The Development of Existing Duty Rule

Consideration is defined as there must be an exchange between both parties in order to form a legal contract [1]. The key components of establishing a contract are agreement, intention and consideration. Agreement is the meeting of the minds from both two parties who agree to the terms of the contract. Intention is both parties have intention to create a legal relationship. Consideration is there must be some exchanges between two parties in order to form a valid contract. A gratuitous promise is not enforceable [2] . Gratuitous promise is a promise that without anything given or done or return.

Consideration can be positive or negative. A positive consideration is the promisee has to do something while negative consideration is the promisee is restricted from doing something. Traditionally, the performance of an existing duty rule did not constitute good consideration for a new promise to pay extra benefits. However, the existing duty rule has changed over time. Therefore, there is a discussion about how the existing duty rule has developed over the time.

Definition of existing duty rule

Existing duty rule is defined as a performance on a pre-existing duty cannot be used as consideration for variation in the contract [3] . When the promisee is performing a legal duty under a contract, the performance does not constitute consideration [4] . Once both parties already agree to do something or forbear from doing something under a legal contract, both parties cannot change the term of contract without any new consideration. In other words, when the promisee is already done something or forbear from doing something under a duty, the promisee cannot demand for additional benefit. For example, when the price of goods and services are decided, the changes of price are unenforceable and no extra payments can be made.

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Origin of the rule: Stilk v Myrick

The case of Stilk v Myrick [5] that happened in the middle of eighteenth century shows the traditional approach of the existing duty rule. The facts of the case are the plaintiff, Stilk was employed by the ship owner, Myrick to work on a ship under a contract. Myrick promised to pay 5 pounds per month during the voyage at the sea. Unfortunately, two crewmen deserted during the voyage. Myrick failed to find replacement of the two crewmen. Therefore, the defendant, Myrick promised the remaining crews that the wages of those to deserted crews would be divided equally among the remaining crews if they fulfilled the duties of those two men as well as their own duties. After arriving to their home port, London, Myrick refused to pay extra wages to the remaining crews. Stilk sued Myrick for the sum.

The issue to be discussed in this case is whether that the remaining crews are entitled to get extra pays when an emergency on the ship had occurred. The plaintiff argued that the defendant promised to pay extra wages in exchange for additional labour. While the defendant argued that the crews did not provide consideration for his new promise since the sailors had a duty to ensure that the ship is able to make it back to the home port under the original agreement. The pre-existing rule stated that once both parties agreed to do something under a legal contract, the term of contract cannot be changed without any new consideration.

The court held that the crews are not entitled to get extra benefits. The pre-existing duty rule shows that a contract cannot be modified without any new consideration. Myrick did not get anything more than he was entitled. According to the original contract, the crews had the obligation to cope with any emergencies during the voyage [6] . The emergencies included the death among the crew. In other words, they had not finished their responsibility until voyage was completed. The major reason of the failure of Stilk’s claim is lacking of consideration for the new promise which is the crews had not done something that had gone beyond their duty. Therefore, Stilk’s claim failed.

Criticisms of Stilk v Myrick

However, there are some criticisms of Stilk v Myrick case. Firstly, this case failed to recognize that the actual performances of the crewmen have a greater practical value. [7] It means that this case ignored the actual benefits that were received by the promisor after the changes of the contract. For example, Myrick was able to receive greater actual benefits after the changes of contract. Firstly, Myrick did not have to find other crewmen to substitute that two deserted crewmen. In this way, Myrick can save the time and money to find substitution of crewmen or find another alternative ways to settle the problem. Furthermore, this case did not agree to commercial understanding which is changes and renegotiations are always happening in day-to-day business.

The avoidance techniques have been developed due to dissatisfaction with the existing duty rule in case Stilk v Myrick. Firstly, if the promisee agrees to do more than the pre-existing duty in return for some extra payments, the variation of a contract may be enforceable. Secondly, the changes of a contract may be enforceable if the surrounding circumstances have changed after conclusion of the original contract and the promise is performed in the new circumstances. Thirdly, both parties have decided into a new agreement without modifying the original agreement [8] .

Significant case: Williams v Roffey Bros & Nicholls (contractor)

The significant case decision that has influenced the development of the rule is case Williams v Roffey Bros & Nicholls (contractor) [9] . Practical benefit principle was developed from the case. The case Williams v Roffey Bros & Nicholls (contractor) in twentieth centuries shows the new approach of existing duty rule. The facts of the case are there is an agreement between building contractors and the house owner to renovate 27 flats on a housing block. The contractors subcontracted some work to the carpenter, Williams. The defendants, contractors promised to pay £20,000 in installments. After some of the work was done, the defendants paid Williams for £16,200. However, Williams was threatened by financial difficulties and fail to finish the work on time because the original agreed price for the work was too low. The defendants understand the difficulties of carpentry hence offering extra payments of £575 for each flat to avoid breaching the contract with the house owner by late completion. After Williams completed an additional eight flats, the defendants refused to pay additional money. Williams only got £1,500 for the completion of eight flats so he sued the defendants for remaining payments. The issue to be discussed in this case is whether the performance of an existing duty can be taken as a consideration.

The court held that the defendants have to make extra payments to the plaintiff because he had provided a good consideration. The defendants enjoyed practical benefits from the new promise. Firstly, the defendants do not have to spend money and time to find another carpenter. Secondly, he was able to complete the work on time and avoid paying penalty for delay of contract. These benefits can prove that the promisee had provided good consideration for the new promise. Besides that, both parties had already agreed that the previous price was too low so they raised the price to a reasonable price level. Therefore, the new promise was legally binding.

Practical benefits

The existing duty rule was significantly altered when the court held that the carpenter was entitled to get extra payments because of providing practical benefits. “Practical benefit” started to be recognised that can be used in establish consideration since changes are happening in day-to-day business [10] .

There are some distinguishing features of existing duty rule and “practical benefits”. According to existing duty rule, both parties cannot claim for additional payments or benefits after an agreement is decided. On the other hand, according to “practical benefits”, the promisee can claim for additional payments or benefits if there is additional risk or the promisee has done beyond his/her duty regardless the original contract.

Criticisms of Williams v Roffey Bros & Nicholls (contractor)

However, there are some criticisms of the case Williams v Roffey Bros & Nicholls (contractor). Firstly, the judgment of this case is not universal approval since it does not follow the traditional existing duty rule [11] . Secondly, the concept of “practical benefit” is not defined clearly. Thirdly, there are some dangers of simply allowing a practical benefit to be considerate.

There are some effects of this case. Firstly, the performance of an existing duty might constitute good consideration. Secondly, more ‘commercially realistic’ decision can be made in the further cases. Thirdly, the scope of doctrine of consideration has been widening [12] . The decision of the case has overturned the law of contract.

Musumecis v Winadell Pty Ltd

The rule of “practical benefits” is expanded to the case Musumecis v Winadell Pty Ltd [13] . The facts of this case are about an agreement between the tenant, Musumecis and the land lord, Winadell. The plaintiff, Musumecis leased a fruit shop in a shopping centre from the landlord, Winadell. At a later time, Winadell leased another shop in the same shopping complex to a larger fruit retailer which is competition with Musumecis’ shop. Musumecis claimed that they cannot afford the expensive rent since the competition is too high. Winadell offered Musumecis for a rent reduction by a third and Musumecis agreed. In this way, Winadell can maintain the income of the shopping complex. Winadell wanted to resile from the agreement of rent reduction. Therefore, Musumecis sued for breach of contract. The issue to be discussed in this case is whether the Musumecis provided good consideration for the new promise of rent reduction.

The court held that the new promise of reduction in rent was legally binding. The “practical benefits” test was applies in this case. Firstly, the landlord, Winadell received “practical benefit” of maintaining income in exchange for its promise to reduce the rent by a third. In this case, both parties provided consideration. Secondly, Winadell received “practical benefit” in not having to spend time to find another new tenant and able to assure the continuation of the lease. This case confirms the new approach of existing duty rule.

Strengths and Weaknesses

The strength of existing duty rule is the rule can avoid parties used threats or non-performance to demand for additional benefits or payments to those are already provided under original contract. While the weakness of this rule is the rule ignore the commercial realistic and it may neglect the additional risks from the original contract [14] . It is unfair to both parties because renegotiations are very common in our daily commercial practice.

There are also the strengths and weaknesses of the rule of “practical benefits”. The strength of “practical benefits” is when the promisee is facing additional risks, the promisee can claim for additional payment. While the weakness of “practical benefits” is the promisee may extract additional payments or benefits due to uncertainty in what constitute a “good consideration”. It means that one party may be threatened by another party for demanding additional payments that already provided in original contract.

The existing duty rule was originally created to avoid parties who used threats or non-performance to draw out additional benefits or payments to those are provided under original contract [15] . Nowadays, the modern law of “economic duress” can deal with the problem of parties who used threats of non-performance to extract additional payments or benefits. The rule of “practical benefits” of such situation will be allowed to use.

3 Conclusion

In conclusion, a new approach of existing duty rule has been set which is the performance of a pre-existing duty may constitute good consideration in return for a promise of additional payments [16] . Williams v Roffey Bros & Nicholls (contractor) is a classic case that has influenced the existing duty rule. The introduction of “practical benefits” has changed the law of contract. In my opinion, there are logical reasons to support the rule of “practical benefits”. This is because contractual renegotiations are very common in our day-to-day business in most of the industries. A lot of unexpected changes may arise and the parties may be forced to renegotiate their agreement. Therefore, the rule of “practical benefits” should be accepted. However, the definition of “practical benefits” should be more specific in order to avoid parties extracting from each other.