united-states contract-law civil-law common-law loan
Are US courts less likely to enforce the repayment of a loan if it is (ceteris paribus) without interest?
<p>Apparently, in common law, a loan given without an interest being specified/demanded is at procedural disadvantage, in that a court may not recognize it as a contract, the plaintiff having to rely on promissory estoppel instead, in this case, at least according <a href="https://www.investopedia.com/terms/p/promissory_estoppel.asp" rel="nofollow noreferrer">to Investopedia</a>:</p>
<blockquote>
<p>Promissory Estoppel as a Part of Contract Law</p>
<p>Contract law generally requires that a person receive consideration for making a promise or agreement. Legal consideration is a valuable asset that is exchanged between two parties to a contract at the time of a promise or agreement.</p>
<p>Ordinarily, some form of consideration, either an exchange of money or a promise to refrain from some action, is required for a contract to be legally enforceable. However, in attempting to ensure justice or fairness, a court may enforce a promise even in the absence of any consideration, provided that the promise was reasonably relied on and that reliance on the promise resulted in a detriment to the promisee.</p>
</blockquote>
<p>It seems pretty obvious to me that not getting back the money lent is &quot;a detriment to the promisee&quot;.</p>
<p>Are there quantitative or (lacking those) qualitative (e.g. comparative case) studies whether a zero-interest loan is a true disadvantage in the US court system, regarding repayment, ceteris paribus (i.e. assuming otherwise the same basic conditions are met, e.g. evidence [like witnesses and/or a written note] to prove that the promise to repay was made on a certain date/event or schedule)? Or is the lack of interest [demanded] rather irrelevant in practice, as far as trial outcomes? I'd prefer we limit the discussion to the US, but if clear-enough evidence (one way or the other) is only available from other common-law jurisdictions, I'd accept an answer based on a proxy jurisdiction.</p>
<p>I'm not sure if this self-answers my Q (I would like more evidence) but LII Wex <a href="https://www.law.cornell.edu/wex/promissory_estoppel#:%7E:text=Within%20contract%20law%2C%20promissory%20estoppel,detrimentally%20relied%20on%20the%20promise." rel="nofollow noreferrer">says</a> in broad terms that:</p>
<blockquote>
<p>An agreement made by promissory estoppel will typically have the same binding effects on parties that a valid contract would.</p>
</blockquote>
<p>(N.B. Another source <a href="https://lawshelf.com/shortvideoscontentview/contract-law-promissory-estoppel-as-a-substitute-for-consideration/" rel="nofollow noreferrer">says</a> that promissory estoppel &quot;was formally “ushered” onto the stage of American contract law in 1932&quot;. So I guess evidence has to be after that year...)</p>

<p>I've never seen that principle invoked in U.S. law. There are tax reasons not to make zero interest loans to related parties (unpaid interest at a low market rate is deemed income to the lender for income tax purposes, followed by a gift from the lender to the borrower for gift tax purposes), but no substantive contact law ones in U.S. jurisprudence.</p>
<p>Consideration is a greatly degraded doctrine, but normally, the consideration in this transaction in a suit by a lender to enforce the contract would be obvious. The loan is made for the consideration that it must be repaid later.</p>
<p>A promise to make an interest free loan in the future might face more consideration problems as a barrier to enforcement by someone seeking to now receive a zero rate interest loan from the person who promised to make one without getting anything in return for that promise.</p>
<p>Indeed, there are standard commercial terms for such arrangements that are used routinely, such as &quot;thirty days net&quot; which means paid for with an interest free loan due thirty days after the day of the invoice. Similarly, there are examples of zero interest government bonds.</p>
<p>This said, promissory estoppel remains good law and is often pleaded in the alternative with breach of contract in any remotely atypical basically contractual transaction. Promissory estoppel is almost identical to breach of contract but substitutes detrimental reliance on a promise for consideration.</p>
<p><strong>Footnote:</strong></p>
<blockquote>
<p>(N.B. Another source says that promissory estoppel &quot;was formally
“ushered” onto the stage of American contract law in 1932&quot;. So I guess
evidence has to be after that year...)</p>
</blockquote>
<p>This is probably a reference to the First Restatement of Contracts. Indeed, upon checking it, that is what it says. The First Restatement relied on prior caselaw to make its points, so the statement isn't truly accurate (and the Restatements aren't binding sources of law, there is nothing &quot;formal&quot; about it unlike the adoption of a statute or a precedent setting case decision, the Restatements are just a persuasive source of common law principles), but the First Restatement of Contracts certainly made Promissory Estoppel much more widely known and accepted in U.S. law.</p>
