9.3: Promises Enforceable without Consideration

LEARNING OBJECTIVE

1. Understand the exceptions to the requirement of consideration.

For a variety of policy reasons, courts will enforce certain types of promises even though consideration may be absent. Some of these are governed by the Uniform Commercial Code (UCC); others are part of the established common law.

Promises Enforceable without Consideration at Common Law

At common law, the general rule is that a contract must be supported by consideration—a bargained-for exchange of value. Without consideration, promises are ordinarily unenforceable. But over time, courts and legislatures have recognized exceptions. Certain promises, though lacking traditional consideration, may still be enforced to prevent injustice, promote reliance, or uphold social and commercial expectations.

Promise Revived after Statute of Limitations Has Passed

Definition:
The statute of limitations sets the maximum period in which a creditor may bring a lawsuit to enforce a debt. Once the statute runs, the debtor has a legal defense against collection, and the debt becomes unenforceable in court. However, if the debtor later makes a new promise to pay—either expressly or impliedly—the obligation can be revived, even without new consideration.

Rule:
Although past consideration is usually invalid, courts recognize a debtor’s new promise to pay as creating a fresh obligation, based on the moral duty arising from the original debt. This operates as an exception to the rule that “past consideration is no consideration.”

How Revival Occurs:

1. Written Promise to Repay – If a debtor signs a new written promise after the statute has expired, most courts treat this as binding.
   • Example: After the statute runs on a $10,000 loan, the debtor emails the creditor: “I know I still owe you money and will start repaying next month.” This revives the debt.
2. Partial Payment – Even a small payment after expiration can serve as acknowledgment of the debt, reviving the entire obligation.
   • Example: Sam owes $5,000. The statute of limitations passes. He then mails a $200 check with the note, “Here’s the first payment.” The law treats this as acknowledgment and revival of the full debt.
3. Oral Promise – Some jurisdictions allow revival through oral acknowledgment or promise, but many states require that the new promise be in writing and signed by the debtor to prevent fraudulent claims.

Case Illustration – Shoemaker v. Benedict (N.Y. 1854):
A debtor’s promise to pay a debt barred by the statute of limitations was enforced even without new consideration. The court reasoned that the new promise reaffirmed the moral obligation of the original debt, thus creating a fresh contractual duty.

Case Illustration – Bankruptcy Context:
A debtor discharged in bankruptcy may later choose to voluntarily repay. Courts uphold this, not because the creditor can compel payment, but because the debtor’s new promise creates a fresh enforceable duty.

Rationale:

• Encourages honesty and repayment of just debts.
• Balances the protection of debtors (through statutes of limitations) with creditors’ rights when debtors voluntarily reaffirm obligations.
• Prevents debtors from using statutes of limitations as a permanent escape when they later acknowledge a debt.

Limitations:

• Jurisdictions vary: some require a signed writing; others accept oral promises or partial payments.
• The new promise revives only the acknowledged debt; it does not extend to unrelated obligations.
• If the debtor makes a vague statement (e.g., “I’ll pay you someday”), courts may find it too indefinite to revive the obligation.

Promissory Estoppel (Detrimental Reliance)

Definition:
Promissory estoppel is a doctrine that allows courts to enforce a promise, even without consideration, when one party reasonably relies on the promise to their detriment. It exists to prevent injustice in situations where strict adherence to the requirement of consideration would lead to an unfair result.

Rule:
A promise becomes enforceable under promissory estoppel when three elements are met:

1. The promise is one that the promisor should reasonably expect to induce reliance.
2. The promisee takes action (or refrains from acting) in reliance on the promise.
3. Injustice can only be avoided by enforcing the promise.

This is sometimes called “promissory estoppel with detrimental reliance.”

Case Example – Estate of Timko v. Oral Roberts Evangelistic Assn. (Mich. App. 1974):

• Timko, a trustee of a school, promised to contribute funds to help purchase a building.
• The school relied on his promise and proceeded with the purchase.
• After Timko died, his estate argued that no consideration supported the promise.
• The Michigan appellate court enforced the pledge under promissory estoppel, holding that the school’s reliance made the promise binding despite the absence of consideration.

Practical Examples:

1. Employee Pension Promise
   • A company promises an employee a lifetime pension if they retire early.
   • The employee retires, giving up salary and benefits in reliance.
   • Later, the company refuses to pay.
   • A court may enforce the promise because the employee detrimentally relied on it.
2. Landlord and Late Fees
   • A landlord promises tenants that no late fees will be charged as long as rent is paid within a week.
   • Tenants rely on this and consistently pay on the 5th day of the month.
   • The landlord later tries to enforce late fees retroactively.
   • Courts may stop the landlord, enforcing the promise under promissory estoppel.
3. Scholarship Reliance
   • A university promises a student a full scholarship if they transfer schools.
   • The student withdraws from their old school and moves across the country.
   • When the university refuses to provide the scholarship, the student has a strong claim under promissory estoppel, since they relied to their detriment.
4. Supplier Agreement
   • A manufacturer promises a supplier a long-term contract, and the supplier invests in new equipment to meet demand.
   • The manufacturer then backs out.
   • Courts may enforce the promise because the supplier reasonably relied by making significant expenditures.

Rationale:
Promissory estoppel reflects the principle that fairness sometimes outweighs technical rules. Even when consideration is missing, courts enforce promises when reliance has caused real harm and injustice would result from non-enforcement.

Charitable Subscription

Definition:
A charitable subscription is a promise to donate money or property to a charitable organization, such as a university, hospital, church, or nonprofit. Historically, these promises were difficult to enforce because they often lacked traditional consideration—there was no clear bargained-for exchange. Modern courts, however, increasingly uphold such pledges either on public policy grounds or under reliance theories like promissory estoppel.

When Enforceable:

1. Reliance by the Charity (Promissory Estoppel)
   • If the charity takes substantial action in reliance on the pledge—such as starting construction, hiring staff, or announcing programs—the donor’s promise may be enforced.
   • Example: A donor pledges $50,000 for a hospital’s new cancer wing. The hospital begins building in reliance on the pledge. The donor later refuses to pay. Courts typically enforce the promise.
2. Public Policy Enforcement
   • Some courts enforce charitable pledges outright, even without proof of reliance, reasoning that public policy strongly favors the stability and reliability of charitable giving.
   • Example: A donor pledges $1 million to a university endowment fund, with no conditions. Even without reliance, a court may enforce the pledge because charities depend on such commitments for long-term planning.
3. Mutual-Promise Theory
   • In a few jurisdictions, pledges made as part of a fundraising campaign are treated as supported by mutual consideration: each pledge is enforceable because it is supported by the promises of other donors.
   • Example: A donor pledges $10,000 as part of a community fundraising drive. Courts may enforce the pledge on the basis that the collective pledges form consideration for each other.

Additional Examples:

• Named Recognition: A university names its new library after a benefactor in reliance on the donor’s pledge of $500,000. If the donor withdraws, courts often enforce payment, since the university relied by granting recognition and possibly soliciting further donations based on the promise.
• Charity Programs: A church announces a new food pantry program after receiving a donor’s pledge of $25,000. If the donor fails to pay and the church has already expanded services, the pledge may be enforced under promissory estoppel.
• Reliance vs. Non-Reliance Situations:
  • Reliance: A hospital begins a $2 million project after a $250,000 pledge—enforceable.
  • Non-reliance but enforceable on policy: A pledge to donate $1,000 annually for five years to a nonprofit foundation—some courts will still enforce even if no specific reliance is shown.

Rationale:
Courts enforce charitable subscriptions because:

1. They protect organizations that reasonably rely on donations for major projects and services.
2. They encourage philanthropy and ensure accountability for public commitments.
3. They align with public policy goals of supporting charities, education, and community welfare.

Promises Enforceable under the UCC

The Uniform Commercial Code (UCC) expands enforceability of promises even without traditional consideration:

1. Waiver or Renunciation (UCC §1-107):
   • A party may waive rights or claims in writing without new consideration.
   • Example: A buyer waives a late-delivery claim in writing.
2. Modification Without Consideration (UCC §2-209):
   • Contract modifications are enforceable if made in good faith, even without new consideration.
   • Example: A seller agrees to earlier delivery without a price change.
3. Firm Offers by Merchants (UCC §2-205):
   • A merchant’s written, signed promise to keep an offer open is binding without consideration (up to three months).
   • Example: A car dealer promises in writing to hold an offer open for 30 days.
4. Reservation of Rights (UCC §1-207):
   • A party may accept performance while reserving additional claims.
   • Example: A creditor cashes a “paid in full” check but writes “rights reserved.” Depending on jurisdiction, they may still pursue the balance.

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KEY TAKEAWAY

While the traditional rule requires consideration, courts and legislatures recognize several exceptions. Past consideration remains unenforceable, but obligations can be revived after the statute of limitations, promises may be enforced under promissory estoppel, charitable subscriptions are often binding, and the UCC allows for flexibility in modifications, waivers, and firm offers. These doctrines ensure fairness and adapt contract law to commercial realities and social needs.

EXERCISES

1. What theories are used to enforce charitable subscriptions?
2. What are the elements necessary for the application of the doctrine of promissory estoppel?
3. Promises unenforceable because barred by bankruptcy or by the running of the statute of limitations can be revived without further consideration. What do the two circumstances have in common?
4. Under the UCC, when is no consideration required where it would be in equivalent situations at common law?