Why Past Consideration Cannot Support a Contract in California

In California contract law, past consideration cannot form the basis of an enforceable contract. This principle plays a crucial role in real estate and partition disputes, where parties may attempt to retroactively classify a past financial transaction—such as a gift—as a secured loan. This is common in intra-family partitions and ex-boyfriend/ex-girlfriend partitions. Courts have repeatedly held that new consideration must be provided at the time a contract is executed for it to be legally binding.

At Talkov Law, California’s first and largest partition law firm, we have successfully handled over430 partition actions, including disputes involving improperly recorded liens and unenforceable financial claims. Understanding the legal concept of past consideration is essential for protecting property rights in partition cases and preventing fraudulent claims.

What Is Past Consideration?

Consideration is a fundamental requirement for a valid contract. Under California Civil Code § 1550, a contract must include sufficient consideration, meaning that something of value must be exchanged between the parties at the time of execution.

Past consideration occurs when one party tries to enforce a contract based on a benefit that was already given before the agreement was made. Since the benefit was not bargained for at the time of the contract, it does not create a legally binding obligation.

For example, if a parent gifts their child money for a home purchase and later asks the child to sign a promissory note reclassifying the gift as a loan, the contract is unenforceable because the funds were already provided without an agreement in place.

California Law on Past Consideration

California law explains that past consideration is not valid to form a contract.

Civil Code § 1550 makes clear that: “It is essential to the existence of a contract that there should be…A sufficient cause or consideration.” As defined by statute, “good consideration for a promise” consists of: “Any benefit conferred, or agreed to be conferred, upon the promisor, by any other person, to which the promisor is not lawfully entitled…as an inducement to the promisor….” Civ. Code § 1605.

“[C]onsideration for a promise must be an act or a return promise, bargained for and given in exchange for the promise.” In re Ins. Installment Fee Cases (2012) 211 Cal.App.4th 1395 (quoting Simmons v. California Institute of Technology (1949) 34 Cal.2d 264, 272). “No act of an offeree, however, can constitute consideration binding upon the offeror unless the latter agrees to be bound in return therefor.” Bard v. Kent (1942) 19 Cal.2d 449, 452.

Critically: “Past consideration cannot support a contract.” Passante v. McWilliam (1997) 53 Cal.App.4th 1240, 1247. Witkin concurs that: “Past consideration is insufficient; i.e., acts or forbearances previously performed cannot be consideration for a new promise.” Past Consideration, 1 Witkin, Summary 11th Contracts (2024) § 217.

Witkin cites to the California Supreme Court decision in Lagomarsino v. Giannini (1905) 146 Cal. 545, 547, which found that: “No new consideration was given at the time it was executed. The wife received nothing; the husband received nothing; the creditor parted with nothing. The instrument was, therefore, no more than a collateral security given for an old debt of the husband.”

How Past Consideration Affects Real Estate and Partition Actions

In real estate disputes, past consideration often arises when:

• A financial gift is later misrepresented as a loan against the property.
• A deed of trust is recorded after a partition action has begun, attempting to claim priority over sale proceeds.
• A party tries to enforce an agreement that was not supported by new consideration at the time of execution.

These situations frequently occur in partition actions, where co-owners dispute financial contributions and lien claims. California courts have held that a deed of trust based on past consideration is invalid, meaning that a party cannot retroactively claim an interest in real estate proceeds if no legal obligation existed at the time the funds were provided.

Partition Actions and the Impact of Invalid Liens

In a California partition action, a co-owner has the right to force the sale of jointly owned property when the parties cannot agree on its disposition. However, the presence of liens on the property can impact how the proceeds are distributed.

If a lien is improperly recorded based on past consideration, it does not take priority in the partition sale. Courts may disregard such liens, ensuring that the rightful property owners receive their fair share of the proceeds.

For more on lien priority and partition cases, see the following California partition statutes:

Legal Strategies for Challenging Invalid Liens in Partition Cases

If a co-owner or third party attempts to enforce a claim based on past consideration, there are several legal strategies available:

• Demonstrating that no new consideration was provided at the time of execution.
• Citing case law that invalidates contracts based on past consideration.
• Challenging the timing of lien recordings if they were filed after a partition action commenced.
• Using equitable defenses such as promissory estoppel, constructive fraud, or equitable estoppel.