Donative Promises

Terms:

Donative Promise:
A promise to give a gift.

Conditional Donative Promise:
A promise that is conditioned on the occurrence of an event.

Promissory Estoppel:
The principal that a promise made without consideration may nonetheless be enforced to prevent injustice if the promisor should have reasonably expected the promisee to rely on the promise and the promisee actually did rely on the promise.

Expectation Damages:
Compensation awarded for the loss of what a person reasonably anticipated from a transaction that was not completed.

Reliance Damages:
Damages awarded for losses incurred by the plaintiff in reliance on the contract.

A donative promise is simply a promise to give a gift. For example, Preston promises to give Henry a car. The general rule is that a simple donative promise is unenforceable because there is no consideration. See Schnell v. Nell 17 Ind. 29 (1861).

However, a donative promise may be enforceable if it is relied upon. For example:

Marsha promises to give Jan $10. Jan, thinking that Marsha will give her the $10, goes out and buys $10 worth of candy. Jan has relied on Marsha’s promise. In this situation, Marsha’s promise will be enforceable, even though there was no consideration given for it.

Further, under common law, any promise that was made under seal, even a donative promise, is legally enforceable. However, most states have abolished the binding effect of a seal.

Nominal consideration is essentially consideration that is given with the intent of falsely putting the donative promise into the form of an enforceable bargain. Nominal consideration does not make a donative promise enforceable. For example:

Preston promises to give Henry a car and Henry promises to give Preston $1 as payment for the car. It is safe to say that neither Preston nor Henry consider $1 as payment for the car. Rather, Preston and Henry agreed to trade the car for the $1 in order to falsely put the promise into the form of a bargain. Therefore, Preston’s promise to give Henry the car is unenforceable.

A conditional donative promise is a donative promise where the promisor intends to give a gift to the promisee but only after the promisee fulfills a condition that the promisor sets out. For example:

Preston tells Henry that Preston will give Henry a new car if Henry comes to Preston’s house to pick the car up.

A conditional donative promise is no more enforceable than any donative promise. This is true even if the condition has been fulfilled. Thus, if Henry comes over to Preston’s house to pick up the car and Preston refuses to give Henry the car, Henry cannot sue Preston for performance.

A conditional donative promise sometimes looks like a bargain, but, the difference is that, in a conditional donative promise, fulfillment of the condition is not the price the promisee has to pay for the promisor’s performance whereas, with bargain promises, fulfillment of the condition is the price the promisee has to pay for the promisor’s performance.

It is sometimes difficult to distinguish between an unenforceable conditional donative promise and an enforceable bargain promise. The test is how the parties themselves view the condition. If the condition is viewed simply as a necessary part of making the gift, the promise is donative and unenforceable. However, if the parties view performance of the condition as the actual price of the gift, then there is a bargain and the promise is enforceable. For example:

(1) Preston calls Henry and tells Henry that he will give him a new car if Henry comes to Preston’s house to pick it up. Henry goes over to Preston’s house to pick up the car but Preston does not give Henry the car. Preston’s promise is not enforceable because coming over to Preston’s house was not the price Henry had to pay for the car. It was simply a way of allowing Preston to give Henry the gift.

However, if:

(2) Preston promises to give Henry a new car if Henry abstains from smoking and drinking until he reaches age 21. Henry agrees and abstains. Preston must give Henry the new car because it was understood that abstinence was the price that Henry was willing to pay for the new car. See Hammer v. Sidway, 124 N.Y. 538 (1891)

Relied upon Donative Promises and Promissory Estoppel

Oftentimes, a donative promise is relied on by the promisee. See Kirksey v. Kirksey 8 Ala. 131 (1845). As we said before, the rule is that if a donative promise is relied on by the promisee in a manner that the promisor should reasonably have expected, the promise will be legally enforceable, at least to the extent of the reliance. See. Feinberg v. Pfeiffer Co., 322 S.W.2d 163 (Mo. 1959). For Example:

Tom promises his friend Nicole that he will give her $100,000 to buy a new apartment. Tom knows that Nicole has been looking for a new apartment and that, once she gets enough money, she will buy one as soon as she can. In reliance on Tom’s promise, Nicole goes out and buys an apartment for $80,000. Tom then refuses to pay Nicole. In such a situation, because Nicole relied on the promise in a manner that Tom should reasonably have expected, his promise will be considered legally enforceable, at least to the extent of the reliance. In other words, a court will require Tom to keep his promise although the court may only require Tom to give Nicole the $80,000 she spent on the apartment and not the full $100,000 that Tom promised initially.

This aspect of the law is laid out in section 90 of both the First and Second Restatements of the laws of contracts, (treatises on contract law published by the American Legal Institute). The modern rule comes from the First Restatement, which says that “a promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.” This basically means that, where a promisor should reasonably expect that the promisee will act in reliance on his promise, and the promisee actually does act in reliance on the promise, the promise is binding if enforcing the promise is the only way to avoid injustice. This principal is known as the principle of “promissory estoppel.”

Under the Restatement First, if a relied upon donative promise is enforceable, it is enforceable to its full extent. In other words, the promisor will have to give the promisee what he promised. So, in our example, Tom would have to give Nicole the $100,000 that he promised her, even though Nicole only spent $80,000 on the apartment.

This is known as “expectation damages” because the promisee is awarded that which he expected the promisor to give him.

However, the Restatement Second says that “the remedy granted for breach may be limited as justice requires.” This makes it clear that damages can be limited to only the extent of the promisee’s reliance. In other words, the promisor would only have to pay the promisee enough to avoid injustice. So, in our example, because Nicole only spent $80,000 on the apartment, the extent of her reliance was $80,000 and justice would require that Tom repay her $80,000 and not the full $100,000 he had initially promised her.

This is called “reliance damages” because the promisee is awarded damages only to the extent of his reliance.

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