Today, we're going to explore something called the pre-existing duty rule by looking at a case called Alaska Packers' Association versus Domenico which was decided by the 9th Circuit in 1902. The Alaska Packers' Association hired a group of sailors and salmon-fishing people, including the named Apeli Domenico for fishing expedition. Alaska Packers contracted to pay each of the workers $50 or $60 for the season. But after the expedition began, the workers stopped work and demanded a pay increase to $100 for the season. Because the location was remote and the season was short, Alaska Packers' superintendent was unable to obtain replacement workers and so conceded to the demands. When the work was completed and the workers returned from the expedition, Alaska Packers refused to honor the contraction modification and the workers sued. The trial court found for the plaintiff workers, and the instant court reversed. So the central issue is this, was the contractual modification supported by consideration? The Ninth Circuit held that the contractual modification lacked consideration. The court observed that the workers agreed in writing for 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 has a large amount of money invested. In fact it was $150,000 invested, in 1900 that was a lot of money. The workers then waited until it was impossible for the appellant to secure other men in their places and without any valid cause, absolutely refused to continue the services they were under contract to perform unless the appellant would consent them to pay them more money. The court concluded that Alaska Packers' consent to the workers' demands was without consideration, for the reason that it was based solely upon the libelant's agreement to render the exact services and none other that they were already under contract to render. By the way, the plaintiffs are called libelants because this is an advoty case. This is an example of what is know today as the pre-existing duty rule. The pre-existing duty rule says that a pre-existing duty cannot be used as consideration for a contractual modification. Under the pre-existing duty rule, you can't promise not to kill the president for $1,000 because you already have a duty not to kill the president. As applied to contractual modifications, the pre-existing duty rule says that modifications to a contract, unsupported by additional consideration are unenforceable. In other words, if a party promises to do something that he is already legally bound to do, his promise will not count as consideration to support a new contract with a higher price. The law will regard the promise as a nudum pactum, a naked promise, unclothed in consideration. So, here's a pop quiz. Consideration is normally regarded as something which is bargained for and given exchange for a promise. Was the additional pay bargained for? Well, the answer is yes. This standard bargain requirement appears to have been satisfied in Alaska Packers. The promise to increase the fishermen's wages was not but was given to induce the fishermen to complete their jobs. Why then does the court reject the fishermen's position? Well, there is still this pre-existing duty problem. Where fishermen already had a legal duty to perform the work. So, in legal effect they gave up nothing extra in return. Threatening to withhold what you already had a legal duty to perform is not consideration. With this question of consideration aside, the court in Alaska Packers is also clearly concerned about the apparent duress exerted by the fisherman. This was a hold up and extortion, the fisherman seem to be saying the defendants, without justification, unless you pay us more money to do the same work, we will quit and leave you stuck in a remote Alaskan bay without a paddle. The court did not look kindly on the fishermen's gamesmanship, citing an old Minnesota case called King vs Railway Company. The court wrote that, quote, the party who refuses to perform and thereby coerces a promise from the other party to the contract to pay him an increased compensation for doing that which is legally bound to do, takes an unjustifiable advantage of the necessity of that other party. Allowing victims of a shake down to enter into new but void contracts where they promise to make non binding promises to pay extra money might empower the promisees to fend off the shake downs. The immutable rule that modification must be supported by consideration, thus might protect these potential victims. The law does not allow them to be fleeced, and thereby might improve their bargaining strategy. After this case, Alaska Packers can say, I'd really like to promise to pay you more, but that won't be a legally binding promise. The pre-existing duty rule is captured in Section 73 of the restatement, which reads, performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration. But a similar performance is consideration if it differs from what was required by the duty in a way which reflects more than a pretense of bargaining. Note that the restatement definition allows for contractual modifications that settle honest legal disputes, or reflect more than just a pretense of bargaining. This is not inconsistent with the opinion in Alaska Packers which emphasize that the workers refused to continue services without any valid cause. Well, what would be a valid cause? What if plaintiffs had claimed that defendant Alaska was somehow in breach of its duty to provide decent dormitories, and the extra money was compensation for a defendant's breach of the implicit promise to provide livable working conditions? Or suppose that severe weather increased the risks of harm to the fishers. Or, what if Alaska Packers provided the fishermen with inferior nets? This last point is more than just a hypothetical. In Alaska Packers, the fishermen tried to prove that the nets furnished to them were not serviceable because they permitted smaller salmon to slip through. In her law review article, A Fish Story: Alaska Packers versus Domenico, Debora Threedy suggests that the fishermen, because of difference in language and experience, might have misunderstood that the nets were serviceable. While this would not justify a strike, it tends to neutralize the claim of duress. Threedy also suggests that nets which appear unserviceable to those hoping to catch more fish would be perfect for the Packers who were concerned about catching too many fish or perhaps wanted to cut corners on the equipment. So let's turn now to the problem of the dissatisfied entertainer. Imaging that you are a justice of a state appellate court hearing an appeal from a judgment entered in the circuit court after a jury trial in which the plaintiff, Oliver Ajax, received a verdict of $30,000 in a breach of contract action against the defended, James Bond. On February 15th, Ajax and Bond entered into a written contract whereby Ajax, a professional entertainer, was to perform at Bond's Resort for the week of July 1st through July 7th for a fee of $20,000. In the late spring, Ajax had a hit record, which virtually overnight made him a star who could command at least a $50,000 fee for a one week engagement. In early June, Ajax contacted Bond to renegotiate their contract, demanding $50,000 for this one week engagement. Initially, Bond refused to negotiate, but when Ajax said he would not perform, Bond relented. After discussion, Bond dictated a new contract to his stenographer in the exact words of the original contract and running for the same period but with the compensation changed to $50,000. As they signed the new contract, they tore up the old one. Thereafter, Ajax cut the engagement but Bond refused to pay him more than $20,000, Ajax filed the instant suit seeking the additional $30,000. Over the defendant's objection, the trial judge instructed the jury as follows. Quote, if you find that the $20,000 contract was prior to or the time of the execution of the $50,000 contract cancelled and revoked by the parties by their mutual consent, then it is your duty to find that there was consideration for the making of the contract in the suit, and in that event the plaintiff is entitled to your verdict in the amount of $30,000, unquote. On this appeal, the defendant contends that the giving of this instruction constituted a reversible error. So what should be done? This case is another example of consideration being really a matter of form. If you can convince a court that as a formality, you tore up the first contract first and then replaced it with a second modified contract. That really is convincing the court in a purely formal matter to give rise to a modified contract with no consideration. But the idea of consideration as merely being a formality is one that was actually championed by Lon Fuller, who said that mere formalities can produce functional goods. Fuller taught us that consideration as form might provide value because it provides, one, an evidentiary function of providing evidence to courts that the parties intended to contract. It also provides a cautionary goal, a cautionary function that formalities might slow people down to make sure that they only enter into contracts that they want to be legally enforceable. And finally, formalities, including consideration as merely a formality, might serve a channeling function of channeling people toward contracts that they really want to be legally enforceable and channeling other kinds of agreements to nonlegal enforcement. And while this a positive view of considerationist form, there's another image of considerationist form that's not as happy. It's a more cynical view that consideration is a mere formality that is a trap for people who just don't know how to manipulate it, or it's a way of generating income for lawyers. You better go get a lawyer if you want to make sure that your contract is enforced, because the lawyer will know enough to dress it up with the trappings of consideration. Maybe having the singer in the Ajax case sing an extra song, or throw in a meet-and-greet with fans. Let's move on to another case. This is the case of the subcontractor's added inducement. Edward Woodward, and this is the owner of a large smelting operation in Metropolis. On August 7th, Woodward entered into a written contract with Peter Rogers, a general contractor, for the construction of an additional power plant at his place of business. On August 14th, Rogers entered into a written subcontract with John Newman for the erection of structural steel work required for this new power plant. And for the purpose of performing his work, Newman rented certain equipment for use until the job was completed. The work continued until October 7th when a strike occurred among Newman's employees and the work was discontinued for a period of approximately nine weeks. During this time, Newman, the sub contractor, was obliged to pay rent for the equipment and other sums to ensure its safe keeping. A meeting was called to adjust differences in the contract. In attendance were Newman, the subcontractor, Rogers, the general contractor, and Woodward, the ultimate client. And a representative of the union of the strikers. As a result of the lengthy discussion, the strike was called off. However, Newman refused to continue performance unless he was paid for the rentals and charges accruing during the time of the strike. Woodward then promised to pay this extra amount so that the work could proceed. The work was completed under the contracts but Woodward then refused to pay the rental charges that he had promised in the modification. And Newman consults you for advice on whether Newman can enforce the promise from Woodward to pay for the rental charges. So, this problem presents us with a situation where additional consideration is paid, but not by the other side of the contract. Newman's has a preexisting duty to the general contractor, Rogers, but not to the underlying client, Woodward. So, Woodward, a third party to the Rogers- Newman contract, is paying for something that Newman already owes but not to Woodward. What's the result? Well, there's a trend in the cases to treat the three party situation differently for at least three reasons. First, with a third party there may be a smaller likelihood of duress. And second, the promisee, here Newman, doesn't have a preexisting duty to the third party, Woodward. Even following the strictness of the pre-existing duty rule, one can find the additional peppercorn in the promisee's forbearing to affect recision with regard to the third party. And finally, third, the third party may be undercompensated by contractual damages. And therefore, the modification may promote efficiency. In this case, one could buttress a result favoring enforcement of the modification without consideration by drawing upon an unforeseen difficulty exception. That although developed in the two-party context, would seem to apply in the three-party setting as well. Note, however, that the promisee may have caused the strike here. So let's review. Today we've learned that modifications to a contract are unenforceable if they aren't supported by additional consideration. This is known as the pre-existing duty rule.
