Note: The following is not intended as legal advice. One should consult an attorney with experience in a relevant practice area before making legal decisions.
After entering into a deal with another party, the threat of non-performance of a contract by the other party can be a stressful and difficult situation to experience. Sometimes after entering into a contract for a good or service one party may threaten to not perform their contractual obligation unless the contract is renegotiated. In such cases a rule in contract law called the “pre-existing duty” rule may apply. The pre-existing duty doctrine is a general principle in American contract law that offers protection against threats against one party’s non-performance as leverage for renegotiation of the contract by offering the option to argue that the renegotiated contract is void of consideration and therefore unenforceable, leaving only the original contract valid.
In American contract law, consideration is usually a necessary component for a contact to be enforceable by a court. Consideration is a benefit that one party receives in exchange for a promise that induces the party to perform their promise. Consideration can be thought of as the difference between a gift and a deal. For example, a party may promise to offer a service, but if the seller of the service is never promised any payment in return, then a court could possibly not enforce the seller’s promise to offer the service by saying that the contract is unenforceable due to a lack of consideration.
A famous case that illustrates the concept of courts using the pre-existing duty doctrine is Alaska Packers’ Association v. Domenico. In this case a group of fishermen entered into a contract for a single, short fishing season. After arriving in Alaska, the fishermen decided that they would not perform their contract unless they received a pay raise. Because the company could not find any other workers on short notice, a representative from the company said that they would pay the higher wages. After the season was over, the company paid the fisherman their original contracted payment and not the renegotiated payment. The courts ultimately ruled that the renegotiated contract was invalid because the renegotiated contract had no valid consideration, and therefore only the originally contracted payment amount was due to the fishermen.
The courts did not consider the modified payment as having valid consideration because the fishermen did not offer anything new in exchange for the higher payment. The Court ruled that the withdrawal of a threat of non-performance by the fishermen is not a real benefit for the company that previously hired them, because they would be owed that benefit regardless of the new modified contract. The Court ruled that the modified contract was not enforceable.
One of the benefits of the pre-existing duty doctrine is that it can protect someone from a situation in which one party holds an agreement hostage by refusing to perform their contractual obligation unless the agreement is modified. If you are in a situation where you have negotiated for a contract, and the other party is refusing to perform according to the contracted terms and instead demanding new terms, you may want to contact a contract attorney to ask if the pre-existing duty doctrine would apply to your situation.