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4. Assuming that there is no controlling statute, is the April 1 agreement an effective defense for the man?
A man owed his friend $1,000, plus interest at 8% until paid, on a long-overdue promissory note, collection of which would become barred by the statute of limitations on June 30. On the preceding April 1, the man and his friend both signed a writing in which the man promised to pay the note in full on the following December 31, plus interest at 8% until that date, and the friend promised not to sue on the note in the meantime. The friend, having received some advice from his nonlawyer brother-in-law, became concerned about the legal effect of the April 1 agreement. On May 1, acting pro se as permitted by the rules of the local small claims court, he filed suit to collect the note.
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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 is correct. Generally, a promise to perform a pre-existing legal duty is not sufficient consideration to support a return promise. Since the man was already obligated to pay the friend $1,000 at 8% interest, normally a promise to do the same would not be sufficient consideration to support the friend's promise to refrain from suit. However, the man offered to extend interest payments until December 31 in consideration for the friend's promise not to sue during the remaining time under the statute of limitations. Therefore, there was adequate consideration for the April 1 agreement and it will provide an effective defense against the friend's claim.
B is incorrect. Detrimental reliance is a term commonly used to force another to perform their obligations under a contract, using the theory of promissory estoppel. Detrimental reliance must be shown to involve reliance that is reasonable, which is a determination made on an individual case-by-case basis, taking all factors into consideration. Detrimental means that some type of harm is suffered. The man does not need to invoke detrimental reliance, however, because there was adequate consideration for the April 1 agreement.
C is incorrect. As explained above, the pre-existing duty rule will not prevent this contract from being enforceable. The payment of interest for six additional months is adequate consideration.
D is incorrect. All contracts require valid consideration to be enforceable. The April 1 agreement would provide an adequate defense against the friend's claim.