The general rule that past consideration is not good consideration is important to remember when determining whether adequate consideration has been provided to formalise contractual relations.

This means that consideration must be provided either during or after the formation of the contract. For instance, if Isabelle sells a book to Nicole and Nicole informs Isabelle that her payment to Isabelle for a different purchase few years ago would count towards the purchase of this book, this would constitute past consideration, and therefore, not valuable consideration with respect to the agreement regarding the sale of the book.

In the landmark case of Roscorla v Thomas (1842) 3 QB 234, the plaintiff purchased a horse from the defendant and after this transaction, the defendant promised the plaintiff that the horse was sound and free from vice. When the plaintiff later determined that the horse was in fact not sound, the plaintiff commenced proceedings against the defendant for breach of contract. Lord Denman ultimately held that the plaintiff did not provide consideration for the defendant’s promise that the horse was sound, and the sale of the horse previously would be deemed to be past consideration, and therefore, not good consideration. This was confirmed in the Australian case of SAS Realty Developments Pty Ltd v Kerr [2013] NSWCA 56.

There is however an exception of when past consideration will be held to be proper consideration (see Pao On v Lau You Long [1980] AC 614). This will be the case where:

  1. The act of consideration was provided at the request of a party;
  2. Both parties reached an understanding that some form of remuneration would be provided for this act; and
  3. From the evidence, it is clear that this remuneration would be enforceable if it had been promised in advance.

The issue of consideration or past consideration can have a significant impact on a party’s obligations and liability under a particular contract.

*** Assisted by: Neil Bookseller ***