Irrevocable Gift Promises and Promises Inducing Reliance: a Mandate for the Return of the Seal in Contract Law

• Publication year: 2021
• Citation: Vol. 98

98 Nebraska L. Rev. 926. Irrevocable Gift Promises and Promises Inducing Reliance: A Mandate for the Return of the Seal in Contract Law

Irrevocable Gift Promises and Promises Inducing Reliance: A Mandate for the Return of the Seal in Contract Law

Alex M. Johnson, Jr.(fn*)

TABLE OF CONTENTS

I. Introduction .......................................... 926

II. Gifts, Trusts and Wills: Form over Substance .......... 933

III. Enforceable or Unenforceable: A Function of Formalities ......................................... 951
A. Reliance Cases .................................... 953

IV. The Rise and Fall of Consideration and the History of the Seal ............................................ 957

V. Conclusion ............................................ 969

I. INTRODUCTION

All too often the statement is made and accepted that one cannot legally make an enforceable gift promise. In other words, it is stated and accepted that an individual cannot bind one's future self to make a donative transfer that will be enforced by the court should the future self opt not to honor the previously promised gift transaction. However, not all agree that this is an acceptable state of affairs. A case in point: the great contracts scholar Williston once wrote that the ability to make an enforceable donative promise "is something that a person ought to be able . . . if he wishes to do it . . . create a legal obligation to make a gift. Why not? . . . I don't see why a man should not be able to make himself liable if he wishes to do so."(fn1)

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Of course, a thorough examination of the history of contract doctrine and transactions reveals that Williston's statement is somewhat inaccurate. This is because at common law, a donor could make such an enforceable promise using a "sealed" agreement.(fn2) Indeed, in a few states that have adopted the position of the Restatement (Second) of Contracts, one can still use the seal to make and deliver an enforceable promise.(fn3) However, in a majority of jurisdictions in which the use of the seal is prohibited, it is often stated and accepted that a donor cannot make an enforceable donative promise. Thus, as contract law has evolved, one initially could make an enforceable donative promise via a seal, but for reasons that are peripheral to the issues addressed in this Article, eventually that avenue was blocked.

By and large, contract law does not currently provide a legal avenue for enforcement of gratuitous promises that require future performance. Indeed, contract law has largely become irrelevant when analyzing the enforceability of donative promises because gifts and the enforceability of donative promises are the province of the law of property. In order to make a valid gift, property law requires the donor to intend to make a gift, deliver the gift, and that the gift be accepted by the donee.(fn4)

Furthermore, it is hornbook law(fn5) that a mere promise to make a gift in the future without delivery made contemporaneously with or shortly after the expression of intent to make the gift will not be enforced as a gift no matter how sincere the promise was when made.(fn6) Thus, one can make an enforceable gift transfer if the donor and donee meet the three requirements of intent, delivery, and acceptance.(fn7) What apparently cannot be done is to enforce against the donor her mere promise to make a gift in the future if the donor subsequently

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changes her mind and opts not to make the gift transfer or delivery. The donor cannot make a valid and enforceable contractual agreement that binds herself alone to complete the donative transaction.(fn8)

Despite broad acceptance of the rules described above, the statement that one cannot make an enforceable donative promise is incorrect as a legal conclusion. An examination of the law and legal doctrine beyond the province of gift or the law of property demonstrates that there do exist enforceable donative promises. In terms of the donor's intent (i.e., her desire to bind her future self to an act for which there is no consideration or reciprocity), enforceable donative promises are effectively indistinguishable from so-called unenforceable donative promises. These enforceable donative promises are not denominated as gifts and, thus, when the issue of the enforceability of so-called gift promises is addressed, they are often ignored.

It is quite common in other related areas of the law-particularly contracts and trusts and estates law-for courts to enforce donative promises lacking consideration. These enforceable donative promises, however, are not analyzed per this requirement and are therefore beyond the imprimatur of contract. Hence, the presence or absence of consideration is irrelevant. Indeed, it is possible to make inter vivos gift promises and testamentary promises that are enforceable.(fn9) One interesting fact about these enforceable promises that create donative transfers is that the person ultimately making the transfer is not the donor, the person who makes an enforceable promise.(fn10) Instead, the

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person ultimately making the transfer is an agent of the donor usually acting in a fiduciary capacity.(fn11)

To be clear, examining trusts and estates law, donors may use irrevocable inter vivos trusts to make donative promises that are enforceable against the donor during the donor's life.(fn12) Putative donors can also make certain inter vivos gifts without complying with the requisite formalities attendant to the creation of an irrevocable inter vivos trust by intending to make a future gift but dying before being able to act upon that intent. Under the contractual doctrine of reliance or promissory estoppel, courts will indeed enforce certain uncompleted gift promises against the putative donor (actually, the donor's estate) if the court finds reasonable and foreseeable reliance on the part of the donee.(fn13)

Just as importantly, a donor can make donative promises that are enforceable after the donor's death by executing a valid and enforceable will.(fn14) Upon execution of an enforceable will, the donor makes an inter vivos promise regarding the disposition of assets following the donor's death. These promises will later be enforced by the courts through an agent of the donor as long as the donor has not revoked her will or revoked the gift before dying.(fn15) These donative promises made in a will are herein labeled transitive. This is because when the promise is made in a will, it is unenforceable because wills are not irrevocable.(fn16) The promise may subsequently be revoked by the putative donor. However, if unrevoked or unchanged at the putative donor's death, the unenforceable promise is now transformed (hence, the de-

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nomination transitive) into an enforceable promise against the donor's estate.

Once it is accepted that three types of donative promises-those made in trust, those made in a valid will, and those that induce reliance-are enforceable while others are not, the seminal question and issue becomes: Why are these promises deemed enforceable and others are not? What makes irrevocable inter vivos trust donative promises-promises that induce reliance on the part of the donee- and promises made in a will enforceable, while other simple or future gift donative promises are not?

The primary purpose of this Article is answering that question. Part II briefly details the state of the law as it pertains to the enforceability of donative promises (i.e., gifts)-plowing ground that has been well-furrowed by numerous prominent scholars. However, this Article goes beyond describing and defining these pedestrian gift transactions in Part II by expanding the definition of donative promises and demonstrating that certain transactions made in irrevocable inter vivos trusts, promises that induce reliance, and solemn promises made in a will are also the product of donative promises, yet are enforced.

In Part II, this Article explains another puzzle regarding the line that divides donative promises that are enforceable and those that are not. The dispositive factor is the formalities attendant at the execution of the promise. These formalities provide courts with sufficient evidence to affirm and enforce the promise efficiently (i.e., at little or low cost and with attendant low error costs). In effect, they serve the same purpose and act as a substitute for the doctrine of consideration in contract law.

The formalities associated with an irrevocable inter vivos trust and a valid will are well documented and require little explanation. On the contrary, the formalities associated with promises that induce reliance and are enforced pursuant to the Restatement (Second) of Contracts § 90(fn17) are somewhat opaque and require detailed explication in Part II. Indeed, focusing on the formalities supplied by the putative donee who relies on the donor promises, this Article provides a coherent normative thesis for enforceable reliance promises that heretofore has been lacking.

Part III parses the distinction between enforceable and unenforceable donative promises, including those premised on reliance, as a product of the functional formalities associated with enforceable donative promises and the lack of same with unenforceable donative promises. The conclusion is buttressed with a brief recitation of the

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use of the seal at common law and how it served as a...