Adequacy, nominal consideration, and the pre-existing duty rule

Piraeus, Greece, the second of April, nineteen forty two. A woman signs a letter. I received today from you the amount of two thousand dollars of United States of America money, which I borrowed from you for the support of my family during these difficult days. She promises to repay in American dollars after the war, with eight per cent interest.
She did not receive two thousand dollars. She received five hundred thousand drachmae, and by her own account those drachmae were worth, that day, twenty five dollars. The war ends. The lender sues her in Texas for two thousand dollars and interest. She says the consideration for her promise was wanting, and has failed, to the extent of one thousand nine hundred and seventy five dollars. She tenders twenty five dollars.
So here is the question. She promised two thousand dollars. She got twenty five dollars' worth of paper money. Is her promise enforceable for the whole two thousand? Think about it before I go on. Last time we asked whether there was an exchange at all. Today we assume there was one, and ask whether the law cares how lopsided it is.
And now the question I keep asking. What exactly did these people promise each other? He promised drachmae, and delivered them. She promised dollars, later. Her own words on the stand were these. He said he will give me five hundred thousand drachmas provided I signed that I would pay him two thousand dollars American money. That is a bargain. Each promise was the price of the other. The only complaint is the price.
Here is the first line for the board. Courts do not weigh the exchange. If something was bargained for and given, the law does not ask whether it was worth what was promised for it. The parties set their own values. A bad bargain is still a bargain.
Second line, the limit on the first. A nominal consideration, a sum named as a form of words where no exchange was really intended, does not support a promise. One dollar recited in a deed, one cent recited in a family settlement. The court looks past the figure to ask whether anyone was actually buying anything.
Third line, and it is the heart of today. Doing what you are already bound to do is not consideration for a new promise. If I have a contract to build your house for a price, and halfway through I refuse to continue unless you promise more, your promise of more is not supported by anything, because I was already bound to build. The name is the pre-existing duty rule.
Fourth line, the exceptions. A modification is enforceable without new consideration when it is voluntary, fair and equitable, and made because of circumstances the parties did not anticipate when they contracted. And for the sale of goods, Article Two of the Uniform Commercial Code says flatly that an agreement modifying a contract needs no consideration to be binding. Four lines. Now the cases.
Batsakis against Demotsis, Texas Court of Civil Appeals, nineteen forty nine. The trial judge, sitting without a jury, gave the lender seven hundred and fifty dollars with interest, which looks like a judge splitting the difference. The lender appealed, and the appeals court gave him everything.
Here is the reasoning. The transaction amounted to a sale by plaintiff of the five hundred thousand drachmas in consideration of the execution of the instrument sued on. It is not contended that the drachmas had no value. So there was consideration. Then the sentence to remember. Mere inadequacy of consideration will not void a contract.
And the answer to her second plea, that the consideration had failed. Defendant got exactly what she contracted for according to her own testimony. Judgment for two thousand dollars, with eight per cent interest from the day she signed.
Notice what the court did not decide. She had pleaded that the lender, knowing her financial distress and her desire to return to the United States, exacted the instrument from her. The trial court struck that paragraph, and she did not appeal that ruling. So whether the bargain was extracted under pressure was not before the court. That is a defence, and defences are Module Eleven. Consideration was present, and that was the only question.
Now the limit. Schnell against Nell, Indiana, eighteen sixty one. A widower's late wife had made a will leaving two hundred dollars each to three people. She owned nothing in her own name, so the will gave nothing. The widower signed an agreement to pay the six hundred dollars anyway.
The agreement named its consideration. One cent received from the three. The love and respect he bore his wife. And her having been a dutiful and loving wife who helped him acquire his property. Then he refused to pay, and the three sued on the paper.
The court took the three considerations one by one. The one cent first. As a general proposition, inadequacy of consideration will not vitiate an agreement. But this doctrine does not apply to a mere exchange of sums of money, of coin, whose value is exactly fixed. Six hundred dollars for one cent is not a bargain over something of uncertain worth. The consideration of one cent is, plainly, in this case, merely nominal, and intended to be so.
The wife's love and her past work came next, and the court dismissed them in a phrase we will need next lecture. They are past considerations. A moral consideration, only, will not support a promise. The promise was simply one to make a gift. So the Batsakis rule has a floor. The court will not weigh a real exchange, but it will notice when the exchange is a costume.
Now the third line, and the story that everyone remembers. San Francisco, March, nineteen hundred. A group of sailors and fishermen sign contracts with the Alaska Packers' Association to sail to Pyramid Harbor, Alaska, and work the salmon season. Fifty dollars for the season, some of them sixty, and two cents for each red salmon they help to catch. They sail. The company has about one hundred and fifty thousand dollars invested in its cannery there.
In May, a few days after arriving, they stop work in a body and demand one hundred dollars for the season instead. Unless they are paid, they say, they will stop work entirely and return to San Francisco.
The court found that it was impossible for the appellant to get other men to take the places of the libelants, the place being remote, the season short and just opening. After several days the superintendent gives in and signs new contracts at one hundred dollars. Back in San Francisco, the company refuses to pay the extra.
The Court of Appeals for the Ninth Circuit, nineteen hundred and two, held for the company. Consent to such a demand, under such circumstances, if given, was, in our opinion, without consideration, for the reason that it was based solely upon the libelants' agreement to render the exact services, and none other, that they were already under contract to render. Same work promised twice. The second promise bought nothing.
The court borrowed a Minnesota sentence for the reason behind the rule. 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 he is legally bound to do, takes an unjustifiable advantage of the necessities of the other party. A remote harbour, a short season, no other crew. The rule exists to take the profit out of that squeeze.
But rules built for the squeeze catch honest cases too. That is the fourth line. Newport, Rhode Island. A contractor named Maher had collected the city's refuse under five year contracts since nineteen forty six. His nineteen sixty four contract paid one hundred and thirty seven thousand dollars a year. In nineteen sixty seven he asked the council for ten thousand dollars more, because the city had added four hundred new dwelling units in a year, against an average of twenty to twenty five.
The council heard him at a public meeting, questioned him, and agreed, that year and the next. A taxpayer sued to make him give the twenty thousand dollars back, and the trial judge agreed. Maher had a pre-existing duty to collect all the city's refuse, new houses included, so the extra payments had no consideration. Sound familiar? It is Alaska, without the threat.
The Supreme Court of Rhode Island reversed, in Angel against Murray, nineteen seventy four. It stated the rule, and it named the problem the rule solves, the hold up game, with the Alaska case as its classic example. Then it adopted the Restatement's answer. A promise modifying a duty under a contract not fully performed on either side is binding if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made.
The court applied it in three steps. The contract was not fully performed on either side. The four hundred units went beyond any previous expectation, so the circumstances were unanticipated. And a substantial increase in work for ten thousand dollars was, the court could not say otherwise, fair and equitable. Above all, the city agreed voluntarily, at a public meeting, with no threat on the table. Maher kept the money.
One more line, for goods. Section two two oh nine of Article Two. An agreement modifying a contract within this Article needs no consideration to be binding. For a sale of goods, the pre-existing duty rule is simply switched off. The Rhode Island court noted the catch. The modification must meet the Code's test of good faith, and a modification obtained by extortion without a legitimate commercial reason is unenforceable. Good faith is Module Nine.
Now let's change one fact. In Piraeus the lender hands over twenty five American dollars, in cash, and she signs the same letter promising two thousand. Is her promise enforceable? Choose an answer before I go on.
Most people say no this time, because now the numbers are on the same paper and the gap is naked. But the rule has not changed. Twenty five dollars is something of value, asked for and given. The court does not weigh the exchange. If she has an argument, it is not want of consideration. It is that the bargain was extracted from her distress, and that is a defence she would have to plead and prove, as she did not in the real case.
Change one fact again. At Pyramid Harbor there were other crews available at the old wage, and the superintendent could have hired them, but he agreed to the raise to avoid the trouble. Does the company have to pay? Choose.
Most people say yes, because the company was not squeezed, and the reason for the rule is gone. But the rule itself is still there. The men promised the same work twice, and nothing had happened that the original contract did not anticipate. Ask the Angel questions. Voluntary, perhaps. Unanticipated circumstances, no. The exception does not reach it, and the promise fails as before. The rule is about the promisee's duty, not the promisor's state of mind.
Change one fact a third time. Suppose the Alaska contract were not a contract for labour but a contract to sell the season's catch of salmon to the company at a price, and the fishermen demanded more per fish mid season. Choose.
Now the answer moves, because fish are goods. Section two two oh nine applies, and the modification needs no consideration. The question becomes whether the demand was made in good faith, and the Alaska facts, a remote harbour and a threat to walk, are exactly the facts that fail that test. So the result may be the same, but the road to it is different, and on an exam the road is what you are marked on.
Here is what people get wrong here, and why it is tempting. The first mistake is thinking a bad bargain is unenforceable because it is unfair. It is enforceable. Unfairness is a defence with its own elements, and you must plead it as one. The second mistake is confusing the parties in the pre-existing duty rule. It is the promisee's existing duty that matters, the sailors', not the company's. Ask, what was the person receiving the new promise already bound to do?
The third mistake is forgetting that Article Two changes the answer. Every time you see a modification, ask, goods or not goods, the question from the first lecture. If goods, no consideration is needed and good faith decides. If not, the common law rule and the Angel exception decide.
Here is the rule, in one breath. Once there is a real exchange the law will not weigh it, but a sum named as a mere form is no exchange, and a promise to do what one is already bound to do is no exchange either, unless the modification is voluntary, fair, and prompted by circumstances nobody anticipated, or the contract is for goods, where no consideration is needed and good faith governs. Now, five questions.