Chapter 3
PROMISES BINDING WITHOUT CONSIDERATION
A. General rule: Most states enforce a promise to pay a past debt, even though no consideration for the promise is given. Thus promises to pay debts that have been discharged by bankruptcy, or that are no longer collectible because of the statute of limitations, are enforceable in most states.
1. Writing required: Most states require a signed writing, at least where the promise is to pay a debt barred by the statute of limitations.
II. PROMISE TO PAY FOR BENEFITS RECEIVED
A. Generally: A promise to pay for benefits or services one has previously received, will generally be enforceable even without consideration. This is especially likely where the services were requested, or where the services were furnished without request in an emergency.
III. OTHER CONTRACTS BINDING WITHOUT CONSIDERATION
A. Modification of sales contracts: Under the UCC, a modification of a contract for the sale of goods is binding without consideration. See §2-209. (Example: A contracts to supply 100 widgets to B at $4 a piece. Before shipment, A says, "My costs have gone up; I'll have to charge you $5." B agrees. Under UCC §2-209, this modification is enforceable, even though B received no consideration for promising to pay the higher price.)
1. No-oral-modification clauses: But a "no oral modifications" clause in a sales contract will normally be enforced. (Example: On the facts of the above example, if the original contract between A and B said that any modification must be in writing, B's promise to pay the higher price would be enforceable only if in writing.)
B. Option contracts: Recall that option contracts are sometimes enforceable without consideration. Thus an offer that purports to be enforceable, and that falsely recites that consideration was paid for the irrevocability, will be enforced in most courts. Also, remember that UCC §2-205 renders enforceable "firm offers" under certain circumstances.
C. Guarantees: In most states, a guarantee (that is, a promise to pay the debts of another) will be enforced without consideration. Generally, the guarantee must be in writing, and must state that consideration has been paid (though the consideration does not in fact have to have been paid).
A. General approach: Promises which foreseeably induce reliance on the part of the promisee will often be enforceable without consideration, under the doctrine of promissory estoppel ("P.E."). Rest.2d, §90's definition of the doctrine is as follows: "A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise."
Example: A promises to pay for B's college education if B will attend school full time. A intends this to be a gift. B gives up a good job and enrolls in college, incurring a liability of $5,000 for the first year. A then refuses to pay the bill. Under the doctrine of P.E., B would be able to recover at least the value of the lost job and first-year tuition from A, even though A's promise was a promise to make a gift and was thus not supported by consideration.
1. Actual reliance: The promisee must actually rely on the promise. (Example: On the facts of the above example, B must show that without A's promise, B would not have quit his job and attended college.)
2. Foreseeable reliance: The promisee's reliance must also have been reasonably foreseeable to the promisor.
1. Promise to make a gift: The P.E. doctrine is most often applied to enforce promises to make gifts, where the promisee relies on the gift to his detriment.
a. Intra-family promises: The doctrine may be applied where the promise is made by one member of a family to another. (Example: Father promises to pay for Son's college education, and Son quits his job. Probably the court will award just the damages Son suffers from losing the job, not the full cost of a college education.)
2. Charitable subscriptions: A written promise to make a charitable contribution will generally be binding without consideration, under the P.E. doctrine. Here, the doctrine is watered down: usually the charity does not need to show detrimental reliance. (But oral promises to make charitable contributions usually will not be enforceable unless the charity relies on the promise to its detriment.)
3. Gratuitous bailments and agencies: If a person promises to take care of another's property (a "gratuitous bailment") or promises to carry out an act as another person's agent (gratuitous agency), the promisor may be held liable under P.E. if he does not perform at all. The doctrine is sometimes applied to promises to procure insurance for another.
4. Offers by sub-contractors: Where a sub-contractor makes a bid to a general contractor, and the latter uses the bid in computing his own master bid on the job, the P.E. doctrine is often used to make the sub-bid temporarily irrevocable.
5. Promise of job: If an employer promises an at-will job to an employee, and then revokes the promise before the employee shows up for work, P.E. may apply. (Example: A offers a job to B, terminable by either at any time. B quits his established job. Before B shows up for work, A cancels the job offer. A court might hold that even though B could have been fired at any time once he showed up, B should be able to collect the value of the job he quit from A, under a P.E. theory. See Grouse v. Group Health Plan.)
6. Negotiations in good faith: A person who negotiates with another may be found to have a duty to bargain in good faith; if bad faith is found, the court may use P.E. to furnish a remedy. (Example: A, owner of a shopping mall, promises that it will negotiate a lease for particular space with B, a tenant. B rejects an offer of space from another landlord. A then leases the space to one of B's competitors for a higher rent. A court might apply P.E., by holding that A implicitly promised to use good faith in the negotiations and breached that promise.)
a. Promises of franchise: The use of P.E. to protect negotiating parties is especially likely where the promise is a promise by a national corporation to award a franchise to the other party. (Example: P, a national company that runs a fast food chain, promises B a franchise. B quits his job and undergoes expensive training in the restaurant business. If A then refuses to award the franchise, a court might use P.E. to enforce the promise, at least to the extent of reimbursing B for his lost job and training expenses.)
C. Amount of recovery: Where P.E. is used, the damages awarded are generally limited to those necessary to "prevent injustice." Usually, this will mean that the plaintiff receives reliance damages, rather than the greater expectation measure. In other words, P is placed in the position he would have been in had the promise never been made. (Example: If A promises B a franchise, and B quits his job in reliance, the court will probably award B the value of the lost job, not the greater sum equalling profits that B would have made from the franchise.)