The Vanishing Consideration: Part-Payment and the Pre-Existing Duty Rule
Builder contracts with Owner to renovate a warehouse for $400,000, payable in four $100,000 progress installments. After the second installment, Builder reports that steel prices have spiked and demands $60,000 more to finish on schedule, warning that otherwise it will demobilize its crew. Owner, facing a $250,000 penalty from a tenant if the warehouse is late, orally agrees to pay the extra $60,000. Builder finishes on time. Owner pays the original $400,000 but refuses the $60,000, raising the pre-existing duty rule under the common law. Builder sues. The contract contains no modification clause. Owner is a merchant; Builder is not. Separately, Owner had earlier given Builder a signed written promise to donate $10,000 to Builder's charity golf event, which Owner now also refuses to pay, arguing lack of consideration.
1. Is Owner obligated to pay the $60,000 modification? Analyze under the common law and identify what Builder must show to enforce it.
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Under the common law, a promise to do what the promisor is already bound to do is not consideration (pre-existing duty rule). Builder's completion was already owed under the original contract, so the oral promise to pay $60,000 lacks consideration unless an exception applies.
The key exception is UCC-style good-faith modification reasoning, which does NOT apply because this is a services contract governed by common law, not the UCC. Under the common law (Restatement §89), a modification is binding without new consideration if it is fair and equitable in view of circumstances not anticipated when the contract was made. Builder must show: (1) the steel-price spike was unanticipated at formation (not merely a normal market fluctuation Builder should have priced in); (2) the modification is fair and equitable (the $60,000 is proportionate to the actual cost increase); and (3) the modification was not obtained by duress or bad faith. Builder's threat to demobilize could be characterized as economic duress, which would void the modification even if otherwise fair. Owner's $250,000 exposure strengthens Builder's leverage argument but also supports Owner's duress defense.
Best answer: Builder likely cannot enforce the $60,000 unless it proves the spike was genuinely unanticipated and the demand was not coercive; the threat to walk off the job is the weak link. Note the modification is oral but the underlying contract is not within the Statute of Frauds (services, performable within a year? - check), so writing is not the issue; consideration/duress is.
2. Must Owner pay the $10,000 charitable pledge? Explain the doctrinal basis and any reliance argument.
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Generally, a promise to make a charitable subscription is enforceable without consideration under Restatement §90(2) and many state statutes, if the charity relied on the pledge. The pledge here is signed and in writing, satisfying any Statute of Frauds concern.
Two paths:
- Statutory/§90(2) charitable-subscription doctrine: Most jurisdictions enforce written charitable pledges even absent reliance, but the modern trend and Restatement require reliance (e.g., Builder's charity incurred expenses, ordered supplies, or turned away other donors because of the pledge). Builder should document any such reliance.
- Promissory estoppel (§90(1)): Even without the charitable-subscription rule, Builder can enforce if it reasonably and foreseeably relied on Owner's signed promise to its detriment. A golf-event charity that booked the event, printed materials, or committed funds in reliance has a strong §90 claim.
Conclusion: Owner is likely obligated to pay the $10,000 if Builder shows reliance; if the jurisdiction enforces written charitable pledges without reliance, Owner is obligated regardless. Builder should marshal reliance evidence as a fallback.