Section 8.2

1. Section 8.2

2. What You’ll Learn • How to identify agreements that are enforceable without consideration (p. 173) • How to explain the legal concept of promissory estoppel (p. 175)

3. What You’ll Learn • How to identify agreements that are not enforceable without consideration (p. 176) • How to distinguish between past consideration and preexisting duties • (p. 177)

4. Why It’s Important Understanding the difference between contracts that require consideration and those that do not, will enable you to avoid common problems associated with consideration or the lack thereof.

5. Legal Terms • seal (p. 173) • promissory estoppel (p. 175) • option (p. 176) • firm offer (p. 176) • illusory promise (p. 177) • past consideration (p. 177) • preexisting duty (p. 177)

6. Section Outline Enforceable Agreements without Consideration Promises under Seal Promises after Discharge in Bankruptcy Debts Barred by Statutes of Limitations Promises Enforced by Promissory Estoppel Option

7. Section Outline Unenforceable Agreements without Consideration Illusory Promises Future Gifts Past Consideration Preexisting Duties Promise to Attend a Social Engagement

8. Pre-Learning Question Do you think any agreements would be enforceable without consideration? Why or why not?

9. Enforceable Agreements without Consideration Some courts have eliminated the requirement of consideration in certain agreements.

10. Enforceable Agreements without Consideration These exceptions are allowed by state statute or because the courts, in the interest in fairness or justice, find it inappropriate to require consideration.

11. Enforceable Agreements without Consideration Some common agreements in this category include: • Promises under seal • Promises after discharge in bankruptcy

12. Enforceable Agreements without Consideration • Debts barred by the statute of limitations • Promises enforced by promissory estoppel • Options

13. Promises under Seal A seal is a mark or impression placed on a written contract indicating that the instrument was executed and accepted in a formal manner.

14. Promises under Seal Today most states that require a seal will permit the seal to be indicated by the addition of seal or L.S. (locus sigilli, which translates to “place of the seal”).

15. Promises after Discharge in Bankruptcy A person who has had his or her debts discharged in bankruptcy can reaffirm the debt, which means he or she has decided to pay the debt voluntarily.

16. Promises after Discharge in Bankruptcy Under most state laws, no new consideration needs to be provided in support of this reaffirmation. Instead, the reaffirmation must be supported by contractual intent.

17. Debts Barred by Statutes of Limitations A statute of limitations establishes the time frame within which a party is allowed to bring suit. Different states set different time limits for the collection of a debt.

18. Debts Barred by Statutes of Limitations No new consideration is needed for a debtor to reaffirm a debt barred by the statute of limitations.

19. Promises Enforced by Promissory Estoppel Under promissory estoppel, a promise may be enforceable without consideration.

20. Promises Enforced by Promissory Estoppel • Promissory—containing or consisting of a promise. • Estoppel—restraint on a person to prevent him or her from contradicting a previous act.

21. Promises Enforced by Promissory Estoppel The doctrine is used to prevent injustice when a person changes his or her position significantly in reliance on another person’s promise and the promise is not fulfilled.

22. The Elements of Promissory Estoppel Three conditions must be met before the courts will apply this principle. • The promise must be made to bring about action or forbearance by another person who gave no consideration.

23. The Elements of Promissory Estoppel • The one who gave no consideration must have relied on the promise and changed his or her position in a significant way. • Injustice can be avoided only by enforcing the agreement.

24. Option When an offeree gives consideration to an offeror in exchange for a promise from the offeror to keep an offer open for a specified period of time, this is known as an option.

25. Option When a merchant makes a written offer stating a period of time during which an offer will remain open, consideration is not needed. The offer is called a firm offer, or an irrevocable offer.

26. Pre-Learning Question What do you think an illusory promise is?

27. Unenforceable Agreements without Consideration There are certain promises that the courts will not enforce because they lack even the most basic qualities of valid consideration.

28. Unenforceable Agreements without Consideration Included in this category are: • Illusory promises • Promises of future gifts • Promises of legacies

29. Unenforceable Agreements without Consideration • Promises based on past consideration • Promises based on preexisting duties • Agreements to attend social engagements

30. Illusory Promises For a binding contract to be formed, both parties must be under an obligation to do something. If this is not the case, then neither party is bound to do anything.

31. Illusory Promises Some contracts appear to be contracts but on further scrutiny are revealed to be hollow. Such an agreement is said to involve illusory promises.

32. Future Gifts If a person promises to bestow a gift at some future time or in a will, that promise is not enforceable if no consideration is given for the promise.

33. Past Consideration The act of giving or exchanging benefits and detriments must occur when a contract is made.

34. Past Consideration Past consideration, or consideration that took place in the past or that is given for something that has already been done, is not regarded as legal by the courts.

35. George Whitehead had an agreement with Main Street Pharmacy to perform for $10 per hour any maintenance that the pharmacy might need for the next two years.

36. What type of agreement does Whitehead and Main Street Pharmacy have?

37. ANSWER An illusory promise

38. Preexisting Duties If a person is already under a legal obligation to do something, a promise to do that same thing is not consideration. These obligations are called preexisting duties.

39. Promise to Attend a Social Engagement An agreement to meet a friend for lunch or another social engagement would not be a legally binding agreement because the friend has given nothing in exchange for the promise.

40. Section 8.2Assessment Reviewing What You Learned • What agreements are enforceable without consideration?

41. Section 8.2Assessment Reviewing What You Learned Answer Promises under seal, promises after discharge in bankruptcy, debts barred by the statute of limitations, promises enforced by promissory estoppel, and options.

42. Section 8.2Assessment Reviewing What You Learned • What is the legal doctrine of promissory estoppel?

43. Section 8.2Assessment Reviewing What You Learned Answer A promise may be enforceable without consideration; used to prevent injustice when a person changes his or her position significantly in reliance on another’s promise, and the promise is not fulfilled.

44. Section 8.2Assessment Reviewing What You Learned • What agreements are not enforceable without consideration?

45. Section 8.2Assessment Reviewing What You Learned Answer Illusory promises, promises of future gifts, promises of legacies, promises based on past consideration, promises based on preexisting duties, and agreements to attend social engagements.

46. Section 8.2Assessment Reviewing What You Learned • What is the difference between past consideration and preexisting duties?

47. Section 8.2Assessment Reviewing What You Learned Answer Past consideration is consideration given in the past or given for something already done. A preexisting duty is an obligation a person already has and cannot serve as consideration.

48. Section 8.2Assessment Critical Thinking Activity Public Policy Why does the law support the doctrine of promissory estoppel?

49. Section 8.2Assessment Critical Thinking Activity Answer Public Policy Answers should recognize that the doctrine of promissory estoppel is used to prevent injustice when a person changes his or her position significantly in reliance on another person’s promise, and the promise is not fulfilled.

50. Section 8.2Assessment Legal Skills in Action Promissory Estoppel Your cousin, Geri, has just called you from California.