37. Is the debtor's promise to pay the lender $500 enforceable?

A promise is supported by consideration if two things are true: (i) the promisee is giving up something of value or circumscribes his liberty in some way to suffer a legal detriment; and (ii) the promisor makes his promise as part of a bargained-for exchange for the promisee's legal detriment.

Under the pre-existing duty rule, if a party does or promises to do what he is already legally obligated to do, or if he forebears or promises to forebear from doing something which he is not legally entitled to do, he has not incurred the kind of legal detriment necessary to constitute consideration.

A common application of the pre-existing duty rule involves a creditor's agreement to accept payment by his debtor or a lesser sum in satisfaction of the full debt. Since the debtor owes the full amount, him paying a partial amount is not doing anything that he was not already legally obligated to do. Therefore, most courts hold that the creditor's promise not to require payment of the full amount is not binding, for lack of consideration.

However, modern courts have stripped down this rule in application. It applies only when the debtor makes partial payment of an amount that is indisputably due, and due on the date that the partial payment is made. If, in addition to making a partial payment, the debtor: (i) gives security in addition to the part payment; (ii) refrains from bankruptcy or insolvency proceedings; (iii) arranges for a composition agreement; or (iv) pays part of a claim, the full amount of which is in bona fide dispute, the debtor has given consideration for the discharge of the larger amount.

D is correct. The debtor paid less than the total amount he owed to the lender, which appears to a violation of the pre-existing duty rule. However, the enforcement of a debtor's promise is a long-established exception to the requirement that there be consideration to support the enforcement of promises.

A is incorrect. The debtor did not need to waive the statute of limitations defense because his conduct already effectively waived it. The debtor had a statute of limitations defense that was partially destroyed by the promise to pay $500. The debtor DID promise to pay $500, which implies that the payment would be made and that, at least as to that $500, there would be no reliance on the statute of limitations.

B is incorrect. A promise to pay a debt after the running of the statute of limitations, like the promise in this question, is enforceable without consideration.

C is incorrect. This answer implicates the doctrine of third party beneficiaries, which is not applicable to this fact pattern. Promises are not enforceable merely because their performance would benefit the promisee.