SDO 518 - Module 2 – Enforcement without Consideration
Numerous situations arise where the lack of consideration would suggest a contract is not
enforceable
o However, courts often find reasons, or exceptions, to enforce these promises
Past Consideration
o Sometimes, courts will find that a past performance can constitute consideration for a
subsequent promise
Technically, this fails to meet the definition of consideration because there
was no bargained for exchange
o The exceptions generally involve a reason that morality supports enforcing
performance of the promise, despite the lack of a bargain
Four exceptions to Past Consideration
o 1. The stature of limitations precludes enforcement of a contractual promise
SOL = a law precluding the filing of lawsuits after a set time period from the
alleged breach
o 2. Discharge in bankruptcy prevents collection of a valid debt
o 3. The nonoccurrence of a condition would excuse performance of a contractual
promise.
Applies only to procedural or technical conditions, such as timing of notice,
not conditions central to the transaction, such as obtaining financing to
purchase real estate
o 4. The original contractual promise was voidable, but not yet declared void or invalid
by a court
Voidable = could be declared void (invalid) by the promisor due to a defense
to the contract (such as mental incompetence)
o In each situation, the original contractual promise created an enforceable duty;
consideration existed.
However, there are reasons that the promise cannot sue on the original
promise that was not performed (i.e., the time period for bringing suit has
passed)
The original promisor makes a new promise, renewing the old promise, but
consideration is lacking now
Courts still enforce the new promise
Moral Obligation
o Courts have recently begun using moral obligation to enforce promises without
consideration. If the promisor’s sense of moral obligation led it to promise to
compensate the promise for past performance, courts may enforce that promise with
the necessary bargained for exchange
o Elements necessary to use moral obligation to enforce promises:
The promisor received a benefit
From the promise
The promisor made a promise in recognition of that benefit, and
Injustice would result unless the promise were enforced
Illustration of Moral Obligation
o After Hurricane Sandy hit New Jersey, John lost power. Tom Allowed John and his
family to stay in Tom’s house for 4 days; he gave them food, shelter, heat and access
to a computer and T.V. John promised to repay Tom for the extra amount of money he
spent during John’s stay. Are the elements of moral obligation met?
First, did John, the promisor, receive a benefit? YES
Was that benefit received from Tom, the promisee? YES
Was John’s promise to repay Tom in recognition of the benefits? YES
Would injustice result if John didn’t keep his promise to Tom?
Courts decide on a case by case basis, depending on the specific facts
It seems the fourth element is met in this situation, as Tom is most
likely spending out of pocket for the benefits John is receiving
John would likely be obligated to perform his promise
Preexisting Duty (not generally considered valid consideration)
o Preexisting duty = a duty that a person already has a legal obligation to do.
o Often arises when parties seek to modify their original contract
Buyer promised to pay $100 for 10 goods; seller now wants $110 due to
inflated prices
o Traditionally, these duties do not constitute consideration because the promisor is not
making the promise in exchange for the promisee’s promise
If buyer agrees to pay more money for seller’s same promise, there would be
no consideration for the modification
o The preexisting duty rule has been greatly eroded
Current Preexisting Duty Rule
o UCC 2-209: consideration is not required for the modification of a sales contract, as
long as parties act in good faith and modification is in a writing signed by the parties.
o Common Law exceptions:
Modifications altering both parties’ performance (i.e. buyer pays $110 and
seller discounts shipping charges)
Settlements of disputes: an agreement to forego a defense may be
consideration for modification (i.e. A has reason to believe he can sue B for
duress; A may forego his potential defense as consideration for modification.)
Modifications after Rescission: the parties may choose to rescind their original
contract and enter into a new contract (with the sought-after modified
promises), thus there is no preexisting duty issue.
Modifications after waiver: if a party has waived its right to receive the
performance, then that waiver removed the preexisting duty and the parties are
free to make a new deal
Reliance: reliance on a modification, such as continuing to perform, may
justify enforcement of the modification without consideration
Unanticipated Circumstances: modifications that are fair and equitable in light
of unanticipated changed circumstances (i.e. A increased cost to B because
civil war in supplying country significantly increased cost to A)
Reliance
o Reliance may be an exception to the requirement of consideration
o 4 elements
1. A promise
2. Actual reliance by the promisor
Actual reliance may take the form of action or forbearance in response
to a promise made
o If a party relied on the promise of her employer to give her a
promotion by not accepting another position, that promise
(even if it had no consideration) may be enforceable if all of
the elements are met.
3. Reliance of a type the promisor should reasonably have expected
4. Injustice would result without enforcement of that promise
Injustice requires that the promisee’s reliance has cause a detriment.
Even a small detriment might suffice.
o If an employee gave up another job offer with a higher salary,
or relied on the promise of a promotion by buying a bigger
house, then injustice would occur if the employer’s promises
not enforced.
o This exception only applies where the promise should have reasonably expected
reliance on his promise.
The promisor should have reasonably anticipated that the promisee would
change her position based upon the promise made.
This is an objective test based on what a reasonable promisor would have
expected under the circumstances.
If the employee responded to the promise for a promotion with an indication
that she would not take another job, this element is clearly met
Remedies for Reliance
o Two Theories:
1. Reliance interest: the amount of money necessary to restore the plaintiff
promisee to the position she would have been in if the promise was never
made
2. Expectation interest: the amount of money necessary to put the plaintiff
promisee in the position she would have been in if the promise was performed
o How would these apply in the employee reliance example?
