What is the Doctrine of Preexisting Duty?
The preexisting duty rule is a rule in contract law that states a promise cannot be enforced when one party has an existing duty to do what they are promising to do. Essentially, if party A already has a legal obligation to party B for a certain action and then party A promises to then do that same action (and is not offered anything in return as a "contract modification"), then party B cannot enforce party A’s promise if party A later decides to breach the promise.
The general purpose of the preexisting duty rule is to ensure legal obligations are not enforced in circumstances where the party with the duty has done nothing more than is required of them by the law . However, the rule does allow for an exception when the duty to perform the actions was added to the contract following good-faith negotiations.
For an example of the preexisting duty rule, assume I am required by the law to hire a plumber any time I need work done on my plumbing. I then hire a plumber to fix a pipe that burst and during the plumbing work, I agree to pay the plumber another $100 under the agreement that they will fix the other leaky pipes in my house. If the leaky pipes are in addition to the ones that were being repaired, then this is known as an enforceable contract modification because the parties bargained in good faith over the additional work needed and as consideration, I am paying the plumber $100 to do the additional work.
History of the Preexisting Duty Doctrine
The preexisting duty rule has a rich history in contract law, tracing its origins back centuries. It is rooted in English common law which had firmly established that a promise to perform an existing duty does not constitute consideration for a modification of a contract, as exemplified in the early case of Stilk v. Myrick, 2 C.P. 163 (1809). In Stilk, two sailors on a merchant ship deserted their posts and a third sailor promised to take their place if the ship’s captain agreed to pay him extra money. Following the voyage, the captain refused to pay the third sailor the promised amount, and the court held that the agreement was invalid because there was no consideration—he was simply agreeing to do something he was already legally obligated to do.
Despite the strong common law precedent, the rule took a more liberal turn in 1837, when the landmark case of Hartley v. Ponsonby, 3 C. & P. 422 (1837) held that once a substantial portion of a contract had been breached, a party was not required to hold to another breach of the original contract. In that case, six sailors deserted the ship Hartley was on, rendering her unseaworthy. Hartley offered to pay additional money to the remaining crew if they would stay on. The court allowed enforcement of the settlement between Hartley and the sailors, which was in contravention of Stilk and severing the heart of the preexisting duty rule.
Meanwhile, American courts had broken away from the strict rule of Stilk and were more lenient in their application of the preexisting duty rule. In Crawford v. West Jersey & S. R. Co., 69 N.J.L. 295 (1905), the defendant corporation agreed to pay the plaintiff a commission of $13,000 for selling certain mining property. After some negotiations, it became clear that the property was worth $26,000 and the plaintiff asked for two-thirds of the value in exchange for sending the deed to the defendant. The corporation refused and the plaintiff threatened to send the deed to another corporation who had also offered the same deal. The plaintiff entered into an agreement with the second corporation and forwarded the deed to them. The corporation who had originally hired the plaintiff stopped work on the deed and did not pay the full commission. When the plaintiff sued for breach of contract, the trial court ruled in their favor but the Supreme Court reversed and held that there was consideration for the modification as the found that "the transparency of the motive of the conduct [he exhibited towards the second corporation] made the ‘bargain’ a mere subterfuge."
The preexisting duty rule has long been in decline in America. Though the Supreme Court of the United States has not made a definitive ruling on the subject (since the Federal Rules of Evidence govern in the federal court system), in 1940 the Restatement (First) of Contracts § 73 concluded that "A performance which is merely a pre-existing duty of the promisor is not consideration." In recent years, it has been further demonstrated that the vast majority of states have stated that the preexisting duty rule remains binding.
The historic shift away from the preexisting duty rule has not made it completely obsolete. Many states have codified the rule in their adoption of the Uniform Commercial Code § 2-209(a), providing that "an agreement modifying a contract within this Article must be in writing if required by section 2-201." Ohio adopted this statutory rule in 1962 (Ohio Rev. Code Ann. § 1302.10 (B)), but in the 2006 case Taylor Steel, Inc. v. Higher Health Learning Community, 117 Ohio St. 3d 409 (2008), the Ohio Supreme Court lawfully enhanced the rule, stating that "Section 1302.10(B), Ohio Revised Code, which alleviates the writing requirement in contracts for the sale of goods, provides no less than four exceptions to the phrase ‘must be in writing.’" It continued, "the statute clearly contemplates that some oral promises are enforceable. The trial court erroneously concluded that an oral contract modification pertaining to those shipments is not enforceable. We need only add the phrase agreed to by the parties to fill the blank left by the statutes. A contract modification does not need to be in writing if ‘there is an indication that the original contract was not to be rescinded.’"
The enforcability of an oral modification is not unlimited though—as the restatement states in contracts § 89 (The Restatement): "A promise modifying a duty under a previous contract which is not fully performed on either side is enforceable … [if] the modification is fair and equitable in view of the circumstances which the parties as known to them when they made the contract, except to the extent that the rights of the third parties such as obligees of assigned rights are unfairly affected by the modification." If the modification would work an unfair surprise on the parties, or is deemed devoid of genuine consent it likely fails in its requirement of fairness in accordance with The Restatement (Second) of Contracts § 89.
Preexisting Duty Rule Exceptions
There are several recognized exceptions to the preexisting duty rule. For example, courts have often found that unforeseen circumstances may be enough of a change in condition to overcome the preexisting duty rule. In that situation, the modification is found to be enforceable. Other exceptions are mutual agreement to rescind or modify the contract. And under the Uniform Commercial Code, if a modification is made in good faith, that modification generally may be enforceable.
How the Preexisting Duty Doctrine Affects Modifications
The Rule also has an important impact on modifications of contracts. Under the general rule of contract law, a modification to a contract must also have consideration. In the context of such a modification, the preexisting duty rule requires that the promisor provide something more than what it would ordinarily be required given the preexisting debt that gives rise to the duty. Otherwise the promise is illusory and therefore unenforceable.
As the Sixth Circuit explained in United States v. McCallum, 326 F.3d 1 (6th Cir. 2003):
[P]erformance of a legal duty that a party is already obligated to perform under existing contract terms does not constitute consideration for a modification of that contract. . . thus, an offer to make a payment in cash instead of in installments (to which he was already obligated) did not constitute consideration for his promise to do so.
Id. at 7 (cites and quotation marks omitted). Therefore, in order for a promise to modify a contract to be enforceable, there must be some additional promise or act that is beyond what is required by the preexisting duty.
In Raffles v . Wichelhaus, 2 Hurlst & Twells 622 (1864), the specific performance of an agreement to ship cargo by sea was barred because, among other reasons, the performance of the bargained-for act was a duty that each party already had. There, two parties entered into an agreement whereby defendant agreed to ship goods to the U.S. from India. The Court held that the exchange of goods for money was insufficient consideration to exchange promises, and therefore the contract was illusory and unenforceable, because both parties were already bound by their respective duties to perform the contract. As such, neither of the nonperformance parties could be held legally responsible for failing to perform under the agreement.
The Raffles decision was affirmed by the U.S. Court of Appeals for the First Circuit in Apapfo. As its cites to Casebolt v. Cotton, 38 P.2d 539 (Cal. App. 1934) demonstrate, the Apapfo Court reasoned that if the preexisting duty rule requires a party to perform an act that was promised as consideration for a modified contract, then the modification of the contract fails for lack of enforceability.
Criticism and Challenges to the Preexisting Duty Rule
The preexisting duty rule has been the subject of much debate and criticism. Many of these arguments center around the underlying premise that a legal duty, or some ethical obligation, is necessary to support a contract modification. At least one scholar has argued that this principle can be boiled down to an aphorism: "do not do your neighbor’s unpaid work" or even more simply, "do your own work." The reasoning behind this principle lies in the common scenario where one party promises to take on work or provide a service because the other party can’t pay for the additional consideration. It is understandable to want to avoid this type of hazard to "good neighborly behavior."
Some courts have continued to apply a strict application of the preexisting duty rule. As a result, the law in the United States is unsettled, with different states operating under different rules and standards. Jurisdictions that do continue to apply the preexisting duty rule generally hold that it only applies to adjustments in an existing contract price of a unilateral contract. Note that the preexisting duty rule generally has never applied to bilateral contracts.
Critics have argued that the preexisting duty rule should be reformed to take into account public policy considerations, similar to the Restatement of Contracts approach (discussed above). The Restatement views public policy as a means to allow courts to hold that an existing legal duty constitutes consideration. "In such a case it can be said that the undesirable effect of performance of that duty is outweighed by the value of the consideration in itself, and it may be within the judicial discretion to abrogate the harsh rule of consideration [i.e., the preexisting duty rule]."
Proponents have also suggested that the preexisting duty rule should be eliminated entirely. While critics and some scholars argue for the relaxation of the preexisting duty rule, other courts and scholars have suggested that the rule should be extended to cover situations where the existing duty is owed to a third party. Under this view, the debtor-creditor relationship should not be sufficiently intimate enough to warrant the enforcement of a modification. A good example might be an agreement between a client and an attorney or between a creditor and a bank. This analysis turns on whether the existing duty owed to a third party primarily benefits the third party or the contracting party.
Examples and Case Law
Notable practical examples and case studies where the preexisting duty rule played a critical role in court decisions are present, and can be found across numerous areas of law. One of the most widely cited cases is Stilk v. Myrick, which we touched on previously in our recent post on the preexisting duty rule and its application. In Stilk v. Myrick, the sailors on a ship agreed with the shipowner that they would be paid a double share of the usual wages if they completed the trip back to port without a mutiny. When two of the original crew members deserted, two others agreed to take their place but only if they were paid the double share. When payment was refused, the new hires sued for breach of contract.
The court found for the defendants (shipowners) because the extra compensation claimed was for a preexisting duty – the sailors were already bound by their original contract to complete the voyage or pay the penalty. The court stated: "It cannot be expected that a sailor will go through with the voyage by the performance of which he would have forfeited wages for some time, and entail to himself the penalty of £5, merely because he might, by so doing, save the risk of a larger penalty. It is not binding on him to take that which he does not want."
Another example of the preexisting duty rule appearing in court is in Alaska Packers Association v. Domenico. In Alaska Packers, a seafood company entered into contracts with fishers to have them fish and deliver salmon to them at a set price . After fishing for some time under this contract, the fishers, having demanded a higher price for their labor, abandoned their contracts, refusing to fulfill their obligation for the original price.
In response, the seafood company was forced to find other fishers to take their place at great expense. The company attempted to hold the fishers liable for damages resulting from their refusal to perform the contract. The court followed Stilk v. Myrick, and found in favor of the fishers on the basis that the seafood company owed them no duty (Stilk v. Myrick above), as they had not hired additional hands to work for them or promised them anything new.
Like Stilk v. Myrick, Alaska Packers Association v. Domenico recognizes the impossibility of forcing someone to fulfill an agreement in which they owe a preexisting duty, and calls to account new hands or talents added to a preexisting agreement.
The preexisting duty rule is a fundamental legal concept that impacts contract and business law. It recognizes that parties cannot demand new and different terms that fall outside of the original agreement, and that people cannot suddenly be expected to do what they had agreed to do anyway. The acceptance of a contract entails the rejection of the specific acceptance of prior obligations, and these two cannot mix. Such are the lessons of Stilk v. Myrick and Alaska Packers Association v. Domenico.