Understanding Existing Duty Rule And Consideration In Contracts

What is Consideration and its importance in Contracts

Discuss about the Contract Law for Rules Contractual Renegotiation.

Whether Visit Victoria is under any obligation to make extra payment to the Gareth in lieu of supply of car, and whether there is any difference in the situation if tourist does not come because of the volcanic explosion?

The most important section in the contract entered between the parties is the consideration, and under this law consideration is defined as an “act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable”. Consideration is considered as very important in the eyes of law because of the fact that without consideration promise will suffer disadvantage and promisor will get the undue advantage or vice versa. Consideration also helps the judges of the Courts in deciding the contract validity entered between two parties such as whether contract is binding or not. One of the most important part of the consideration is the Existing duty rule (ACL, n.d.).

Existing duty rule is considered as the branch of consideration in the law which clearly states that if the promise is offered by offeree and such promise is not different from the original building promise, then it is not considered as new promise and such subsequent promise will not be binding on the parties to the contract. This rule further stated that such consideration is not considered as the good consideration if one person is already under a duty to do something, and person is under obligation to fulfill his duty even though new money is offered (Giancaspro, n.d.). This can be understood through case law Stilk v Myrick, 1809 2 Camp 317; [1809] EWHC KB J58, 170 ER 1168 under which additional money was promised to be given for the purpose of completing the obliged job, which was stated under the original contract. As stated by the Court because of the original contract which is binding on the parties there was no need to give additional money for the purpose of originally made promise.

It must be noted that this rule has its own strength and weakness from the beginning. Weakness related to this is clearly reflected at the time when promise to make additional payment is not clearly binding on the parties and because of this it is not enforceable. It’s made the promisor not to be legally bound by his or her promise. Because of this rule promise does not get any legal rights to sue the promisor for promise made by him/her (ACL, n.d.).

Existing Duty Rule and its significance in Contractual Agreements

This rule was mainly formed for helping the Courts to decide whether new promise made by promisor is binding or not, but there are some exceptions also and these exemptions are depend on the situations of the cases. Presently, this rule is considered as the blunt instrument which mainly invalidates the ‘non extortive and also extortive re-negotiations’. Some other ways are also found by the Court which counter this rule such as if any particular situations justify he demand for additional benefit, then such consideration is considered as the good consideration. Judges also stated the argument that might be there is no need to modify the original contract and that new promise is validate by making new contract between the offeror and offeree of the new promise (Uni Study guides, n.d.).

This rule comes into existence because of the precedent case the Stilk v Myrick, 1809 2 Camp 317; [1809] EWHC KB J58, 170 ER 1168. As stated before, additional money was promise to provide to seamen for the purpose of deserting the ship. In this case, Court stated that captain was not bound to make any payment to the seamen and stated that it was the duty of the seamen to sail the ship back to the port. Therefore, even promise was made by the captain but such promise cannot be considered as new promise because seamen were just doing for what they were bound under original contract.

This rule related to the existing duty mainly stated that no clear additional benefit was implied and because of this promise was of no legal binding power. It must be noted that traditional approach related to this rule was simple, which state that new promise must be dissimilar from the old promise, and if new promise is not dissimilar then such promise is not valid in the eyes of law. After some sometime, exemptions related to this rule was also stated by the court. Judges in the Court stated that under some particular and right situations it is possible to give new consideration under new promise (Kuklik, 2017). 

However, it must be noted that position is completely different when promisee is contractually bound to any third party for the purpose of his obligation. In other words, when the promise owned any contractual towards the third party, then performing or promising to perform that duty can be considered as good consideration for the new promise made by promisor. This can be understood through case law, Pao On v Lau Yiu Long, [1979] 3 WLR 435. In this case, Court stated that there was good consideration here, as any act done before the promise can be considered as the good consideration in some particular cases. Particularly, an act is considered as good consideration if it is done at the request of the promisor.

Exceptions to Existing Duty Rule

In the present case, Gareth enters into contract with Visit Victoria to provide 8 cars per day for the purpose of taking the visitors to the tourist spots. After some time, because of the increasing cost Gareth denied to provide cars to the Visit Victoria at same cost from the following day. On the following dates, Visit Victoria expected huge number of customers and they fail to make alternative arrangements to pick the customers. Because of this Visit Victoria agreed to pay extra $50 to the Gareth for the cars and Gareth agreed to provide services.

In this case, existing duty rule is applicable and as per this rule if the promise is offered by offeree and such promise is not different from the original building promise, then it is not considered as new promise and such subsequent promise will not be binding on the parties to the contract. Such consideration is not considered as the good consideration if one person is already under a duty to do something, and person is under obligation to fulfill his duty even though new money is offered. Exemption was stated in case William v Roffey Bros & Nicholls. In this case, Court stated that new promise was valid because this consideration was given to the plaintiff for finishing his work on time even though when he is in financial difficulties (ACL, n.d.).

One more case law is also there that is Pao On v Lau Yiu Long. In this case, Court held that there was good consideration, because any act committed before the promise can be held as the good consideration in some particular cases. Particularly, an act is considered as good consideration if it is done at the request of the promisor. In other words, position is completely different when promisee is contractually bound to any third party for the purpose of his obligation.

In the present case, Visit Victoria owned contractual duty towards the third party, and performing or promising to perform that duty can be considered as good consideration for the new promise made by promisor. Therefore, Visit Victoria is liable towards the Gareth to make extra payment.

Conclusion:

Visit Victoria is liable towards the Gareth to make extra payment beacsue Visit Victoria owned contractual duty towards the third party, and performing or promising to perform that duty can be considered as good consideration for the new promise made by promisor. Therefore, Visit Victoria is liable towards the Gareth to make extra payment. In second approach situation is completely different and existing duty rule is applied because Visit Victoria does not owned contractual towards the third party. In this, Visit Victoria does not hold liable to make extra payment to Gareth.

References:

ACL. Consideration. Available at: https://www.australiancontractlaw.com/law/formation-consideration.html#existingduty. Accessed on 20^th April 2018.

ACL. Pao On v Lau Yiu Long, [1979] 3 WLR 435. Available at: https://www.australiancontractlaw.com/cases/pao.html. Accessed on 20^th April 2018.

ACL. Stilk v Myrick, 1809 2 Camp 317; [1809] EWHC KB J58, 170 ER 1168. Available at: https://www.australiancontractlaw.com/cases/stilk.html. Accessed on 20^th April 2018.

Uni Study Guides. Consideartion. Available at: https://www.unistudyguides.com/wiki/Consideration. Accessed on 20^th April 2018.

Collins v Godefrey (1831) 1 B & Ad 950.

Giancaspro, M. The Rules for Contractual Renegotiation: A Call for Change. Available at: https://www.austlii.edu.au/au/journals/UWALawRw/2014/1.pdf. Accessed on 20^th April 2018.

Kuklik, A. (2017). Law of Contract. Available at: https://sydney.edu.au/lec/subjects/contracts/Summer%202016-17/LPAB%20-%20Contract%20-%20Summer%202016%20-%20Lecture%203.pdf. Accessed on 20^th April 2018.

Pao On v Lau Yiu Long, [1979] 3 WLR 435.

Stilk v Myrick, 1809 2 Camp 317; [1809] EWHC KB J58, 170 ER 1168.

Watkins v. CARRIG, 91 N.H. 459 (N.H. 1941).

Wigan v Edwards, (1974) 1 ALR 497.

Williams v Roffey Bros and Nicholls (Contractors) Ltd, (1990) 1 All ER 512.