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Contracts • Contract Formation
K#044
Legal Definition
Under the common law, generally, doing what you are already legally obligated to do is not new consideration for a new promise to pay more; rather, new consideration is required. There are 3 exceptions: (1) there is an addition to or change in the performance; (2) there is an unforeseen difficulty so severe as to excuse performance; or (3) there is a third-party promise to pay.
Under the UCC, new consideration is not required to modify a sale of goods contract. Rather, a good faith standard governs changes to existing contracts.
Under the UCC, new consideration is not required to modify a sale of goods contract. Rather, a good faith standard governs changes to existing contracts.
Plain English Explanation
When you hire someone to perform a service, and you agree to terms, and you form a contract, the person providing the service isn't allowed to try to renegotiate the terms of the agreement by offering to do what they already promised to do. In other words, if Sam hires Bob to paint his house and agrees to pay him $100 to do so, Bob cannot later say, "I'll paint your house, but you have to pay me $200." Bob is already obligated to paint the house for $100. In fact, even if Sam agrees to the higher payment of $200, Sam will only legally be obligated to pay the original $100 that was agreed upon.
Usually, these types of situations come up when there is an unexpected change in leverage. For example, if Sam offers to pay Bob $100 to paint his house within a week, and Bob agrees, but Bob later finds out that the reason Sam needs it done within a week is because he's planning on hosting a wedding at his home and wants it to look nice, its very likely that Bob could have negotiated a higher rate to get the job done nicely and in-time, and if Bob had known about that information before he agreed to the $100 contract, he likely could have gotten more money. Unfortunately for Bob, it is now too late to try to get more money. He can't go back to Sam and say, "Look, I know it's super important I do this job nicely and on-time, so let's make it $200." Why? Because Bob already agreed to do the job correctly and on-time. He's already bound to perform, and cannot use his pre-existing obligation as valid consideration to form a new contract.
With that in mind, there are a few exceptions to this rule:
The first exception is when there is an addition to or change in performance. For example, if after Bob agrees to paint Sam's house, Sam says, "Actually, I need this done sooner than we talked about," or if Sam says, "I need you to use this specific, more expensive exotic paint," or if Sam says, "You can only paint the house between 11:00 pm and 5:00am." Bob could use any of these modifications as a valid form of consideration to increase the price he previously quoted, since they add to or modify his performance obligation.
The second exception occurs when something unexpected and severe occurs that would otherwise excuse Bob from having to perform. For example, imagine if Bob started painting Sam's house only to realize that Sam's house was infested with hundreds of thousands of aggressive, Africanized honeybees. Neither Sam nor Bob realized they were there when they agreed to the contract, and their existence makes it life threatening for Bob to proceed with his performance. Bob would be justified in not performing -- however, he can also use this as leverage and consideration to increase the amount of money. After all, if Bob is willing to risk his life or wear protective gear, he can do so if Sam is willing to pay enough to make it worth the effort.
The third exception happens when a third-party agrees to pay more for the performance. For example, imagine if Sam was trying to get his house painted in time for his daughter's wedding and offered Bob $100 to do it. Bob accepts, but later threatens to back out of the deal. Sam's daughter finds out and offers Bob $1,000 if he promises to follow-through with his contract. Under modern, majority court rulings, Sam's daughter would be obligated to pay the $1,000 for Bob to perform a duty he already agreed to perform because the original duty isn't owed to her, it is owed to Sam. In other words, when a third-party attempts to entice someone to perform a pre-existing duty, their offer can be binding even if it would not be had it been made by the original offeror.
Finally, the last thing to note is that for UCC contracts, new consideration is not required to modify an existing contract. Rather, UCC relies on good faith, which is discussed in other cards.
Usually, these types of situations come up when there is an unexpected change in leverage. For example, if Sam offers to pay Bob $100 to paint his house within a week, and Bob agrees, but Bob later finds out that the reason Sam needs it done within a week is because he's planning on hosting a wedding at his home and wants it to look nice, its very likely that Bob could have negotiated a higher rate to get the job done nicely and in-time, and if Bob had known about that information before he agreed to the $100 contract, he likely could have gotten more money. Unfortunately for Bob, it is now too late to try to get more money. He can't go back to Sam and say, "Look, I know it's super important I do this job nicely and on-time, so let's make it $200." Why? Because Bob already agreed to do the job correctly and on-time. He's already bound to perform, and cannot use his pre-existing obligation as valid consideration to form a new contract.
With that in mind, there are a few exceptions to this rule:
The first exception is when there is an addition to or change in performance. For example, if after Bob agrees to paint Sam's house, Sam says, "Actually, I need this done sooner than we talked about," or if Sam says, "I need you to use this specific, more expensive exotic paint," or if Sam says, "You can only paint the house between 11:00 pm and 5:00am." Bob could use any of these modifications as a valid form of consideration to increase the price he previously quoted, since they add to or modify his performance obligation.
The second exception occurs when something unexpected and severe occurs that would otherwise excuse Bob from having to perform. For example, imagine if Bob started painting Sam's house only to realize that Sam's house was infested with hundreds of thousands of aggressive, Africanized honeybees. Neither Sam nor Bob realized they were there when they agreed to the contract, and their existence makes it life threatening for Bob to proceed with his performance. Bob would be justified in not performing -- however, he can also use this as leverage and consideration to increase the amount of money. After all, if Bob is willing to risk his life or wear protective gear, he can do so if Sam is willing to pay enough to make it worth the effort.
The third exception happens when a third-party agrees to pay more for the performance. For example, imagine if Sam was trying to get his house painted in time for his daughter's wedding and offered Bob $100 to do it. Bob accepts, but later threatens to back out of the deal. Sam's daughter finds out and offers Bob $1,000 if he promises to follow-through with his contract. Under modern, majority court rulings, Sam's daughter would be obligated to pay the $1,000 for Bob to perform a duty he already agreed to perform because the original duty isn't owed to her, it is owed to Sam. In other words, when a third-party attempts to entice someone to perform a pre-existing duty, their offer can be binding even if it would not be had it been made by the original offeror.
Finally, the last thing to note is that for UCC contracts, new consideration is not required to modify an existing contract. Rather, UCC relies on good faith, which is discussed in other cards.
Hypothetical
Hypo 1: Bob builds barns. Sam offers to pay $1,000 if Bob builds him a barn. Bob agrees. Bob realizes that the price of wood has increased, and he will lose money if he builds the barn for $1,000, so he tells Sam "I'll build your barn, but I need $2,000." Sam agrees. After Bob finishes building the barn, Sam pays him $1,000. Result: On its face, this would be a pretty straightforward example of a pre-existing duty for Bob to perform, which would justify Sam only paying the originally agreed upon $1,000. However, on an exam, keep an eye out for opportunities to argue both sides. For example, Bob may argue that the increased price of wood would constitute an "unexpected hardship" that would justify the increased cost, but Sam would likely argue that the price of wood fluctuating is something completely expected and that Bob should have been more mindful before providing a quote and entering into a contract.
Visual Aids
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