Pre-existing duty

    Occasionally one person makes a promise to another in exchange for the other's promise or performance of something the other person is already obligated to do.  In other words, one person makes a promise in exchange for another's promise to perform or performance of a "pre-existing duty."  Such a promise is common in two contexts:   (1) where the parties agree to modify the terms of an executory contract (i.e. a contract in which some performance of existing promises by each party remains due) in a way that benefits only one of the parties; and, (2) where the parties agree to settle a claim, such as a claim for breach of contract or a tort claim.   Typically, the parties to such modifications or settlements perform in accordance with the modification or settlement.  Occassionally, however, litigation results from the failure of one of the parties to abide the modification or settlement.  In such cases court have often declined to grant relief for breach of contract if the party being sued for breach had made and then declined to perform a promise given in exchange for the performance of a pre-existing duty.  They have held, instead, that the performance of, or promise to perform, a pre-existing duty cannot be consideration for the promise breached. 

    Watkins v. Carrig supplies an example of an agreement to modify an executory contract.  A homeowner and contractor contracted for the excavation of a basement.  The contractor discovered and told the homeowner that this was a losing deal for the contractor and the homeowner therefore agreed to pay more for the same work.   Because the homeowner reneged on the new promise after the contractor had completed the work, paying only the amount originally agreed, the court had to confront the pre-existing duty rule.  How could the homeowner's new promise (the promise to pay more) be supported by consideration if the contractor had simply promised to perform that which it was already obligated to perform by virtue of the original contract?   You should seek to identify in the court's opinion both the "legal fictions" that the court employed to skirt (while yet preserving) the pre-existing duty rule and the suggestion of a more modern approach that the court was not yet prepared to fully embrace.    

    Foakes v. Beer is a classic case illustrating the pre-existing duty rule in the context of a settlement.  Foakes owed Beer money, but Beer promised to forego interest on the debt if Foakes paid the sum owing in installments.   Foakes paid as agreed and then Beer sought the accumulated interest after all.  The court held Beer's promise to forego interest unenforceable, for lack of consideration, because Foakes promised in exchange simply to pay that which he was already obligated to pay.  But decades of opinions to follow took full advantage of an exception articulated 282 years earlier by Lord Coke in Pinnel's Case, 77 Eng. Rep. 237 (C.P. 1602):   

. . . but the gift of a horse, hawk, or robe, etc., in satisfaction is good, for it shall be intended that a horse, hawk, or robe, etc., might be more beneficial to the plaintiff than the money, in respect of some circumstance, or otherwise the plaintiff would not have accepted it in satisfaction.

For example, suppose a debtor promises to pay her creditor a portion of the debt only a day earlier than the day on which full payment is due in exchange for the creditor's promise to forego collection of the balance.  Or suppose a debtor promises that on the day full payment is due she will pay only a portion of the debt accompanied by a $5.00 gift certificate redeemable at a local fast food franchise in exchange for the creditor's promise to forego collection of the balance.  In either case the creditor's promise to forego collection of the balance is enforceable because it is supported by consideration, albeit a very small consideration (recall that a court will not inquire into the adequacy of consideration), because the debtor's performance is at least slightly different from the debtor's pre-existing duty.  Legislatures have also responded to the pre-existing duty rule with statutes, such as Cal. Civ. Code 1541, making a creditor's written release of a claim enforceable even in the absence of consideration.            

    Language in Watkins v. Carrig and Foakes v. Beer, and in many other like opinions, suggests a kind of linguistic logic to the pre-existing duty rule:  consideration requires a bargain and one cannot bargain for something to which another is already committed.  But that logic, that constricted concept of bargain, flies in the face of reasonable commercial practice.   People actually do make those kind of bargains, most of the time in good faith, and the law ought to support rather than undermine reasonable expectations that such bargains will be enforced.   Occasionally, however, the bargains are not made in good faith.  The party extracting the new promise has another over a barrel and it is unreasonable pressure ("duress"), not good faith accommodation, that forces the new deal.   Centuries of contortion to avoid the pre-existing duty rule preceded ultimate recognition that the doctrine of consideration was the wrong antidote for duress.  Judge Posner reflects on the common law struggle in the following description of a famous case on duress, Alaska Packers' Ass'n v. Domenico, 117 F. 99 (9th Cir. 1902): 

Sailors and fishermen (the libelants) 'agreed in writing, for a certain stated compensation, to render their services to the appellant in remote waters where the season for conducting fishing operations is extremely short, and in which enterprise the appellant had a large amount of money invested; and, after having entered upon the discharge of their contract, and at a time when it was impossible for the appellant to secure other men in their places, the libelants, without any valid cause, absolutely refused to continue the services they were under contract to perform unless the appellant would consent to pay them more money.'  The appellant agreed, but later reneged, and the libelants sued. They lost; the court refused to enforce the new agreement. Although the technical ground of decision was the absence of fresh consideration for the modified agreement, it seems apparent both from the quoted language and from a reference on the same page to coercion that the court's underlying concern was that the modified agreement had been procured by duress in the form of the threat to break the original contract. Cf. Farnsworth, Contracts 271 (1982). 

Selmer Company v. Blakeslee-Midwest Company, 704 F.2d 924 (7th Cir. 1983).

    UCC 2-209 and R.2d Contracts 73 and 89 reflect a modern approach to the enforceability of modifications of executory contracts.  Notice the seeds for that approach in the language of Watkins v. Carrig.  More generally, notice the process of common law development, reflected in Watkins, and ensuing statutory reform.  The good lawyer understands this process and uses it to advantage.  

    Some cases involve oral modification of a written contract in which the problem is not (or not only) the absence of consideration but also a prohibition of oral modifications included in the written contract.  Both LaGuardia Associates and Field Hotel Associates v. Holiday Hospitality Franchising, Inc. and Wisconsin Knife Works v. National Metal Crafters consider the effect of such clauses.  They also consider the circumstances under which one party may be said to waive compliance with a term of a contract even in the absence of modification. 

    Supplementary reading:  Farnsworth, 4.21 - 4.25