Promissory Agreements
Contract law is essentially the study of which promises are enforceable by courts and what constitutes a promissory obligation. There are four common types of promissory agreements. Originally, formal contracts were the only type of promissory agreements a court would recognize. Over time, courts developed other theories under which promises could be recognized to prevent injustice.
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Consideration
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Most contracts, including promissory notes, are established on the basis of consideration. The hallmark of consideration is a bargained-for exchange, in which each party offers something of value that induces the other party to either perform in a particular way or forgo some legal right as return consideration. All contracts will include the word consideration and provide at least a statement that consideration was given in exchange for the promise to adhere to the contract terms.
Detrimental Reliance
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Consideration is generally considered necessary for a contract to be valid. Nevertheless, there are promissory agreements enforced by courts even in the absence of a contract with consideration. The concept of detrimental reliance allows a party to collect damages based on the actual losses incurred. Detrimental reliance, also called promissory estoppel, exists when one party makes a promise on which another party is reasonably likely to rely, the party actually does rely on that promise and manifest injustice results.
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Restitution
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In some cases, courts can imply a promissory agreement where none explicitly existed. Such agreements are called implied-in-law, or quasi-contracts. For a variety of reasons, it's possible for one party to bestow a benefit on the other with the reasonable expectation of compensation. This might occur in the salvage of an unmoored vessel, the provision of emergency medical services or simply by mistake. Under theories of restitution, courts will award the compensation when there was no contract in place if the party bestowing the benefit acted reasonably with intent to charge for their services and with no knowledge the receiving party would not consent to paying.
Promissory Restitution
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One of the cardinal rules of consideration is that past performance or benefits cannot count as consideration. In other words, a bargain must be based on present or future performance. Nonetheless, courts do award damages absent a binding contract based on a legal theory called promissory restitution. This occurs when a party promises to compensate the other for a past benefit received. The common legal terms associated with this process are quantum meruit and quantum vale bat. Essentially, courts look to the value of goods or services actually rendered and award amounts necessary to prevent injustice.
Remedies
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A major difference between contracts for consideration and other promissory agreements is the available remedy. Under a valid contract, damages can reach the full potential value of the contract. If no contract is recognized, but some other promissory agreement is upheld, the extent of the award is generally limited to the actual damages or expenses incurred--typically a much lower amount. Thus, legal struggles will often first hinge on whether a contract existed and rely on other theories of promissory agreement as a backup.
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