a growing number of courts will enforce the modification without demanding consideration.

All of these exceptions to the preexisting duty rule may cause one to think that the rule has been excepted to death, but the caselaw reports indicate to the contrary. The sheer volume of modifications necessitated by a rapidly changing economy makes it one of the most frequently litigated consideration-related issues reaching the appellate courts. The result of the continuation of the preexisting duty rule is that many non-coerced modification agreements still fall through the cracks and are found unenforceable; and, even when a court finds that a modification fits under an exception, the process of proving it causes delay, cost and inefficiency.

POSSIBLE COMMON LAW SOLUTIONS

Consent and Fairness

The comments to Restatement Second Sections 73 and 89 justify the judicial retention of the preexisting duty rule on the basis of the ‘‘suspicion’’ a modification was mistaken, coerced or unconscionable, and the Comments to Section 89 acknowledge the criticism of the rule when one of these invalidating causes is absent.17 The obvious rejoinder is that therefore the bar should be limited to those types of misbehavior so the voluntary modified consent of the parties can be enforced in all other cases. This is the approach employed in civil law countries18 and under U.C.C. Section 2–209(1). The resistance to reform cannot be because of the absence of adequate policing mechanisms against abuse since, unlike the time of Pinnel’s Case (1602), there exist the developed doctrines of economic duress, unconscionability and good faith. The approach of a strong majority of courts and the Restatement Second may stop overreaching but it does not separate coercion and greed from legitimate reasons for the parties adjusting their relationship.

The preexisting duty rule promotes inefficiency in refusing the parties the freedom to modify their agreement pursuant to the perceived economic needs of the present situation. No one should be forced to change his or her agreement, but once the parties voluntarily agree to a change without protest, reasonable expectations should be realized. In a commercial context, once a voluntary promise is proven, accepted business practice and fairness suggest one should cooperate and conform to the adjusted agreement.19

The preexisting duty rule tends to be unfair to some economic underdogs, who would benefit from the enforcement of a modification. For the inexperienced small contractor or tradesman, a low bid may be made because of a lack of appreciation of the magnitude or intricacies of the

job; without an adjustment, the contractor will be either unfairly undercompensated or will be forced to breach. The preexisting duty rule can actually aggravate the naive contractor’s losses because, rather than cutting his losses by breaching, he or she may be induced by a promise of more compensation to pour more time and material into a losing project, thereby generating an ever increasing loss if the terms of the original contract are enforceable under the preexisting duty rule.20 The doctrine of consideration can act as a guard against improvidence at the original contract’s creation, but the requirement of consideration for a modification can cause harm here. That is not to say that it is invariably the weak who are urging enforcement of modifications in the face of the rule, but those parties with legal representation and bargaining leverage are less likely to need a modification21 and are more likely to be able to structure the adjustment of the contractual relationship in a way that avoids the bite of the rule, as by incorporating some extra duty in the modification to establish fresh consideration and by assuring that it doesn’t violate the Statute of Frauds or any other writing requirement.22

The writing provisions in U.C.C. Section 2–209(2) may likewise work against an underdog in allowing the original written contract to bar an informal modification.23 It may cause harm to the weak in much the same way that strict enforcement of the parol evidence rule can work against the underdog.24 It is commonplace for signatures and initials to be scribbled on various parts of a standardized contract without a consumer being cognizant that it would bar a later informal modification.25 A consumer or small business could later, during the performance phase of a contract, be informally induced by a proffered lowered obligation or increased payments to commit scarce resources, which could better be applied elsewhere,26 and then subsequently the underdog would discover that he or she has nothing in the end since the informal modification is unenforceable.

Reform with or without Consideration

The obvious choice in devising a common law rule that renders modifications generally binding is either to develop a general theory rationalizing consideration present or to declare modifications enforceable without consideration. The U.C.C. has taken the latter route for sales contracts, but, unfortunately, there is no uniform statute for general contract law to amend. The most recent restatement rejected the Code’s example of changing the law; only in a few instances, like Section 90, have contract restaters engaged in law reform.27 Since courts have proved reticent, for over 400 years, to jettison the doctrinally flawed preexisting duty rule corollary to the doctrine of consideration, courts should at least consider more flexible interpretations within the consideration construct in

a way that would make modifications binding generally, and leave the policing of coerced or predatory modifications to economic duress, unconscionability and good faith. Some American courts accomplished it earlier in the century by finding in a modification a detriment or a benefit,28 and the English courts have edged in that direction as of late.29 Exchange values should be left to the parties’ bargained-for adjustments; what was valuable to them at one time may change, and they should be free to make that later assessment.30

Minnesota is the only subscriber to the alternative common law solution of completely rejecting the ‘‘overworked shibboleth’’ of consideration for modifications in favor of a ‘‘logical and just standard of actionability.’’31 The modification bargain satisfies cautionary32 and channeling form functions, and so rather than dwelling on the ancient mysteries of consideration, the Minnesota courts focus on whether there was voluntary consent. Experience over the past half century has witnessed no hue and cry over the coerced or bad faith modifications fomented under either Minnesota law or the U.C.C.33 Continental civil law has managed for centuries to control abuses while enforcing contract modifications and discharges on the basis of agreement alone.

Common law contract possesses the tools to police modifications, if modifications were generally recognized to be binding either without the need for consideration or under a flexible application of consideration. Economic duress and unconscionability are both developed common law doctrines. Good faith is required in the performance and enforcement of all contracts and is enthroned in the Restatement Second34 and could naturally be extended to modifications, as it has been under the U.C.C. 2–209. Methodology for analyzing the motivation for and negotiation of modifications can be drawn from common law trends requiring good faith bargaining35 and from analogous caselaw requiring a good reason for a modification under U.C.C. Section 2–209(1) and Restatement Second Section 89(a). Thus, the notion of reason or causa for a promise, which is bundled up in the meaning of consideration,36 would still need to be established by the proponent of a modification.

Contextual Needs

Whether the shortcomings of the preexisting duty rule are overcome by rationalizing the presence of consideration to support most modifications or by dropping the consideration requirement, a flexible manner of accommodating the unavoidable adjustments to modern contracts is needed. This necessity is spurred by dramatic market fluctuations and by a degree of uncertainty unparalleled during the preindustrial times of Pinnel’s Case. This urgency for flexible contract adjustments has been accentuated by a tendency toward longer term and more complex con-

tractual relations undertaken by corporations with perpetual life.37 Contract doctrine must be malleable enough to permit an integration of unforeseen events and behavior as the future unfolds.

Unlike the non–common law legal systems of many competing national economies, the doctrine of consideration thwarts the realization of contractors’ amended consent necessitated by fluctuating economic circumstances. European civil law does not require consideration and does not have an impediment to enforcement of modification agreements like the preexisting duty rule. Since Japanese law is based on the German civil code, it likewise does not have a preexisting duty rule; moreover, Japanese commercial practice favors informal negotiated settlements of contract modifications and disputes and, failing that, prefers mediation and arbitration over actions in the courts.38 The United Nations Convention on International Sales of Goods also allows consensual modifications of international sales contracts without the need for consideration.39 The commercial law governing our major trading partners, outside the common law, facilitates realization of necessary adjustments and is better suited to efficiently accommodate the dynamics of the modern marketplace.

CONCLUSION: REFORM OF PREEXISTING DUTY RULE

The application of Coke’s dictum in Pinnel’s Case (1602) to assumpsit actions was doctrinally flawed from inception in requiring consideration, a doctrine developed to determine whether an original contract had been formed, to also act as the test to determine whether a contract modification or discharge was binding. Since consideration became inextricably linked with the meaning of assumpsit in the sixteenth century, it was perhaps understandable that during the generations immediately following the emergence of consideration as the test for actionability of the new contractual action of assumpsit that consideration would be required when assumpsit was brought to enforce a contract modification. Despite the preexisting duty rule’s doctrinal shortcomings, it would remain largely intact until the twentieth century.

The interest in the consensual theory starting by the early nineteenth century eventually stimulated the criticism that the rule in Pinnel’s Case thwarted parties’ free consent to alter their agreements as they saw fit. As the nineteenth century wore on, this consent-based critique was bolstered by equitable arguments raised in now-fused courts of law and equity regarding the unfairness of precluding realization of adjusted expectations founded on legitimate motivations. These arguments, and the end of the ancient forms of action, forced courts to dwell on the reasons for the old precedent. From the perspective of the meaning of consideration, the accepted rejoinder to a proposed contract modification was that it held no value for the promisor who was now opposed to its enforcement. This

argument came very close to engaging in an analysis of the adequacy of the consideration to be found in the modification rather than leaving value to the contractors’ adjusted appetites, as expressed in their consent. If the explanations afforded by the mysteries of the doctrine of consideration seemed unconvincing to modern skeptics, there remained the defense that the old rule barred coerced modifications. But if barring coercion was the reason for requiring consideration, then shouldn’t the bar be adjusted to analyze whether abusive behavior in fact occurred, and then in fairness shouldn’t the remaining voluntary modifications be enforced in fulfillment of the legitimate expectations raised by the parties’ voluntary modified consent?

The pressure for abandonment of the preexisting duty rule intensified during the early stages of the industrial revolution as uncertainty increased in the context of longer term complex contracts set in more volatile markets. Contractors needed the capacity to efficiently adapt as the future unfolded, but the traditional rule, which developed in a static economy, failed to respond to the reality of the tumult of the modern age. Starting in the last quarter of the nineteenth century, a handful of state courts and legislatures reformed the preexisting duty rule to accommodate reasonable contractual modifications. In those jurisdictions removing the consideration bar, the substitute policing mechanisms of economic duress, unconscionability and good faith were contemporaneously emerging to protect against coercive modifications. The development of these safeguards made it easier for these and subsequent jurisdictions to rationalize removing, or at least reforming, the consideration barrier to contract modifications.

Nevertheless, despite the emergence of reforms in a minority of jurisdictions by the late nineteenth century and the widespread criticisms based on doctrinal, equitable and commercial reasons, judicial insecurity over tinkering with the core contract test of the doctrine of consideration rendered a majority of courts impotent to act boldly. Instead, the Foakes v. Beer (1884) decision in England and the American Uniform Sales Act of 1906 reaffirmed Coke’s dictum under a now consolidated preexisting duty rule encompassing attempted modifications to increase or decrease promissory obligations to pay money or to perform services. Fused courts of law and equity did, however, develop equitable exceptions to ameliorate the unfairness of the rule for instances of reliance or unanticipated circumstances; the hardship context of these new exceptions lessened concern about coerced modifications.

The cataclysmic economic events of the 1930s revived demands for efficient legal means of realizing contractors’ joint desire to adjust their agreement as new circumstances arose. Due to the continuing inability of judges to reform the consideration-based preexisting duty rule, legislatures renewed their attempts to reform the rule. A smattering of state

statutory reforms followed and culminated in the Uniform Commercial Code abolishing the preexisting duty rule for good faith modifications of contracts for sales of goods. Subsequent experience has shown that abuse of the statutory right to freely modify contracts has not erupted, because of the safeguards provided by workable modern policing mechanisms.

These scattered reforms have failed, however, to suffocate the indomitable preexisting duty rule. Voluntary modification agreements still frequently fail because of gaps left in the partial reforms of the preexisting duty rule. The exceptions to the rule may have increased, but the instances where contract modifications are needed in a shifting modern economy have also increased. Since no uniform statutory vehicle exists for the complete abolition of the rule for the common law of contract generally, scattered reform will continue to appear sporadically, but a national overruling of the preexisting duty rule will not happen unless a judicial ground swell develops, perhaps encouraged by a restatement of the law declaring either that a good faith modification agreement does not require consideration or that a bargained-for benefit or detriment can be found in a good faith modification.

Part II

Past Consideration Rule and

Moral Obligation Principle

Chapter 7

Origins of Past

Consideration Rule and

of Moral Obligation Principle

Just as courts have long struggled with permitting enforcement of contract modifications, the question of enforcement of a promise grounded on a past moral obligation has confounded common law courts for centuries. Although no legal system enforces all promises, much less a moral obligation in the absence of a promise, some voluntary promises grounded on moral obligations have long been enforced in civilian jurisdictions and in chancery. For example, if a plaintiff provided unrequested aid to a creditor in successfully collecting a debt and the creditor later promised to pay the plaintiff for his beneficial efforts, should that promise be binding? The equitable view that in fairness one ought to honor promises to make restitution stimulated a few common law judges to grant occasional relief. Mansfield articulated support for moral obligation even beyond such restitutionary promises.

As long as common law and equity courts were separated, common law judges usually emphasized the predictable market test requiring a bargain and left exceptional relief to equity; but, once law and equity were fused, American courts tried to reconcile these opposing viewpoints. In attempting to realize parties’ consent and achieve a fair result in cases where restitutionary promises were made, some nineteenth century American judges began to question whether the bargain paradigm should be the sole test for determining contractual liability in such cases. Certain American courts began to take up this challenge, but in designing a limited moral obligation principle, American courts found it necessary to narrow the scope of Mansfield’s sweeping remarks.

Part II of this book provides a historical analysis of the logic employed by common law lawyers and judges in connection with: one, the emergence of early moral obligation exceptions to the past consideration rule;