PROMISES BINDING WITHOUT CONSIDERATION

II. PROMISES TO PAY PAST DEBTS

A. Promises to pay past debts that are no longer legally enforceable: Suppose the debt owed by a debtor to a creditor has been legally discharged. This discharge may have occurred, for instance, because the debtor became bankrupt, or because the statute of limitations has run on the creditor’s claim. If the debtor then makes a gratuitous promise (i.e., a promise for which he receives nothing in return) to pay the now-barred debt, is this promise enforceable? Most courts agree that it is enforceable, even though there is no consideration.

B. “Moral consideration”: Some courts justify making such a promise enforceable by stating that there is “moral consideration” for the promise to pay the now-barred debt. But this “moral consideration” label is simply conclusory, since there is no “bargain” present, and therefore there is nothing resembling the traditional consideration idea. A better explanation is that courts simply feel that the enforcement of such promises to pay pre-existing obligations is socially beneficial.

1. Restatement view: The Second Restatement takes the position that promises to pay debts that are barred by the statute of limitations, or that have been discharged in bankruptcy, are binding without consideration. See Rest. 2d, §§ 82 and 83.

2. Requirement of a writing: Statutes in most states require that for a promise to pay a debt barred by the statute of limitations to be enforceable, it must be in a signed writing. A few states similarly require a signed writing where the debt has been discharged in bankruptcy. See C&P, p. 233; Rest. 2d, § 82, Comment a and § 83, Comment a.

3. Promises to pay inferable from acts or statements: Sometimes the promise to pay the discharged debt will be explicit. In many situations, however, the debtor will take actions which the creditor claims constitute an implied promise to pay the now-discharged debt.

a. Bankruptcy discharges: Where the promise is to pay a debt that has been discharged in bankruptcy, most courts probably share the view of the Second Restatement (§ 83), which will enforce only an express promise and will not infer such a promise from the debtor’s actions.

b. Statute of limitations: Where the debt has been discharged by the running of the statute of limitations, on the other hand, most courts (and the Second Restatement) recognize several situations in which a promise to pay the debt may be implied from the debtor’s actions. The Second Restatement (§ 82) lists the following acts or statements as giving rise to a promise to pay a time-barred debt:

i. “A voluntary acknowledgment to the obligee, admitting the present existence of the antecedent indebtedness”;

ii. “A voluntary transfer of money, a negotiable instrument, or other thing by the obligor to the obligee, made as interest on or payment of or collateral security for the antecedent indebtedness”;

iii. “A statement to the obligee that the statute of limitations will not be pleaded as a defense.”