> ## Documentation Index
> Fetch the complete documentation index at: https://lawmaxxing.com/llms.txt
> Use this file to discover all available pages before exploring further.

# Session 10 - Pre-Existing Duty Rule, Modification, Consideration Substitutes

> Pre-Existing Duty Rule, Modification, Consideration Substitutes

## Pre-Existing Duty Rule & Consideration

### General Rule: Modification Requires Consideration

* **Any modification of a contract is itself a contract** and requires consideration to be enforceable
* A modification must have all contract elements: offer, acceptance, consideration
* **Pre-existing duty rule**: An agreement modifying a contract is NOT supported by consideration if one party merely promises to do (or refrain from doing) something they are already legally obligated to do

### Exceptions to Consideration Requirement (Consideration Substitutes)

**Minority of jurisdictions recognize these alternatives when consideration is lacking:**

1. **UCC § 2-209**: Modification of contracts for sale of goods needs no consideration
2. **Promissory estoppel**: Last resort when everything else fails
3. **Moral obligation**: Minority of jurisdictions
4. **Unforeseen difficulty**: Minority of jurisdictions (created by Justice Cardozo)

***

## Rescission of Original Contract

### *Schwartzreich v. Bauman-Basch, Inc.* (1921)

**Facts:**

* Employment contract for \$90/week
* Employee received offer for \$115/week from another employer
* Schwartzreich told Bauman he would take the other offer
* Bauman offered \$110/week to retain him
* **Original August contract was destroyed** (rescission by conduct)
* New contract signed for \$110/week
* Employee later fired and sued for damages

**Issue:** Whether the original contract was rescinded, making the new contract enforceable

**Rule:**

* **Rescission must be expressed by the parties** - either by conduct or by words
* Both parties must mutually consent to rescind
* If rescission is stated in writing in a new contract, that's clear evidence
* If not, there must be express agreement (conduct or words) showing rescission

**Holding:**

* Jury found original contract was rescinded by both parties (factual issue)
* Since original contract was rescinded, the new \$110/week contract controlled
* New contract was enforceable because it was a **whole new contract**, not a modification
* **If it had been merely a modification** (no rescission), it would fail for lack of consideration under pre-existing duty rule

**Key Procedural Point:**

* Whether rescission occurred was a **jury question** because it involved **factual interpretation of conduct**
* Judge decides if rescission language is in writing
* Jury decides if conduct shows rescission

**Criticism:**

* Highly criticized case because rescission and new contract were **simultaneous**
* Employee was already under contract and essentially **forced** the employer's hand
* Could be attacked as **economic duress** - employee threatened to breach, employer had no choice
* Many courts would not enforce this type of simultaneous rescission/modification

**Important Test (from page 239):**

> "The test question is whether, by word or by act, either prior to or at the time of signing of the \$100 contract, these parties mutually agreed that the old contract from that instant should be null and void."

**Exam Tip:**

* Unless you find clear rescission language or conduct, a modified contract may be attacked as economic duress
* Pre-existing duty rule applies to modifications without consideration

***

## Unforeseen Difficulty Exception

### *Angel v. Murray* (1969) - Rhode Island

**Facts:**

* Maher owned refuse collection service for City of Newport
* Number of dwelling units **suddenly increased by 400 homes** (undisputed)
* Maher requested \$20,000 more to cover increased costs
* Director of Finance paid the additional amount
* Angel (taxpayer) sued claiming payment was illegal

**Issue:** Whether modification is permitted when unexpected circumstances arise requiring contract modification

**Rule:** **Restatement (Second) § 89 - Modern Trend**

* Courts will enforce contract modifications when **unexpected or unanticipated difficulties arise** during performance
* **No consideration required** for the modification
* But modification must be **voluntary** by both parties
* Unforeseen difficulty must be objectively unforeseen by a **reasonable person**, not just the party seeking modification

**Holding:**

* Modification valid without additional consideration
* 400 new dwellings was an undisputed, unanticipated increase
* This was genuinely **unforeseen** and substantial

**Key Language (page 242-243):**

> "It is generally held that a modification of a contract is itself a contract which is unenforceable unless supported by consideration."

> "The primary purpose of the pre-existing duty rule is to prevent what has been referred to as **'hold-up'**."

**Hold-Up Definition:**

* When one party starts performance, then halfway through puts the other party in a position where they have **no choice** but to agree to new terms
* Classic example: Contractors who demand more money mid-construction
* Also see: *Alaska Packers* (fisherman case)

**Modern Trend (page 244):**

> "Courts should enforce agreements modifying contracts when unexpected or unanticipated difficulties arise **during the course of the performance** of the contract, even though there is no consideration for the modification, as long as the parties agree voluntarily."

**Exam Application:**

* First state general rule: modification requires consideration
* Then discuss Restatement (Second) exception for fair and equitable modifications
* Analyze whether circumstances were truly unforeseen by reasonable person
* Check if modification was voluntary (not economic duress)

***

## Accord and Satisfaction

### *Kibler v. Frank L. Garrett & Sons, Inc.* (1990)

**Facts:**

* Plaintiff hired to harvest defendant's wheat crop
* No price agreed initially
* Plaintiff sent bill for 25¢/bushel, then corrected bill for 20¢/bushel = \$876.20
* Defendant sent check for \$444 (50% more than previous year's rate)
* Letter stated plaintiff's request was "ridiculous"
* **Check had fine print:** "By endorsement this check when paid is accepted in full payment of the following account"
* Plaintiff consulted attorney, deposited check anyway
* Plaintiff sued for balance

**Issue:** Whether cashing the check constituted accord and satisfaction

**Rule: Elements of Accord and Satisfaction**

1. **Meeting of the minds** between parties
2. **Disputed amount** (unliquidated debt) - must be reasonably/legitimately disputed
3. **Accord**: Tendering of compromised payment/check
4. **Satisfaction**: Acceptance/cashing of the check

**Modern Rule - UCC § 3-311 (1990):**

* Debtor must state **"full satisfaction of claim"** on the instrument
* Prevents ambiguity
* Must be clear on face of check

**Holding:**

* Events leading up to delivery of check and circumstances of cashing provided adequate evidence
* Plaintiff **knowingly cashed check in full payment and satisfaction**
* Accord and satisfaction achieved

**Practice Tip:**

* **Never cash a check** unless other party agrees in writing it's a partial payment
* When writing settlement checks, include clear language: "In full and final satisfaction of all liens, bills, etc."

**Exam Application:**

* Identify if there's a legitimately disputed amount
* Look for tender of compromise (accord)
* Look for acceptance/cashing (satisfaction)
* UCC § 3-311 doesn't apply to services (only goods)

***

## UCC § 2-209: Modification Without Consideration

### General Principles

**UCC § 2-209(1):**

> "An agreement modifying a contract for the sale of goods needs no consideration to be binding."

**Requirements Instead of Consideration:**

* Modification must be made in **good faith**
* Must meet standards of **fair dealing**

**Two-Part Test for Good Faith:**

1. **Objective Test**: Would a reasonable merchant have sought modification under these circumstances?
2. **Subjective Test**: Was the party actually motivated by honest desire to compensate for commercial issues?

### *Roth Steel Products v. Sharon Steel Corp.* (1983)

**Facts:**

* November 1972: Roth contracted to purchase 200 tons hot-rolled steel/month from Sharon at \$148/ton through December 1973
* Early 1973: Market price and demand drastically increased
* March 1973: Sharon notified Roth of price increase, would not honor quoted prices
* After negotiations: Roth agreed to pay contract price until June 30, 1973, then increased price through end of 1973
* **Sharon threatened to cease supply entirely** if Roth refused increased prices
* Roth reluctantly agreed (no reasonable alternative supplier)
* 1974-1975: Sharon accepted orders only at prevailing prices, deliveries increasingly late
* **Reality**: Sharon reserved large quantities for sale to subsidiary at premium prices

**Issue:** Does party enforcing modification have to show legitimate commercial reason (good faith)?

**Rule: Two Elements Required for Good Faith (UCC § 2-209)**

1. **Objective Standard**: Modification objectively in good faith based on reasonable commercial standards of fair dealing
2. **Subjective Standard**: Seller subjectively motivated to seek modification by honest desire to compensate for commercial exigencies

**Additional Requirement:**

* Modification cannot be induced by **impermissible means**
* Threatening not to sell unless buyer agrees = **prima facie bad faith**

**Prima Facie Definition:**

* "On its face" - appears improper initially
* Party can overcome burden by showing legitimate reason
* Example: Shooting someone appears to be murder on its face, unless self-defense shown

**Holding:**

* Sharon acted in **bad faith**
* Used position as chief supplier to **force** Roth into modification
* Threatening to cease supply = impermissible means
* Damages awarded to Roth

**Burden of Proof:**

* Party seeking to **enforce the modification** has burden to prove good faith

**Key Language (page 253):**

> "The ability of a party to modify a contract which is subject to Article 2 of the UCC is broader than common law, primarily because the modification needs no consideration to be binding."

> "In determining whether a particular modification was obtained in good faith, a court must make two distinct inquiries: (1) whether the party's conduct is consistent with reasonable commercial standards of fair dealing in the trade, and (2) whether the parties were in fact motivated to seek modification by an honest desire to compensate for commercial exigencies."

**Exam Application:**

* Identify sale of goods (UCC applies)
* Note § 2-209(1): no consideration needed
* Analyze objective good faith (reasonable merchant standard)
* Analyze subjective good faith (actual motivation)
* Look for impermissible means (threats, coercion)
* Identify who has burden of proof (party enforcing modification)

***

## Problem Analysis: Modification Scenarios

### Problem 2: Alaska Packers Type (Hold-Up)

**Facts:**

* Sailors contracted for \$90 run money + 2¢/fish
* On arrival in Alaska, complained nets were old
* Refused to work unless paid additional \$50 each
* Short 45-day fishing season - defendant couldn't replace sailors in time
* Defendant's representative promised additional \$50
* Sailors completed work
* On return, defendant refused additional payment

**Analysis:**

* **Majority view**: No consideration for additional payment
* Sailors already had **pre-existing duty** to perform for original amount
* This is a classic **"hold-up"** scenario
* **Economic duress** - sailors coerced defendant who had no reasonable alternative
* Court denied additional payment (*Alaska Packers* case)

**Rule:** "Requirements of legal detriment in modification contract serves to police coercion"

### Problem 3: UCC Modification (Good Faith)

**Facts:**

* Contract for 4,000 wooden display stands at 65¢ each
* After 2,000 delivered and paid, plaintiff told defendant must charge 75¢ due to unexpected increased costs
* Defendant agreed to higher rate
* Plaintiff delivered remaining stands

**Issue:** At what rate is plaintiff entitled to be paid?

**Analysis:**

* This is **sale of goods** - UCC applies
* Under **UCC § 2-209(1)**: Modification needs no consideration if done in **good faith**
* Alternative argument: **Impossibility of performance** doctrine
  * If objectively impossible to perform at original price, could rescind original contract
  * Second contract would then be enforceable on its own

**Restatement (Second) Alternative:**

* Jurisdictions following Restatement (Second) look for **fair and equitable** modification
* Must be fair "in view of all circumstances"

**Holding:** Plaintiff entitled to **75¢** per stand

**Counter-Argument:** Could argue **economic duress**

* 2,000 stands already delivered (halfway through job)
* Buyer needed remaining 2,000
* Seller had leverage

### Problem 5: Collective Salary Reduction

**Facts:**

* Employment contract for one year
* Defendant had financial difficulties
* Plaintiff and **other key personnel** all agreed to accept lesser salary for balance of year

**Issue:** Is there consideration for plaintiff's promise to take less?

**Analysis:**

* **Yes, there is consideration** (mutual promises)
* Plaintiff gave up right to full salary
* Defendant gave up right to demand full performance at original price
* **All key personnel** participated = collective bargaining to save business and jobs
* Each party **gave up something to gain something** (keeping employment)

**Important Distinction:**

* If **only plaintiff** agreed to salary reduction (not others), **no consideration**
* Why? Plaintiff doing same work for less, everyone else getting same pay
* That would violate **pre-existing duty rule**
* Only plaintiff giving up something; defendant paying less for same service
* Court would find this unfair

**Rule from *American Coil* (1951):**

* Collective agreement to reduce salaries to save business = valid consideration
* Unilateral reduction of one employee only = no consideration

***

## UCC § 2-209(2): No Oral Modification Clauses

### Problem 2 (Page 256): Written Modification Requirement

**Facts:**

* Seller agreed to manufacture and deliver automated production line for eyeglass lenses
* Delivery date: October 30, 2004
* **Contract contained clause forbidding non-written modifications**
* Various delays; delivery not made in October
* Buyer cooperated, agreed to pay cost overruns, urged completion, but complained about delay
* Cooperation and complaints continued through Spring 2005
* Late May 2005: Seller tendered delivery
* Buyer rejected as too late and sued for breach
* Seller claims delivery date was waived
* Buyer relies on clause forbidding non-written modification

**Issue:** Is oral modification effective when contract requires written modifications?

**UCC § 2-209(2):**

> "A signed agreement which excludes modification or rescission except by a signed writing is effective."

**Analysis:**

* This appears to be **hybrid contract** (manufacture + deliver = goods + services)
* No written modification shown in facts
* Under UCC, oral modification is **ineffective** if contract requires writing
* This changes common law rule

**Common Law Rule:**

* Even if contract says "no modification unless in writing," parties can modify orally by conduct

**UCC Rule:**

* If contract requires written modification, oral modification is **ineffective**
* Statute designed to change common law

**Modification by Conduct:**

* Parties may **waive rights** by conduct
* Example: Landlord accepting late rent payment repeatedly
* Can constitute tacit agreement that late payment is acceptable
* But under UCC with "no oral modification" clause, conduct alone won't suffice

**Holding:** Modification **ineffective** without writing

**Practice Tip - Protective Clause:**

> "If there is an attempted modification of this contract, this contract is automatically null and void."

* Protects client by making any modification attempt void the entire contract

***

## Implied Promises and Good Faith

### *Wood v. Lucy, Lady Duff-Gordon* (1917) - Cardozo

**Background:**

* Lucy Lady Duff-Gordon was famous costume designer
* Also known for surviving Titanic (allegedly paid crew for lifeboat seat with her dogs while others drowned)

**Facts:**

* Fashion designer (defendant) had agreement with plaintiff (Wood)
* Plaintiff had **exclusive rights** to place defendant's endorsements on designs, sell them, or license to others
* In return, defendant would receive **½ of all profits and revenues**
* Defendant placed endorsements on fabrics/dresses without plaintiff's knowledge
* Defendant withheld profits
* Plaintiff sued for breach
* **Defendant's argument**: Agreement lacks consideration - plaintiff never promised to do anything

**Issue:** Can a promise be implied from exclusive agency arrangement?

**Rule: Implied Promise of Good Faith and Best Efforts**

* **"A promise may be lacking, yet the whole writing may be instinct with an obligation, imperfectly expressed"**
* Law has outgrown primitive formalism requiring precise words
* Exclusive privilege implies acceptance of duties
* **Acceptance of exclusive agency = assumption of its duties**

**Holding:**

* Court found **implied promise** that plaintiff would use reasonable efforts to market defendant's endorsements
* Plaintiff gave up other opportunities by accepting exclusivity
* Without implied promise, "transaction cannot have such business efficacy as both parties must have intended"
* We are "not to suppose that one party was to be placed at the mercy of the other"
* Judgment reversed in favor of plaintiff

**Significance:**

* Decided in **1917** - revolutionary concept
* Court's analysis **codified in UCC § 2-306(2)**
* Created minority rule: implied promise of good faith and fair dealing in exclusive arrangements
* Justice Cardozo created new doctrine to prevent inequality (Lucy in better position to draft contract)

**Modern Application:**

* When exclusive rights granted, there's implied duty to use best efforts
* Can't accept exclusivity then do nothing
* Prevents one party from being "at the mercy" of the other

***

## Requirements and Output Contracts

### *Continental Carbon Co. v. PRC Rubber & Plastics Co.* (2003)

**Facts:**

* Continental sold material used in rubber products
* PRC made rubber products
* Agreement: Continental would sell PRC **"approximately 1.8 million pounds annually"**
* Continental had **right of first refusal** (if PRC sought lower price elsewhere, Continental could match)
* First year: Continental shipped **2.6 million pounds**
* Following year: Continental struggled with demand
* PRC placed order; Continental neither confirmed nor shipped
* **Continental's position**: Only required to ship approximately 1.8 million pounds
* **PRC's position**: Continental had to fill every order (requirements contract)
* PRC pointed to provision: lower price per pound if bought much more than 1.8 million pounds
* This showed 1.8 million was merely an **estimate**, not fixed quantity

**Issue:** Is an agreement a requirements contract if one party is not obligated to purchase all needs exclusively from other party?

**Rule: Requirements Contract Definition**

* Buyer must buy goods **only from seller**
* Buyer must buy **all of its needs** for those goods from seller
* Must have **exclusivity**

**Holding:**

* This was **not a requirements contract**
* PRC was free to purchase from other suppliers
* No exclusivity requirement
* Requirements contracts must be **clearly spelled out**
* Can't just use word "requirements" - need actual exclusive obligation

**Transactional Takeaway:**

* Don't consider agreements "requirements contracts" if party free to purchase from others
* Must have clear exclusivity provision to be enforceable as requirements contract

***

## Good Faith Reductions in Requirements Contracts

### *Waseco, Inc. v. Johnson Controls, Inc.* (2002)

**Facts:**

* 1998: JCI orally agreed with Waseco to produce headrest part 684F for Daimler-Chrysler
* Waseco invested in equipment, maintained capacity for 4,000 parts daily
* 6 months: Waseco supplied that volume
* Then JCI's orders sharply declined
* JCI asked Waseco to do finishing work on Part 684B; those orders also dropped
* **Reason for reduction**: Daimler-Chrysler switched to redesigned headrests requiring different parts
* JCI sourced from Canadian supplier closer to assembly plant
* Waseco sued for breach
* Trial court: Summary judgment for JCI (reduced requirements in good faith)

**Issue:** Can buyer in requirements contract significantly reduce or terminate orders for good faith reasons?

**Rule: UCC § 2-306(1) - Output and Requirements**

> "A term which measures the quantity by the output of the seller or the requirements of the buyer means such **actual output or requirements as may occur in good faith**... except that no quantity **unreasonably disproportionate** to any stated estimate or... prior output or requirements may be tendered or demanded."

**Holding:**

* § 2-306(1) permits **good faith reductions** in requirements
* Even if highly disproportionate to stated estimates
* JCI reduced requirements in good faith
* Reduction due to customer's switch to different parts (commercial exigency)

**COVID Example:**

* Many requirements contract disputes during pandemic
* Example: Ford reducing orders from 10,000 units to 2,000 units
* Courts found these reductions in good faith due to unforeseen circumstances
* Supply chain issues, shutdowns = legitimate commercial reasons

**Application:**

* Good faith standard is key
* Reductions must be reasonable under circumstances
* Courts examine whether motivated by legitimate business reasons or bad faith attempt to escape obligation

***

## Unilateral Contracts and Employment

### *Summit 7, Inc. v. Kelly Lasker* (2005) - Vermont

**Facts:**

* Lasker employed by Summit 7 as **at-will employee**
* **During employment** (not at hire), required to sign non-competition agreement
* Non-compete prohibited working for direct/indirect competitor in VT, NH, part of NY
* Restriction: 12 months following voluntary resignation or termination for cause
* Agreement stated it did **not create employment contract** or alter at-will status
* 2 years after signing: Lasker voluntarily resigned, began working for competitor in restricted area
* Summit 7 sued to enforce non-compete
* **Lasker's argument**: Non-compete invalid - no consideration (no raise, promotion, or benefit)

**Trial Court:**

* Continued employment = sufficient consideration
* Alternatively, promotion and raises during employment supported it
* Injunction proper

**Supreme Court of Vermont:**

* **Affirmed** enforcement of non-compete
* **Continued at-will employment alone = adequate consideration**
* As long as employer doesn't act in **bad faith** by terminating employee shortly after obtaining covenant
* **Rejected** notion that raises/promotions provided consideration (no link between them and non-compete)

**Issue:** Whether non-competition agreement signed mid-employment by at-will employee supported by adequate consideration

**Holding:**

* Continued employment = consideration
* Non-compete commitment can be seen as **offer**
* Employee **accepted by continuing employment**

***

### Dissenting Opinion (Justice Johnson)

**Argument:**

* Continued at-will employment is **illusory consideration**
* Day before and day after signing, Lasker remained terminable at will
* Yet she lost significant post-employment freedom
* Consideration should be assessed **at moment of contracting**, not by later performance
* Tying enforceability to whether employer fires shortly after "retrofits consideration post hoc"

**Policy Concerns:**

* Non-competes merit close scrutiny due to **unequal bargaining power**
* Employers leverage job insecurity to extract broad restraints
* Jeopardizes employee's livelihood

***

### Key Legal Principles: At-Will Employment

**Illusory Promise:**

* At-will employment promises are generally **illusory**
* Either party can terminate at any time for any reason
* Promise to employ "if I want to" = unenforceable
* Like saying "I'll buy this computer if I want to" = meaningless

**Contrast with Unilateral Employment Contract:**

* Promise for specific benefit (insurance, severance, etc.) in exchange for continued work
* Creates enforceable promise
* Employee performance = acceptance
* Example: Employer provides benefits in exchange for employment
  * If employer fires employee, may have cause of action
  * Employee's daily work reinforced commitment
  * Employer breached by terminating without cause

**Pre-Existing Duty in Employment:**

* Surgical assistant who quits during surgery
* At-will = can walk away
* BUT: Licensed professional has **legal duty** to patient
* At very least = **negligence** to abandon patient during procedure
* Cannot leave patient in vulnerable state

***

## Requirements Contract - Best Efforts

### Problem 1 (Page 273): *Cubic Corp. v. J\&R Foods of Oregon* (1978)

**Facts:**

* April 30: B and S signed contract
* B agreed to buy, S agreed to sell special pre-mixed barbecue sauce at designated price/gallon
* To be used in B's restaurant
* S gave B **exclusive right** to use sauce in Oregon
* Agreement for **10 years**
* Beginning May: B purchased several gallons/month
* October: B decided could make similar sauce for less money
* B stopped ordering, informed S would not buy additional sauce

**Issue:** Does S have cause of action against B?

**Analysis:**

* This is a **requirements contract** with **exclusivity**
* Implied promise of **best efforts** (*Wood v. Lucy, Lady Duff-Gordon*)
* B agreed to use best efforts to purchase all sauce needed
* Producing own sauce = breach of contract

**Holding (*Cubic Corp.*):**

* Buyer was in **breach**
* Had agreed to use best efforts to purchase all sauce needed
* Court found buyer acted in **bad faith**
* Just because you can make it cheaper doesn't mean you get to screw the other party
* Seller relied on promise, may have expanded production, hired employees

**Rule:**

* Requirements contract with exclusivity = implied duty to use best efforts
* Cannot simply decide to make product yourself to save money
* Breaches good faith obligation

**Right of First Refusal Consideration:**

* If buyer finds cheaper source, seller should have chance to match price
* But if buyer makes it themselves, bypasses this protection entirely

**Exam Application:**

* Identify requirements contract language
* Look for exclusivity provision
* Apply implied duty of best efforts
* Analyze good faith in reducing/eliminating orders
* Consider whether party trying to circumvent contract obligations

***

## Summary of Key Rules for Exam

### Modification Framework

1. **Start with general rule**: Modification requires consideration (it's a new contract)

2. **Identify exceptions**:
   * UCC § 2-209: Goods - no consideration needed, only good faith
   * Restatement (Second): Fair and equitable under all circumstances
   * Unforeseen difficulty (minority)
   * Moral obligation (minority)

3. **Pre-existing duty rule**: Cannot get more for doing what already obligated to do

4. **Rescission**: Both parties must mutually agree (conduct or words)

5. **Economic duress**: Modification forced under pressure may be voidable

### Good Faith Analysis (UCC)

1. **Objective test**: Reasonable merchant standard
2. **Subjective test**: Actual honest motivation
3. **No impermissible means**: No threats or coercion
4. **Burden**: Party enforcing modification must prove good faith

### Requirements Contracts

1. Must have **exclusivity**
2. Implied duty of **best efforts**
3. Good faith reductions permitted under § 2-306(1)
4. Cannot be unreasonably disproportionate to estimates

### Accord and Satisfaction

1. **Legitimately disputed debt**
2. **Accord**: Tender of compromise
3. **Satisfaction**: Acceptance/cashing
4. **UCC § 3-311**: Must state on instrument

### At-Will Employment

1. Generally **illusory promise**
2. Exception: Consideration if specific benefits promised
3. Non-competes: Continued employment may be consideration (majority)
4. Must not terminate in bad faith shortly after obtaining covenant