Section 8.2
Agreements Without Consideration
Section 8.2 Agreements without
Consideration
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)
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
Consideration
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)
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
Consideration
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.
Understanding Business and Personal Law
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Section 8.2 Agreements without
Consideration
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)
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
Consideration
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
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
Consideration
Section Outline
Unenforceable Agreements without
Consideration
Illusory Promises
Future Gifts
Past Consideration
Preexisting Duties
Promise to Attend a Social Engagement
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
Consideration
Pre-Learning Question
Do you think any agreements would
be enforceable without consideration?
Why or why not?
Understanding Business and Personal Law
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Section 8.2 Agreements without
Consideration
Enforceable Agreements
without Consideration
Some courts have eliminated the
requirement of consideration in certain
agreements.
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
Consideration
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.
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
Consideration
Enforceable Agreements
without Consideration
Some common agreements in this
category include:
Promises under seal
Promises after discharge in
bankruptcy
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
Consideration
Enforceable Agreements
without Consideration
Debts barred by the statute of
limitations
Promises enforced by promissory
estoppel
Options
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
Consideration
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.
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
Consideration
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”).
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
Consideration
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.
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
Consideration
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.
Understanding Business and Personal Law
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Section 8.2 Agreements without
Consideration
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.
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
Consideration
Debts Barred by Statutes
of Limitations
No new consideration is needed for a
debtor to reaffirm a debt barred by the
statute of limitations.
Understanding Business and Personal Law
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Section 8.2 Agreements without
Consideration
Promises Enforced
by Promissory Estoppel
Under promissory estoppel, a
promise may be enforceable without
consideration.
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
Consideration
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.
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
Consideration
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.
Understanding Business and Personal Law
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Section 8.2 Agreements without
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The Elements
of Promissory Estoppel
Three conditions must be met before
the courts will apply this principle.
1. The promise must be made to
bring about action or forbearance
by another person who gave no
consideration.
Understanding Business and Personal Law
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Section 8.2 Agreements without
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The Elements
of Promissory Estoppel
2. The one who gave no
consideration must have relied on
the promise and changed his or
her position in a significant way.
3. Injustice can be avoided only by
enforcing the agreement.
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
Consideration
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.
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
Consideration
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.
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
Consideration
Pre-Learning Question
What do you think an illusory
promise is?
Understanding Business and Personal Law
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Section 8.2 Agreements without
Consideration
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.
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
Consideration
Unenforceable Agreements
without Consideration
Included in this category are:
Illusory promises
Promises of future gifts
Promises of legacies
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
Consideration
Unenforceable Agreements
without Consideration
Promises based on past
consideration
Promises based on preexisting
duties
Agreements to attend social
engagements
Understanding Business and Personal Law
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Section 8.2 Agreements without
Consideration
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.
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
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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.
Understanding Business and Personal Law
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Section 8.2 Agreements without
Consideration
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.
Understanding Business and Personal Law
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Section 8.2 Agreements without
Consideration
Past Consideration
The act of giving or exchanging
benefits and detriments must occur
when a contract is made.
Understanding Business and Personal Law
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Section 8.2 Agreements without
Consideration
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.
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
Consideration
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.
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
Consideration
What type of agreement does
Whitehead and Main Street Pharmacy
have?
Understanding Business and Personal Law
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Section 8.2 Agreements without
Consideration
ANSWER
An illusory promise
Understanding Business and Personal Law
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Section 8.2 Agreements without
Consideration
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.
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
Consideration
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.
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
Consideration
Section 8.2 Assessment
Reviewing What You Learned
1. What agreements are enforceable
without consideration?
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
Consideration
Section 8.2 Assessment
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.
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
Consideration
Section 8.2 Assessment
Reviewing What You Learned
2. What is the legal doctrine of
promissory estoppel?
Understanding Business and Personal Law
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Section 8.2 Agreements without
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Section 8.2 Assessment
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.
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
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Section 8.2 Assessment
Reviewing What You Learned
3. What agreements are not
enforceable without consideration?
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
Consideration
Section 8.2 Assessment
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.
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
Consideration
Section 8.2 Assessment
Reviewing What You Learned
4. What is the difference between past
consideration and preexisting
duties?
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
Consideration
Section 8.2 Assessment
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.
Understanding Business and Personal Law
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Section 8.2 Agreements without
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Section 8.2 Assessment
Critical Thinking Activity
Public Policy
Why does the law support the doctrine of
promissory estoppel?
Understanding Business and Personal Law
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Section 8.2 Agreements without
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Section 8.2 Assessment
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.
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
Consideration
Section 8.2 Assessment
Legal Skills in Action
Promissory Estoppel
Your cousin, Geri, has just called you from
California.
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Section 8.2 Agreements without
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Section 8.2 Assessment
Legal Skills in Action
Promissory Estoppel
She recently quit her job, broke the lease
on her apartment, emptied her bank
account to buy a used car, and moved to
California because a movie producer
promised her a job.
Understanding Business and Personal Law
Consideration
Section 8.2 Agreements without
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Section 8.2 Assessment
Legal Skills in Action
Promissory Estoppel
Now in California, she realizes that the job
offer was an empty promise. Write a letter
to the producer in which you explain how
the doctrine of promissory estoppel applies
in this situation.
Understanding Business and Personal Law
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Section 8.2 Agreements without
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Section 8.2 Assessment
Legal Skills in Action Answer
Promissory Estoppel
Answers will vary, but should relate the
elements of promissory estoppel to these
circumstances.
Understanding Business and Personal Law
Consideration
End of Section 8.2
Agreements Without Consideration