to fall in value of the shares.

  A subsidary agreement was made which meant the plaintiff would sell the defendant 60% of the shares back at $2.50 within the year. However, the plaintiff realised they would lose out if the share price rose above $2.50. Therefore, the plaintiff requested that the defendant give a guarantee by way of indemnity (only to buy back the shares if the fell below$2.50). The defendant signed the indemnity agreement in consideration of the plaintiff having already promised not to sell the shares for a year.

  Issue:

  Was there any consideration for the indemnity?

  Held:

  The plaintiff's promise not to sell the shares for a year was valid consideration. The consideration was given before the indemnity, however, it was given at the defendant's request and on the understanding that the plaintiff would be protected from losses. The Privy Council applied Re Casey's Patents [1892].

  Lord Scarman: .. an act done before the giving of a promise to make a payment or to confer some other benefit can sometimes be consideration for the promise. The act must have been done at the promisors' request: the parties must have understood that the act was to be remunerated either by a payment or the conferment of some other benefit: and payment, or the conferment of a benefit, must have been legally enforceable had it been promised in advance. All three features are present in this case....

In summary, for past consideration to be good the following criteria must be satisfied:

• Promisor's request

  The act was carried out at the promisor's request.

• Reward

  The parties must have understood that the act was to be rewarded in some way, either by payment or by benefit.

• Legally enforceable

  The payment or benefit must have been legally enforceable if it had been promised in advance of the consideration being provided. Therefore, there must have been agreement, consideration and contractual intention.