Research on Contract Law/Consideration

Author: LegalEase Solutions 

Introduction

Our client, a developer by occupation, wanted to build a house by the beach. Since a minor change was proposed to the original plan, which was previously approved, the city required the developer to obtain neighbor approval.  The neighbor approval process involves a hearing. Though the neighbor agreed that the small change would not affect her view, she claimed that the original plan did affect her view.  She bargained that she would not sign off on the change unless the developer agreed to landscape her property.  She claims this was for “past consideration” of the view being taken away based on the original drawings. Though she could have rightly opposed the original drawings with the city, she opted not to and instead decided to take advantage of the present situation of the developer. If the neighbor’s signature was not obtained, the developer would have to go through an administrative process, which would delay the project by 2-3 months and would cost him $25,000.00 per month, whereas landscaping her property would only cost him about $8,600.00 and would not involve delaying the project.

Subsequently, disputes arose between the developer and the neighbor over the landscaping issue and the neighbor sued the developer for $100,000.00, claiming it was the cost of the landscaping she wanted.

Issues

What is “past consideration” and does it satisfy the requirements to enter a legally valid contract?

Discussion

WHAT IS ‘PAST CONSIDERATION’ AND DOES IT SATISFY THE REQUIREMENTS TO ENTER INTO A LEGALLY VALID CONTRACT

There is a statutory presumption that a written contract is supported by good and sufficient consideration. This presumption is disputable, but the burden of showing want of consideration lies with the parties seeking to invalidate or avoid the instrument. Blonder v. Gentile, 149 Cal. App. 2d 869 (1957).

The statutes/codes of California do not define the term ‘past consideration’. A definition exists in Ballentine’s Law Dictionary as past consideration is a consideration given before the making of a promise and without reference to it.

In the absence of a statutory provision dealing with the sufficiency of past consideration in the context of validity of a contract, common law will control.  The general rule in California is that past consideration will not support a promise.  In  Rogers v. Schulenburg, 111 Cal. 281 (1896), the Supreme Court stated, that “it is a universal rule, not confined to collateral agreements, that a past consideration will not support a promise.”  Id. at 282.  In a more recent rendition of the same rule, the Appellate Court of California, Fourth District, held, that:

Consideration must also be given in exchange for a promise. Past consideration cannot support a contract. (See Leonard v. Gallagher (1965) 235 Cal. App. 2d 362, 373 [45 Cal. Rptr. 211] [“It appears to be the universal rule throughout the United States that past consideration will not support a promise which is in excess of the promisor’s existing debt or duty.”].)

Id. at 1247.

In Simmons v. California Institute of Technology, 34 Cal.2d 264 (1949) the respondent inventor brought a declaratory judgment action against appellants, institute and professor, in the Superior Court of Los Angeles County (California), to have a royalty agreement and license agreement declared rescinded and void, and for damages. The inventor executed agreements with the institute and a manufacturer assigning royalties to the institute, based on a misrepresentation by the professor as to where the royalties would be employed. The institute and the professor contended on appeal that there was insufficient evidence to support the findings of lack of consideration or that the execution of the writings was induced by fraud, and that no evidence of fraud should have been admitted. The court held that past employment is inadequate consideration to support a contract. Id at 272.

In Duggan v. Pettijohn, 134 Cal. App 2d 133 (1955), the promisor and promisee were engaged in a joint venture when the note was made and delivered. After the promisor’s death, the promisee filed a claim against the estate for payment on the note, which was rejected and resulted in the promisee’s filing suit. The trial court found that the note was given as collateral security to protect the promisee for moneys he had laid out, as obligated, in the past, in addition to what he may have to lay out in the future in connection with a joint venture. The trial court held that the promisee could not have legally filed a claim based upon the promissory note because the note was given merely as security, but that he could have filed a claim for the promisor’s indebtedness to him arising from the joint venture and supported by the note as collateral security, which he failed to do. Relying on the decision in Simmons v. California Institute of Technology, 34 Cal.2d 264, the appellate court held that a past consideration is not sufficient to support a contract. Id at 138.

See also Leonard v. Gallagher, 235 Cal. App. 2d 362 (1965); Passante v. Mc William, 53 Cal. App. 4th 1240 (1997).

Therefore, in the light of the above decisions, it appears that the general rule in California is that a past consideration does not satisfy the requirements to enter into a legally valid contract.

California courts have held on occasion that promises founded partly on past performance and party on executory consideration are enforceable.  In Kahn v. Lischner, 128 Cal. App.2d 480 (1954) was an appeal from a judgment on an action for damages for breach of contract for sale and conveyance of real property. Appellee alleged that appellant, failed to perform under a written agreement for the sale and conveyance of real property, allegedly out of bad faith and brought an action for damages for breach of contract and was awarded judgment in the sum of $5,000 and interest. The seller argued that there was no unqualified acceptance of an offer, and consequently no enforceable contract with the buyer was executed. The seller also argued that he was induced to enter into the agreement by the fraudulent misrepresentations of the buyer as to the value of the property. Relying on the decision in W. T. Rawleigh Co. v. Miller, 105 Mont. 456 [73 P.2d 552, 554], the court held that a promise founded partly on past consideration and partly on executory consideration is enforceable. Id at 486.

In Parke & Lacy Co. v. San Francisco Bridge Co., 145 Cal. 534  (1904) was an action to recover defendant’s  $750, alleged to be the balance due of a commission of five per cent on $70,000 arising out of the written contract between plaintiff and defendant. In deciding the case, the court discussed the doctrine that a past executed consideration will not support any promise different from that which the law implies — which is a promise to pay in praesenti, on request, and that an executed consideration will not support a promise to pay in futuro. Id at 539. While the doctrine is inapplicable to the facts of the said case, it clearly limits the effectiveness of past consideration for future promises.

California courts have thus laid down certain exceptions to the general rule with regard to the sufficiency of past consideration for the validity of a contract. The above cases demonstrate the general rule (that past consideration is insufficient to enter into a legally valid contract) does not apply when:

  1. The consideration is partly past and partly present;
  2. The past consideration was rendered with expectation of future payment;

In the instant case, the past consideration was the neighbor’s agreement to the view being taken away based on the original drawings. Neither was this partly past and partly present; nor was it rendered with expectation of future payment, nor was it rendered on the request of the developer. Therefore, the past consideration in the instant case is not a valid one and insufficient to constitute sufficient requirement to enter into a legally valid contract.