Past consideration refers to a situation in contract law where a party promises to do something in return for a promise or act that has already occurred in the past. In many jurisdictions, including common law systems, past consideration is generally not considered valid or enforceable consideration in a contract. There are several reasons why past consideration is not supported by business law:
Lack of Mutuality: For a contract to be valid, there must be a meeting of the minds, or mutual assent, between the parties. Past consideration lacks the element of mutuality because the act or promise has already been performed before the contract was formed. In a contract, both parties should be exchanging something of value at the time of agreement.
No Bargained-For Exchange: A fundamental principle of contract law is the existence of a bargained-for exchange, where each party gives something of value in exchange for something from the other party. Past consideration does not involve such a bargain because the promise is made after the act has already been completed.
Potential for Unjust Enrichment: Allowing past consideration to form the basis of a contract could lead to situations where one party unjustly benefits from the actions of another without giving anything in return. This could create opportunities for unfair and exploitative practices.
Clarity and Certainty: Contract law values clarity and certainty in contractual agreements. Past consideration can lead to disputes and confusion about the terms and timing of the agreement, as it blurs the line between what was promised before and after the fact.
Historical Perspective: Historically, the courts have been cautious about enforcing contracts based on past consideration because they want to ensure that contracts are made with full understanding and the intent to create legal obligations.
However, there are exceptions and nuances to the rule against past consideration. In some cases, past consideration might be valid if there was a clear understanding between the parties that the act performed in the past was done with the expectation of future compensation. Additionally, certain legal systems and jurisdictions might have variations in their treatment of past consideration.