What You Need to Know About Enforceable without Consideration
Business law recognizes very few circumstances under which a contract can or will be ruled to be enforceable without consideration being present. Three of these circumstances include when a promise has been made to repay a debt which the statute of limitations would normally prevent a creditor from collecting payment on, promises which cause detrimental reliance which is also known as promissory estoppel to come into effect, or pledges to make a donation to a charity.
Contract laws allow a creditor to force payment on a debt that they are owed which has already passed the normal statute of limitation that would prevent to collection of in the event that the debtor has either agreed to pay the past debt in writing or has already paid part of the debt.
A debtor who has made a promise to repay a past due debt makes an enforceable promise to the creditor. This promise is not reciprocal, and does not need any consideration to be effective. The promise may result in an extension of the statute of limitations which resumes from the date when the promise is made. The other possibility is that the promise to repay a portion of the debt allows the creditor to sue in an attempt to recoup all or part of the losses.
Contract laws may enforce a contract that lacks mutual consideration in the event that a clear and concrete promise has been made, the person to whom the promise was made as depended on the promise coming true in a substantial, definite, and justifiable manner, and the failure to enforce the promise would be unjust.
This is the principle of promissory estoppel. If Erin tells Amanda that Erin will pay Amanda $200 a week so that Amanda will not have to work any more, which results in Amanda quitting her job, promissory estoppel would force Erin to provide the payment because Amanda relied on the promise Erin had made. This is true even though Amanda provided Erin with no consideration. Erin’s failure to provide this payment would damage Amanda because of Amanda’s detrimental reliance on Erin’s promise.
Charitable donations are sometimes considered gifts, but are occasionally governed by contract laws. A charitable donation can be matched to a consideration if the donor has negotiated for the funds to be used in a particular way or to be dispensed in the name of or on behalf of the donor. Contract laws commonly recognize the dedication of memorials after the person making a charitable donation or named by the donor as sufficient evidence of consideration.
Detrimental may also come into play when dealing with the collection of pledges by a charitable organization. If a hospital collects enough pledges to support the building of a new wing and as a result obtains land, hires contractors to build the hospital, and retains architects and engineers to design the new wing, the hospital has undertaken a substantially detrimental change in its financial position by taking on expenses which it would not have if it did not believe that it was going to receive the pledges.
As a result of the hospital’s detrimental reliance upon these pledges it believed it was getting, promissory estoppel would cause the promised funds to become enforceable.
If a contract is said to lack consideration due to uncertain performance this can mean three different things in business law. Although all three ideas are distinct, each results in an unenforceable contract. The consideration requirement can be met if one of the parties to the contract forfeits their right to purchase their widgets or sell their gizmos to another company. However, illusory promises may result if one of the parties reserves the right to exchange the widgets or gizmos with another company not involved in the contract. If this reservation of rights is present in a contract, the contract becomes unenforceable because it would lack consideration.
