Pre Existing Duty Rule
Encyclopedia
In contract law in the United States, the pre-existing duty rule is a legal concept relating to when the performance of a legal duty is classified as consideration
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There are ways around the legal duty rule, such as mutual rescission
of the existing contract with a clear indication of such rescission (literally tearing up the old contract). Also, in some states, parties may renegotiate contracts to include additional benefits if, for example, the party performs unexpected or additional duties, the parties assent in good faith
or a new contract is agreed.
Where contractual parties owe each other existing contractual obligations, but a third party offers a promise contingent upon performance of the contract, that promise has sufficient consideration.
Consideration will be found where a party promises to perform where there are unforeseen and/or unforeseeable circumstances sufficient to discharge the party from the obligation, where any new or different consideration is promised (e.g. earlier payment or payment in stock), where the promise is to ratify a voidable obligation (e.g. go through despite fraud), where the preexisting duty is owed to another person and where there is an honest dispute as to the duty.
Also, under the Uniform Commercial Code
, modifications may be made free of the Common Law
legal duty rule even without consideration provided that the modification is made in good faith. However, the Statute of Frauds
must be complied with, so a written contract is necessary if the contract as modified comes within the scope of that statute. For purposes of the UCC, a contract must be in writing if it is for the sale of goods where the price exceeds $500.
The pre-existing duty rule has been abrogated under the Restatement, Second of Contracts § 89, which does not require independent consideration if the parties mutually and voluntarily agree to the modification (see Angel v. Murray
for an early application of the Restatement). The restatement, however, will not always be followed, as evidenced by the decision in Labriola v. Pollard Group, Inc.
.
Consideration
Consideration is the central concept in the common law of contracts and is required, in most cases, for a contract to be enforceable. Consideration is the price one pays for another's promise. It can take a number of forms: money, property, a promise, the doing of an act, or even refraining from...
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Definition
Generally, performing a legal duty which is already owed under a contract does not constitute consideration, unless that duty is unclear or honestly disputed. That is, once a party agrees to do something under a contract, that party cannot change the terms without consideration and expect the new terms to be enforceable. This is expressed as the legal duty rule, and usually occurs in one of three different ways:Pay less
One party has performed their part of the contract but the other party refuses to pay unless the amount owed is reduced. For example, a contractor performs work on a home for $10,000 only to have the homeowner refuse to pay anything unless the contractor agrees to accept $8,000 (assuming no breaches of warranty, etc.). The rule will apply, so the contractor could accept the $8,000 and sue for the remaining $2,000 because there was an 'honest dispute' as to the duty.Pay more
One party refuses to perform their side of the contract unless a larger sum of money is paid. For example, a contractor agrees to renovate a bathroom for $10,000. He tears apart the room but refuses to repair it unless the homeowner pays an extra $2,000. The rule will apply, so the homeowner could agree to pay the extra money, but then not do so when the contractor finishes the work. (If the homeowner actually paid the extra money, then he could sue later under "duress" to recover the $2,000.)Public duty
The party seeking payment already has a public duty to perform the act. For example, a government employee polygraph expert might ask a criminal about an unrelated crime during the administration of a polygraph. If the criminal admits to the crime and the employee then seeks a reward for identifying the perpetrator, he would not be entitled to it under the legal duty rule because he already has a public duty to find out about crimes.Exceptions
The legal duty rule does not apply if the parties mutually agree to change the terms of the contract. For example, the homeowner and contractor could agree to modify their contract to include a new window for the bathroom at an additional cost of $1,000. Alternatively, the parties could agree not to perform part of the contract for a $500 reduction in the price. Both these modifications to the original contract would be enforceable because there was consideration for each. The legal duty rule protects one party when the other is trying to unilaterally change the terms of the agreement.There are ways around the legal duty rule, such as mutual rescission
Rescission
In contract law, rescission has been defined as the unmaking of a contract between parties. Rescission is the unwinding of a transaction. This is done to bring the parties, as far as possible, back to the position in which they were before they entered into a contract .-In court:Rescission is an...
of the existing contract with a clear indication of such rescission (literally tearing up the old contract). Also, in some states, parties may renegotiate contracts to include additional benefits if, for example, the party performs unexpected or additional duties, the parties assent in good faith
Good faith
In philosophy, the concept of Good faith—Latin bona fides “good faith”, bona fide “in good faith”—denotes sincere, honest intention or belief, regardless of the outcome of an action; the opposed concepts are bad faith, mala fides and perfidy...
or a new contract is agreed.
Where contractual parties owe each other existing contractual obligations, but a third party offers a promise contingent upon performance of the contract, that promise has sufficient consideration.
Consideration will be found where a party promises to perform where there are unforeseen and/or unforeseeable circumstances sufficient to discharge the party from the obligation, where any new or different consideration is promised (e.g. earlier payment or payment in stock), where the promise is to ratify a voidable obligation (e.g. go through despite fraud), where the preexisting duty is owed to another person and where there is an honest dispute as to the duty.
Also, under the Uniform Commercial Code
Uniform Commercial Code
The Uniform Commercial Code , first published in 1952, is one of a number of uniform acts that have been promulgated in conjunction with efforts to harmonize the law of sales and other commercial transactions in all 50 states within the United States of America.The goal of harmonizing state law is...
, modifications may be made free of the Common Law
Common law
Common law is law developed by judges through decisions of courts and similar tribunals rather than through legislative statutes or executive branch action...
legal duty rule even without consideration provided that the modification is made in good faith. However, the Statute of Frauds
Statute of frauds
The statute of frauds refers to the requirement that certain kinds of contracts be memorialized in a signed writing with sufficient content to evidence the contract....
must be complied with, so a written contract is necessary if the contract as modified comes within the scope of that statute. For purposes of the UCC, a contract must be in writing if it is for the sale of goods where the price exceeds $500.
The pre-existing duty rule has been abrogated under the Restatement, Second of Contracts § 89, which does not require independent consideration if the parties mutually and voluntarily agree to the modification (see Angel v. Murray
Angel v. Murray
Angel v. Murray, 322 A.2d 630 , was a case decided by the Rhode Island Supreme Court that first accepted the rule articulated in the Uniform Commercial Code §2-209 and the Restatement Second of Contracts §89 that the modification of a contract does not require its own consideration if the...
for an early application of the Restatement). The restatement, however, will not always be followed, as evidenced by the decision in Labriola v. Pollard Group, Inc.
Labriola v. Pollard Group, Inc.
Labriola v. Pollard Group, Inc., 152 Wash.2d 828 , was a case decided by the Supreme Court of Washington that invalidated a modification of an employment contract for an at-will employee which would have added a non-competition agreement because the modification lacked independent consideration.The...
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