1. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 9Slide 1 When Is Consideration Not Required? Identify when promissory estoppel applies Discuss situations in which consideration is not needed LESSON 9-3 GOALS

2. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 9Slide 2 PROMISSORY ESTOPPEL Promissory – containing a promise Estoppel - forbidding by law a person from contradicting a previous act. Promissory estoppel – A doctrine that allows an exception to the rule of mutual consideration under certain circumstance. Used to prevent injustice.

3. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 9Slide 3 PROMISSORY ESTOPPEL The following conditions must be met for promissory estoppel to apply: (#7)The promisor should reasonably foresee that the promisee will rely on the promise. (#7)The promisee does, in fact, act in reliance on the promise. (#7)The promisee would suffer a substantial economic loss if the promise is not enforced. (#7)Injustice can be avoided only by enforcement of the promise.

4. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 9Slide 4 #5 Explain why the law recognizes the doctrine of promissory estoppel even when consideration is not present. While certain kinds of promises do not always involve consideration, if a party acts in reliance on the promise and would suffer a substantial economic loss if the promise was not honored, injustice would result.

5. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 9Slide 5 WHAT’S YOUR VERDICT? Is Silvertone liable to the twins?

6. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 9Slide 6 EXCEPTIONS TO THE CONSIDERATION REQUIREMENT Promises to charitable organizations Individuals and business firms often contribute to charitable organizations, such as churches, schools, and hospitals not operated for profit. The contributions may be outright gifts or promises (pledges) to pay in the future. Because the party who makes the pledge receives nothing in return, one might assume that the pledge is unenforceable.

7. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 9Slide 7 EXCEPTIONS TO THE CONSIDERATION REQUIREMENT Promises to charitable organizations (#6)Courts generally enforce such promises provided the charity states a specific use for the money and actually acts in reliance on the pledge. (#6) There might even be financial hardship based on actions already taken, thus, meeting the conditions of primary estoppel.

8. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 9Slide 8 Statute of limitations Statute of limitations – state laws setting time limit for bringing a lawsuit. In most states, the statute of limitations for breach of contract or torts is three years. Some states will enforce a promise to pay a claim after the passage of the statute of limitations even though there is no consideration for the promise. These states do require that the promise be in writing.

9. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 9Slide 9 Uniform Commercial Code At common law a promise to leave an offer open is not enforceable. Only when the offeree has provided consideration is the promise enforceable. Option Contract – underlying contract to keep an option open. Firm offers - binding offer stating in writing how long it is to be held open. Can be bound for up to three months even when one payment or other consideration has been given for the promise.

10. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 9Slide 10 Uniform Commercial Code Modifications – A good faith agreement that modifies an existing contract for the sale of goods needs no new consideration. This modification is enforceable but not supported by consideration.

11. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 9Slide 11 #8 Describe situations in which consideration is not required. Consideration is not required when promissory estoppel occurs, when pledges are made to charitable organizations, or when there is a firm offer.

12. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 9Slide 12 WHAT’S YOUR VERDICT? Can the Branyans be held to their pledge?